-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SMeuaxj6P63TS1YSxkozKK5VhzSZZRgWXw/Sy4zDC6wMWpRtJZyr80/99a4nlW5Z THwG2CFhC4M4+gI8kiAyMw== 0000950130-00-001527.txt : 20000327 0000950130-00-001527.hdr.sgml : 20000327 ACCESSION NUMBER: 0000950130-00-001527 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED WATER RESOURCES INC CENTRAL INDEX KEY: 0000715969 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 222441477 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08586 FILM NUMBER: 577352 BUSINESS ADDRESS: STREET 1: 200 OLD HOOK RD CITY: HARRINGTON PARK STATE: NJ ZIP: 07640 BUSINESS PHONE: 2017849434 MAIL ADDRESS: STREET 1: 200 OLD HOOK ROAD CITY: HARRINGTON PARK STATE: NJ ZIP: 07640 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION ---------------------------------- Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period_______________ to______________ Commission File No. 1-8586 United Water Resources Inc. ------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2441477 ------------ ------------ (State of incorporation) (I.R.S. Employer Identification No.) 200 Old Hook Road, Harrington Park, N.J. 07640 - ------------------------------------------------- ------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: 201-784-9434 ------------ Securities registered pursuant to Section 12 (b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- Common Stock (No par value) New York Stock Exchange Outstanding at January 31, 2000 - 38,965,639 ---------- 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 such filing requirements for the past 90 days. Yes x . No . ------------ ------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] At January 31, 2000, the registrant's Common Stock, no par value, held by non-affiliates had an aggregate market value of $ 915,946,004. See Item 13. ------------ PART I ------ Item 1. BUSINESS - ------- -------- (a) General Development of Business ------------------------------- United Water Resources Inc. (United Water, or the Company) is a New Jersey corporation that was incorporated on February 25, 1983 and has its principal office at 200 Old Hook Road, Harrington Park, New Jersey 07640. On April 22, 1994, United Water completed a merger (the Merger) with GWC Corporation (GWC), in which United Water was the surviving corporation. GWC's principal assets included 100% of the stock of General Waterworks Corporation (now known as United Waterworks Inc.), which currently owns regulated water and wastewater utilities operating in 11 states. The Merger was accounted for under the purchase method of accounting. United Water's principal utility subsidiaries, United Water New Jersey Inc., United Water New York Inc. and the utility subsidiaries of United Waterworks, provide water and wastewater services to approximately two million people in 11 states (after giving effect to the divestiture of several small utility subsidiaries to be completed in the year 2000. See Item 8, Note 3 to the consolidated financial statements for further details), with more than one half of the Company's utility operations located in northeastern New Jersey and southeastern New York. United Water New Jersey was incorporated by an act of the New Jersey Legislature in 1869. United Water New York was incorporated under the laws of New York in 1893 and is wholly-owned by United Water New Jersey. United Waterworks was incorporated under the laws of Delaware in 1942. Other significant wholly-owned subsidiaries of United Water include: United Properties Group (United Properties), which is engaged in real estate activities, including commercial rentals, land development and sales, golf course operations and consulting services; United Water UK Limited, an equal partner with Lyonnaise Europe (a wholly-owned subsidiary of Suez Lyonnaise des Eaux) in the Northumbrian Partnership (the Partnership), which has acquired a 20% interest in Northumbrian Water Group plc (NWG), a major investor-owned water and wastewater company in the United Kingdom; United Water Mid-Atlantic, whose subsidiaries own and operate water and wastewater systems; United Water - -------------------------------------------------------------------------------- Note: In addition to the historical information contained herein, this report contains a number of "forward-looking statements," within the meaning of the Securities Exchange Act of 1934. Such statements address future events and conditions concerning, among other things, the adequacy of water supply and utility plant, capital expenditures, earnings on assets, resolution and impact of litigation, liquidity and capital resources and accounting matters. Actual results in each case could differ materially from those projected in such statements, by reason of factors including, without limitation, general economic conditions, competition, actions by regulators and other governmental authorities, technological developments and Year 2000 issues affecting the Company's operations, markets, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission, including this report. 2 USA Inc. (United Water USA) which owns a 50% stake in United Water Services LLC (United Water Services-described below); and United Water Canada Inc. (United Water Canada) and United Water Mexico Inc. (United Water Mexico) which own a 33.3% and 20.5% interest in United Water Services Canada (UWS Canada) and United Water Services Mexico (UWS Mexico), respectively. In addition, the Company has entered into "public-private partnerships" with the cities of Hoboken, Jersey City and Rahway, New Jersey, whereby the municipalities retain ownership of their systems while the Company operates and maintains them. United Water Services is a 50/50 joint venture between United Water and Suez Lyonnaise des Eaux. On July 28, 1997, United Water Services acquired the remaining 50% stake in JMM Operational Services that it did not already own. United Water Services provides contract operations and maintenance services for water and wastewater facilities and is pursuing additional contract operations. As a result, United Water Services was awarded several contracts. The largest awards include a ten-year contract to operate the wastewater systems in Milwaukee, Wisconsin, and a 20-year contract to operate the water system in Atlanta, Georgia, with a minority partner. United Water Services also operates a meter installation subsidiary, United Metering, which it purchased from United Water in December 1997 for book value of $6.2 million. In July 1997, the Company's subsidiaries, United Water Canada and United Water Mexico acquired a 30% and a 20% interest in UWS Canada and UWS Mexico, respectively. In December 1998, United Water purchased additional interests and now has a 33.3% and a 20.5% interest in UWS Canada and UWS Mexico, respectively. At December 31, 1999 and 1998, United Water had equity investments, relating to contract services, of approximately $22.1 million and $19.8 million, respectively, including investments in Canada and Mexico. This amount is included in equity investments in the accompanying consolidated balance sheet. United Water's share of earnings in these investments is included in equity earnings of affiliates in the accompanying statement of consolidated income. See Item 8, Note 4 to the consolidated financial statements for further details. On June 28, 1996, United Water UK Limited and Lyonnaise Europe, a wholly- owned subsidiary of Suez Lyonnaise des Eaux, formed the Partnership, which has acquired a 20% interest in NWG. United Water's initial $62 million investment in the Partnership was made through its wholly-owned subsidiary in the United Kingdom, United Water UK Limited. Investment in the Partnership was $112.2 million and $96.3 million at December 31, 1999 and 1998, respectively, and is included in equity investments in the consolidated balance sheet. United Water's share of the Partnership's earnings, which totaled $16.3 million and $17.1 million in 1999 and 1998, respectively, is included in equity earnings of affiliates in the accompanying statement of consolidated income. 3 During 1997, the United Kingdom's new Labor Government imposed a one-time "windfall profits" tax on privatized utilities. The levying of this one-time tax negatively impacted the Company's earnings from its investment in NWG by $13.1 million, which was partially offset by a reduction in deferred taxes of $2.8 million, which resulted from a change in the UK corporate income tax rate from 33% to 31%. The result was a net loss of $10.3 million. The imposition of this tax had been factored into the Company's financial analysis at the time of its investment in NWG and was considered in determining the purchase price. The tax did not have an effect on United Water's cash flow or ability to pay dividends, nor did it affect the long-term benefit the Company expected to derive from its investment in NWG. See Item 8, Note 2 to the consolidated financial statements for further details. 4 (b) Financial Information About Segments ------------------------------------ See Item 1 (c) and Note 16 to the consolidated financial statements in Item 8 below for segment information. (c) Narrative Description of Business --------------------------------- As a holding company, United Water does not conduct any business operations, except through its subsidiaries. Utility Investments - ------------------- The Company's principal business is providing water and wastewater services to the public at large in areas where its regulated utility subsidiaries possess franchises or other rights to provide such services. Its utility subsidiaries are subject to rate regulation, generally by the regulatory authorities in the states in which they operate. United Water New Jersey supplies water service to approximately 182,000 customers in 60 municipalities in the northeastern part of New Jersey, serving most of Bergen County and the northern part of Hudson County. The total population served is about 750,000 persons. United Water New Jersey is subject to regulation by the New Jersey Board of Public Utilities (BPU). United Water New Jersey's principal source of water supply is the Hackensack River, with a watershed of 113 square miles, and is supplemented by water diversions from additional streams and rivers, by ground water supplies drawn from wells and by the purchase of water from contiguous water systems. United Water New Jersey also obtains stream flow benefits from its wholly-owned subsidiary, United Water New York, which owns and operates an impounding reservoir, Lake DeForest, on the Hackensack River in Rockland County, New York, and has available additional water supply from the Wanaque South Project. The Wanaque South Project, which was completed in 1987, is a joint undertaking of United Water New Jersey and the North Jersey District Water Supply Commission. United Water New Jersey has a 50% interest in the utility plant of the Wanaque South Project and is responsible for its proportionate share of operating expenses. United Water New York supplies water service to over 65,000 customers in Rockland County, New York, and is subject to rate regulation by the New York Public Service Commission (PSC). The total population served is approximately 270,000 persons. United Water New York's principal source of supply is derived from wells and surface supplies (lakes, ponds, reservoirs and streams), including the Lake DeForest reservoir. United Waterworks is a holding company that provides water and wastewater services to a total of approximately 360,000 customers in 11 states (after giving effect to the divestiture of several small utility subsidiaries to be completed in the year 2000. See Item 8, Note 3 to the consolidated financial statements 5 for further details) through its regulated water and wastewater utility subsidiaries. United Waterworks' utility subsidiaries are subject to regulation by state regulatory commissions in each of the jurisdictions in which it operates. The utility subsidiaries of United Waterworks serve a total population of about 1,000,000 persons. Its water utilities obtain water primarily from wells and surface supplies (lakes, ponds, reservoirs and streams), and in a few cases purchase water wholesale from adjoining water systems, generally owned by municipalities. United Waterworks' major water utility subsidiaries are generally not dependent upon water purchased from others, except that United Water New Rochelle, a wholly-owned subsidiary, purchases all of its water from an aqueduct system that is owned by and serves the City of New York. United Waterworks believes that its water utilities have adequate supplies of water for their present requirements, but anticipates making future capital expenditures to expand their sources of water supply, primarily through development of additional wells and expansion of other facilities, to provide for projected increases in future demand because of customer growth. Subsidiaries of United Water Mid-Atlantic own and operate several small water and wastewater utility systems that provide water supply, wastewater collection and wastewater transmission services to approximately 6,700 customers primarily in Plainsboro, Vernon Township and Mt. Arlington, New Jersey. United Water Mid-Atlantic's subsidiaries are subject to regulation by the BPU. The Company's water business is seasonal, as sales tend to be higher during warm, dry periods. The Company's water utilities operate in some jurisdictions in which water conservation regulations have from time to time been imposed during periods of drought. To date, such regulations are not having a material impact on the Company's results of operations. The Company's water utilities have not experienced any long-term material disruption of service because of contamination of their water supplies; however, the Company cannot predict what effect such events, should they occur, would have on its business. In addition, the Company holds a 50% investment in the Northumbrian Partnership, which acquired a 20% interest in Northumbrian Water Group, a major investor-owned water and wastewater company in the United Kingdom. The Company accounts for this investment under the equity method of accounting. 6 The following table sets forth information concerning United Water's water and wastewater utility operations, particularly the operations of the nine larger utilities, as measured by revenues, which in 1999 accounted for 84.9% of United Water's utility customers, 91.5% of United Water's utility operating revenues and 91.7% of United Water's net investment in utility plant. - -------------------------------------------------------------------------------- # of Customers at 1999 Major Utility Operations Dec. 31, 1999 Revenues - -------------------------------------------------------------------------------- (in thousands) United Water New Jersey 182,000 $124,308 United Water New York 65,000 44,000 United Waterworks Subsidiaries: United Water Florida 54,997 29,809 United Water Idaho 66,121 26,424 United Water Pennsylvania 47,936 22,149 United Water New Rochelle 30,385 19,950 United Water Delaware 33,549 19,847 United Water Toms River 46,047 14,740 United Water Arkansas 18,995 7,628 - -------------------------------------------------------------------------------- Subtotal 545,030 308,855 Other utility operations 96,852 28,765 - -------------------------------------------------------------------------------- Total utility operations 641,882 $337,620 The Company's water utility subsidiaries chemically and physically treat, filter or otherwise improve the quality of the water. Treated water is distributed to customers through the utility subsidiaries' distribution mains, assisted by pumping facilities where necessary. The Company's utility operations provide water that meets or surpasses the minimum standards of the Federal Safe Drinking Water Act (SDWA) of 1974, as amended. Customers. In 1999, the Company's utility revenues were derived as --------- follows: 63% from residential customers, 26% from commercial customers, 7% from industrial customers and 4% from fire protection customers. Of the Company's 612,595 water utility customers at December 31, 1999, 543,480 (89%) were residential customers, 57,716 (9%) were commercial customers and 11,399 (2%) were industrial customers. The Company also had 29,287 wastewater customers at December 31, 1999, many of whom were also water customers of the Company. The Company does not depend on any single customer, because no single customer accounted for more than 10% of the Company's consolidated utility revenues in 1999. Capital Expenditures. The Company's additions to utility plant were $82 -------------------- million in 1999 as compared to $99.7 million in 1998. For a discussion of the Company's capital expenditures, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, below. 7 Competition and Franchises. Substantially all of the Company's utility -------------------------- subsidiaries serve an area or areas in which the subsidiaries own and operate the sole public water or wastewater system. Accordingly, the Company's utility businesses are, in most cases, free from direct competition. The Company believes that its utility subsidiaries possess all material governmental franchises, water rights, licenses and permits as are necessary for the continuation of the water and wastewater operations as now conducted. Many such franchises, rights, licenses and permits are perpetual and others are expected to be renewed as they expire. The Company's utility subsidiaries derive their rights to install and maintain distribution mains under streets and other public places from statutes, municipal ordinances and permits from state and local authorities. In most cases, these rights are non-exclusive. Governmental Acquisition. In most of the states in which the Company has ------------------------ water or wastewater operations, there exists the right of governmental acquisition. The price to be paid under condemnation is usually determined in accordance with the eminent domain statutes of the state governing the taking of land or other property by condemnation, which statutes generally provide for the payment of a price which reflects the fair value of the condemned property. Rate Matters. The Company's utility subsidiaries are subject to ------------ regulation by state regulatory commissions having jurisdiction over their respective service areas with regard to rates, services, safety, accounting, issuance of securities, changes in ownership, control or organization and other matters. The rates charged by the Company's utility subsidiaries are fixed by the regulatory authority having jurisdiction over the respective utility. The Company's present rate structure consists of various rate and service classifications. The profitability of the Company's utility subsidiaries is to a large extent dependent upon the timeliness and adequacy of the rate relief allowed by regulatory authorities. Accordingly, the Company maintains a centralized rate management staff which monitors expense increases, capital expenditures and other factors affecting the financial performance of its utility subsidiaries and prepares, files and litigates rate cases. In certain jurisdictions, procedures have been established by the utility regulatory authorities to permit a more rapid, and less costly, recovery of certain expense increases. The Company believes that all of its regulated utilities are in compliance in all material respects with the appropriate state regulations. For a discussion of rate increases granted to the Company's utility subsidiaries in 1999 as well as other rate matters, see Item 8, Note 12 to the consolidated financial statements, below. 8 Non-Regulated Operations - ------------------------ Several of the Company's subsidiaries are engaged in activities which are not subject to regulation of rates, service and similar matters by state public utility commissions. The Company's principal non-regulated operations include (a) United Properties, a subsidiary engaged in real estate activities, (b) a 50% investment in United Water Services, which provides contract operations and maintenance services for water and wastewater facilities and (c) public-private partnerships with the cities of Jersey City, Hoboken and Rahway, New Jersey. United Properties United Properties is a non-regulated business engaged in ----------------- real estate investment and development activities, including commercial office and retail properties, residential and commercial land development and sales, golf course operations and consulting services. United Properties owns and manages a portfolio of real estate located in New Jersey, New York, Delaware, Idaho and Florida. United Properties also provides consulting and advisory services in support of the real estate assets of the other United Water companies. In December 1999, United Properties contributed buildings to the Corporate Office Properties United Partnership and in return received a $24.3 million investment in preferred units of this partnership. This investment will result in the recording of dividend income. United Water Services As mentioned above, on July 28, 1997, United Water --------------------- Services acquired the remaining 50% stake in JMM Operational Services. United Water Services provides contract operations and maintenance services for water and wastewater facilities and is pursuing additional contract operations. As a result, United Water Services was awarded several contracts. The largest awards include a ten-year contract to operate the wastewater systems in Milwaukee, Wisconsin, and a 20-year contract to operate the water system in Atlanta, Georgia, with a minority partner. United Water Services also provides construction management, training and advisory services, as well as operates a meter installation subsidiary, United Metering, which it purchased from United Water in December 1997 for book value of $6.2 million. In July 1997, the Company's subsidiaries, United Water Canada and United Water Mexico, acquired a 30% and a 20% interest in UWS Canada and UWS Mexico, respectively, which provide contract operations and maintenance services for water and wastewater facilities. In December 1998, United Water purchased additional interests and now has a 33.3% and a 20.5% interest in UWS Canada and UWS Mexico, respectively. The Company's investments in United Water Services, UWS Canada and UWS Mexico are accounted for under the equity method of accounting. 9 Public-Private Partnerships United Water is forming public-private --------------------------- partnerships and similar arrangements in which municipalities retain ownership of their systems while the Company operates and maintains them. The Company entered into public-private partnerships with the cities of Rahway, Jersey City and Hoboken, New Jersey in November 1999, May 1996 and July 1994, respectively. 10 Employee Relations - ------------------ The Company and its subsidiaries have approximately 1,300 employees. Subsidiaries of the Company are parties to agreements with labor unions covering approximately 560 employees at 10 locations. During the past five years, the Company has experienced no work stoppages. The Company considers its employee relations to be good. Environmental Regulation - ------------------------ The Company and its subsidiaries are subject to environmental regulation by state and federal agencies. The state agencies typically consist of one responsible for public health and another responsible for environmental protection. The United States Environmental Protection Agency (EPA) administers numerous federal statutes which encompass both public health and environmental protection concerns. At the Federal level, the SDWA provides minimum standards for potable water quality and monitoring. State statutes and regulations, which are also applicable, impose standards, which, in some cases, are more stringent than the Federal standards. The Company believes that all its water utilities are currently in compliance in all material respects with, and have all permits required by, the SDWA and other applicable Federal and state health and environmental statutes and regulations. During 1996, the EPA issued revisions and a timetable for future revisions of its regulations, which resulted in additional and more stringent standards under the SDWA. Although the Company projects that additional expenditures for utility plant will be required as a result of the 1996 amendments to the SDWA, it anticipates that regulatory authorities will allow a recovery of and return on any investment needed. Accordingly, the Company does not expect any significant adverse financial impact from these regulations on the Company's results of operations or financial condition. The Federal Water Pollution Control Act, also known as the Clean Water Act, and state laws in a number of jurisdictions regulate certain effluent discharges into waterways. These laws are administered by the EPA at the federal level and by state agencies. These laws require the Company's utility subsidiaries to obtain permits for effluent discharges associated with water and wastewater treatment operations, and these permits typically impose limitations with respect to quality and quantity of effluent discharges. The Company believes that its utility subsidiaries are currently in compliance in all material respects with, and have all permits required by, these pollution control statutes. Of the projected $264 million (excluding the effects of inflation) aggregate capital expenditures of United Water's utility subsidiaries over the next five years, approximately 11% are estimated to be related to compliance with environmental laws and regulations. 11 (d) Financial Information About Geographic Areas -------------------------------------------- Northumbrian Partnership In June 1996, a wholly-owned subsidiary of United ------------------------ Water, and Lyonnaise Europe, formed the Partnership, which has acquired a 20% interest in NWG, a major investor-owned water and wastewater company in the United Kingdom. The Company accounts for this investment under the equity method of accounting. See Item 8, Note 4 to the consolidated financial statements, below. United Water Services In July 1997, the Company's subsidiaries, United --------------------- Water Canada and United Water Mexico, acquired a 30% and a 20% interest in UWS Canada and UWS Mexico, respectively, which provide contract operations and maintenance services for water and wastewater facilities. In December 1998, United Water purchased additional interests and now has a 33.3% and a 20.5% interest in UWS Canada and UWS Mexico. The Company accounts for these investments under the equity method of accounting. 12 Item 2. PROPERTIES - ------- ---------- Regulated Utility Operations - ---------------------------- United Water's utility subsidiaries own, operate and maintain a total of 382 wells, 106 water treatment plants, with the largest plant having treatment capacities of up to 200 million gallons per day (MGD), 16 wastewater treatment plants, with the largest plant having treatment capacities of up to 3.25 MGD, and 229 ground and elevated storage tanks. The Company's utility subsidiaries also own numerous impounding basins, lift stations and purification stations, generally located on land owned by the respective subsidiaries. In addition, the Company's utility subsidiaries own a total of approximately 7,614 miles of water transmission and distribution mains and 230 miles of wastewater collection mains. The water mains and wastewater collection facilities are located in easements and rights-of-way on or under public highways, streets, waterways and other public places pursuant to statutes, municipal ordinances and permits from state and local authorities, or on or under property owned by the respective subsidiaries or occupied under property rights from the owners, which rights are deemed adequate for the purposes for which they are used. In addition, the Company's subsidiaries own pipelines, meters, services, fire hydrants, transportation vehicles, construction equipment, office furniture and equipment, and computer equipment. United Water's subsidiaries own or lease office space at their respective locations. In connection with the Wanaque South Project, United Water New Jersey owns a 17-mile aqueduct from the Wanaque Reservoir to the Oradell Reservoir, along with a booster pumping station. United Water New Jersey also owns 50% of the other elements of the Wanaque South Project, including an 11-mile aqueduct and related pump stations, a roller compacted concrete dam and reservoir, and has contractual rights to yields derived from the Passaic and Ramapo rivers. Non-Regulated Operations - ------------------------ United Properties owns approximately 578 acres of land held for sale or under development principally in New Jersey, New York and Florida, and 181,671 square feet of office and retail properties. In addition, United Properties owns two golf properties in New Jersey. 13 Item 3. LEGAL PROCEEDINGS - ------- ------------------ United Water Toms River, a wholly-owned subsidiary of United Waterworks, has been approached by counsel for several families in its franchise area to notify them that counsel is considering filing a class action lawsuit naming United Water Toms River as one of at least three defendants and alleging personal injuries sustained as a result of contaminated water being delivered to the potential plaintiffs. Counsel has reviewed testing data accumulated by the New Jersey Department of Environmental Protection and United Water Toms River which show that United Water Toms River has delivered water to its customers in complete conformance with all applicable federal and state water quality standards. Suit has not been filed. An initial agreement tolling the statute of limitations for at least eighteen months was signed with the potential plaintiffs and took effect February 1998. A second agreement, extending the tolling period for an additional eighteen months, was executed in July 1999. United Water Toms River has also entered into a joint defense agreement with other potential defendants, Ciba-Geigy and Union Carbide. This agreement will allow the potential defendants to work together until all disputes with the potential plaintiffs have been resolved. On September 22, 1998, Ramapo Land Co., Inc. commenced a lawsuit against United Water New York (UWNY), a wholly-owned subsidiary of the Company, in the Supreme Court of the State of New York, Rockland County, seeking specific performance of certain provisions of a 1990 Water Release Agreement between UWNY and Ramapo Land. The Water Release Agreement allows UWNY to release water from Cranberry and Potake Lakes to augment flows in the Ramapo River. The lawsuit alleges that UWNY has failed to meet certain maintenance and repair obligations with respect to Cranberry and Potake dams and that water releases have exceeded permitted levels. Management is vigorously defending the litigation and is actively pursuing settlement. If the lawsuit is not resolved successfully, UWNY's water releases from Cranberry and Potake Lakes could be affected, which in turn could impact UWNY's operation of the Ramapo Valley Well Field during periods when the Ramapo River is at low flow. Management believes that the resolution of this matter will not have a material adverse effect upon the financial position or results of operations of the Company. On January 22, 1998, the Pierson Lakes Homeowners Association, Inc. and various individuals (Plaintiffs) commenced a lawsuit against UWNY and Ramapo Land Co., Inc. in the Supreme Court of the State of New York, Rockland County. This litigation is related to the above-referenced lawsuit by Ramapo Land Co., Inc. against UWNY in connection with maintenance and repair obligations and water releases from Cranberry and Potake Lakes. The Pierson Lakes lawsuit seeks declaratory relief, injunctive relief and money damages against UWNY and Ramapo Land Co. in amounts in excess of $25 million. In addition to claims relating to alleged failure to maintain the dams and spillways, Plaintiffs claim that the water releases 14 have damaged the recreational and aesthetic value of the lakes, as well as their docks, boats and other personal property. Management is vigorously defending this action and is also pursuing settlement negotiations with the various parties. Management believes that the resolution of this matter will not have a material adverse effect upon the financial position or results of operations of the Company. Two lawsuits were recently filed contesting the pending merger by and among Lyonnaise American Holding, Inc. ("LAH"), Suez Lyonnaise des Eaux ("SLDE") and United Water. These suits are (1) Herbert Behrens vs. Donald L. Correll et al., filed on August 25, 1999 in the Superior Court of New Jersey Chancery Division, Bergen County and (2) Lawrence Steinberg vs. United Water et al., filed on August 24, 1999 in the Superior Court of New Jersey Chancery Division, Bergen County. These suits allege, among other things, breach of fiduciary duty by United Water and its directors because the merger was purportedly agreed to without an appropriate evaluation of UWR's worth to an acquisition candidate. Both suits seek, in addition to other relief, an injunction preventing SLDE and LAH from acquiring UWR for the consideration stated in the merger agreement. UWR believes that these suits are entirely without merit and is vigorously defending against them. United Water is not a party to any other litigation other than that described above and routine litigation incidental to the business of United Water. None of such litigation, either individually or in the aggregate, is material to the business of United Water. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- ----------------------------------------------------------- During the fourth quarter of 1999, there were no matters submitted to a vote of security holders. 15 PART II ------- Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER - ------- ------------------------------------------------------------------ MATTERS ------- United Water's common stock is traded on the New York Stock Exchange under the symbol UWR. The high and low sales prices for United Water's common stock for 1999, 1998 and 1997 and the dividends paid on the common stock in each quarter were as follows: (dollars) Stock Price Dividend - -------------------------------------------------------------------------------- Quarter High Low - -------------------------------------------------------------------------------- 1999 Fourth $34.500 $32.625 $.30 Third 33.750 20.750 .24 Second 23.688 20.000 .24 First 24.063 18.438 .24 - -------------------------------------------------------------------------------- 1998 Fourth $25.000 $16.500 $.24 Third 19.250 16.375 .23 Second 18.438 15.750 .23 First 19.875 17.500 .23 - -------------------------------------------------------------------------------- 1997 Fourth $19.750 $16.000 $.23 Third 19.813 17.000 .23 Second 19.375 16.375 .23 First 18.500 15.000 .23 The high and low stock prices from January 1 to February 29, 2000, were $34.875 and $33.750. There were 16,545 holders of record of United Water's common stock as of February 29, 2000. Dividend Policy The Company has continuously paid cash dividends on its --------------- common stock since 1886. Under the Company's current common stock dividend policy, quarterly dividends are paid by the Company, generally on March 1, June 1, September 1 and December 1. Each future declaration of dividends, however, shall be made at the sole discretion of the Board of Directors, and only out of cumulative earnings available therefor. 16 Item 6. SELECTED FINANCIAL DATA - ------- -------------------------
Year ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (thousands of dollars except per share data) 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Income Statement Data - --------------------- Operating revenues $ 362,336 $ 356,210 $ 351,409 $ 332,045 $ 319,536 Operating income 77,395 97,600 95,644 95,699 82,183 Net income applicable to common stock 31,117 43,929 29,331 34,010 17,343 Net income per common share .81 1.19 .83 1.01 .54 Net income per common share- assuming dilution .80 1.17 .83 1.00 .54 ==================================================================================================================================== Dividends paid per share 1.02 .93 .92 .92 .92 Balance Sheet Data (at end of period) - ---------------------------------------------- Total assets $1,803,065 $1,768,156 $1,658,264 $1,582,097 $1,516,708 Long-term debt 639,017 652,969 622,737 558,093 558,658 Preferred stock without mandatory redemption 9,000 9,000 9,000 9,000 9,000 Preferred and preference stock with mandatory redemption 33,104 80,282 86,579 93,261 98,091 - ------------------------------------------------------------------------------------------------------------------------------------
Operating revenues and operating income represent results from continuing operations. Prior year amounts have been restated to conform with current year presentation. 17 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ------- ------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS --------------------------------------- SIGNIFICANT ITEMS The following items had a significant impact on the financial results of United Water Resources (United Water, or the Company): Strategic Initiatives During the third quarter of 1999, United Water announced strategic initiatives designed to strengthen the long-term performance of the Company. These initiatives were as follows: . On August 23, 1999, the Company announced an agreement for Suez Lyonnaise des Eaux to acquire the remaining shares of United Water it did not already own for cash of $35 per share. As a result, United Water's stock price increased. This increase resulted in an after-tax charge of $2.2 million, representing an adjustment of the values of stock options issued under the Company's variable stock option plan. The acquisition agreement was approved by United Water's shareholders on January 20, 2000, and remains subject to regulatory approvals. The Company expects that this transaction will close during the second quarter of 2000. . On July 13, 1999, United Water announced that it was offering a voluntary early retirement program to employees who qualified based on age and length of service. This program, which ended September 14, 1999, resulted in a charge to net income of $5 million and is expected to result in annual savings of approximately $3.5 million in payroll costs, starting in 2000. . On July 13, 1999, the Company announced that it entered into a definitive agreement to sell several small utility subsidiaries to American Water Works Company for approximately $49 million in cash, which would result in an after-tax gain of approximately $6 million. These utilities collectively contribute annual revenues of approximately $13.8 million, provide water service to about 35,000 customers and represent less than 4% of the Company's regulated assets and under 2% of the population it serves. The decision to sell these subsidiaries was made in an effort to focus United Water's core utility business in service areas experiencing significant growth and development. Completion of the transaction is contingent upon regulatory approvals. In the first quarter of 2000, the Company concluded the sales of United Water Indiana and United Water Virginia for $30.4 million. These transactions resulted in an after-tax gain of $4.1 million. 18 LIQUIDITY AND CAPITAL RESOURCES As shown in the consolidated statement of cash flows, the Company's major uses of cash in 1999 included: $88.6 million of capital expenditures and $42 million of common, preferred and preference dividends paid to shareholders. The major sources of funds to meet these cash needs included: $31.8 million of additional long-term debt; $61.8 million of cash provided by operations; $16.5 million of proceeds from the issuance of additional shares of common stock; and an $40.6 million increase in short-term notes payable. Capital expenditures are generally incurred by United Water's utility subsidiaries in connection with the normal upgrading and expansion of existing water and wastewater facilities and to comply with existing environmental regulations. United Water considers its utility plant to be adequate and in good condition. These capital expenditures are necessary to meet growth requirements and to comply with environmental laws and regulations. Excluding the effects of inflation, the capital expenditures of United Water's utility subsidiaries are projected to aggregate $264 million over the next five years, including $54 million and $53 million in 2000 and 2001, respectively. This total includes $153 million for United Waterworks and $106 million for United Water New Jersey and United Water New York. The expenditures related to compliance with environmental laws and regulations are estimated to be approximately 11% of the projected capital expenditures over the 2000-2004 period. To the best of management's knowledge, the Company is in compliance with all material environmental laws and regulations. United Water anticipates that its future capital expenditures will be funded by internally generated funds and external financings. In addition, United Water's regulated utilities participate in a number of tax-exempt financings to fund capital expenditures. The companies draw down funds on these financings as qualified capital expenditures are made. As of December 31, 1999, $24.8 million of proceeds from these financings had not yet been disbursed to the Company and are included in the consolidated balance sheet as restricted cash. The amount and timing of the use of these proceeds and of future financings will depend on actual capital expenditures, the timeliness and adequacy of rate relief, the availability and cost of capital, and the ability to meet interest and fixed charge coverage requirements. In December 1994, United Waterworks entered into a medium-term note program that enabled United Waterworks to issue up to $75 million of debt with terms ranging from 9 months to 30 years. The interest rates are set as notes are issued under the program. The first $10 million of notes under this program were issued in 1995. Another $15 million of notes were issued in October 1997. In February 1998, United Waterworks issued an additional $40 million of notes ($20 million at 6.97% due 2023, $15 million at 7.1% 19 due 2028 and $5 million at 6.9% due 2017). In November 1998, United Waterworks issued the final $10 million of notes under this program ($5 million at 6.44% due 2008 and $5 million at 6.97% due 2023). The proceeds were used to redeem outstanding notes payable. In June 1996, United Water entered into a $30 million long-term note agreement with Credit Lyonnais to partially fund its investment in the Northumbrian Partnership. The loan bears interest at a London Interbank Offered Rate based floating rate and is payable in annual installments through June 2006. In December 1998, the Company entered into an interest rate swap agreement, which fixed the interest rate at 5.24% for 1999 and 5.34% for the years 2000 through 2003. In December 1998, United Water New Jersey issued $35 million of 5% Water Facilities Revenue Bonds due 2028 through the New Jersey Economic Development Authority. The proceeds are being used to finance the cost of acquiring, constructing and reconstructing certain water transmission, transportation, storage, treatment, and distribution facilities located in Passaic, Bergen, Sussex, and Hudson counties in New Jersey. In January 1999, United Water issued $30 million of Senior Notes ($5 million at 6.07% due 2005, $10 million at 6.43% due 2009, $10 million at 6.7% due 2019, and $5 million at 7.04% due 2019). The proceeds were used to redeem all remaining shares of 7 5/8% Series B cumulative preferred stock. See Note 7 to the consolidated financial statements for further details. In October 1999, United Water redeemed $25 million of 9.38% senior notes due 2019. This early redemption resulted in an extraordinary after-tax loss of $1.1 million, representing the premium paid and the write-off of unamortized debt costs. On January 7, 2000, the Company called for redemption of all 150,000 shares of its 7 3/8% preferred stock. The redemption resulted in the payment of principal, accrued dividends and premium totaling $15.5 million, with $.5 million relating to the premium paid on the early redemption. The preferred stock was redeemed with short-term financing. At December 31, 1999, United Water had cash and cash equivalents of $.8 million (excluding restricted cash) and unused short-term bank lines of credit of $185.8 million. Management expects that cash flows provided by operations and unused credit lines currently available will be sufficient to meet anticipated future operational needs. 20 YEAR 2000 COMPLIANCE Overview - ---------- United Water successfully implemented a Year 2000 (Y2K) program designed to mitigate, to the fullest extent possible, the impact of the century date change on the Company's computer systems and automated processes, including those that affect the delivery of water and wastewater services. The Company initiated this program in 1994 with the Information Technology Strategic Plan (the ITSP), which addressed all areas of technology and automation within United Water. A key component of that plan was the identification of the Y2K issue and the need to address the effect of the Y2K issue on all aspects of the Company's operations. The Company addressed "Y2K readiness" as a critical component of each project or initiative undertaken at United Water since 1994 that had Y2K ramifications. United Water defined Y2K readiness as the ability of the Company to advance into 2000 with minimal effect on the Company's critical computer systems and automated processes that control the delivery of water and wastewater services, and the Company's operations, liquidity or financial condition. As a result of these readiness activities, United Water encountered no significant problems with the transition to the year 2000. The Y2K program addressed internal systems and processes consisting of application software, hardware, databases, networks, personal computers, data processing equipment and operating systems (collectively, information technology or IT systems) and embedded technology or microprocessors in non-computer equipment (collectively, non-IT systems). The Y2K program also addressed the assessment and monitoring of the Y2K compliance status of third parties upon which the Company relies. In addition, management believes that United Water complied with the various Y2K requirements of the regulatory agencies that closely supervise its activities. Such compliance included responding to surveys and questionnaires, filing status reports, participating in task forces and sub-committees for the purpose of meeting Y2K readiness targets, and contingency planning efforts. The Company's State of Readiness - -------------------------------- United Water successfully transitioned into the year 2000 with no problems encountered by the Company's critical computer systems and automated processes. This was a direct result of the attention and effort devoted to readiness activities since 1994. United Water's strategy to replace the aging technical infrastructure, including IT and non-IT systems, enabled United Water and its operating affiliates to make a smooth transition into the 21st century. 21 In addition to its own Y2K program, the Company was involved with Y2K compliance efforts undertaken by one of its equity investments, United Water Services (UWS). UWS, which is engaged in providing contract operations to U.S. cities, successfully implemented a Y2K program utilizing the guidelines established by the Company. This program was applied to all UWS's project sites and resulted in the production of inventories, risk assessments, testing methodologies and contingency plans for Y2K compliance. Where UWS assumed responsibility for part or all of the Y2K compliance efforts of its operating affiliates in the various cities, it coordinated Y2K corrective measures with the cities and their Y2K consultants or representatives, where applicable, to mitigate business interruption exposures associated with the Y2K problem. United Water maintained close contact with UWS and other entities in which it has equity interests to ascertain that appropriate and prudent action was taken in order to achieve Y2K compliance. Relationships with Third Parties - --------------------------------- United Water maintained close third party relationships during this effort with regulatory agencies, critical vendors and service providers. This included continuous communications with the appropriate regulatory agencies. Costs - ------ United Water's Y2K readiness evolved from the strategic initiatives of the ITSP, which was budgeted as part of the Company's ongoing capital expenditures since 1994. As a result, United Water has been able to minimize Y2K-related compliance expenses outside of the ITSP budget. The Company's principal technology costs to date have been associated with the planned replacement of IT and non-IT systems, which has not been accelerated due to the Y2K issue. United Water costs related to Y2K compliance efforts that fell outside the ITSP budget were approximately $1 million. These costs included SCADA upgrade as required internal employee time, as well as other miscellaneous costs. Contingency Plans - ----------------- In preparation for the Year 2000 and as a prudent measure of contingency planning, United Water reviewed and refined all emergency operating plans for each operating location. In addition, each location developed a full emergency notification plan in the event of an emergency. The Company also developed 22 a full "business continuity management plan and procedures" designed to coordinate disaster and emergency management throughout the corporation. These plans were tested on December 31, 1999. The focus of the contingency plans was to address the possibility of automation failure so that the Company can sustain its operational systems in the event of any such failure. Risks - ----- Management previously identified the most reasonably likely worst case scenarios due to Y2K non-compliance issues to be fluctuations in water pressure, aesthetic water quality and other temporary service interruptions. While United Water transitioned successfully to the Year 2000, there are still several significant dates to be encountered over the next year. United Water expects the risk of automation failure at any of these to be significantly reduced based on the smooth transition to the Year 2000. In addition, United Water has the added benefit of well tested contingency management plans, which can be executed as needed. 23 RATE MATTERS The profitability of United Water's regulated utilities is, to a large extent, dependent upon adequate and timely rate relief. The Company anticipates that the regulatory authorities that have jurisdiction over its utility operations will allow the Company's regulated utilities to earn a reasonable return on their utility investments. The Company continues to follow Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," for its regulated utilities. SFAS No. 71 provides for the recognition of regulatory assets and liabilities as allowed by state regulators that are considered probable of recovery. See Note 1 to the consolidated financial statements. During 1999, the Company's regulated utilities received fourteen rate decisions with an aggregate annual revenue increase of $4.4 million. An estimated $2.6 million of this amount was reflected in 1999's revenues while the remaining $1.8 million is expected to increase revenues in 2000. Current year revenues also reflect the carryover impact of the rate awards granted in 1998 in the amount of $4 million, as well as the reversal of a reserve for revenues in effect, subject to refund, for which a positive resolution was reached in 1999. See Note 12 to the consolidated financial statements for further details. On October 26, 1996, United Water Delaware placed $2.3 million in increased revenues in effect, subject to refund. On July 15, 1997, the Delaware Public Utility Commission granted the Company a permanent rate increase of $1.6 million. On July 16, 1997, the Company filed an appeal and application for a stay of the Commission's Order. On July 29, 1997, the Delaware Superior Court granted a stay of the Commission decision pending the appeal. On March 31, 1998, the Superior Court decided in favor of the Commission. The Company appealed this decision to the Supreme Court of Delaware and on February 11,1999, the Supreme Court reversed the Commission's decision which had denied the $.7 million annual revenue increase, subject to refund and remanded the matter to the Commission. As a result, the Company reversed a $1.7 million reserve which was established for potential refunds pertaining to this case. In June 1999, the Commission approved a stipulation permitting the Company to retain all revenues collected without refund and permitting the rates currently in effect to become permanent. On March 11, 1998, United Water Delaware filed a request to increase revenues by $4.1 million, or 24.8%. On May 11, 1998, interim rates of $2.4 million were placed in effect, subject to refund. A final decision was received in June 1999 for $2 million. The difference of $.4 million has been refunded to customers. The Company was fully reserved for these refunds. At the end of January 2000, the Company had four rate cases pending requesting an aggregate annual rate increase of $4.2 million. The most significant rate case pending was filed by United Water New 24 Rochelle. In July, 1999, United Water New Rochelle applied for a multi-year rate increase. The filing requested an increase in revenues of $3.3 million, or 17.2% for the 12 months ending May 31, 2001, an additional increase of $3.7 million, or 16.4% for the 12 months ending May 31, 2002 and a final increase of $4.1 million, or 15.6% for the 12 months ending May 31, 2003. These increases were requested primarily to recover capital investments. Generally, the rate awards actually received by the Company's operating utilities are less than the amounts requested, primarily due to differing positions of the parties involved and/or updated information provided during the proceedings. 25 REAL ESTATE ACTIVITIES United Properties Group (United Properties) owns and manages a portfolio of real estate located in New Jersey, New York, Delaware, Idaho, and Florida, consisting of commercial properties, golf courses and land under development. In March 1999, United Properties sold two office buildings (Harrison Plaza), which contributed annual revenues of approximately $4.6 million, for $42.1 million. This transaction resulted in a pre-tax gain of $5.8 million and net cash proceeds of $39.5 million. Cash proceeds of $15.6 million were used to pay off long-term debt related to the office buildings. In June 1999, United Properties purchased three office/retail buildings for $40.6 million. Cash proceeds from the sale of Harrison Plaza of $23.9 million, as well as $16.8 million of short-term debt were used to finance this purchase. In December 1999, United Properties contributed these buildings to a partnership and in return received preferred units in this partnership, as well as the partnership's assumption of $16.7 million in short-term debt. United Properties expects to spend $27.9 million over the next five years for capital expenditures on its existing real estate portfolio, including $12.3 million and $3.4 million in 2000 and 2001, respectively. Funding for United Properties' activities is anticipated to come from sales of properties, operations of existing commercial properties and golf courses, and proceeds from new financings. The timing of these expenditures will depend upon market conditions and the attainment of necessary approvals. RESULTS OF OPERATIONS Overview United Water's net income applicable to common stock for 1999 was $31.1 million, or $.81 per common share, as compared to $43.9 million, or $1.19 per common share, earned in 1998. Earnings for 1999 included an after-tax charge of $7.2 million relating to the strategic initiatives announced during the third quarter of 1999. Excluding these initiatives, income before extraordinary item was $39.4 million, or $1.02 per common share for 1999 compared with $43.9 million, or $1.19 per common share for 1998. This decrease was primarily attributable to the regulatory lag in obtaining rate recovery on a new customer information system that was placed in service at the end of 1998, as well as a favorable prior year property tax settlement recorded in the fourth quarter of 1998. In addition, United Water's utilities in the Northeast experienced higher operating expenses due to increased purchased water and pumping charges as a result of drought conditions in the third quarter of 1999. Earnings for 1998 included a $2.9 million contribution from the effect on deferred taxes of a decrease in the UK corporate tax rate. Excluding the impact of the 26 deferred taxes in 1998, the Company experienced higher earnings from the Northumbrian Partnerhsip. United Water's net income applicable to common stock for 1998 was $43.9 million, or $1.19 per common share, as compared to $29.3 million, or $.83 per common share, earned in 1997. During 1997, the United Kingdom's new Labor Government imposed a one-time "windfall profits" tax on privatized utilities. The levying of this one-time tax negatively impacted the Company's earnings from its investment in NWG by $13.1 million, which was partially offset by the effect of a change in the tax rate on deferred taxes of $2.8 million. Income before non-recurring items was $43.9 million, or $1.19 per common share for 1998 compared with $39.7 million, or $1.12 per common share for 1997. This increase was attributable to improved domestic utility performance as a result of rate awards, higher water consumption and a property tax settlement relating to a prior year. In addition, the Company experienced higher earnings from the Northumbrian Partnership primarily due to the effect on deferred taxes of a decrease in the UK corporate tax rate during 1998. 27 Operating Revenues Operating revenues increased $6.1 million, or 1.7%, in 1999 and $4.8 million, or 1.4%, in 1998 from the prior years, as follows: - -------------------------------------------------------------------------------- 1999 vs. 1998 1998 vs. 1997 (thousands of dollars) Increase (Decrease) Increase (Decrease) - -------------------------------------------------------------------------------- Utilities Rate awards $ 7,693 2.2% $ 9,790 2.8% Consumption 1,433 0.4% 1,346 0.4% Growth 3,019 0.8% 993 0.3% Real estate (5,157) (1.5%) (3,879) (1.1%) Other operations (862) (0.2%) (3,449) (1.0%) - -------------------------------------------------------------------------------- $ 6,126 1.7% $ 4,801 1.4% - -------------------------------------------------------------------------------- 1999 versus 1998 The 2.2% increase in revenues from rate awards in 1999 includes the impact of fourteen 1998 and fourteen 1999 increases for the Company's operating utilities. Higher consumption due to favorable weather conditions in the majority of service areas resulted in an increase in revenues of $1.4 million in 1999, despite the impact of mandatory water restrictions in the Northeast during the third quarter of 1999. The increase in revenues due to growth is primarily attributable to the acquisition of South County Water Company in Idaho in the first quarter of 1999, as well as increased customers at the Florida operating utility. Real estate revenues decreased $5.2 million primarily due to lower land sale revenues, as well as lower rental revenue. The .2% decrease in operating revenues from other operations was primarily attributable to lower incentive revenues from the public-private partnership with Jersey City, New Jersey, partially offset by higher revenues from the public-private partnership with Hoboken, New Jersey, as well as revenues from a new public-private partnership in New Jersey. 1998 versus 1997 The 2.8% increase in revenues from rate awards in 1998 includes the impact of fifteen 1997 and fourteen 1998 increases for the Company's operating utilities. Higher consumption due to favorable weather conditions in Northeast service areas resulted in an increase in revenues of $1.3 million in 1998. The increase in revenues due to growth is partially attributable to increased customers at several operating utilities. Real estate revenues decreased $3.9 million primarily due to lower land sale revenues as a result of a significant land sale in the first quarter of 1997, partially offset by higher golf course revenues. The $3.4 million decrease in operating revenues from other operations was primarily attributable to the absence of revenues from the Company's meter installation subsidiary, which was sold in the fourth quarter of 1997, partially offset by an increase in revenues from the public-private partnership with Jersey City, New Jersey. 28 Operating Expenses Operating expenses increased $26.3 million in 1999 and $2.8 million in 1998 from the prior years, as follows: - -------------------------------------------------------------------------------- 1999 vs. 1998 1998 vs. 1997 (thousands of dollars) Increase (Decrease) Increase - -------------------------------------------------------------------------------- Operation and maintenance $17,785 10.6% $ (560) (0.3%) Depreciation and amortization 4,406 11.0% 5,256 15.1% General taxes 4,140 8.2% (1,851) (3.6%) - -------------------------------------------------------------------------------- 1999 versus 1998 The $17.8 million increase in operation and maintenance expenses includes $7.7 million and $3.4 million, respectively, for the voluntary early retirement program and the adjustment of the values of stock options as part of the strategic initiatives announced during 1999. The increase was also attributable to higher outside services and employee benefits costs at several of the Company's subsidiaries. In addition, expenses increased due to higher purchased water and pumping charges as a result of drought conditions, prior to the mandatory water restrictions in the Northeast. Additionally, the Company experienced operating expenses from a new public-private partnership in New Jersey, as well as higher operating expenses from the partnership with Jersey City. This was partially offset by a decrease in the cost of real estate properties sold as a result of fewer property sales in 1999. The $4.4 million increase in depreciation and amortization was primarily attributable to an increase in depreciation rates as a result of regulatory changes, as well as the placement in service of a new customer information system at the end of 1998. General taxes increased $4.1 million, or 8.2%, in 1999 primarily due to a property tax settlement received in the fourth quarter of 1998, as well as higher real estate taxes in utility operations. 1998 versus 1997 The decrease in operation and maintenance expenses was due primarily to the absence of costs from the Company's meter installation subsidiary, which was sold in the fourth quarter of 1997, as well as a $3.9 million decrease in the cost of real estate properties sold, primarily due to a significant land sale in the first quarter of 1997. This was partially offset by the write-off of deferred start-up charges under Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" as well as higher outside services and employee benefits costs at several of the Company's subsidiaries. The $5.3 million increase in depreciation and amortization was primarily attributable to utility plant additions by the Company's utility subsidiaries, as well as accelerated amortization associated with the service contract in Jersey City. General taxes decreased $1.9 million, or 3.6%, in 1998 primarily due to a 29 property tax settlement received in the fourth quarter of 1998. This was partially offset by higher real estate, franchise and gross receipts taxes in utility operations. Interest Expense Interest expense increased $3.3 million in 1999 from 1998 primarily due to the issuance of $30 million of Senior Notes in January 1999, the proceeds of which were used to redeem all remaining shares of 7 5/8% Series B cumulative preferred stock, as well as higher short-term debt. See the statement of consolidated capitalization and Notes 5 and 6 to the consolidated financial statements for further details on long-term debt and notes payable. Equity Earnings of Affiliates The $.4 million increase in equity earnings of affiliates in 1999 was due mainly to a $.8 million increase in combined results from United Water Services, UWS Canada and UWS Mexico. The Company also experienced higher equity earnings from its other equity investment, Dundee Water Power and Land, as a result of a one-time condemnation settlement recorded in the third quarter of 1998. This was partially offset by a $.8 million decrease in earnings from the Northumbrian Partnership, due to the $2.9 million effect on deferred taxes of a decrease in the UK corporate tax rate, in the second quarter of 1998. During 1999, the Office of Water Services (OFWAT) in the United Kingdom announced its decision to substantially reduce water prices over the next five years effective April 2000. As a result, the Company will experience lower earnings from its investment in the Northumbrian Partnership. Income Taxes The effective income tax rates on income before preferred and preference stock dividends were 28.6% in 1999, 27.9% in 1998 and 36.4% in 1997. An analysis of income taxes is included in Note 13 to the consolidated financial statements. New Accounting Standards In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities" effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income. Due to its limited use of derivative instruments, management believes the adoption of SFAS No. 133 will not have a significant effect on the Company's financial condition or results of operations. 30 Effects of Inflation Operating income from utility operations is normally not materially affected by inflation because cost increases generally lead to proportionate increases in revenues allowed through the regulatory process. However, there is a lag in the recovery of higher expenses through the regulatory process, and therefore, high inflation could have a detrimental effect on the Company until rate increases are received. Conversely, lower inflation and lower interest rates tend to result in reductions in the rates of return allowed by the utility commissions, as has occurred over the last several years. Prospective Information In addition to the historical information contained herein, this report contains a number of "forward-looking statements," within the meaning of the Securities Exchange Act of 1934. Such statements address future events and conditions concerning the adequacy of water supply and utility plant, capital expenditures, earnings on assets, resolution and impact of litigation, liquidity and capital resources and accounting matters. Actual results in each case could differ materially from those projected in such statements, by reason of factors including, without limitation, general economic conditions, competition, actions by regulators and other governmental authorities, and technological developments affecting the Company's operations, markets, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission, including this report. 31 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- ----------------------------------------------- Index to Consolidated Financial Statements - ------------------------------------------ Page ---- Financial Statements: Report of Independent Accountants 33 Consolidated Balance Sheet at December 31, 1999 and 1998 34 Statement of Consolidated Income for each of the years ended December 31, 1999, 1998 and 1997 35 Statement of Consolidated Common Equity for each of the years ended December 31, 1999, 1998 and 1997 36 Statement of Consolidated Cash Flows for each of the years ended December 31, 1999, 1998 and 1997 37 Statement of Consolidated Capitalization at December 31, 1999 and 1998 38 Notes to Consolidated Financial Statements 39 - 66 Financial Statement Schedules: For the three years ended December 31, 1999 VIII - Consolidated Valuation and Qualifying Accounts 81 All other schedules are omitted because they are not applicable, or the required information is shown in the consolidated financial statements or notes thereto. Financial statements of any 50%-owned investments have been omitted because the registrant's proportionate share of net income and total assets of each is less than 20% of the respective consolidated amounts, and the investment in and the amount advanced to each is less than 20% of consolidated total assets. 32 REPORT OF INDEPENDENT ACCOUNTANTS To The Board of Directors and Shareholders of United Water Resources In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of United Water Resources and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of United Water Resources' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York February 24, 2000 33 Consolidated Balance Sheet UNITED WATER RESOURCES AND SUBSIDIARIES
December 31, (thousands of dollars) 1999 1998 - ------------------------------------------------------------------------------------------------------------ Assets Utility plant, including $24,533 and $47,348 under construction $1,620,716 $1,540,564 Less accumulated depreciation 358,528 328,224 ---------- ---------- 1,262,188 1,212,340 Utility plant acquisition adjustments, Less accumulated amortization of $13,004 and $11,411 60,714 61,320 Real estate and other investments, Less accumulated depreciation of $9,721 and $13,628 79,836 81,630 Equity investments 134,755 116,598 ---------- ---------- 214,591 198,228 Current assets: Cash and cash equivalents 768 8,011 Restricted cash 24,803 48,495 Accounts receivable and unbilled revenues, less allowance of $1,234 and $1,204 62,221 59,693 Prepaid and other current assets 16,972 12,235 ---------- ---------- 104,764 128,434 Deferred charges and other assets: Regulatory assets 65,424 75,582 Prepaid employee benefits 33,913 29,237 Unamortized debt expense 33,652 34,745 Other deferred charges and assets 27,819 28,270 ---------- ---------- 160,808 167,834 $1,803,065 $1,768,156 ========== ========== Capitalization and Liabilities Capitalization: Common stock and retained earnings $ 468,790 $ 456,029 Preferred stock without mandatory redemption 9,000 9,000 Preferred stock with mandatory redemption 6,935 49,748 Preference stock, convertible, with mandatory redemption 26,169 30,534 Long-term debt 639,017 652,969 ---------- ---------- 1,149,911 1,198,280 Current liabilities: Notes payable 134,000 93,400 Preferred stock and long-term debt due within one year 21,119 5,795 Accounts payable and other current liabilities 37,259 36,525 Accrued taxes 24,466 24,257 Accrued interest and dividends 9,079 8,023 ---------- ---------- 225,923 168,000 Deferred credits and other liabilities: Deferred income taxes and investment tax credits 197,072 195,368 Customer advances for construction 36,206 30,648 Contributions in aid of construction 154,413 143,327 Other deferred credits and liabilities 39,540 32,533 ---------- ---------- 427,231 401,876 Commitments and contingencies (Notes 7 and 12) $1,803,065 $1,768,156 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 34 Statement of Consolidated Income UNITED WATER RESOURCES AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------ Years ended December 31, (thousands except per share data) 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Operating revenues $362,336 $356,210 $351,409 Operating expenses: Operation and maintenance 186,172 168,387 168,947 Depreciation and amortization 44,356 39,950 34,694 General taxes 54,413 50,273 52,124 -------- -------- -------- Total operating expenses 284,941 258,610 255,765 -------- -------- -------- Operating income 77,395 97,600 95,644 Interest and other expenses: Interest expense, net of amount capitalized 49,204 45,917 45,372 Allowance for funds used during construction (2,884) (4,567) (3,397) Preferred stock dividends of subsidiaries 2,171 2,223 2,256 Windfall profits tax of affiliate -- -- 10,334 Gain on sale of Harrison Plaza (5,846) -- -- Equity earnings of affiliates (11,855) (11,451) (10,647) Other income, net (3,369) (1,959) (2,529) -------- -------- -------- Total interest and other expenses 27,421 30,163 41,389 -------- -------- -------- Income before income taxes & extraordinary item 49,974 67,437 54,255 Provision for income taxes 15,019 19,450 20,579 -------- -------- -------- Income before extraordinary item 34,955 47,987 33,676 Preferred and preference stock dividends 2,697 4,058 4,345 -------- -------- -------- Net income applicable to common stock & before extraordinary item 32,258 43,929 29,331 Extraordinary item: Loss on early extinguishment of debt, net of income tax benefit of $614 (1,141) -- -- -------- -------- -------- Net income applicable to common stock $ 31,117 $ 43,929 $ 29,331 ======== ======== ======== Average common shares outstanding 38,528 37,028 35,492 Net income (loss) per common share Before extraordinary item $ .84 $ 1.19 $ .83 Extraordinary item (.03) -- -- -------- -------- -------- Total $ .81 $ 1.19 $ .83 ======== ======== ======== Average common shares outstanding-assuming dilution 40,583 39,192 37,838 Net income (loss) per common share Before extraordinary item $ .83 $ 1.17 $ .83 Extraordinary item (.03) -- -- -------- -------- -------- Total $ .80 $ 1.17 $ .83 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 35 Statement of Consolidated Common Equity UNITED WATER RESOURCES AND SUBSIDIARIES
Accumulated Common Stock Other Number Comprehensive Retained (thousands) of shares Amount Income Earnings Total - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1996 34,549 $328,132 $6,703 $ 56,655 $391,490 Dividend reinvestment and stock purchase plans 1,446 25,083 -- -- 25,083 Net income applicable to common stock -- -- -- 29,331 29,331 Cumulative translation adjustment -- -- 591 -- 591 -------- Total comprehensive income -- -- -- -- 29,922 -------- Conversion of 5% preference stock 300 4,742 -- -- 4,742 Cash dividends paid on common stock, $.92 per share -- -- -- (32,636) (32,636) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1997 36,295 357,957 7,294 53,350 418,601 Dividend reinvestment and stock purchase plans 1,264 23,068 -- -- 23,068 Net income applicable to common stock -- -- -- 43,929 43,929 Cumulative translation adjustment -- -- 464 -- 464 -------- Total comprehensive income -- -- -- -- 44,393 -------- Conversion of 5% preference stock 277 4,394 -- -- 4,394 Cash dividends paid on common stock, $.93 per share -- -- -- (34,427) (34,427) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1998 37,836 385,419 7,758 62,852 456,029 Dividend reinvestment and stock purchase plans 790 16,520 -- -- 16,520 Net income applicable to common stock -- -- -- 31,117 31,117 Cumulative translation adjustment -- -- (70) -- (70) -------- Total comprehensive income -- -- -- -- 31,047 -------- Conversion of 5% preference stock 284 4,534 -- -- 4,534 Cash dividends paid on common stock, $1.02 per share -- -- -- (39,340) (39,340) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1999 38,910 $406,473 $7,688 $ 54,629 $468,790 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 36 Statement of Consolidated Cash Flows UNITED WATER RESOURCES AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended December 31, (thousands of dollars) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Operating activities: Net income $ 33,814 $ 47,987 $ 33,676 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 46,100 41,300 35,959 Deferred income taxes and investment tax credits, net 8,838 11,878 8,934 Equity earnings of affiliates (11,855) (11,451) (313) Proceeds from sale of United Metering -- -- 6,223 Proceeds from sales of properties 394 3,761 11,068 Gain on sales of properties (89) (2,605) (5,220) Gain on sales of operating assets (6,442) -- -- Improvements to property under development (1,627) (2,125) (1,376) Allowance for funds used during construction (2,884) (4,567) (3,397) Changes in assets and liabilities, net of effect of acquisitions: Accounts receivable and unbilled revenues (2,183) (1,970) 2,551 Prepayments (2,147) (530) (311) Prepaid employee benefits (4,615) (7,811) (5,287) Regulatory assets 6,666 4,088 (4,569) Accounts payable and other current liabilities 555 3,692 1,131 Accrued taxes (6,238) (2,621) 8,863 Accrued interest and dividends 1,056 (94) (294) Other, net 2,429 1,222 417 -------- --------- --------- Net cash provided by operating activities 61,772 80,154 88,055 -------- --------- --------- Investing activities: Additions to utility plant (excludes allowance for funds used during construction) (81,988) (99,722) (83,321) Additions to real estate and other properties (46,046) (4,177) (2,080) Additions to equity investments (6,555) (4,784) (15,859) Acquisitions, net of cash received (3,772) -- -- Proceeds from sales of operating assets 41,390 -- -- Change in restricted cash 23,692 (13,914) (7,378) -------- --------- --------- Net cash used in investing activities (73,279) (122,597) (108,638) -------- --------- --------- Financing activities: Change in notes payable 40,600 18,475 (18,300) Additional long-term debt 31,826 85,233 75,565 Reduction in preferred stock and long-term debt (56,547) (59,318) (34,585) Issuance of common stock 16,520 23,068 25,083 Dividends on common stock (39,340) (34,427) (32,636) Dividends on preferred and preference stock (2,697) (4,058) (4,345) Net contributions and advances for construction 13,902 12,935 9,386 -------- --------- --------- Net cash provided by financing activities 4,264 41,908 20,168 -------- --------- --------- Net decrease in cash and cash equivalents (7,243) (535) (415) Cash and cash equivalents at beginning of year 8,011 8,546 8,961 -------- --------- --------- Cash and cash equivalents at end of year $ 768 $ 8,011 $ 8,546 ======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 37 Statement of Consolidated Capitalization UNITED WATER RESOURCES AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------ December 31, (thousands of dollars) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Common stock and retained earnings: Common stock, no par value--authorized 100,000,000 shares $ 422,412 $ 401,370 Less treasury shares, at cost (15,939) (15,951) Retained earnings 54,629 62,852 Accumulated other comprehensive income 7,688 7,758 ---------- ---------- Total common stock and retained earnings 468,790 456,029 ---------- ---------- Cumulative preferred stock without mandatory redemption: United Water New Jersey, authorized 2,000,000 shares, stated value--$100 per share, issuable in series: 4 1/2% Series, authorized and outstanding 30,000 shares 3,000 3,000 4.55% Series, authorized and outstanding 60,000 shares 6,000 6,000 ---------- ---------- Total preferred stock without mandatory redemption 9,000 9,000 ---------- ---------- Cumulative preferred and preference stock with mandatory redemption, net of amount due within one year: United Water New Jersey: 5% Series, authorized 15,000 shares; outstanding 5,400 and 6,000 shares 480 540 7 3/8% Series, authorized and outstanding 150,000 shares - 15,000 United Water New York: Authorized 100,000 shares, stated value--$100 per share issuable in series: $8.75 Series, issued and outstanding 20,000 and 22,000 shares 1,800 2,000 $9.84 Series, issued and outstanding 43,750 and 46,875 shares 4,062 4,375 United Water Idaho: 5%, authorized and outstanding 7,291and 7,399 shares 593 607 United Water Resources: 7 5/8% Series B, authorized 300,000 shares; outstanding 285,000 shares - 27,226 5% Series A, convertible preference, authorized 3,983,976 shares; outstanding 1,955,984 and 2,296,278 shares 26,169 30,534 ---------- ---------- Total preferred and preference stock with mandatory redemption 33,104 80,282 ---------- ---------- Long-term debt, net of amount due within one year: United Water New Jersey: First mortgage bonds, 5.8%-5.9%, due 2024 (weighted average 5.85%) 40,000 40,000 Unsecured promissory notes, variable rates, due 2025-2026 (weighted average 2.94% and 3.11%) 130,000 130,000 Unsecured promissory notes, 5% 1998 EDA bonds, due 2028 35,000 35,000 United Water New York: First mortgage bonds, 9 3/8%, due 2001 300 600 Unsecured promissory notes, 5.65%-8.98%, due 2023-2025 (weighted average 6.74%) 51,000 51,000 United Water Resources: Promissory notes, 9.38%, due 2019 - 25,000 Promissory notes, floating LIBOR-based interest rate, due 2006 21,000 24,000 Promissory notes, 6.07%-7.9%, due 2005-2022 (weighted average 7.23% and 7.73%) 70,000 40,000 United Waterworks: Unsecured debt, 5.30%-10.05%, due 2007-2028 (weighted average 7.06% and 7.07%) 281,278 282,815 United Properties Group: Mortgage notes, 7.99%-10%, due 1999-2009 (weighted average 7.99% and 9.97%) 1,826 15,697 Floating rate LIBOR-based term loan, due 2000 7,078 7,211 New Jersey Wastewater Treatment Loans, 0%-4.2%, due 2013 (weighted average 2.52% and 2.48%) 1,535 1,646 ---------- ---------- Total long-term debt 639,017 652,969 ---------- ---------- Total capitalization $1,149,911 $1,198,280 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation: The consolidated financial statements include the accounts of United Water Resources (United Water, or the Company) and the subsidiaries in which it has more than 50% ownership. The Company accounts for investments in which it has significant influence under the equity method of accounting. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain prior year amounts have been reclassified to conform with current year presentation. Description of business: United Water's principal utility subsidiaries include United Water New Jersey, United Water New York and United Waterworks. These subsidiaries provide water and wastewater services to approximately two million people in 11 states (after giving effect to the divestiture of several small utility subsidiaries to be completed in the year 2000. See Note 3 for further details). Other significant wholly-owned subsidiaries of United Water include: United Properties Group (United Properties), which is engaged in real estate activities including commercial rentals, land development and sales, golf course operations, and consulting services; United Water UK, an equal partner with Lyonnaise Europe (a wholly-owned subsidiary of Suez Lyonnaise des Eaux) in the Northumbrian Partnership, which has acquired a 20% interest in Northumbrian Water Group plc (NWG), a major investor-owned water and wastewater company in the United Kingdom; and United Water Mid-Atlantic, which owns and operates water and wastewater systems. In addition, the Company has entered into public- private partnerships with the cities of Hoboken, Jersey City and Rahway, New Jersey, whereby the municipalities retain ownership of their systems while the Company operates and maintains them. United Water also has several equity investments in the contract services business. United Water's domestic utility subsidiaries are subject to regulation by the public utility commissions of the states in which they operate. Their accounting must comply with the applicable uniform system of accounts prescribed by these regulatory commissions and must also conform to generally accepted accounting principles as applied to rate-regulated public utilities. The Company continues to follow Statement of Financial Accounting Standards (SFAS) No. 71 "Accounting for the Effects of Certain Types 39 of Regulation" for its regulated utilities. SFAS No. 71 provides for the recognition of regulatory assets and liabilities as allowed by state regulators that are considered probable of recovery. Equity investments: The Company holds an indirect investment in NWG and has representation on its board of directors, and owns a 50% stake in United Water Services and a 33.3% and 20.5% interest in United Water Services Canada (UWS Canada) and United Water Services Mexico (UWS Mexico), respectively. The Company accounts for these investments under the equity method of accounting by recording its proportionate share of earnings included in equity investments in the consolidated balance sheet and equity earnings of affiliates in the statement of consolidated income. Foreign currency translation: Financial statements for United Water UK are translated into U.S. dollars at year-end exchange rates for assets and liabilities and weighted average exchange rates for income and expenses. The resulting cumulative translation adjustment is recorded as a separate component of stockholders' equity in the Company's statement of consolidated common equity. Transactions for UWS Canada and UWS Mexico are recorded in U.S. dollars. Therefore, a foreign currency translation adjustment is not required for these entities. Utility plant: Utility plant is recorded at original cost, which includes direct and indirect labor and material costs associated with construction activities, related operating overheads and an allowance for funds used during construction (AFUDC). AFUDC is a non-cash credit to income and includes both the cost of borrowed funds and a return on equity funds attributable to plant under construction. The original cost of utility property retired or otherwise disposed of in the normal course of business is charged to accumulated depreciation, and salvage (net of removal cost) is credited thereto; no gain or loss is recognized. The costs of property repairs, replacements and renewals of minor property items are included in maintenance expense when incurred. Utility plant acquisition adjustments: Utility plant acquisition adjustments represent the difference between the purchase price and the book value of net assets acquired, and are amortized, generally, on a straight-line basis over a 40-year period. Utility plant acquisition adjustments include a premium paid to acquire operating utilities. At each balance sheet date, the Company evaluates the realizability of utility 40 plant acquisition adjustments on the basis of expected future undiscounted cash flows. Based on its most recent evaluation, the Company believes that no impairment of utility plant acquisition adjustments exists at December 31, 1999. Advances and contributions in aid of construction: When required by the public utility commissions of the states in which the Company's utility subsidiaries operate, outside parties, generally customers and developers, make payments to the Company to fund certain utility capital expenditures to provide water or wastewater service to new customers. Non-refundable amounts received by the Company are recorded as contributions in aid of construction, except where the Company is required to record such amounts directly as a reduction to utility plant. Refundable amounts received are recorded as advances, and are refundable, for limited periods of time, generally as new customers begin to receive service. The remaining balance of any advances received, after the Company has made all required refunds of such advances, is transferred to contributions in aid of construction. The balances of advances and contributions are used to reduce utility plant in determining rate base, and plant funded by advances and contributions is generally not depreciated. However, the public utility commissions in several of the states in which the Company operates permit the depreciation of plant funded by contributions in aid of construction, but also require that contributions be amortized, so that there is no net effect on income from the depreciation of the contributed plant. For income tax purposes, advances and contributions received after 1986 and through June 1996 are included as taxable income, and the related plant is depreciated for tax purposes. In accordance with changes in the tax law, effective June 12, 1996, advances and contributions are no longer included in taxable income, nor is the related plant depreciated for tax purposes. Jointly owned facilities: Utility plant includes United Water New Jersey's 50% interest in the Wanaque South Water Supply Project, the net book value of which was $41.2 million and $42 million at December 31, 1999 and 1998, respectively. United Water New Jersey's share of the project's operating expenses is included in operation and maintenance expenses. Regulatory assets: Included in deferred charges and other assets are regulatory items that are expected to be recognized when included in future rates and recovered from customers as directed by the state public utility commissions. These regulatory assets include items that the public utility commissions have ordered 41 the Company's regulated utilities to defer and prudently incurred costs where the Company expects that recovery is probable because of the past practices of the public utility commissions. Regulatory assets consisted of the following at December 31: - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 - -------------------------------------------------------------------------------- Recoverable income taxes $36,069 $41,141 Deferred employee benefits 16,057 18,268 Rate case 2,412 3,308 Tank painting 2,856 3,117 Other 8,030 9,748 - -------------------------------------------------------------------------------- Total regulatory assets $65,424 $75,582 - -------------------------------------------------------------------------------- Real estate: Real estate properties are carried at the lower of cost, which includes original purchase price and direct development costs, discounted cash flow value or fair value. Real estate taxes and interest costs are capitalized during the development period. The amount of interest capitalized was $200,000 in 1999, $650,890 in 1998 and $651,251 in 1997. Real estate operating revenues include rental income from commercial properties, proceeds from the disposition of real estate properties, revenues from golf course operations and fees from consulting services. In March 1999, United Properties sold two office buildings (Harrison Plaza), which contributed annual revenues of approximately $4.6 million, for $42.1 million. This transaction resulted in a pre-tax gain of $5.8 million and net cash proceeds of $39.5 million. Cash proceeds of $15.6 million were used to pay off long-term debt related to the office buildings. In June 1999, United Properties purchased three office/retail buildings for $40.6 million. Cash proceeds of $23.9 million, as well as $16.8 million of short-term debt were used to finance this purchase. In December 1999, United Properties contributed these buildings to a partnership and in return received preferred units of this partnership, as well as the partnership's assumption of $16.7 million in short-term debt. This investment will generate dividend income, which will be accounted for as other income in the statement of consolidated income. Unamortized debt expense: Debt premium, debt discount and deferred debt expenses are amortized to income or expense over the lives of the applicable issues. 42 Revenues from utility operations: United Water New Jersey and United Waterworks recognize as revenues billings to customers, plus estimated revenues for consumption for the period from the date of the last billing to the balance sheet date. United Water New York recognizes revenues as bills are rendered to customers and does not accrue for unbilled revenues. United Water New York and United Water New Rochelle have been directed by the New York Public Service Commission to institute a Revenue Reconciliation Clause, which requires the reconciliation of billed revenues with pro forma revenues that were used to set rates. Any variances outside a threshold range are accrued or deferred for subsequent recovery from or refund to customers. At December 31, 1999 and 1998, United Water New York and United Water New Rochelle had $4.3 million and $4.4 million, respectively, of net unamortized revenue accruals, resulting from revenues which were more than the amounts used to set rates. These amounts are expected to be refunded over a three-year period. Revenues from real estate activities: Revenues from real estate sales are recognized when the transaction is consummated and title has passed. Revenues from real estate transactions were $.4 million, $4.9 million and $11.2 million in 1999, 1998 and 1997, respectively. United Properties owns several office buildings, with an aggregate net book value of $15.8 million (net of accumulated depreciation of $6.1 million) at December 31, 1999, which are leased to tenants under various operating leases. The following is a schedule, by year, of the minimum future rental income on non-cancelable operating leases outstanding at December 31, 1999: - ------------------------------------------------------------ (thousands of dollars) - ------------------------------------------------------------ 2000 $2,191 2001 2,134 2002 1,758 2003 993 2004 367 Thereafter 428 - ------------------------------------------------------------ Total minimum future rental income $7,871 - ------------------------------------------------------------ Revenues from public-private partnerships: In May 1996, United Water entered into a five-year contract with Jersey City to operate its municipal water system. This contract stipulated that the city could terminate the contract in the fourth or fifth year. In 1999, the city exercised its option to terminate the contract during the fourth year. United Water was then awarded a new eight- year contract with Jersey City, commencing January 1, 2000. This contract also provides for monthly service fees, which are recorded as revenues when 43 billed, as well as certain incentives based on collection and marketing goals, which are accrued, based on historical information. In addition, the contract also provides for capital projects management fees due upon completion of any capital project. Service fee revenues for the years ended December 31, 1999, 1998 and 1997 were $7.8 million, $10 million and $9.2 million, respectively. In 1994, the Company entered into a ten-year contract with the city of Hoboken to operate, maintain and manage its municipal water system. In 1996, this contract was extended for an additional ten years. Under this contract, revenues are recorded monthly based upon customer billings. Revenues for the years ended December 31, 1999, 1998 and 1997 were $4.5 million, $4 million and $3.9 million, respectively. In November 1999, the Company entered into a 20-year contract with Rahway, New Jersey to operate, maintain and manage its municipal water system. Under this contract, revenues are recorded on the percentage of completion basis. Revenues for the two months ended December 31, 1999 were $.5 million. Depreciation: Depreciation of utility plant and real estate properties is recognized using the straight-line method over the estimated service lives of the properties. Utility plant depreciation rates are prescribed by the public utility commissions. The provisions for depreciation in 1999, 1998 and 1997 were equivalent to 2.6%, 2.4% and 2.3%, respectively, of average depreciable utility plant in service. Real estate properties are depreciated over estimated lives ranging between 25 and 50 years. For federal income tax purposes, depreciation is computed using accelerated methods and, in general, shorter depreciable lives as permitted under the Internal Revenue Code. Income taxes: The Company and its eligible subsidiaries file a consolidated federal income tax return. Federal income taxes are deferred under the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes." Under the liability method, deferred income taxes are provided for all differences between financial statement and tax basis of assets and liabilities. Additional deferred income taxes and offsetting regulatory assets or liabilities are recorded to recognize that income taxes will be recoverable or refundable through future revenues. Investment tax credits arising from property additions are deferred and amortized over the estimated service lives of the related properties. 44 Statement of cash flows: United Water considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company made cash payments for interest (net of amounts capitalized) and federal and state income taxes as follows: - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 1997 - -------------------------------------------------------------------------------- Interest, net of amounts capitalized $47,978 $44,651 $44,400 Income taxes 9,141 11,520 7,413 - -------------------------------------------------------------------------------- The following is a supplemental schedule of non-cash transactions in 1999, 1998 and 1997: - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 1997 - -------------------------------------------------------------------------------- Conversion of 5% preference stock $ 4,694 $4,576 $4,967 Contribution of buildings to partnership: Fair value of assets contributed 41,085 - - Short-term debt assumed 16,720 - - - -------------------------------------------------------------------------------- NOTE 2 -MERGER ACTIVITY In August 1999, the Company announced an agreement for Suez Lyonnaise des Eaux to acquire the remaining shares of United Water it did not already own for cash of $35 per share. The acquisition agreement was approved by United Water's shareholders on January 20, 2000, and remains subject to regulatory approvals. The Company expects that this transaction will close during the second quarter of 2000. NOTE 3 -DIVESTITURES In July 1999, the Company announced that it entered into a definitive agreement to sell several small utility subsidiaries to American Water Works Company for approximately $49 million in cash, which are anticipated to result in an after- tax gain of approximately $6 million. These utilities collectively contribute annual revenues of approximately $13.8 million, provide water service to about 35,000 customers and represent less than 4% of the Company's regulated assets and under 2% of the population it serves. The decision to sell these subsidiaries was made in an effort to focus United Water's core utility business in service areas experiencing significant growth and development. Completion of the transaction is contingent upon regulatory approvals. In the first quarter of 2000, the Company concluded the sales of United Water Indiana and United Water Virginia for $30.4 million. These transactions resulted in an after-tax gain of $4.1 million. 45 NOTE 4 -EQUITY INVESTMENTS On June 28, 1996, United Water and Lyonnaise Europe formed the Northumbrian Partnership (the Partnership), an equal partnership which has acquired a 20% interest in NWG, a major investor-owned water and wastewater company in the United Kingdom. United Water's initial $62 million investment in the Partnership was made through its wholly-owned subsidiary in the United Kingdom, United Water UK. Investment in the Partnership was $112.2 million and $96.3 million at December 31, 1999 and 1998, respectively, and is included in equity investments in the consolidated balance sheet. United Water's share of the Partnership's earnings, which totaled $16.3 million and $17.1 million in 1999 and 1998, respectively, is included in equity earnings of affiliates in the accompanying statement of consolidated income. During 1997, the United Kingdom's new Labor Government imposed a one-time "windfall profits" tax on privatized utilities. The levying of this one-time tax negatively impacted the Company's earnings from its investment in NWG by $13.1 million, which was partially offset by the effect of a change in the tax rate on deferred taxes of $2.8 million. The result was a net impact of $10.3 million. The imposition of this tax had been factored into the Company's financial analysis at the time of its investment in NWG and was considered in determining the purchase price. The tax did not have an effect on United Water's cash flow or ability to pay dividends, nor did it affect the long-term benefit the Company expected to derive from its investment in NWG. United Water Services is a 50/50 joint venture between United Water and Suez Lyonnaise des Eaux. On July 28, 1997, United Water Services acquired the remaining 50% stake in JMM Operational Services that it did not already own. United Water Services provides contract operations and maintenance services for water and wastewater facilities and is pursuing additional contract operations. As a result, United Water Services was awarded several contracts. The largest awards include a ten-year contract to operate the wastewater systems in Milwaukee, Wisconsin, and a 20-year contract to operate the water system in Atlanta, Georgia, with a minority partner. United Water Services also provides construction management, training and advisory services, as well as operates a meter installation subsidiary, United Metering, which it purchased from United Water in December 1997 for book value of $6.2 million. In July 1997, the Company also acquired a 30% and a 20% interest in UWS Canada and UWS Mexico, respectively. In December 1998, United Water purchased additional interests and now has a 33.3% and a 20.5% interest in UWS Canada and UWS Mexico, respectively. 46 At December 31, 1999 and 1998, United Water had equity investments relating to contract services of approximately $22.1 million and $19.8 million, respectively, including investments in Canada and Mexico. This amount is included in equity investments in the accompanying consolidated balance sheet. United Water's share of earnings in these investments is included in equity earnings of affiliates in the accompanying statement of consolidated income. NOTE 5 - NOTES PAYABLE United Water and its subsidiaries have a number of credit lines with banks. Borrowings under these credit lines generally bear interest at rates between the London Interbank Offered Rate (LIBOR) and the prime lending rate. United Water pays commitment fees under arrangements with certain of these banks to compensate them for services and to support these lines of credit. There are no legal restrictions placed on the withdrawal or other use of these bank balances. The total credit lines available, the amounts utilized and the weighted average interest rates at December 31 were as follows: - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 - -------------------------------------------------------------------------------- Total credit lines available $320,500 $280,500 Utilized: Drawn 134,000 93,400 Pledged 655 655 Weighted average interest rates 6.2% 5.5% - -------------------------------------------------------------------------------- NOTE 6 - LONG-TERM DEBT The long-term debt repayments over each of the next five years are anticipated to be as follows: 2000--$5.5 million; 2001--$13 million; 2002--$7.2 million; 2003--$7.3 million and 2004--$8.3 million. United Water New Jersey, United Water New York, United Waterworks and other subsidiaries of United Water are subject to certain restrictive covenants related to their issued debt. In December 1994, United Waterworks entered into a medium-term note program that enabled United Waterworks to issue up to $75 million of debt with terms ranging from 9 months to 30 years. The interest rates are set as notes are issued under the program. The first $10 million of notes under this program were issued in 1995. Another $15 million of notes were issued in October 1997. In February 1998, United Waterworks issued an additional $40 million of notes under this program ($20 million at 6.97% due 2023, 47 $15 million at 7.1% due 2028 and $5 million at 6.9% due 2017). In November 1998, United Waterworks issued the final $10 million of notes under this program ($5 million at 6.44% due 2008 and $5 million at 6.97% due 2023). The proceeds were used to redeem outstanding notes payable. In June 1996, United Water entered into a $30 million long-term note agreement with Credit Lyonnais to partially fund its investment in the Northumbrian Partnership. The loan bears interest at a LIBOR-based floating rate and is payable in annual installments through June 2006. In December 1998, the Company entered into an interest rate swap agreement, which fixed the interest rate at 5.24% for 1999 and 5.34% for the years 2000 through 2003. In December 1998, United Water New Jersey issued $35 million of 5% Water Facilities Revenue Bonds through the New Jersey Economic Development Authority due 2028. The proceeds are being used to finance the cost of acquiring, constructing and reconstructing certain water transmission, transportation, storage, treatment, and distribution facilities located in Passaic, Bergen, Sussex, and Hudson counties in New Jersey. In January 1999, United Water issued $30 million of Senior Notes ($5 million at 6.07% due 2005, $10 million at 6.43% due 2009, $10 million at 6.7% due 2019 and $5 million at 7.04% due 2019). The proceeds were used to redeem all remaining shares of 7 5/8% Series B cumulative preferred stock. See Note 8 to the consolidated financial statements for further details. In October 1999, United Water redeemed $25 million of 9.38% senior notes due 2019. This early redemption resulted in an extraordinary after-tax loss of $1.1 million, representing the premium paid and the write-off of unamortized debt costs. NOTE 7 - COMMITMENTS AND CONTINGENCIES Capital Expenditures The future capital expenditures of the Company's utility subsidiaries are projected to aggregate $264 million over the next five years, including $54 million and $53 million in 2000 and 2001, respectively. United Properties currently projects spending $27.9 million over the next five years for capital expenditures on its existing real estate portfolio, including $12.3 million and $3.4 million in 2000 and 2001, respectively. 48 Operating Leases United Water's total consolidated rental expense was approximately $7.3 million in 1999, $6.5 million in 1998 and $6.2 million in 1997. The minimum future lease payments under all non-cancelable operating leases, which consist primarily of buildings and automobiles, at December 31, 1999 are as follows: - ----------------------------------------------------------------- (thousands of dollars) - ----------------------------------------------------------------- 2000 $ 5,749 2001 4,211 2002 2,579 2003 1,615 2004 1,029 Thereafter 1,616 - ----------------------------------------------------------------- Total minimum future lease payments $16,799 - ----------------------------------------------------------------- Legal Matters United Water has been notified that it may be one of several defendants in a lawsuit involving cancer incidences in Dover Township, New Jersey. A complaint has not been filed; however, an agreement was signed on January 29, 1998 with the potential plaintiffs that would toll the statute of limitations for a time period of at least eighteen months. A second agreement, extending the tolling period for an additional eighteen months, was executed in July 1999. The Company has also entered into a joint defense agreement with other potential defendants, which will allow the potential defendants to work together until all disputes with the potential plaintiffs have been resolved. Management believes if a lawsuit is commenced, the Company will have meritorious defenses, and there will be a number of parties against whom it will have recourse. Therefore, the Company believes that the ultimate disposition of this matter will not have a material adverse effect on the financial position or results of operations. The Company has various purchase commitments for materials, supplies and other services incidental to the ordinary conduct of business. In addition, the Company is routinely involved in legal actions arising in the ordinary course of its utility operations. In the opinion of management, none of these matters will have a material adverse impact on the Company. NOTE 8 - PREFERRED AND PREFERENCE STOCK The utility subsidiaries of the Company have issued and outstanding cumulative preferred stock, generally with mandatory redemption provisions requiring annual sinking fund payments. These sinking fund requirements will total $573,000 in 2000 and will total $2,716,000 per year in each of the years 2001 through 49 2004. The redemption of cumulative preferred stock was $29,073,000 in 1999 (including $28.5 million for the early redemption of the 7 5/8% Series B), $2,073,000 in 1998 and $260,000 in 1997. In addition, except as described in the next paragraph, optional sinking fund provisions can be exercised and redemptions made at specific prices for all preferred stock issues. Redemptions require payment of accrued and unpaid dividends up to the date fixed for redemption. As a result of the merger with GWC Corporation in 1994, United Water issued 3,341,078 shares ($46 million par value) of 5% Series A cumulative convertible preference stock, valued at $43.3 million at the time of the merger and $30 million of 7 5/8% Series B cumulative preferred stock, valued at $31.1 million at the time of the merger. Lyonnaise American Holding, Inc. (LAH) owned 97.7% of the Series A preference stock outstanding. The Series B preferred stock has a $1.5 million mandatory annual redemption which commenced in 1998. Shares of the Series B preferred stock could not be redeemed by the Company prior to September 1, 1997. Each share of the Series A preference stock outstanding may be converted into .83333 shares of United Water common stock at any time commencing April 22, 1996. However, under the Governance Agreement between United Water and LAH, LAH may convert no more than 10% of the Series A preference stock it owns during the year commencing April 22, 1996, and an additional 10% cumulatively per year thereafter until April 22, 2003, at which time these conversion restrictions end. During 1999, 340,294 shares of the Series A preference stock with a value of $4.7 million were converted into 283,562 shares of United Water common stock with a value of $4.5 million. During 1998, 331,864 shares of the Series A preference stock with a value of $4.6 million were converted into 276,543 shares of United Water common stock with a value of $4.4 million. At December 31, 1999, LAH owned approximately 30.1% of the issued and outstanding United Water common stock and approximately 98.1% of the issued and outstanding United Water 5% cumulative convertible preference stock. United Water may not redeem any of the outstanding, unconverted Series A preference stock prior to maturity on April 22, 2004. On December 8, 1998, the Company called for redemption of the outstanding 285,000 shares of its 7 5/8% Series B cumulative preferred stock. The redemption, which occurred on January 8, 1999, resulted in the payment of principal, accrued dividends and premium totaling $30 million, with $1.3 million relating to the premium paid on the early redemption. The preferred stock was redeemed with $30 million of 6.07%-7.04% Senior Notes due 2005-2019. 50 On January 7, 2000, the Company called for redemption of all 150,000 shares of its 7 3/8% preferred stock. The redemption resulted in the payment of principal, accrued dividends and premium totaling $15.5 million, with $.5 million relating to the premium paid on the early redemption. The preferred stock was redeemed with short-term financing. NOTE 9 - INCENTIVE STOCK PLANS Under the Company's management incentive plan, the following options have been granted to key employees: Weighted Average Number of Exercise Price Options Per Option - -------------------------------------------------------------------------------- Outstanding at December 31, 1996 887,817 $14.196 Granted 370,840 15.580 Exercised (439,605) 15.032 Canceled or expired (20,062) 15.501 - -------------------------------------------------------------------------------- Outstanding at December 31, 1997 798,990 $14.345 Granted 408,480 18.625 Exercised (186,808) 15.182 Canceled or expired (23,380) 18.626 - -------------------------------------------------------------------------------- Outstanding at December 31, 1998 997,282 $15.841 Granted 425,870 22.737 Exercised (269,465) 16.159 Canceled or expired (4,110) 21.368 - -------------------------------------------------------------------------------- Outstanding at December 31, 1999 1,149,577 $18.301 - -------------------------------------------------------------------------------- All options are currently exercisable and represent the only stock options outstanding at December 31, 1999. A total of 2,499,124 common shares are reserved for issuance under the management incentive plan. In May 1993, the shareholders approved the creation of dividend units to be issued in conjunction with stock options granted under the management incentive plan. One dividend unit may be attached to each unexercised option to purchase a share of United Water common stock, which entitles the option holder to accrue, as a credit against the option exercise price, the aggregate dividends actually paid on a share of United Water common stock while the dividend unit is in effect. In May 1997, the shareholders amended the plan to provide that the dividend units be granted separately and detached from the stock options and accrue dividends for a predetermined period of time, after which, they are distributed. United Water 51 recorded compensation expense of $3.1 million in 1999, $2.6 million in 1998 and $2.3 million in 1997 with respect to the management incentive plan. In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes financial accounting and reporting standards for stock-based employee compensation plans. The statement defines a fair value based method of accounting for employee stock options and similar equity instruments and encourages the use of that method of accounting for all employee stock compensation plans. However, SFAS No. 123 also permits the measurement of compensation costs using the intrinsic value based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has elected to account for its employee stock compensation plans under the guidance prescribed by APB Opinion No. 25 and has made the required pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in SFAS No. 123 had been applied as indicated below: - -------------------------------------------------------------------------------- (thousands of dollars except per share data) 1999 1998 1997 - -------------------------------------------------------------------------------- Net income: As reported $31,117 $43,929 $29,331 Pro forma 31,291 44,140 29,273 Earnings per common share: As reported $ .81 $ 1.19 $ .83 Pro forma .81 1.19 .83 Earnings per common share-assuming dilution: As reported $ .80 $ 1.17 $ .83 Pro forma .81 1.17 .83 - -------------------------------------------------------------------------------- The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the years ended December 31, 1999, 1998 and 1997, respectively: expected volatility of 21.0%, 21.1% and 20.3%; risk-free interest rates of 4.9%, 5.5% and 6.4%; expected life of 6 years and dividend yields of 4.5% in 1999, 5.0% in 1998 and 5.9% in 1997. The weighted average fair value of each option granted during the years ended December 31, 1999, 1998 and 1997 was $3.69, $2.99 and $2.30, respectively. The Black-Scholes option-pricing model requires the input of highly subjective assumptions including the expected stock price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate. In management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 52 In May 1988, the shareholders approved a restricted stock plan for certain key employees. United Water issued 1,250 shares in 1996 in connection with the restricted stock plan. Such shares are earned by the recipients over a five- year period. United Water recorded compensation expense of $69,000 in 1996 with respect to this restricted stock plan. NOTE 10 - SHAREHOLDER RIGHTS PLAN In July 1989, the board of directors of United Water approved a Shareholder Rights Plan designed to protect shareholders against unfair and unequal treatment in the event of a proposed takeover. It also guards against partial tender offers and other hostile tactics to gain control of United Water without paying all shareholders a fair price. Under the plan, each share of United Water's common stock also represents one Series A Participating Preferred Stock Purchase Right (Right) until the Rights become exercisable. The Rights attach to all of United Water's common stock outstanding as of August 1, 1989, or subsequently issued, and expire on August 1, 1999. On July 30, 1999, United Water's Shareholders Rights Plan was amended to extend the expiration of the Rights until April 22, 2006 and to eliminate the provision allowing the redemption of Rights by shareholder action in the event that the board of directors receives an offer to acquire all of the Company's voting stock. The Rights would be exercisable only if a person or group acquired 20% or more of United Water's common stock or announced a tender offer that would lead to ownership by a person or group of 20% or more of the common stock. In certain cases where an acquirer purchased more than 20% of United Water's common stock, the Rights would allow shareholders (other than the acquirer) to purchase shares of United Water's common stock at 50% of market price, diminishing the value of the acquirer's shares and diluting the acquirer's equity position in United Water. If United Water were acquired in a merger or other business combination transaction, under certain circumstances the Rights could be used to purchase shares of the acquirer at 50% of the market price. Subject to certain conditions, if a person or group acquired 20% or more of United Water's common stock, United Water's board of directors may exchange each Right held by shareholders (other than the acquirer) for one share of common stock or 1/100 of a share of Series A Participating Preferred Stock. If an acquirer successfully purchased 80% of United Water's common stock after tendering for all of the stock, the Rights would not operate. If holders of a majority of the shares of United Water's common stock approved a proposed acquisition under specified circumstances, the Rights would be redeemed at one cent 53 each. They could also be redeemed by United Water's board of directors for one cent each at any time prior to the acquisition of 20% of the common stock by an acquirer. On September 15, 1993, United Water's Shareholder Rights Plan was amended in connection with United Water's execution of a merger agreement with GWC Corporation. The amendment generally excepts the majority stockholder of United Water (Suez Lyonnaise des Eaux, formerly known as Lyonnaise des Eaux-Dumez,) and its affiliates and associates from triggering the Rights through the execution of the merger agreement, the performance of the transactions contemplated therein or otherwise. In connection with the merger by and among Lyonnaise American Holding, Inc., Suez Lyonnaise des Eaux, LAH Acquisition Co. and United Water, United Water's Shareholders Rights Plan was amended again on August 20, 1999 to except Lyonnaise des Eaux-Dumez and its affiliates and associates, including Suez Lyonnaise des Eaux, from triggering the Rights through the execution of the merger agreement and the performance of the transactions contemplated therein. The amendment also provides for the expiration of the Shareholders Rights Plan and the Rights as of the effective date of the merger, which is anticipated to occur within the first half of 2000. NOTE 11 - EMPLOYEE BENEFITS In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement addresses disclosure only. It does not address measurement or recognition. United Water adopted SFAS No. 132 in 1998. On July 13, 1999, United Water announced that it was offering a voluntary early retirement program to employees who qualified based on age and length of service. As a result, under SFAS No. 88, "Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," the Company recognized curtailment losses of $3.5 million and $.7 million, respectively, for accelerated pension and other postretirement benefit obligations. These losses resulted from the increase in the Company's benefit obligation for employees who retired earlier than expected. The losses were offset by actuarial gains and therefore, did not affect net income. In addition, United Water recorded an additional $5.1 million and $2.3 million, respectively, for special termination benefits under the pension and other postretirement benefit plans. 54 Defined benefit pension plans: Most of United Water's employees are covered by trusteed, non-contributory, defined benefit pension plans. Benefits under these plans are based upon years of service and the employee's compensation during the last five years of employment. United Water's policy is to fund amounts accrued for pension expense to the extent deductible for federal income tax purposes. It is expected that no funding will be made for 1999. Postretirement benefit plans other than pensions: The Company sponsors a defined benefit postretirement plan that covers hospitalization, major medical benefits and life insurance benefits for retired salaried and non-salaried employees. The Company is funding a portion of its postretirement health care benefits through contributions to Voluntary Employees' Beneficiary Association (VEBA) Trusts. The following sets forth the qualified plans' funded status and reconciles that funded status to the amounts recognized in the Company's balance sheet as of December 31: Pension - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 - -------------------------------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of year $150,579 $138,092 Service cost 4,693 4,367 Interest cost 10,721 9,971 Curtailment 3,460 - Special termination benefits 5,092 - Amendments 363 24 Actuarial (gain)/loss (21,239) 5,095 Benefits paid (7,468) (6,970) - -------------------------------------------------------------------------------- Benefit obligation at end of year 146,201 150,579 - -------------------------------------------------------------------------------- Change in plan assets Fair value of plan assets at beginning of year 227,001 200,853 Actual return on plan assets 28,961 33,118 Benefits paid (7,468) (6,970) - -------------------------------------------------------------------------------- Fair value of plan assets at end of year* 248,494 227,001 - -------------------------------------------------------------------------------- Funded status 102,293 76,422 Unrecognized transition obligation (2,942) (3,569) Unrecognized actuarial gain (67,500) (45,483) Unrecognized prior service cost 2,062 1,867 - -------------------------------------------------------------------------------- Prepaid benefit cost $ 33,913 $ 29,237 - -------------------------------------------------------------------------------- *Primarily stocks and bonds, including $19.5 million and $13.7 million, respectively, in common stock of United Water. 55 Other benefits - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 - -------------------------------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of year $ 60,383 $ 51,900 Service cost 3,504 2,953 Interest cost 4,413 3,954 Amendments and curtailments 3,043 - Actuarial (gain)/loss (12,202) 2,620 Benefits paid (1,253) (1,044) - -------------------------------------------------------------------------------- Benefit obligation at end of year 57,888 60,383 - -------------------------------------------------------------------------------- Change in plan assets Fair value of plan assets at beginning of year 27,090 21,704 Actual return on plan assets 3,606 4,207 Employer contribution 2,343 2,223 Benefits paid (1,253) (1,044) - -------------------------------------------------------------------------------- Fair value of plan assets at end of year 31,786 27,090 - -------------------------------------------------------------------------------- Funded status (26,102) (33,293) Unrecognized transition obligation 18,359 20,470 Unrecognized actuarial gain (19,202) (7,419) - -------------------------------------------------------------------------------- Accrued benefit cost $(26,945) $(20,242) - -------------------------------------------------------------------------------- The components of net periodic pension income for the Company's qualified and supplemental plans were as follows: - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 1997 - -------------------------------------------------------------------------------- Service cost $ 5,032 $ 4,600 $ 3,726 Interest cost 11,280 10,438 9,842 Expected return on plan assets (22,393) (19,748) (16,275) Amortization of transition obligation (583) (583) (583) Amortization of gain (2,269) (1,941) (1,549) Amortization of prior service cost 328 226 268 - -------------------------------------------------------------------------------- Net periodic pension income $ (8,605) $ (7,008) $ (4,571) - -------------------------------------------------------------------------------- Assumptions as of December 31: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Assumed discount rate 8.375% 7.125% 7.375% Expected return on assets 10.0% 10.0% 9.5% Range of compensation increase 3.75-4.5% 3.75-4.5% 3.75-4.5% - -------------------------------------------------------------------------------- 56 Net periodic postretirement benefit cost components were as follows: - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 1997 - -------------------------------------------------------------------------------- Service cost $ 3,504 $ 2,953 $ 2,091 Interest cost 4,413 3,954 3,299 Expected return on plan assets (2,479) (1,896) (1,396) Amortization of transition obligation 1,424 1,441 1,441 Amortization of gain (163) (90) (462) - -------------------------------------------------------------------------------- Net periodic benefit cost $ 6,699 $ 6,362 $ 4,973 - -------------------------------------------------------------------------------- Assumptions as of December 31: - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Assumed discount rate 8.625% 7.375% 7.625% Expected return on assets 9.5% 9.5% 9.5% - -------------------------------------------------------------------------------- The associated health care cost trend rate used in measuring the postretirement benefit obligation at December 31, 1999 was 6.7%, gradually declining to 5.5% in 2009 and thereafter. Changing the assumed health care cost trend rate by one percentage point in each year results in changes in service cost and interest, and plan obligation as follows: 1-Percentage 1-Percentage Point Increase Point Decrease - -------------------------------------------------------------------------------- (in millions) Effect on total service and interest cost components $ 1.9 $(1.7) Effect on postretirement benefit obligation 8.6 (7.3) Postretirement health care costs in excess of those currently included in rates have been deferred in those jurisdictions where their recovery is deemed probable. At December 31, 1999 and 1998, United Water had regulatory assets relating to deferred employee benefits of $16.1 million and $18.3 million, respectively, for recovery in future rates. Supplemental benefit plans: Certain categories of employees are covered by non- funded supplemental plans. The projected benefit obligations of these plans at December 31, 1999 and 1998 totaled $7.6 million and $6.5 million, respectively. At December 31, 1999 and 1998, the unfunded accumulated benefit 57 obligations of $6.9 million and $6 million, respectively, have been recorded in other deferred credits and liabilities and intangible pension assets of $298,000 and $372,000, respectively, are included in deferred charges and other assets. United Water maintains defined contribution savings plans which permit employees to make voluntary contributions with Company matching as defined by the plan agreements. United Water made contributions of $2,083,000, $1,764,000 and $1,155,000 in 1999, 1998 and 1997, respectively, to defined contribution savings plans. NOTE 12 - RATE MATTERS The following rate decisions were rendered to United Water's regulated utilities during 1999: - -------------------------------------------------------------------------------- Effective Allowed Annual % (thousands of dollars) Date ROE Increase Increase - -------------------------------------------------------------------------------- Virginia 01/14/99 10.10% $ 59 7.4 Pennsylvania-STAS* 01/21/99 N/A 52 0.2 Pennsylvania-DSIC** 04/10/99 N/A 54 0.3 Pennsylvania-STAS(Annual) 04/10/99 N/A 397 (a) 1.9 Bethel-STAS(Annual) 04/10/99 N/A (6) (0.7) Florida-Water 05/21/99 9.57% 1,042 11.5 Florida-Wastewater 05/21/99 9.57% 322 2.0 Pennsylvania-DSIC 07/01/99 N/A 59 0.3 New York 07/13/99 10.30% 856 1.9 New York-Sloatsburg/Pothat 07/18/99 N/A 37 8.0 Pennsylvania-DSIC 10/01/99 N/A 80 0.4 Rhode Island 10/01/99 10.40% 420 20.4 New Rochelle-Purch. Water 11/01/99 N/A 290 1.5 Missouri 01/01/00 9.74% 751 23.7 - -------------------------------------------------------------------------------- Totals $4,413 - -------------------------------------------------------------------------------- * State Tax Adjustment Surcharge ** Distribution System Improvement Charge (a) Includes balance of STAS of $154,944 At December 31, 1999, the most significant rate case pending was filed by United Water New Rochelle. In July 1999, United Water New Rochelle applied for a multi-year rate increase. The filing requested an increase in revenues of $3.3 million, or 17.2% for the 12 months ending May 31, 2001, an additional increase of $3.7 million, or 16.4% for the 12 months ending May 31, 2002 and a final increase of $4.1 million, or 58 15.6% for the 12 months ending May 31, 2003. These increases were requested primarily to fund capital investments. In March 1998, United Water Delaware filed a request to increase revenues by $4.1 million or 24.8%, in water revenues. On May 11, 1998, United Water Delaware placed $2.4 million in increased revenues in effect, subject to refund. A final decision was received in June 1999 for $2 million. The difference of $.4 million has been refunded to customers. The Company was fully reserved for these refunds. On October 26, 1996, United Water Delaware placed $2.3 million in increased revenues in effect, subject to refund. On July 15, 1997, the Delaware Public Utility Commission granted the Company a permanent rate increase of $1.6 million. On July 16, 1997, the Company filed an appeal and application for a stay of the Commission's Order. On July 29, 1997, the Delaware Superior Court granted a stay of the Commission decision pending the appeal. On March 31, 1998, the Superior Court decided in favor of the Commission. The Company appealed this decision to the Supreme Court of Delaware and on February 11, 1999, the Supreme Court reversed the Commission's decision which denied the $.7 million annual revenue increase, subject to refund and remanded the matter to the Commission. As a result, the Company reversed a $1.7 million reserve which was established for potential refunds pertaining to this case. In June 1999, the Commission approved a stipulation permitting the Company to retain all revenues collected without refund and permitting the rates currently in effect to become permanent. Generally, the rate awards the Company's operating utilities actually receive are less than the amounts requested, primarily due to differing positions of the parties involved and/or updated information provided during the proceedings. 59 NOTE 13 - INCOME TAXES Deferred income tax assets and liabilities: Deferred tax liabilities (assets) and deferred investment tax credits consisted of the following at December 31: - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 - -------------------------------------------------------------------------------- Basis differences of property, plant and equipment $143,932 $140,094 Real estate transactions and capitalized costs 17,293 15,726 Prepaid employee benefits 8,919 10,941 Other liabilities 29,569 24,151 - -------------------------------------------------------------------------------- Gross deferred tax liabilities 199,713 190,912 - -------------------------------------------------------------------------------- Alternative minimum tax credit carryforwards (15,808) (12,754) Other assets (8,269) (4,763) - -------------------------------------------------------------------------------- Gross deferred tax assets (24,077) (17,517) - -------------------------------------------------------------------------------- Deferred investment tax credits 21,436 21,973 - -------------------------------------------------------------------------------- Total deferred income taxes and investment tax credits $197,072 $195,368 - -------------------------------------------------------------------------------- Income tax provision: A reconciliation of income tax expense at the statutory federal income tax rate to the actual income tax expense for 1999, 1998 and 1997 is as follows: - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 1997 - -------------------------------------------------------------------------------- Statutory tax rate 35% 35% 35% Federal taxes at statutory rates on pretax income before preferred stock dividends of subsidiaries $18,251 $24,389 $19,779 Utility plant acquisition adjustment 720 733 641 State income taxes, net of federal benefit 1,233 985 835 Deferred investment tax credits (547) (523) (510) Equity in foreign investments (5,639) (5,985) (1,135) Other 1,001 (149) 969 - -------------------------------------------------------------------------------- Provision for income taxes $15,019 $19,450 $20,579 - -------------------------------------------------------------------------------- 60 Income tax expense for 1999, 1998 and 1997 consisted of the following: - -------------------------------------------------------------------------------- (thousands of dollars) 1999 1998 1997 - -------------------------------------------------------------------------------- Current: Federal $ 6,819 $ 7,146 $10,668 State 1,432 1,349 969 - -------------------------------------------------------------------------------- Total current $ 8,251 $ 8,495 $11,637 - -------------------------------------------------------------------------------- Deferred (prepaid): Accelerated depreciation $ 8,953 $ 8,305 $ 7,437 Contributions and advances for construction 727 401 200 Prepaid employee benefits (2,022) 2,391 1,400 Real estate transactions and capitalized costs 1,952 117 (181) Alternative minimum tax (3,053) (1,531) (1,507) Investment tax credits (547) (523) (510) State income taxes, net of federal benefit 303 192 316 Other 455 1,603 1,787 - -------------------------------------------------------------------------------- Total deferred $ 6,768 $10,955 $ 8,942 - -------------------------------------------------------------------------------- Total provision for income taxes $15,019 $19,450 $20,579 - -------------------------------------------------------------------------------- The Company considers the undistributed earnings of United Water UK to be permanently reinvested and has not provided deferred taxes on these earnings. At December 31, 1999 and 1998, cumulative undistributed earnings were $34.1 million and $18.8 million, respectively. These undistributed earnings could become subject to additional tax if remitted, or deemed remitted, as a dividend. Management believes it is not practicable to determine the amount of the unrecognized deferred tax liability. NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts at December 31, 1999 and 1998, of those current assets and liabilities that are considered financial instruments approximates their fair values at those dates because of the short maturity of those instruments. Such current assets and liabilities include cash and cash equivalents, restricted cash, accounts receivable and unbilled revenues, notes payable, accounts payable and other current liabilities, and accrued interest and dividends. Real estate and other investments consist primarily of real estate and equity investments in affiliates and are not financial instruments. The Company understands that there are no quoted market prices for the Company's preferred stock, preference stock or long-term debt. The fair values of the Company's long-term debt and preferred and preference stock have been determined by discounting their future cash flows using approximate current market interest rates for securities of a similar nature and 61 duration. Due to the impending acquisition by Suez Lyonnaise des Eaux, preference stock for 1999 was valued using the quoted offered price. The estimated fair values of United Water's financial instruments at December 31 were as follows: - -------------------------------------------------------------------------------- Carrying Fair (thousands of dollars) amount value - -------------------------------------------------------------------------------- 1999 Long-term debt $639,017 $626,206 Preferred and preference stock with mandatory redemption 33,104 65,143 - -------------------------------------------------------------------------------- 1998 Long-term debt $652,969 $715,993 Preferred and preference stock with mandatory redemption 80,282 87,601 - -------------------------------------------------------------------------------- The Company's customer advances for construction have a carrying value of $36.2 million and $30.6 million at December 31, 1999 and 1998, respectively. Their relative fair values cannot be accurately estimated since future refund payments depend on several variables, including new customer connections, customer consumption levels and future rate increases. The Company holds an interest rate cap to limit its exposure to a maximum interest rate of 7% on the United Water New Jersey Variable Rate Demand Water Facilities Refunding Bonds aggregating $130 million. In addition, United Water entered into an interest rate swap agreement on the $30 million long-term note agreement with Credit Lyonnais which fixed the interest rate at 5.24% for 1999 and 5.34% for the years 2000 through 2003. The fair values and carrying amounts of these financial instruments were not material at December 31, 1999. 62 NOTE 15 - EARNINGS PER SHARE In February 1997, the FASB issued SFAS No. 128, "Earnings per Share" (EPS), which specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly held common stock or potential common stock. The statement defines two earnings per share calculations, basic and diluted. The following table is a reconciliation of the numerator and denominator under each method: For the year ended December 31, 1999 - -------------------------------------------------------------------------------- Per Share (thousands except per share data) Income Shares Amount - -------------------------------------------------------------------------------- Basic EPS: Net income applicable to common stock before extraordinary item $32,258 38,528 $ .84 Loss from extraordinary item (1,141) 38,528 (.03) Net income applicable to common stock $31,117 38,528 $ .81 - -------------------------------------------------------------------------------- Assuming dilution: Net income applicable to common stock before extraordinary item $32,258 38,528 Stock options - 339 Convertible preference stock 1,577 1,716 ------- ------- 33,835 40,583 $.83 Loss from extraordinary item (1,141) 40,583 (.03) Net income applicable to common stock $32,694 40,583 $ .80 - -------------------------------------------------------------------------------- For the year ended December 31, 1998 - -------------------------------------------------------------------------------- Per Share (thousands except per share data) Income Shares Amount - -------------------------------------------------------------------------------- Basic EPS: Net income applicable to common stock before extraordinary item $43,929 37,028 $1.19 Net income applicable to common stock $43,929 37,028 $1.19 Assuming dilution: Net income applicable to common stock before extraordinary item $43,929 37,028 Stock options - 165 Convertible preference stock 1,829 1,999 ------- ------ Net income applicable to common stock $45,758 39,192 $1.17 - -------------------------------------------------------------------------------- 63 For the year ended December 31, 1997 - -------------------------------------------------------------------------------- Per Share (thousands except per share data) Income Shares Amount - -------------------------------------------------------------------------------- Basic EPS: Net income applicable to common stock before extraordinary item $29,331 35,492 $.83 Net income applicable to common stock $29,331 35,492 $.83 Assuming dilution: Net income applicable to common stock before extraordinary item $29,331 35,492 Stock options - 156 Convertible preference stock 2,076 2,190 ------- ------ Net income applicable to common stock $31,407 37,838 $.83 - -------------------------------------------------------------------------------- 64 NOTE 16 - SEGMENT INFORMATION In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which requires that business segment financial information be reported in the financial statements utilizing the management approach. Those segments include utility investments, real estate and non-regulated business. United Water's utility investments include its regulated, domestic subsidiaries, United Water New Jersey, United Water New York, and the utility subsidiaries of United Waterworks and United Water Mid-Atlantic. These regulated utilities provide water and wastewater services to the public at large in areas where they possess franchises or other rights to provide such services. The utility subsidiaries are subject to regulation, generally by the regulatory authorities in the states in which they operate. In addition, the Company holds a 50% investment in the Northumbrian Partnership, which acquired a 20% interest in Northumbrian Water Group, a major investor-owned water and wastewater company in the United Kingdom. United Properties Group is a non-regulated business engaged in real estate investment and development activities, including commercial office and retail properties, residential and commercial land development and sales, golf course operations and consulting services. United Properties Group owns a portfolio of real estate located in New Jersey, New York, Delaware, Idaho and Florida. In addition, United Properties contributed buildings to a partnership and in return received preferred units of this partnership. The Company's non-regulated sector consists primarily of a 50% investment in United Water Services, a 50/50 joint venture with Suez Lyonnaise des Eaux, which provides contract operations and maintenance services for water and wastewater facilities, as well as construction management, meter installation and training and advisory services. In addition, United Water entered into public-private partnerships with the cities of Jersey City, Hoboken and Rahway, New Jersey. Under these arrangements, the municipalities retain ownership of their systems while the Company operates and maintains them. Parent and elimination companies are also included in this segment. 65
- ----------------------------------------------------------------------------------------------------- Parent, Non-Regulated Utility Real Water Services and (thousands of dollars) Investments Estate Eliminations Consolidated - ----------------------------------------------------------------------------------------------------- 1999 Operating revenues $ 337,620 $11,039 $ 13,677 $ 362,336 Depreciation and amortization 40,612 1,729 2,015 44,356 Interest expense 40,653 1,692 6,859 49,204 Equity earnings/(loss) of affiliates 16,253 - (4,398) 11,855 Provision for income taxes 20,080 2,311 (7,372) 15,019 Extraordinary item - - (1,141) (1,141) Net income/(loss) 45,741 3,444 (18,068) 31,117 Capital expenditures 82,348 5,524 722 88,594 Identifiable assets 1,675,850 80,781 43,908 1,800,539 - ----------------------------------------------------------------------------------------------------- 1998 Operating revenues $ 325,475 $16,196 $ 14,539 $ 356,210 Depreciation and amortization 35,594 1,593 2,763 39,950 Interest expense 39,361 1,742 4,814 45,917 Equity earnings/(loss) of affiliates 17,103 - (5,652) 11,451 Provision for income taxes 23,288 1,985 (5,823) 19,450 Net income/(loss) 55,734 3,372 (15,177) 43,929 Capital expenditures 100,034 5,038 952 106,024 Identifiable assets 1,626,876 91,739 50,507 1,769,122 - ----------------------------------------------------------------------------------------------------- 1997 Operating revenues $ 313,346 $20,075 $ 17,988 $ 351,409 Depreciation and amortization 31,519 1,419 1,756 34,694 Interest expense 38,936 1,750 4,686 45,372 Equity earnings/(loss) of affiliates 3,304 - (2,991) 313 Provision for income taxes 21,546 2,439 (3,406) 20,579 Net income/(loss) 37,620 3,440 (11,729) 29,331 Capital expenditures 83,342 2,431 1,004 86,777 Identifiable assets 1,512,966 88,388 56,988 1,658,342 - -----------------------------------------------------------------------------------------------------
66 Quarterly Financial Information (unaudited) UNITED WATER RESOURCES AND SUBSIDIARIES Quarter - -------------------------------------------------------------------------------- (thousands of dollars, except per share data) First Second Third Fourth - -------------------------------------------------------------------------------- 1999 Operating revenues $79,227 $91,830 $107,374 $83,905 Operating income 12,397 24,661 24,438 15,899 Net income applicable to common stock 4,797 11,525 11,432 3,363 Net income per common share $ .13 $ .30 $ .29 $ .09 - -------------------------------------------------------------------------------- 1998 Operating revenues $75,442 $86,219 $108,748 $85,801 Operating income 13,720 22,271 39,482 22,127 Net income applicable to common stock 3,134 11,042 19,500 10,253 Net income per common share $ .09 $ .30 $ .52 $ .27 Net income per common share-diluted $ .09 $ .30 $ .51 $ .27 - -------------------------------------------------------------------------------- 1997 Operating revenues $80,006 $87,761 $ 99,690 $83,952 Operating income 14,644 24,991 34,169 21,840 Net income applicable to common stock 4,102 11,244 6,464 7,521 Net income per common share $ .12 $ .32 $ .18 $ .21 Net income per common share-diluted $ .12 $ .31 $ .18 $ .21 - -------------------------------------------------------------------------------- The Company announced strategic initiatives in the third quarter of 1999, which resulted in a net charge of $7.2 million. As disclosed in Note 6 to the consolidated financial statements, the Company redeemed $25 million of 9.38% senior notes due 2019. This early extinguishment resulted in an extraordinary after-tax loss of $1.1 million during the fourth quarter of 1999. As disclosed in Note 4 to the consolidated financial statements, the Company recorded a net $10.3 million charge resulting from the "windfall profits" tax in the United Kingdom during the third quarter of 1997. 67 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------- ------------------------------------------------------ ----------- AND FINANCIAL DISCLOSURE -------------------------- There were no changes in or disagreements with accountants on accounting and financial disclosure in 1999. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------------- Directors of United Water The Board of Directors of United Water is comprised of thirteen directors, divided into three classes. One class is elected yearly and serves for a period of three years. Information with respect to the directors is set forth below. Messrs. Barr, Bourbie, Chaumin and Keane were nominated by Lyonnaise American Holding, Inc. and were elected by United Water's shareholders. All directors of United Water also serve as directors of United Water New Jersey and United Waterworks. Period Served as Director and Business Experience Name and Age During Past Five Years - ------------ ---------------------- Class I Lawrence R. Codey, 55 Director of United Water since 1991. President and Chief Operating Officer of Public Service Electric & Gas Co. 1991 to February 2000. Director, Trust Company of New Jersey, Public Service Enterprise Group, Inc., and Sealed Air Corporation. Donald L. Correll, 49 Chairman of United Water since 1994. Director, Chief Executive Officer, and President of United Water since 1992. Director, Interchange Financial Service Corporation. Robert L. Duncan, Jr., 57 Director of United Water since 1988. General Counsel of American Management Association International since July 1998. Member of the law firm of De Forest & Duer through June 1998. George F. Keane, 70 Director of United Water since 1997. Chairman of Trigen Energy Corp. since 1994. President Emeritus and Senior Investment Advisor for The Common Fund 1993 to 1996. Director, Security Capital U.S. Real Estate Shares, Global Pharmaceutical Co., and Universal Stainless & Alloy Products. Class II Thierry Bourbie, 47 Director of United Water since 1996. President of the International Water Division of Lyonnaise since September 1996 and Director of French Water Operations 1994 to 1996. Chief Executive Officer and Chairman of Lyd Informatique (Lyonnaise Subsidiary) 1994 to 1996. Director, AGBAR. Peter Del Col, 65 Director of United Water since 1983. Chairman of Colson Services 68 Corporation since January 1998 and President 1986 to 1997. Chairman of FundQuest since 1994 and Partner, Colson Investments since 1985. Jon F. Hanson, 63 Director of United Water since 1986. Chairman of Hampshire Management Company since 1976. Director, Prudential Insurance Company of America, Neuman Distributors, Inc. and Consolidated Delivery and Logistics, Inc. and Orange and Rockland Utilities, Inc. to August 1999. Marcia L. Worthing, 57 Director of United Water since 1987. Executive Vice President of Mullin & Associates since November 1998. Senior Vice President--Human Resources and Corporate Affairs of Avon Products Inc. 1995 to 1998. Class III Edward E. Barr, 63 Director of United Water since 1994. Chairman of Sun Chemical Corporation since January 1998, and President and Chief Executive Officer since 1987. President and Chief Executive Officer of DIC American, Inc. 1988 to 1997. Director, Dainippon Ink and Chemicals, Tokyo and First Union Corp.; Trustee, Northwestern Mutual Insurance Company. Charles Chaumin, 47 Director of United Water since July 1998. Vice President of the Americas of Lyonnaise since September 1998. Vice President of Aquas Argentina 1993 to 1998. Frank J. Borelli, 64 Director of United Water since 1983. Director of Marsh & McLennan Companies Inc. since 1988 and Senior Vice President and Chief Financial Officer since 1984. Director, Interpublic Group of Companies Inc. and Express-Scripts, Inc. Douglas W. Hawes, 67 Director of United Water since 1983. Secretary of United Water since 1983. Of Counsel to law firm of LeBoeuf, Lamb, Greene & MacRae, L.L.P. since January 1999 and Partner through 1999. Dennis M. Newnham, 59 Director of United Water since 1986. President and Chief Executive Officer of The B. Manischewitz Company, LLC since January 1999. President and Chief Executive Officer of Tsumura International 1996 to 1998 and Adirondack Beverages Inc. 1995 to 1996. Venture capitalist consultant in 1994. Director, Nutramax Products Inc. Messrs. Correll, Chaumin, Del Col, Hanson and Keane also serve as directors of United Properties Group. Mr. Keane and Ms. Worthing also serve as directors of United Water Services LLC. Mr. Correll serves as a director and officer of certain other subsidiaries of United Water. United Water and two of its major subsidiaries, United Water New Jersey and United Waterworks, have directors who are not salaried employees; each pays a portion of the retainers and fees set forth below. No fees are paid to directors who are salaried officers of United Water. 69 Directors receive an annual retainer of $12,000 and a daily attendance fee of $800. Daily attendance fees for the Executive Committee meeting are $800, and all other committees are $525. Chairpersons of committees receive a double committee fee in light of their responsibilities. United Properties Group, a subsidiary of United Water, and United Water Services LLC, a partnership of United Water and Suez Lyonnaise des Eaux, also have directors who are not salaried employees. They receive a daily attendance fee of $750. During 1999 three directors received an aggregate of $75,000 for their additional service relative to the merger agreement. Directors may defer all or a portion of their compensation. Directors also received, pursuant to United Water's Directors' Restricted Stock Plans, 10,870 shares of restricted stock. Each director, except Messrs. Bourbie and Del Col, attended at least 75% of the aggregate of the number of meetings of the board and committees on which they served. Section 16(a) Beneficial Ownership Reporting Compliance During the fiscal year ended December 31, 1999, the directors and officers of United Water complied with all filing requirements of Section 16(a) of the Securities Exchange Act of 1934, except Mr. Barr did not timely file one report covering one transaction. His transactions in and holdings of United Water Common Stock have been accurately and completely reflected in subsequent filings with the Securities and Exchange Commission. Executive Officers of United Water The following table sets forth the age and principal occupation during the past five years of each executive officer of United Water and its subsidiaries who is not a director of United Water. Business Experience During Past Five Years --------------- Name and Age - ------------ Frank J. DeMicco, 55 President of United Water New Jersey since August 1996. Vice President--Operations from 1992 to 1996. Senior Vice President of United Water M&S since 1994. Michael C. J. Fallon ,53 President of United Properties Group since January 1993. Vice President of United Water M&S since March 1998. Walton F. Hill, 51 Vice President-Regulatory Business of United Water M&S since August 1998. Vice President-Regulatory Law 1994 to1998. Robert J. Iacullo, 46 Vice President of United Waterworks since August 1998. Vice President--Regulatory Business of United Water M&S 1996 to 1998 and Vice President---Rates 1994 to 1996. John T. Marino, 48 Treasurer of United Water M&S since June 1994. John Martinowich, 53 Vice President--External Affairs and Business Development of United Water M&S since January 1998. Assistant Vice President--External Affairs and Marketing 1994 to 1998. Richard B. McGlynn, 61 General Counsel of United Water since August 1996. Vice President and General Counsel of United Water M&S since 1995. David Sherman, 47 President of United Water Services LLC since 1997. Senior Vice President of United Water Services previously known as JMM since 70 1991. Joseph Simunovich,60 President and Chief of Staff of United Water M&S since November 1998. President since 1996 and Senior Vice President--External Affairs and Marketing 1994 to 1996. John J. Turner, 50 Treasurer of United Water since June 1994. Vice President- Chief Financial Officer of United Water M&S since November 1998 and Vice President-Finance and Controller 1994 to 1998. W. Marie Zanavich, 56 Vice President-Chief Information Officer of United Water M&S since December 1998. Assistant Vice President and Chief Information Officer 1994 to 1998. Item 11. EXECUTIVE COMPENSATION - -------- ----------------------- The following table sets forth the annual and long-term compensation of the Chief Executive Officer and the four other most highly compensated executive officers of United Water and its subsidiaries for services in all capacities for the years ended December 31, 1997, 1998 and 1999. Summary Compensation Table
Long-Term Compensation Awards Annual Compensation -------------------------------- ------------------------------------------- Securities Underlying All Other Options Compensation(b) Name and principal position Year Salary($) Bonus($) (#) ($) - ---------------------------------- ------- -------------- ---------- -------------------------------- Donald L. 1999 380,000 150,000 41,500 4,800 Correll(a)....................... Chairman, Chief 1998 365,000 153,100 40,280 4,800 Executive Officer and President 1997 315,000 132,900 42,260 4,750 Joseph Simunovich................. 1999 240,000 90,000 17,670 4,800 President-Chief of Staff- United 1998 215,000 95,000 17,570 4,800 Water M&S 1997 187,500 95,000 18,500 4,750 Frank J. DeMicco.................. 1999 215,000 62,000 16,170 4,800 President--United Water New 1998 200,000 85,000 17,570 4,800 Jersey 1997 177,885 77,500 18,500 4,750 Richard B. McGlynn................ 1999 194,000 49,000 10,620 4,800 General Counsel 1998 187,500 52,000 10,890 4,800 1997 180,000 50,300 11,610 4,750 Michael C.J. Fallon............... 1999 173,000 130,000 6,070 4,800 President--United Properties 1998 163,000 100,800 6,500 5,900 Group 1997 150,000 97,500 7,010 9,000
(a) The number and value of the aggregate restricted Common Stock holdings at December 31, 1999, for D. Correll, 3,750 shares, $128,203. Dividends are paid on such stock. 71 (b) Contributions by United Water to its Thrift Plan. Executive Employment Agreements United Water has, by obtaining shareholder approval of the merger agreement, incurred a change of control. United Water has employment agreements with Messrs. Correll, Simunovich, DeMicco, McGlynn and Fallon. The exact terms of the employment agreements vary. Generally, however, the agreements entitle the executives to severance payments and benefits if, following a change of control, United Water terminates the executive's employment for other than cause or if the executive terminates employment for good reason. Cause is generally defined in the agreements to include actions, such as the executive's failure to perform his or her duties, the willful engaging of the executive in misconduct, or the executive's conviction of a felony, if such actions would cause material injury to United Water. Good reason is defined in the agreements to include, among other things, a reduction in the executive's base salary, an adverse change in the executive's duties or responsibilities, and, in all but one of the agreements, a change of the executive's place of employment to one that is more than 50 miles from where the executive is currently working. Additionally, Mr. Correll's agreement provides that severance payments and benefits will be paid following a termination or resignation for any reason during the six month period following the consummation of a transaction that constitutes a change of control and the agreements of Messrs. Simunovich, DeMicco and Fallon provide that severance payments and benefits will be paid following a termination or resignation for any reason during the thirteenth month following the consummation of a transaction that constitutes a change of control. Severance benefits provided under the agreements include the following: . a payment equal to two or three hundred percent of the executive's annual base salary and annual target bonus; . continued participation for 18 or 24 months in employee benefit plans in which the executive is entitled to participate, or the cash equivalent if continued participation is not possible; and . payment of the executive's nonqualified supplemental retirement plan benefit, assuming for purposes of determining the benefit that it is fully vested, and that the executive has attained at least age 55 with at least 10 years of service under the plan. The agreements also provide for an additional payment, if required, to make the executives whole for any excise tax imposed by Section 4999 of the Internal Revenue Code. It is presently estimated that the value of the severance payments and benefits, including the excise tax gross-up payments, to which the named executive officers would become entitled under their employment agreements, assuming for this purpose that each executive's employment was terminated for one of the reasons set forth above: Mr. Correll, $3,975,600; Mr. Simunovich, $2,201,500; Mr. DeMicco, $1,865,400; Mr. McGlynn, $685,800; and Mr. Fallon, $1,395,600. Retirement Plans The table below contains information concerning estimated annual retirement benefits in accordance with the Employee Retirement Income Security Act payable under United Water's pension plans upon retirement at age 65 for certain key executives with final average pay and years of credited service as set forth below. 72 Pension Plan Table(a)
Years of Credited Service(b) ---------------------------------------------------------------------------- Final average pay 10 15 20 25 30 35 - ----------------- -------- -------- -------- -------- -------- -------- $200,000..................................... $ 60,000 $ 80,000 $100,000 $120,000 $140,000 $140,000 300,000...................................... 90,000 120,000 150,000 180,000 210,000 210,000 400,000...................................... 120,000 160,000 200,000 240,000 280,000 280,000 500,000...................................... 150,000 200,000 250,000 300,000 350,000 350,000 600,000...................................... 180,000 240,000 300,000 360,000 420,000 420,000
(a) Pension benefits are calculated on a straight life annuity basis (other benefit forms are available). Benefits are not subject to any deduction or offset for Social Security or other amounts. (b) The years of credited service as of December 31, 1999, for certain executive officers included in the Summary Compensation Table are as follows: D. Correll, 23 years; J. Simunovich, 7 years; F. DeMicco, 8 years; R. McGlynn, 5 years; and M. Fallon, 2 years. The retirement benefits summarized in the preceding table are provided by United Water's qualified defined benefit pension plan, which covers executive, supervisory and other employees of United Water and certain subsidiaries who are not included in collective bargaining units and by a supplemental executive retirement plan ("SERP"). The qualified plan provides a normal retirement benefit of one and one half percent of a participant's average base wage or salary rate (up to the maximum permitted for tax-qualified retirement plans under federal income tax laws and regulations, which was $160,000 in 1999 and is adjusted for inflation) multiplied by years of credited service. Average base wage or salary rate is defined in the qualified plan and is substantially equivalent to the ''Salary'' reported in the Summary Compensation Table; the average is computed over the five years having the highest base wage or salary of the last ten years of service. The normal form of retirement benefit is a straight life annuity for unmarried participants or an actuarially reduced 50% joint and surviving spouse retirement benefit for married participants. Other optional forms of benefit payment are available on an actuarially equivalent basis. Federal income tax laws and regulations also limit the maximum annual retirement benefit payable from the qualified defined benefit pension plan. The SERP for the benefit of certain key executive employees, including some of those named in the Summary Compensation Table, authorizes the payment of benefits out of general funds in addition to those provided under the qualified defined benefit pension plan according to a formula that takes into account years of service, age, final average compensation (salary and bonus) of the three years having the highest compensation of the last ten years of service and qualified defined benefit pension plan benefits. The normal form of payment is a single life annuity with a ten-year certain guaranty. Other optional forms of benefit payment are available on an actuarially equivalent basis. In lieu of participation in the SERP, Mr. McGlynn participates in a United Water "top-hat" plan. Option Grants Shown below is additional information on grants of options to purchase United Water Common Stock under the Management Incentive Plan during 1999 to the executive officers named in the Summary Compensation Table.
Option Grants in 1999 - --------------------------------------------------------------------------------------------------------------------------- Individual Grants Grant Date Value ----------------------------------------- Number of Securities Percentage of Total Underlying Options Options Granted Exercise or Grant Date Granted(a) to Base Price Expiration Present Name (#) Employees in ($/sh) Date Value($)(b) - ---- 1999 -------------------------------------------------------------------------------------- Donald L. Correll................. 41,500 9.7 22.75 1/7/09 475,240 Joseph Simunovich................. 17,670 4.1 22.75 1/7/09 202,350 Frank J. DeMicco.................. 16,170 3.8 22.75 1/7/09 185,170 Richard B. McGlynn................ 10,620 2.5 22.75 1/7/09 121,616 Michael C.J. Fallon............... 6,070 1.4 22.75 1/7/09 65,510
73 (a) All options were granted and vested on January 7, 1999. The exercise price per share equalled the fair market value on the date of grant. (b) The grant date present value shown is estimated in part using the Black- Scholes option pricing model, a method of approximating the present value of options exercisable at a fixed price at the end of a fixed period. It relies on certain assumptions as of the date of grant of the options, such as interest rates, dividend yield, time to exercise, and stock price sensitivity (volatility). Each of these factors could change over the life of the options and affect the estimated value. The actual value of the options when exercised may be a lesser or greater amount, depending on the price of the stock at the date of exercise; it is also possible that the options will expire unexercised and produce no cash value to the optionee. In addition to the Black-Scholes value calculated above, the value of the dividend equivalents is included in the option value, as the optionee is entitled to receive dividend equivalents for five years. Note that similar to options, factors could change over the term of the option that may increase or decrease the dividend equivalent amount at the time of exercise. The dividend equivalent was calculated by discounting the sum of quarterly dividends for twenty quarters by the risk-free rate, stated below, for the same period. The use of the Black-Scholes model is set forth as an acceptable method of option valuation by the Securities and Exchange Commission. The present value of the options was based on the following assumptions: . Risk-free rate of 6.50% . Dividend yield of 3.33% . 10 years to exercise the options . Stock price volatility of 34.9% . No adjustment has been made for non-transferability or risk of forfeiture associated with the options Option Exercises and Values of Unexercised Options The table below summarizes information as of December 31, 1999, as to exercised and unexercised options to purchase United Water Common Stock held by the executive officers named in the Summary Compensation Table and granted under the Management Incentive Plan.
Aggregated Option Exercises in 1999 and December 31, 1999 Option Values - ---------------------------------------------------------------------------------------------------------- Number of Securities Value of Unexercised, -------------------- ---------------------- Value Underlying Unexercised In-the-Money Shares Acquired ----- ------------------------ ------------ --------------- Realized($) options at December 31, options at December 31, Name On Exercise(#) ----------- ------------------------ ----------------------- - ---- -------------- 1999(#)(a) 1999($) ---------- ------- Donald L. Correll......... 68,290 610,960 124,040 1,896,530 Joseph Simunovich......... -- 70,960 1,193,735 Frank J. DeMicco.......... 43,270 397,337 -- 274,835 Richard B. McGlynn........ -- -- 45,590 777,425 Michael C.J. Fallon....... -- -- 24,710 414,995
(a) All such options are presently exercisable. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- --------------------------------------------------------- ---------- The following information pertains to the Common Stock of United Water beneficially owned, directly or indirectly, by each director and the named executive officers individually and by all directors and executive officers of United 74 Water and its subsidiaries as a group as of January 31, 2000.
Number ------ of -- Name of Beneficial Owner Shares(a)(d) - ------------------------ ------------ Edward E. Barr................................................. 31,435(b)(e) Frank J. Borelli............................................... 9,072 Thierry Bourbie................................................ 4,590 Charles Chaumin................................................ 3,208 Lawrence R. Codey.............................................. 5,829 Donald L. Correll.............................................. 216,466(c) Peter Del Col.................................................. 12,920 Frank J. DeMicco............................................... 1,807 Robert L. Duncan, Jr........................................... 5,407 Michael C. J.Fallon............................................ 28,950(c) Jon F. Hanson.................................................. 39,228(b)(e) Douglas W. Hawes............................................... 15,802 George F. Keane................................................ 5,464 Richard B. McGlynn............................................. 47,936(c) Dennis M. Newnham.............................................. 6,595 Joseph Simunovich.............................................. 76,097(c) Marcia L. Worthing............................................. 10,863(e) Directors and Executive Officers as a Group (24 persons)....... 708,600(b)(c)
- ---------------- (a) None of the directors or executive officers of United Water owns equity securities of United Water or any of its subsidiaries other than Common Stock. As of January 31, 2000, each director or executive officer beneficially owned less than .5% of the outstanding Common Stock of United Water and all of the directors and executive officers as a group beneficially owned less than 1.9% of such stock. Fractional shares have been rounded down to the nearest whole share. (b) Includes, in compliance with applicable regulations and interpretations, shares of Common Stock held by the spouse or other relatives who share the home, in custody for children or grandchildren of the persons indicated or indirectly through a trust or similar arrangement in the following amounts: E. Barr (10,000); J. Hanson (16,845); and all directors and executive officers as a group (27,098). Such persons disclaim any beneficial ownership of such shares. (c) Includes shares of Common Stock which may be acquired pursuant to options awarded under United Water's Management Incentive Plan in the following amounts: D. Correll (102,780); J. Simunovich (70,960); R. McGlynn (45,590); M. Fallon (24,710); and all directors and executive officers as a group (413,550). (d) Includes shares of restricted Common Stock granted pursuant to the Directors' Restricted Stock Plans totaling 64,840 shares. (e) Includes non-voting Common Stock equivalent units acquired in accordance with the Directors' Deferred Compensation Unit Plan in the following amounts: E. Barr (4,977); J. Hanson (16,280); and M. Worthing (3,324). The following corporation is known to United Water to be the beneficial owner of more than 5% of a class of United Water's voting securities. To the knowledge of United Water, no other person is the holder of more than 5% of any class of United Water's voting securities as of January 31, 2000.
Amount and Nature Percent ----------------- ------- of Beneficial of ------------- -- Title of Class Name and Address of Beneficial Owner Ownership Class - ------------------- ------------------------------------ ------------------------------- ---------- Common Stock Lyonnaise American Holding, Inc. 11,687,024 shares 30.0% 2000 First State Boulevard Wilmington, Delaware 19804-0507
75 On August 20, 1999 United Water entered into a merger agreement to merge with a subsidiary of Lyonnaise American Holding, Inc. and become its wholly owned subsidiary. Lyonnaise American Holding, Inc. is a wholly owned subsidiary of Suez Lyonnaise des Eaux. On January 20, 2000 the shareholders of United Water approved the merger, which is subject to additional approval by the regulatory authorities in which United Water conducts its utility business. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- -------------------------------------------------- During 1999, LeBoeuf, Lamb, Greene & MacRae L.L.P., of which Mr. Hawes is of counsel, performed legal services for United Water and its subsidiaries, and S.T. Construction, of which Mr. Simunovich's son-in-law Stephen Martinez is the owner, performed renovation work at various buildings totaling $84,201. Mr. Simunovich does not participate in the bidding or the selection process of contractors for this type of work. In determining which persons may be affiliates of the registrant for the purpose of disclosing on the cover page of this Form 10-K the market value of voting shares held by non-affiliates, the registrant has excluded shares held by the members of its Board of Directors, executive officers and beneficial owners of more than 10% of the common stock outstanding to the extent that they have not disclaimed beneficial ownership. No determination has been made that any director or person connected with a director is an affiliate or that any other person is not an affiliate. The registrant specifically disclaims any intent to characterize any person as being or not being an affiliate. 76 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON - -------- -------------------------------------------------------- FORM 8-K -------- The following documents are filed as part of this report: (a) Financial Statements and Supplementary Data: See Item 8 (b) Reports on Form 8-K filed in the fourth quarter of 1999: None (c) Exhibits: 3(a) Restated Certificate of Incorporation (Articles of Incorporation) of United Water Resources Inc., dated July 14, 1987 (Filed as Exhibit 4(b) to Registration Statement No. 33-20067) 3(b) Certificate of Correction to Restated Certificate of Incorporation of United Water Resources Inc., dated August 13, 1987 (Filed as Exhibit 4(c) to Registration Statement No. 33-20067) 3(c) Certificate of Amendment to the Restated Articles of Incorporation of United Water Resources Inc., dated April 22, 1994, amending Articles 5, 6, 7 and 9 (Filed as Exhibit 3(c) to Registration Statement No. 33- 61617) 3(d) Certificate of Amendment to the Restated Certificate of Incorporation of United Water Resources Inc., dated June 3, 1997, amending Article 5(a) (Filed as Exhibit 3(d) to Registration Statement No. 333-30229) 3(e) Amended By-laws of United Water Resources, dated as of March 10, 1994 (Filed as Exhibit 4(l) to Form 10-K for year ended December 31, 1993) 4(a) Specimen of United Water Resources Common Stock (Filed as Exhibit 4(d) to Registration Statement No. 2-90540) 4(b) Governance Agreement between United Water Resources and Lyonnaise American Holding, Inc., dated April 22, 1994 (Filed in Appendix A to Registration Statement No. 33-51703) 4(c) Amendment No. 1 to Governance Agreement between United Water Resources and Lyonnaise American Holding, Inc., dated June 27, 1996 (Filed as Exhibit 4(g) to Registration Statement No. 333-30229) 4(d) Amendment No. 2 to Governance Agreement between United Water Resources and Lyonnaise American Holding, Inc., dated July 14, 1997 (Filed as Exhibit 4(d) to Form 10-K for the fiscal year ended December 31, 1998) 4(e) Agreement and Plan of Merger between United Water Resources, Inc., Lyonnaise American Holding, Inc., LAH Acquisition Co., and Suez Lyonnaise des Eaux, dated as of August 20, 1999 (Filed as Exhibit 2.1 to Form 8-K dated August 27, 1999) 77 4(f) Additional instruments defining rights of holders of the Company's long-term debt are not being filed because the securities authorized under each such agreement do not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish to the Commission a copy of each such agreement upon request. 4(g) Certificate of Amendment to the Restated Articles of Incorporation of United Water Resources Inc., dated April 22, 1994 for Series A Cumulative Convertible Preference Stock of United Water Resources Inc. (Filed as Exhibit 4(a) to Registration Statement No. 33-61617) 4(h) Certificate of Amendment to the Restated Articles of Incorporation of United Water Resources Inc., dated April 22, 1994 for Series B 7 5/8% Cumulative Preferred Stock of United Water Resources Inc. (Filed as Exhibit 4(b) to Registration Statement No. 33-61617) 4(i) Rights Agreement dated July 12, 1989, amended September 15, 1993 between United Water Resources Inc. and Chase Mellon Shareholders Services, L.L.C. (as successor to First Interstate Bank of California) (Filed originally as Exhibit 4(c) to Registration Statement No. 33- 32672) 4(j) Amendment No. 2 to Rights Agreement between United Water Resources Inc. and Chase Mellon Shareholder Services, L.L.C., dated July 30, 1999 4(k) Amendment No. 3 to Rights Agreement between United Water Resources Inc. and Chase Mellon Shareholder Services, L.L.C., dated August 20, 1999 10(a) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and Donald L. Correll 10(b) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and Frank J. DeMicco 10(c) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and Michael C.J. Fallon 10(d) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and John Martinowich 10(e) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and Walton F. Hill 10(f) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and Robert J. Iacullo 10(g) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and Joseph Simunovich 78 10(h) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and John T. Marino 10(i) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and John J. Turner 10(j) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and Richard B. McGlynn 10(k) Executive Employment Agreement, effective January 1, 1999, between and among United Water Resources Inc. and W. Marie Zanavich 21 Subsidiaries of registrant 23 Consent of Independent Accountants 27 Financial Data Schedule 79 U N I T E D W A T E R R E S O U R C E S I N C. SCHEDULE VIII - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (thousands of dollars) December 31, ------------------------- 1999 1998 1997 ---- ---- ---- Allowance for doubtful accounts: Balance at beginning of period $ 1,204 $ 2,528 $ 2,549 Charges to costs and expenses 2,079 1,613 1,587 Accounts written off (2,351) (3,128) (1,770) Recoveries of accounts written off 302 191 162 ------- ------- ------- Balance at end of period $ 1,234 $ 1,204 $ 2,528 ======= ======= ======= Real estate valuation reserve: Balance at beginning of period $ 2,165 $ 3,201 $ 3,465 Sales of properties - (1,036) (264) ------- ------- ------- Balance at end of period $2,165 $ 2,165 $ 3,201 ======= ======= ======= 80 S I G N A T U R E S 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. UNITED WATER RESOURCES INC. ----------------------------- (Registrant) March 16, 2000 By: DONALD L. CORRELL --------------------- ------------------------ Donald L. Correll Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Chairman, President DONALD L. CORRELL and Chief Executive Officer March 16, 2000 - -------------------------- (Donald L. Correll) Secretary DOUGLAS W. HAWES and Director March 16, 2000 - ------------------------- (Douglas W. Hawes) JOHN J. TURNER Treasurer March 16, 2000 - ------------------------- (John J. Turner)
Directors ----------------------- EDWARD E. BARR 3/16/00 ROBERT L. DUNCAN, JR. 3/16/00 - ---------------------------------- ------- ----------------------- ------- (Edward E. Barr) Date (Robert L. Duncan, Jr.) Date FRANK J. BORELLI 3/16/00 JON F. HANSON 3/16/00 - ---------------------------------- ------- ----------------------- ------- (Frank J. Borelli) Date (Jon F. Hanson) Date THIERRY BOURBIE 3/16/00 DOUGLAS W. HAWES 3/16/00 - ---------------------------------- ------- ----------------------- ------- (Thierry Bourbie) Date (Douglas W. Hawes) Date CHARLES CHAUMIN 3/16/00 GEORGE F. KEANE 3/16/00 - ---------------------------------- ------- ----------------------- ------- (Charles Chaumin) Date (George F. Keane) Date LAWRENCE R. CODEY 3/16/00 DENNIS M. NEWNHAM 3/16/00 - ---------------------------------- ------- ----------------------- ------- (Lawrence R. Codey) Date (Dennis M. Newnham) Date DONALD L. CORRELL 3/16/00 MARCIA L. WORTHING 3/16/00 - ---------------------------------- ------- ----------------------- ------- (Donald L. Correll) Date (Marcia L. Worthing) Date PETER DEL COL 3/16/00 - ---------------------------------- ------- (Peter Del Col) Date
EX-4.J 2 AMEND. NO. 2 TO RIGHTS AGREEMENT DATED 7/30/1999 Exhibit 4(j) AMENDMENT NO. 2 TO RIGHTS AGREEMENT ----------------------------------- Amendment No. 2, dated as of July 30, 1999 (this "Amendment"), between United Water Resources Inc., a New Jersey Corporation (the "Company"), and ChaseMellon Shareholder Services, LLC (the "Rights Agent"), as successor to the trust business of First Interstate Bank, Ltd., to the Rights Agreement, dated as of July 12, 1989 (the "Rights Agreement"), between the Company and the Rights Agent. WHEREAS, the Company and the Rights Agent have entered into the Rights Agreement; WHEREAS, pursuant to Section 27 of the Rights Agreement, the Board of Directors deems it in the best interests of the Company and its shareholders, necessary and desirable, and consistent with and for the purpose of fulfilling the objectives of the Company's Board of Directors in authorizing the execution of the Rights Agreement, to amend the Rights Agreement as set forth below. NOW THEREFORE, in consideration of the premises and the mutual promises set forth herein and in the Rights Agreement, the parties hereto agree as follows: Section 1. Section 2 of the Rights Agreement is hereby amended to read in its entirety as follows: "Appointment of Rights Agent. The Company hereby appoints the Rights Agent ---------------------------- to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-rights agents as it may deem necessary or desirable." Section 2. Section 7(a) of the Rights Agreement is hereby amended by amending clause (i) thereof to read in its entirety as follows: "(i) The Close of Business on April 22, 2006 (the "Final Expiration Date"),." Section 3. Section 20(c) of the Rights Agreement is hereby amended by adding the following sentence as the second sentence: "Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage." Section 4. Section 23 of the Rights Agreement is hereby amended by (i) deleting subsection (c) thereof in its entirety, and (ii) amending subsection (a) thereof to read in its entirety as follows: "(a) The Rights may be redeemed by action of the Board of Directors pursuant to subsection (b) of this Section 23 and shall not be redeemed in any other manner." Section 5. Section 26 of the Rights Agreement is hereby amended to delete the reference to First Interstate Bank of California and its address on the seventeenth through the twenty-second lines thereof and to insert in lieu thereof the following: ChaseMellon Shareholder Services, LLC 85 Challenger Road Ridgefield, New Jersey 07660 Section 6. Except as expressly set forth herein, this Amendment shall not by implication or otherwise alter, modify, amend or in any way affect any of the terms, conditions, covenants or agreements contained in the Rights Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Section 7. This Amendment shall be deemed to be a contract made under the laws of the State of New Jersey and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such state. Section 8. This Amendment may be executed in counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterpart shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the Rights Agreement to be duly executed and attested, all as of the date first above written. UNITED WATER RESOURCES, INC. By:____________________________ Name: Title: Attest: By:__________________________ Title: CHASEMELLON SHAREHOLDER SERVICES, LLC By:___________________________ Name: Title: Attest: By:__________________________ Title: EX-4.K 3 AMEND. NO. 3 TO RIGHTS AGREEMENT DATED 8/20/1999 Exhibit 4(k) THIRD AMENDMENT THIS THIRD AMENDMENT, dated as of August 20, 1999, to the Rights Agreement, dated as of July 12, 1989, as amended (the "Rights Agreement"), between United Water Resources Inc. (the "Company") and ChaseMellon Shareholder Services, LLC, as Rights Agent as successor to First Interstate Bank, Ltd. (the "Rights Agent"). WHEREAS, the parties hereto are parties to the Rights Agreement. WHEREAS, pursuant to Section 27 of the Rights Agreement, the Board of Directors deems it necessary and desirable and in the best interests of the Company and its shareholders to amend the Rights Agreement as set forth below; and WHEREAS, the parties hereto desire to amend the Rights Agreement, as provided herein, NOW, THEREFORE, in consideration of the premises and the mutual promises set forth herein and in the Rights Agreement, the parties hereto agree as follows: 1. The definition of "Acquiring Person" as set forth in Section 1(a) of the Rights Agreement is hereby amended by adding the following provision at the end of the first sentence thereto: "; provided, however, that Lyonnaise shall not be deemed an "Acquiring -------- ------- Person" as a result of the execution, delivery and performance of the Agreement and Plan of Merger (the "Merger Agreement") dated as of August 20, 1999, by and among Lyonnaise American Holding, Inc., Suez Lyonnaise des Eaux, LAH Acquisition Co. and the Company or the consummation of the transactions contemplated in the Merger Agreement. 2. Section 13 of the Rights Agreement is hereby amended by adding the words "other than pursuant to the Merger Agreement," at the end of the introductory phrase "In the event that, directly or indirectly," of such clause. 3. Notwithstanding anything in the Rights Agreement to the contrary, the Rights Agreement and all Rights shall expire at the "Effective Time" as defined in the Merger Agreement, a copy of which is annexed hereto as Annex A. The Company will use reasonable efforts to provide the Rights Agent with advance notice of the anticipated Effective Time. 4. This Amendment shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to contracts to be made and performed entirely within such State, except that the rights, duties and obligation of the Rights Agent under this Amendment shall be governed by the laws of the State of New Jersey. 5. Except as expressly amended hereby, the Rights Agreement shall continue in full force and effect in accordance with the provisions thereof. 6. This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts together constitute but one and the same instrument. IN WITNESS WHEREOF, the Company and the Rights Agent have executed this First Amendment as of the date first above written. UNITED WATER RESOURCES, INC. By:____________________________ Name: Title: Attest: By:__________________________ Name: Title: CHASEMELLON SHAREHOLDER SERVICES LLC, as Rights Agent By:___________________________ Name: Title: Attest: By:__________________________ Name: Title: EX-10.A 4 EXECUTIVE EMPLOYMENT AGREEMENT: DONALD CORRELL Exhibit 10(a) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1999 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and Donald L. Correll (the "Executive") (this "Agreement"). The Company desires to employ the Executive and the Executive is willing to be employed by the Company, on the terms and conditions hereinafter provided. In order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The Executive's employment under this Agreement shall ---- commence on the Commencement Date and shall end at the close of business on December 31, 2000; provided, however, that the term of this Agreement (the -------- ------- "Term") shall thereafter be automatically extended for each succeeding 1-year period unless either party hereto provides the other party with a written notice at least 60 days prior to the end of the then current Term, advising that the party providing the notice shall not agree to so extend the Term; and provided, -------- further, that should a Change of Control occur during the Term, the Term shall - ------- be extended to the date which is the end of the 24-month period immediately following the consummation of the transaction which constitutes the Change of Control. Notwithstanding the preceding, the Term shall not extend beyond the date on which the Executive attains age 65 without the prior written consent of the Company; provided, however, that the end of the Term solely on account of -------- ------- the Executive attaining age 65 shall not entitle the Executive to any benefits under Section 7. 3. Title, Duties and Authority. The Executive shall serve as Chief --------------------------- Executive Officer, President and Chairman of the Board of Directors of United Water Resources Inc. (the "Board") and shall have such responsibilities and duties (consistent with the Executive's positions as Chief Executive Officer, President and Chairman of the Board) as may from time to time be assigned to the Executive by the Board, and shall have all of the powers and duties usually incident to the offices of Chief Executive Officer, President and Chairman of the Board. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company, except for vacations, illness or incapacity. 4. Compensation and Benefits. ------------------------- (a) Base Salary. During the Term, the Company shall pay the Executive ----------- a base salary ("Base Salary"), payable in equal installments in accordance with the Company's normal practice for paying base salaries to its executive employees. The Base Salary shall initially be payable at the rate of $380,000 per annum, and shall be subject to annual review by the Board for discretionary annual increases. (b) MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. (c) Employee Benefits. The Executive shall be entitled to participate ----------------- in all of the Company's employee benefit plans made available by the Company (or any affiliate thereof) to its executives during the Term as may be in effect from time to time. In addition, during the Term, the Executive shall accrue benefits under the United Water Resources Inc. Supplemental Retirement Plan for Key Executives (the "SERP"). (d) Expenses. During the Term, the Executive shall be entitled to -------- receive prompt reimbursement upon submission of expense claims to the Company for all reasonable and customary expenses incurred by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company for its executive employees. (e) Vacations. The Executive shall be entitled to paid vacation, paid --------- holidays, sick days and personal days pursuant to the Company's regular policies applicable to its executive employees. (f) Taxes. The Company may withhold from any amounts payable under ----- this Agreement such federal, state, local and/or other taxes as shall be required to be withheld pursuant to any applicable law or regulation. 5. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall become entitled to the receipt of benefits under the Company's long-term disability plan, and within 30 days after a written Notice of Termination (as defined in Section 6(a)) is given to the Executive by the Company, the Executive shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following which is materially injurious to the business or reputation of the Company or any of its affiliates: (i) the failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the willful violation by the Executive of any of the Executive's material obligations hereunder; (iii) the willful engaging by the Executive in misconduct; or (iv) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive shall not be terminated for Cause without: (A) at least 15 days' advance notice to the Executive setting forth the reasons for the Company's intention to terminate the Executive's employment hereunder for Cause; (B) the failure of the Executive to cure the nonperformance, violation or misconduct described in the notice referred to in clause (A) of this paragraph, if cure thereof is possible, to the reasonable satisfaction of the Board, within 15 days of such notice; and (C) delivery to the Executive of a Notice of Termination (as defined in Section 6(a)) from the Company notifying him that in the good faith opinion of a majority of the Board, the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. (d) Good Reason. The Executive may terminate his employment hereunder ----------- for "Good Reason" by providing a Notice of Termination to the Company within 30 days after the occurrence, without the Executive's consent, of one of the following events that has not been cured within 15 days after written notice thereof has been given to the Company by the Executive: (i) a reduction of the Executive's Base Salary; (ii) a material and adverse change in the Executive's title, status, authority, duties or function (in each case, other than as may be contemplated by this Agreement); (iii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iv) a change of the Executive's place of employment by the Company to a location which is greater than 50 miles from the location of the Executive's place of employment by the Company as of the Commencement Date; or (v) the willful violation by the Company of any of the Company's material obligations hereunder. (e) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. (f) Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. 6. Termination Procedure. --------------------- (a) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than a termination on account of the Executive's death pursuant to Section 5(a)) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder pursuant to the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean: ------------------- (i) if the Executive's employment is terminated on account of the Executive's death pursuant to Section 5(a), the date of the Executive's death; (ii) if the Executive's employment is terminated on account of the Executive's Disability pursuant to Section 5(b), 30 days after a Notice of Termination has been provided pursuant thereto (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty 30-day period); (iii) if the Executive's employment is terminated for Cause pursuant to Section 5(c), the date specified in the Notice of Termination provided pursuant thereto; and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is provided or any later date (within 30 days) set forth in such Notice of Termination. 7. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment with the Company is ----- terminated on account of the Executive's death pursuant to Section 5(a), the Company shall as soon as practicable pay to the Executive's estate or as may be directed by the legal representatives of the Executive's estate any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such pro rated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"). The Company shall provide the Executive through the Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (b) Disability. If the Executive's employment with the Company is ---------- terminated on account of the Executive's Disability pursuant to Section 5(b), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such pro rated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee. The Company shall provide the Executive through the Executive's Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (c) By the Company for Cause or By the Executive Without Good ------------------------------------------------------------- Reason. If the Executive's employment with the Company is terminated by the - ------ Company for Cause pursuant to Section 5(c) or by the Executive without Good Reason pursuant to Section 5(f), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and the Executive shall forfeit his entire then unpaid MIP payment(s), if any. The Company shall provide the Executive through his Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Termination By the Company Without Cause or By the Executive for ---------------------------------------------------------------- Good Reason or Within 6 Months Following a Change of Control. If the - ------------------------------------------------------------ Executive's employment with the Company is terminated by the Company (other than for Disability or Cause), or by the Executive (1) for Good Reason pursuant to Section 5(d), or (2) with or without Good Reason (other than to avoid his termination by the Company for Cause) at any time within the 6-month period commencing upon the consummation of any transaction which constitutes a Change of Control, as defined below, then the Company shall: (i) within 30 days of the Executive's Date of Termination, pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through his Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 300% of his Base Salary in effect as of his Date of Termination, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay the Executive his Base Salary in effect as of his Date of Termination for the 36-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8) at the times such payments would otherwise have been made under Section 4(a); (iii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 300% of the greater of (I) his then current "Cash Target Amount" under the MIP, or (II) his most recently paid or declared cash award under the MIP, or (B) if the Executive's Date of Termination does not occur within 24 months following the consummation of any transaction which constitutes a Change of Control, as defined below, pay the Executive an annual MIP payment for each of the 3 MIP years immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), each such payment in an amount equal to his "Cash Target Amount" under the MIP (as of his Date of Termination), and to be made at the times such payments would otherwise have been made under the MIP; (iv) provide the Executive for the 36-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination; (v) solely if the Executive's Date of Termination occurs within 24 months following the consummation of the transaction which was the subject of shareholder approval), (A) his SERP benefit shall become fully vested and nonforfeitable, (B) if he had not attained age 55 as of his Date of Termination, he shall be (I) deemed to have attained age 55 for purposes of the early retirement provisions of the SERP, and (II) credited with an additional number of years of service for SERP benefit accrual purposes equal to the difference between his age as of his Date of Termination and age 55, (C) if he had not accumulated 10 years of service under the SERP as of his Date of Termination, he shall be deemed to have 10 years of service for SERP benefit accrual purposes and (D) within 30 days of his Date of Termination, the Company shall pay the Executive an amount equal to the present value of his accrued SERP benefit (utilizing a discount rate for calculating such present value equal to the "discount rate," as defined in Statement of Financial Accounting Standards No. 87 published by the Financial Accounting Standards Board, utilized for purposes of the most recent audit disclosure relating to the Company's tax-qualified defined benefit pension plan preceding the Change of Control by the "enrolled actuary" (as defined in Section 7701 (a)(35) of the Internal Revenue Code of 1986, as amended (the "Code")), who signed the Schedule B to the most recent Internal Revenue Service Form 5500 relating to the Company's tax- qualified defined benefit pension plan, filed prior to the Change of Control); and (vi) solely if the Executive's Date of Termination occurs within 24 months following the consummation of any transaction which constitutes a Change of Control, as defined below, he shall receive retiree medical coverage under the United Water Resources Inc. Corporate Medical Benefits Program. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) the Company or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries or other affiliates controlled by the Company or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of the Company's then outstanding securities; provided, however, that if such -------- ------- "Person" shall be Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1999), individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity, or a plan of liquidation of the Company or an agreement for the sale or disposition by the Company of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 20% of the combined voting power of the Company's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the Maximum Stockholder Investment Percentage plus two percentage points). 8. Restrictions. ------------ (a) Reasonable Covenants. It is expressly understood by and between -------------------- the Company and the Executive that the covenants contained in this Section 8 are an essential element of this Agreement and that but for the agreement by the Executive to comply with these covenants and thereby not to diminish the value of the organization and goodwill of the Company or any affiliate of the Company, if any, including without limitation relations with their employees, suppliers, customers and accounts, the Company would not enter into this Agreement. The Executive has independently consulted with his legal counsel and after such consultation agrees that such covenants are reasonable and proper. (b) Noncompetition; No Diversion of Customers; Etc. During the Term ---------------------------------------------- and for 36 months after the Executive's Date of Termination, the Executive shall not: (i) engage directly, alone or in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or entity, in competition with the businesses of the Company and/or any of its affiliates as of the Executive's Date of Termination; (ii) divert to any competitor of the Company or any of its affiliates, any customer of the Company or any of its affiliates or any "prospective customer" (as defined in the last paragraph of this Section 8(b)) of the Company or any of its affiliates; or (iii) solicit or encourage any officer, employee or consultant of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates for employment by or with any competitor of the Company or any of its affiliates; provided, however, that the Executive may invest in stocks, bonds or other - -------- ------- securities of any competitor of the Company or any of its affiliates if: (A) such stocks, bonds or other securities are listed on any national or regional securities exchange or have been registered under Section 11(g) of the Securities Exchange Act of 1934; (B) the Executive's investment does not exceed, in the case of any class of the capital stock of any one issuer, 1% of the issued and outstanding shares, or, in the case of other securities, 1% of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by the Company and/or any of its affiliates with any state, district, territory or possession of the United States or any governmental subdivision, agency or instrumentality thereof by virtue of any statute, law, regulation or administrative practice. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered severable and shall become and shall be immediately amended solely with respect to such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. Except as provided in this Section 8 and in Section 3, nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or industry in any capacity. For purposes of clause (ii) of this Section 8(b), the term "prospective customer" shall mean any entity, business or individual included on a list of prospective customers provided to the Executive by the Company within 15 days following his Date of Termination, which list contains the names of those entities, businesses and individuals with whom the Company had been in contact prior to the Executive's Date of Termination for purposes of establishing a customer relationship therewith. Any entity, business or individual not appearing on the aforementioned list of prospective customers due to the failure of the Executive to advise the Company of such contact shall be considered a "prospective customer" for purposes of clause (ii) of this Section 8(b). (c) Public Support and Assistance. The Executive agrees that ----------------------------- following any termination of his employment hereunder by the Company, the Executive shall not disclose or cause to be disclosed any negative, adverse or derogatory comments or information of a substantial nature about the Company or its management, or about any product or service provided by the Company, or about the Company's prospects for the future (including any such comments or information with respect to affiliates of the Company). The Company and/or any of its affiliates may seek the assistance, cooperation or testimony of the Executive following any such termination in connection with any investigation, litigation or proceeding arising out of matters within the knowledge of the Executive and related to the Executive's position as an officer or employee of the Company, and in any such instance, the Executive shall provide such assistance, cooperation or testimony and the Company shall pay the Executive's reasonable costs and expenses in connection therewith; in addition, if such assistance, cooperation or testimony requires more than a nominal commitment of the Executive's time, the Company shall compensate the Executive for such time at a per diem rate derived from the Executive's Base Salary at the time of the Executive's Date of Termination. (d) Nondisclosure of Confidential Information. During the Term, the ----------------------------------------- Executive shall hold in a fiduciary capacity for the benefit of the Company and its affiliates all Confidential Information (as defined below). After termination of the Executive's employment with the Company, the Executive shall keep secret and confidential all Confidential Information and shall not use or disclose to any third party in any fashion or for any purpose whatsoever, any Confidential Information. As used herein, "Confidential Information" shall mean any information regarding this Agreement, or any other information regarding the Company or its affiliates which is not available to the general public, and/or not generally known outside the Company or any such affiliate, to which the Executive has or shall have had access at any time during the course of the Executive's employment with the Company, including, without limitation, any information relating to the Company's (and its affiliates'): (i) business, operations, plans, strategies, prospects or objectives; (ii) products, technologies, processes, specifications, research and development operations or plans; (iii) customers and customer lists; (iv) sales, service, support and marketing practices and operations; (v) financial condition and results of operations; (vi) operational strengths and weaknesses; and (vii) personnel and compensation policies and procedures. Notwithstanding the foregoing provisions of this Section 8, the Executive may discuss this Agreement with the members of the Executive's immediate family and with the Executive's personal legal and tax advisors. (e) Specific Performance. Without intending to limit the remedies -------------------- available to the Company, the Executive agrees that damages at law would be an insufficient remedy to the Company in the event that the Executive violates any of the provisions of this Section 8, and that the Company may apply for and, upon the requisite showing, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. 9. Excise Tax Gross-Up Payment. If any payments made and/or benefits --------------------------- provided to the Executive by the Company, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Company payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive, whose fees and expenses shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which the Executive resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 10. Legal Fees. To provide the Executive with reasonable assurances ---------- that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform any of its obligations under this Agreement, the Company shall pay all of the reasonable attorneys' fees and expenses and court and arbitration costs incurred by the Executive and any of his beneficiaries, heirs and legal representatives, should a court of competent jurisdiction or an arbitrator determine that the Company shall have failed to perform any of its obligations under this Agreement. 11. Notice. For the purposes of this Agreement, notices, demands and ------ all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Donald L. Correll 375 Spring Avenue Ridgewood, NJ 07450 If to the Company: Office of the General Counsel United Water Resources Inc. 200 Old Hook Road Harrington Park, NJ 07640-1799 or to such other address as either of the parties may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Successors. Without the prior written consent of the Executive, ---------- this Agreement cannot be assigned by the Company except that it shall be binding automatically on any successors and assigns of all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). In addition, without the prior written consent of the Company, this Agreement cannot be assigned by the Executive, except that the right to receive payments or benefits hereunder may be transferred by will or the laws of descent and distribution. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives. 13. Arbitration. Except as provided in Section 8(e), all ----------- controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration under the rules of the American Arbitration Association then in effect in the State of New Jersey, as the sole and exclusive remedy of either party, and judgment upon any such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The costs of arbitration shall be borne by the unsuccessful party or otherwise as determined by the arbitrators in their discretion. 14. Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflicts of law principles. 15. Amendments. No provision of this Agreement may be modified, ---------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated for such purpose by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement ---------------- of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 18 Indemnification. The Company shall indemnify the Executive to --------------- the full extent permitted by the New Jersey Business Corporation Act and any provision of the By-Laws of the Company, as amended from time to time, generally applicable to officers and directors of the Company, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorneys' fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the actions by the Executive as an officer or employee of, the Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 18 or elsewhere in this Agreement is intended to prevent the Company from indemnifying the Executive to any greater extent than is required by this Section 18. 19 Severability. The invalidity or unenforceability of any ------------ provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_______________________________ Name: Marcia L. Worthing Title: Chair, Compensation Committee DONALD L. CORRELL _________________________________ EX-10.B 5 EXECUTIVE EMPLOYMENT AGREEMENT: FRANK DEMICCO Exhibit 10(b) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1999 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and Frank J. DeMicco (the "Executive") (this "Agreement"). The Company desires to employ the Executive and the Executive is willing to be employed by the Company, on the terms and conditions hereinafter provided. In order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The Executive's employment under this Agreement shall ---- commence on the Commencement Date and shall end at the close of business on December 31, 2000; provided, however, that the term of this Agreement (the -------- ------- "Term") shall thereafter be automatically extended for each succeeding 1-year period unless either party hereto provides the other party with a written notice at least 60 days prior to the end of the then current Term, advising that the party providing the notice shall not agree to so extend the Term; and provided, -------- further, that should a Change of Control occur during the Term, the Term shall - ------- be extended to the date which is the end of the 24-month period immediately following the consummation of the transaction which constitutes the Change of Control . Notwithstanding the preceding, the Term shall not extend beyond the date on which the Executive attains age 65 without the prior written consent of the Company; provided, however, that the end of the Term solely on account of -------- ------- the Executive attaining age 65 shall not entitle the Executive to any benefits under Section 7. 3. Title, Duties and Authority. The Executive shall serve as --------------------------- President of United Water Resources New Jersey Inc. and shall have such responsibilities and duties (consistent with the Executive's position as President) as may from time to time be assigned to the Executive by the Board of Directors of United Water Resources Inc. (the "Board"), and shall have all of the powers and duties usually incident to the office of President. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company, except for vacations, illness or incapacity. 4. Compensation and Benefits. ------------------------- (a) Base Salary. During the Term, the Company shall pay the Executive ----------- a base salary ("Base Salary"), payable in equal installments in accordance with the Company's normal practice for paying base salaries to its executive employees. The Base Salary shall initially be payable at the rate of $215,000 per annum, and shall be subject to annual review by the Board for discretionary annual increases. (b) MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. (c) Employee Benefits. The Executive shall be entitled to participate ----------------- in all of the Company's employee benefit plans made available by the Company (or any affiliate thereof) to its executives during the Term as may be in effect from time to time. In addition, during the Term, the Executive shall accrue benefits under the United Water Resources Inc. Supplemental Retirement Plan for Key Executives (the "SERP"). (d) Expenses. During the Term, the Executive shall be entitled to -------- receive prompt reimbursement upon submission of expense claims to the Company for all reasonable and customary expenses incurred by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company for its executive employees. (e) Vacations. The Executive shall be entitled to paid vacation, paid --------- holidays, sick days and personal days pursuant to the Company's regular policies applicable to its executive employees. (f) Taxes. The Company may withhold from any amounts payable under ----- this Agreement such federal, state, local and/or other taxes as shall be required to be withheld pursuant to any applicable law or regulation. 5. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate upon ----- the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall become entitled to the receipt of benefits under the Company's long-term disability plan, and within 30 days after a written Notice of Termination (as defined in Section 6(a)) is given to the Executive by the Company, the Executive shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following which is materially injurious to the business or reputation of the Company or any of its affiliates: (i) the failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the willful violation by the Executive of any of the Executive's material obligations hereunder; (iii) the willful engaging by the Executive in misconduct; or (iv) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive shall not be terminated for Cause without: (A) at least 15 days' advance notice to the Executive setting forth the reasons for the Company's intention to terminate the Executive's employment hereunder for Cause; (B) the failure of the Executive to cure the nonperformance, violation or misconduct described in the notice referred to in clause (A) of this paragraph, if cure thereof is possible, to the reasonable satisfaction of the Board, within 15 days of such notice; and (C) delivery to the Executive of a Notice of Termination (as defined in Section 6(a)) from the Company notifying him that in the good faith opinion of a majority of the Board, the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. (d) Good Reason. The Executive may terminate his employment hereunder ----------- for "Good Reason" by providing a Notice of Termination to the Company within 30 days after the occurrence, without the Executive's consent, of one of the following events that has not been cured within 15 days after written notice thereof has been given to the Company by the Executive: (i) a reduction of the Executive's Base Salary; (ii) a material and adverse change in the Executive's title, status, authority, duties or function (in each case, other than as may be contemplated by this Agreement); (iii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iv) a change of the Executive's place of employment by the Company to a location which is greater than 50 miles from the location of the Executive's place of employment by the Company as of the Commencement Date; or (v) the willful violation by the Company of any of the Company's material obligations hereunder. (e) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. (f) Without Good Reason. The Executive may terminate the ------------------- Executive's employment hereunder without Good Reason by providing the Company with a Notice of Termination. 6. Termination Procedure. --------------------- (a) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than a termination on account of the Executive's death pursuant to Section 5(a)) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder pursuant to the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean: ------------------- (i) if the Executive's employment is terminated on account of the Executive's death pursuant to Section 5(a), the date of the Executive's death; (ii) if the Executive's employment is terminated on account of the Executive's Disability pursuant to Section 5(b), 30 days after a Notice of Termination has been provided pursuant thereto (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty 30-day period); (iii) if the Executive's employment is terminated for Cause pursuant to Section 5(c), the date specified in the Notice of Termination provided pursuant thereto; and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is provided or any later date (within 30 days) set forth in such Notice of Termination. 7. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment with the Company is ----- terminated on account of the Executive's death pursuant to Section 5(a), the Company shall as soon as practicable pay to the Executive's estate or as may be directed by the legal representatives of the Executive's estate any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"). The Company shall provide the Executive through the Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (b) Disability. If the Executive's employment with the Company is ---------- terminated on account of the Executive's Disability pursuant to Section 5(b), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee. The Company shall provide the Executive through the Executive's Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (c) By the Company for Cause or By the Executive Without Good --------------------------------------------------------- Reason. If the Executive's employment with the Company is terminated by the - ------ Company for Cause pursuant to Section 5(c) or by the Executive without Good Reason pursuant to Section 5(f), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and the Executive shall forfeit his entire then unpaid MIP payment(s), if any. The Company shall provide the Executive through his Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Termination By the Company Without Cause or By the Executive ------------------------------------------------------------ for Good Reason or During the Thirteenth Month Following a Change of Control. If - ---------------------------------------------------------------------------- the Executive's employment with the Company is terminated by the Company (other than for Disability or Cause), or by the Executive (1) for Good Reason pursuant to Section 5(d), or (2) with or without Good Reason (other than to avoid his termination by the Company for Cause) during the thirteenth calendar month beginning after the consummation of any transaction which constitutes a Change of Control, as defined below, then the Company shall: (i) within 30 days of the Executive's Date of Termination, pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through his Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 300% of his Base Salary in effect as of his Date of Termination, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay the Executive his Base Salary in effect as of his Date of Termination for the 24-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8) at the times such payments would otherwise have been made under Section 4(a); (iii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 300% of the greater of (I) his then current "Cash Target Amount" under the MIP, or (II) his most recently paid or declared cash award under the MIP, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), pay the Executive an annual MIP payment for each of the 2 MIP years immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), each such payment in an amount equal to his "Cash Target Amount" under the MIP (as of his Date of Termination), and to be made at the times such payments would otherwise have been made under the MIP; (iv) provide the Executive for the 24-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination; and (v) solely if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), (A) his SERP benefit shall become fully vested and nonforfeitable, (B) if he had not attained age 55 as of his Date of Termination, he shall be deemed to have attained age 55 for purposes of the early retirement provisions of the SERP, (C) if he had not accumulated 10 years of service under the SERP as of his Date of Termination, he shall be deemed to have 10 years of service for SERP benefit accrual purposes and (D) within 30 days of his Date of Termination, the Company shall pay the Executive an amount equal to the present value of his accrued SERP benefit (utilizing a discount rate for calculating such present value equal to the "discount rate," as defined in Statement of Financial Accounting Standards No. 87 published by the Financial Accounting Standards Board, utilized for purposes of the most recent audit disclosure relating to the Company's tax-qualified defined benefit pension plan preceding the Change of Control by the "enrolled actuary" (as defined in Section 7701(a)(35) of the Internal Revenue Code of 1986, as amended (the "Code")), who signed the Schedule B to the most recent Internal Revenue Service Form 5500 relating to the Company's tax- qualified defined benefit pension plan, filed prior to the Change of Control). Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) the Company or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries or other affiliates controlled by the Company or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of the Company's then outstanding securities; provided, however, that if such -------- ------- "Person" shall be Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1999), individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity, or a plan of liquidation of the Company or an agreement for the sale or disposition by the Company of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 20% of the combined voting power of the Company's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). 8. Restrictions. ------------ (a) Reasonable Covenants. It is expressly understood by and -------------------- between the Company and the Executive that the covenants contained in this Section 8 are an essential element of this Agreement and that but for the agreement by the Executive to comply with these covenants and thereby not to diminish the value of the organization and goodwill of the Company or any affiliate of the Company, if any, including without limitation relations with their employees, suppliers, customers and accounts, the Company would not enter into this Agreement. The Executive has independently consulted with his legal counsel and after such consultation agrees that such covenants are reasonable and proper. (b) Noncompetition; No Diversion of Customers; Etc. During the ---------------------------------------------- Term and for 24 months after the Executive's Date of Termination, the Executive shall not: (i) engage directly, alone or in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or entity, in competition with the businesses of the Company and/or any of its affiliates as of the Executive's Date of Termination; (ii) divert to any competitor of the Company or any of its affiliates, any customer of the Company or any of its affiliates or any "prospective customer" (as defined in the last paragraph of this Section 8(b)) of the Company or any of its affiliates; or (iii) solicit or encourage any officer, employee or consultant of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates for employment by or with any competitor of the Company or any of its affiliates; provided, however, that the Executive may invest in stocks, bonds or other - -------- ------- securities of any competitor of the Company or any of its affiliates if: (A) such stocks, bonds or other securities are listed on any national or regional securities exchange or have been registered under Section 11(g) of the Securities Exchange Act of 1934; (B) the Executive's investment does not exceed, in the case of any class of the capital stock of any one issuer, 1% of the issued and outstanding shares, or, in the case of other securities, 1% of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by the Company and/or any of its affiliates with any state, district, territory or possession of the United States or any governmental subdivision, agency or instrumentality thereof by virtue of any statute, law, regulation or administrative practice. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered severable and shall become and shall be immediately amended solely with respect to such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. Except as provided in this Section 8 and in Section 3, nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or industry in any capacity. For purposes of clause (ii) of this Section 8(b), the term "prospective customer" shall mean any entity, business or individual included on a list of prospective customers provided to the Executive by the Company within 15 days following his Date of Termination, which list contains the names of those entities, businesses and individuals with whom the Company had been in contact prior to the Executive's Date of Termination for purposes of establishing a customer relationship therewith. Any entity, business or individual not appearing on the aforementioned list of prospective customers due to the failure of the Executive to advise the Company of such contact shall be considered a "prospective customer" for purposes of clause (ii) of this Section 8(b). (c) Public Support and Assistance. The Executive agrees that ----------------------------- following any termination of his employment hereunder by the Company, the Executive shall not disclose or cause to be disclosed any negative, adverse or derogatory comments or information of a substantial nature about the Company or its management, or about any product or service provided by the Company, or about the Company's prospects for the future (including any such comments or information with respect to affiliates of the Company). The Company and/or any of its affiliates may seek the assistance, cooperation or testimony of the Executive following any such termination in connection with any investigation, litigation or proceeding arising out of matters within the knowledge of the Executive and related to the Executive's position as an officer or employee of the Company, and in any such instance, the Executive shall provide such assistance, cooperation or testimony and the Company shall pay the Executive's reasonable costs and expenses in connection therewith; in addition, if such assistance, cooperation or testimony requires more than a nominal commitment of the Executive's time, the Company shall compensate the Executive for such time at a per diem rate derived from the Executive's Base Salary at the time of the Executive's Date of Termination. (d) Nondisclosure of Confidential Information. During the Term, the ----------------------------------------- Executive shall hold in a fiduciary capacity for the benefit of the Company and its affiliates all Confidential Information (as defined below). After termination of the Executive's employment with the Company, the Executive shall keep secret and confidential all Confidential Information and shall not use or disclose to any third party in any fashion or for any purpose whatsoever, any Confidential Information. As used herein, "Confidential Information" shall mean any information regarding this Agreement, or any other information regarding the Company or its affiliates which is not available to the general public, and/or not generally known outside the Company or any such affiliate, to which the Executive has or shall have had access at any time during the course of the Executive's employment with the Company, including, without limitation, any information relating to the Company's (and its affiliates'): (i) business, operations, plans, strategies, prospects or objectives; (ii) products, technologies, processes, specifications, research and development operations or plans; (iii) customers and customer lists; (iv) sales, service, support and marketing practices and operations; (v) financial condition and results of operations; (vi) operational strengths and weaknesses; and (vii) personnel and compensation policies and procedures. Notwithstanding the foregoing provisions of this Section 8, the Executive may discuss this Agreement with the members of the Executive's immediate family and with the Executive's personal legal and tax advisors. (e) Specific Performance. Without intending to limit the remedies -------------------- available to the Company, the Executive agrees that damages at law would be an insufficient remedy to the Company in the event that the Executive violates any of the provisions of this Section 8, and that the Company may apply for and, upon the requisite showing, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. 9. Excise Tax Gross-Up Payment. If any payments made and/or --------------------------- benefits provided to the Executive by the Company, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Company payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive, whose fees and expenses shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which the Executive resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 10. Legal Fees. To provide the Executive with reasonable assurances ---------- that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform any of its obligations under this Agreement, the Company shall pay all of the reasonable attorneys' fees and expenses and court and arbitration costs incurred by the Executive and any of his beneficiaries, heirs and legal representatives, should a court of competent jurisdiction or an arbitrator determine that the Company shall have failed to perform any of its obligations under this Agreement. 11. Notice. For the purposes of this Agreement, notices, demands and ------ all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Frank J. DeMicco 210 Wayfair Circle Franklin Lakes, NJ 07417 If to the Company: Office of the General Counsel United Water Resources Inc. 200 Old Hook Road Harrington Park, NJ 07640-1799 or to such other address as either of the parties may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Successors. Without the prior written consent of the Executive, ---------- this Agreement cannot be assigned by the Company except that it shall be binding automatically on any successors and assigns of all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). In addition, without the prior written consent of the Company, this Agreement cannot be assigned by the Executive, except that the right to receive payments or benefits hereunder may be transferred by will or the laws of descent and distribution. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives. 13. Arbitration. Except as provided in Section 8(e), all ----------- controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration under the rules of the American Arbitration Association then in effect in the State of New Jersey, as the sole and exclusive remedy of either party, and judgment upon any such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The costs of arbitration shall be borne by the unsuccessful party or otherwise as determined by the arbitrators in their discretion. 14. Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflicts of law principles. 15. Amendments. No provision of this Agreement may be modified, ---------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated for such purpose by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement ---------------- of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 18. Indemnification. The Company shall indemnify the Executive to --------------- the full extent permitted by the New Jersey Business Corporation Act and any provision of the By-Laws of the Company, as amended from time to time, generally applicable to officers and directors of the Company, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorneys' fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the actions by the Executive as an officer or employee of, the Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 18 or elsewhere in this Agreement is intended to prevent the Company from indemnifying the Executive to any greater extent than is required by this Section 18. 19. Severability. The invalidity or unenforceability of any ------------ provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_____________________________ Name: Donald L. Correll Title: Chairman and Chief Executive Officer FRANK J. DEMICCO ________________________________ MARCIA L. WORTHING ________________________________ EX-10.C 6 EXECUTIVE EMPLOYMENT AGREEMENT: MICHAEL FALLON Exhibit 10(c) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1999 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and Michael C. J. Fallon (the "Executive") (this "Agreement"). The Company desires to employ the Executive and the Executive is willing to be employed by the Company, on the terms and conditions hereinafter provided. In order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. I. Term. The Executive's employment under this Agreement shall ---- commence on the Commencement Date and shall end at the close of business on December 31, 2000; provided, however, that the term of this Agreement (the -------- ------- "Term") shall thereafter be automatically extended for each succeeding 1-year period unless either party hereto provides the other party with a written notice at least 60 days prior to the end of the then current Term, advising that the party providing the notice shall not agree to so extend the Term; and provided, -------- further, that should a Change of Control occur during the Term, the Term shall - ------- be extended to the date which is the end of the 24-month period immediately following the consummation of the transaction which constitutes the Change of Control. Notwithstanding the preceding, the Term shall not extend beyond the date on which the Executive attains age 65 without the prior written consent of the Company; provided, however, that the end of the Term solely on account of -------- ------- the Executive attaining age 65 shall not entitle the Executive to any benefits under Section 7. 2. Title, Duties and Authority. The Executive shall serve as --------------------------- President of United Properties Group, Incorporated and Vice President of United Water Management and Services Inc. and shall have such responsibilities and duties (consistent with the Executive's positions as President of United Properties Group, Incorporated and Vice President of United Water Management and Services Inc.) as may from time to time be assigned to the Executive by the Board of Directors of United Water Resources Inc. (the "Board"), and shall have all of the powers and duties usually incident to the offices of President of United Properties Group, Incorporated and Vice President of United Water Management and Services Inc. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company, except for vacations, illness or incapacity. 3. Compensation and Benefits. ------------------------- (a) Base Salary. During the Term, the Company shall pay the Executive ----------- a base salary ("Base Salary"), payable in equal installments in accordance with the Company's normal practice for paying base salaries to its executive employees. The Base Salary shall initially be payable at the rate of $173,000 per annum, and shall be subject to annual review by the Board for discretionary annual increases. (b) MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. (c) Employee Benefits. The Executive shall be entitled to participate ----------------- in all of the Company's employee benefit plans made available by the Company (or any affiliate thereof) to its executives during the Term as may be in effect from time to time. In addition, during the Term, the Executive shall accrue benefits under the United Water Resources Inc. Supplemental Retirement Plan for Key Executives (the "SERP"). (d) Expenses. During the Term, the Executive shall be entitled to -------- receive prompt reimbursement upon submission of expense claims to the Company for all reasonable and customary expenses incurred by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company for its executive employees. (e) Vacations. The Executive shall be entitled to paid vacation, paid --------- holidays, sick days and personal days pursuant to the Company's regular policies applicable to its executive employees. (f) Taxes. The Company may withhold from any amounts payable under ----- this Agreement such federal, state, local and/or other taxes as shall be required to be withheld pursuant to any applicable law or regulation. 4. Termination. The Executive's employment hereunder may be terminated ----------- under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate upon ----- the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall become entitled to the receipt of benefits under the Company's long-term disability plan, and within 30 days after a written Notice of Termination (as defined in Section 6(a)) is given to the Executive by the Company, the Executive shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following which is materially injurious to the business or reputation of the Company or any of its affiliates: (i) the failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the willful violation by the Executive of any of the Executive's material obligations hereunder; (iii) the willful engaging by the Executive in misconduct; or (iv) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive shall not be terminated for Cause without: (A) at least 15 days' advance notice to the Executive setting forth the reasons for the Company's intention to terminate the Executive's employment hereunder for Cause; (B) the failure of the Executive to cure the nonperformance, violation or misconduct described in the notice referred to in clause (A) of this paragraph, if cure thereof is possible, to the reasonable satisfaction of the Board, within 15 days of such notice; and (C) delivery to the Executive of a Notice of Termination (as defined in Section 6(a)) from the Company notifying him that in the good faith opinion of a majority of the Board, the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. (d) Good Reason. The Executive may terminate his employment hereunder ----------- for "Good Reason" by providing a Notice of Termination to the Company within 30 days after the occurrence, without the Executive's consent, of one of the following events that has not been cured within 15 days after written notice thereof has been given to the Company by the Executive: (i) a reduction of the Executive's Base Salary; (ii) a material and adverse change in the Executive's title, status, authority, duties or function (in each case, other than as may be contemplated by this Agreement); (iii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iv) a change of the Executive's place of employment by the Company to a location which is greater than 50 miles from the location of the Executive's place of employment by the Company as of the Commencement Date; or (v) the willful violation by the Company of any of the Company's material obligations hereunder. (e) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. (f) Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. 5. Termination Procedure. --------------------- (a) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than a termination on account of the Executive's death pursuant to Section 5(a)) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder pursuant to the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean: ------------------- (i) if the Executive's employment is terminated on account of the Executive's death pursuant to Section 5(a), the date of the Executive's death; (ii) if the Executive's employment is terminated on account of the Executive's Disability pursuant to Section 5(b), 30 days after a Notice of Termination has been provided pursuant thereto (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty 30-day period); (iii) if the Executive's employment is terminated for Cause pursuant to Section 5(c), the date specified in the Notice of Termination provided pursuant thereto; and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is provided or any later date (within 30 days) set forth in such Notice of Termination. 6. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment with the Company is ----- terminated on account of the Executive's death pursuant to Section 5(a), the Company shall as soon as practicable pay to the Executive's estate or as may be directed by the legal representatives of the Executive's estate any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"). The Company shall provide the Executive through the Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (b) Disability. If the Executive's employment with the Company is ---------- terminated on account of the Executive's Disability pursuant to Section 5(b), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee. The Company shall provide the Executive through the Executive's Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (c) By the Company for Cause or By the Executive Without Good Reason. ---------------------------------------------------------------- If the Executive's employment with the Company is terminated by the Company for Cause pursuant to Section 5(c) or by the Executive without Good Reason pursuant to Section 5(f), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and the Executive shall forfeit his entire then unpaid MIP payment(s), if any. The Company shall provide the Executive through his Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Termination By the Company Without Cause or By the Executive for ---------------------------------------------------------------- Good Reason or During the Thirteenth Month Following a Change of Control. If - ------------------------------------------------------------------------ the Executive's employment with the Company is terminated by the Company (other than for Disability or Cause), or by the Executive (1) for Good Reason pursuant to Section 5(d), or (2) with or without Good Reason (other than to avoid his termination by the Company for Cause) during the thirteenth calendar month beginning after the consummation of any transaction which constitutes a Change of Control, as defined below, then the Company shall: (i) within 30 days of the Executive's Date of Termination, pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through his Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of any transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 300% of his Base Salary in effect as of his Date of Termination, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay the Executive his Base Salary in effect as of his Date of Termination for the 24-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8) at the times such payments would otherwise have been made under Section 4(a); (iii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 300% of the greater of (I) his then current "Cash Target Amount" under the MIP, or (II) his most recently paid or declared cash award under the MIP, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), pay the Executive an annual MIP payment for each of the 2 MIP years immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), each such payment in an amount equal to his "Cash Target Amount" under the MIP (as of his Date of Termination), and to be made at the times such payments would otherwise have been made under the MIP; (iv) provide the Executive for the 24-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination; and (v) solely if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), (A) his SERP benefit shall become fully vested and nonforfeitable, (B) if he had not attained age 55 as of his Date of Termination, he shall be deemed to have attained age 55 for purposes of the early retirement provisions of the SERP, (C) if he had not accumulated 10 years of service under the SERP as of his Date of Termination, he shall be deemed to have 10 years of service for SERP benefit accrual purposes and (D) within 30 days of his Date of Termination, the Company shall pay the Executive an amount equal to the present value of his accrued SERP benefit (utilizing a discount rate for calculating such present value equal to the "discount rate," as defined in Statement of Financial Accounting Standards No. 87 published by the Financial Accounting Standards Board, utilized for purposes of the most recent audit disclosure relating to the Company's tax-qualified defined benefit pension plan preceding the Change of Control by the "enrolled actuary" (as defined in Section 7701(a)(35) of the Internal Revenue Code of 1986, as amended (the "Code")), who signed the Schedule B to the most recent Internal Revenue Service Form 5500 relating to the Company's tax- qualified defined benefit pension plan, filed prior to the Change of Control). Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) the Company or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries or other affiliates controlled by the Company or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of the Company's then outstanding securities; provided, however, that if such -------- ------- "Person" shall be Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1999), individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity, or a plan of liquidation of the Company or an agreement for the sale or disposition by the Company of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 20% of the combined voting power of the Company's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). 7. Restrictions. ------------ (a) Reasonable Covenants. It is expressly understood by and between -------------------- the Company and the Executive that the covenants contained in this Section 8 are an essential element of this Agreement and that but for the agreement by the Executive to comply with these covenants and thereby not to diminish the value of the organization and goodwill of the Company or any affiliate of the Company, if any, including without limitation relations with their employees, suppliers, customers and accounts, the Company would not enter into this Agreement. The Executive has independently consulted with his legal counsel and after such consultation agrees that such covenants are reasonable and proper. (b) Noncompetition; No Diversion of Customers; Etc. During the Term ---------------------------------------------- and for 24 months after the Executive's Date of Termination, the Executive shall not: (i) engage directly, alone or in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or entity, in competition with the businesses of the Company and/or any of its affiliates as of the Executive's Date of Termination; (ii) divert to any competitor of the Company or any of its affiliates, any customer of the Company or any of its affiliates or any "prospective customer" (as defined in the last paragraph of this Section 8(b)) of the Company or any of its affiliates; or (iii) solicit or encourage any officer, employee or consultant of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates for employment by or with any competitor of the Company or any of its affiliates; provided, however, that the Executive may invest in stocks, bonds or other - -------- ------- securities of any competitor of the Company or any of its affiliates if: (A) such stocks, bonds or other securities are listed on any national or regional securities exchange or have been registered under Section 11(g) of the Securities Exchange Act of 1934; (B) the Executive's investment does not exceed, in the case of any class of the capital stock of any one issuer, 1% of the issued and outstanding shares, or, in the case of other securities, 1% of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by the Company and/or any of its affiliates with any state, district, territory or possession of the United States or any governmental subdivision, agency or instrumentality thereof by virtue of any statute, law, regulation or administrative practice. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered severable and shall become and shall be immediately amended solely with respect to such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. Except as provided in this Section 8 and in Section 3, nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or industry in any capacity. For purposes of this Agreement and specifically, Sections 8(a) and (b), however, it is specifically understood and agreed that the Executive, upon termination, may engage in any aspect of the real estate industry, either as a principal, employee, consultant or otherwise. For purposes of clause (ii) of this Section 8(b), the term "prospective customer" shall mean any entity, business or individual included on a list of prospective customers provided to the Executive by the Company within 15 days following his Date of Termination, which list contains the names of those entities, businesses and individuals with whom the Company had been in contact prior to the Executive's Date of Termination for purposes of establishing a customer relationship therewith. Any entity, business or individual not appearing on the aforementioned list of prospective customers due to the failure of the Executive to advise the Company of such contact shall be considered a "prospective customer" for purposes of clause (ii) of this Section 8(b). (c) Public Support and Assistance. The Executive agrees that ----------------------------- following any termination of his employment hereunder by the Company, the Executive shall not disclose or cause to be disclosed any negative, adverse or derogatory comments or information of a substantial nature about the Company or its management, or about any product or service provided by the Company, or about the Company's prospects for the future (including any such comments or information with respect to affiliates of the Company). The Company and/or any of its affiliates may seek the assistance, cooperation or testimony of the Executive following any such termination in connection with any investigation, litigation or proceeding arising out of matters within the knowledge of the Executive and related to the Executive's position as an officer or employee of the Company, and in any such instance, the Executive shall provide such assistance, cooperation or testimony and the Company shall pay the Executive's reasonable costs and expenses in connection therewith; in addition, if such assistance, cooperation or testimony requires more than a nominal commitment of the Executive's time, the Company shall compensate the Executive for such time at a per diem rate derived from the Executive's Base Salary at the time of the Executive's Date of Termination. (d) Nondisclosure of Confidential Information. During the Term, the ----------------------------------------- Executive shall hold in a fiduciary capacity for the benefit of the Company and its affiliates all Confidential Information (as defined below). After termination of the Executive's employment with the Company, the Executive shall keep secret and confidential all Confidential Information and shall not use or disclose to any third party in any fashion or for any purpose whatsoever, any Confidential Information. As used herein, "Confidential Information" shall mean any information regarding this Agreement, or any other information regarding the Company or its affiliates which is not available to the general public, and/or not generally known outside the Company or any such affiliate, to which the Executive has or shall have had access at any time during the course of the Executive's employment with the Company, including, without limitation, any information relating to the Company's (and its affiliates'): (i) business, operations, plans, strategies, prospects or objectives; (ii) products, technologies, processes, specifications, research and development operations or plans; (iii) customers and customer lists; (iv) sales, service, support and marketing practices and operations; (v) financial condition and results of operations; (vi) operational strengths and weaknesses; and (vii) personnel and compensation policies and procedures. Notwithstanding the foregoing provisions of this Section 8, the Executive may discuss this Agreement with the members of the Executive's immediate family and with the Executive's personal legal and tax advisors. (e) Specific Performance. Without intending to limit the remedies -------------------- available to the Company, the Executive agrees that damages at law would be an insufficient remedy to the Company in the event that the Executive violates any of the provisions of this Section 8, and that the Company may apply for and, upon the requisite showing, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. 8. Excise Tax Gross-Up Payment. If any payments made and/or benefits --------------------------- provided to the Executive by the Company, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Company payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive, whose fees and expenses shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which the Executive resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. II. Legal Fees. To provide the Executive with reasonable assurances ---------- that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform any of its obligations under this Agreement, the Company shall pay all of the reasonable attorneys' fees and expenses and court and arbitration costs incurred by the Executive and any of his beneficiaries, heirs and legal representatives, should a court of competent jurisdiction or an arbitrator determine that the Company shall have failed to perform any of its obligations under this Agreement. 9. Notice. For the purposes of this Agreement, notices, demands ------ and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Michael C. J. Fallon 250 Titus Road North Salem, NY 10560 If to the Company: Office of the General Counsel United Water Resources Inc. 200 Old Hook Road Harrington Park, NJ 07640-1799 or to such other address as either of the parties may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. III. Successors. Without the prior written consent of the Executive, ---------- this Agreement cannot be assigned by the Company except that it shall be binding automatically on any successors and assigns of all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). In addition, without the prior written consent of the Company, this Agreement cannot be assigned by the Executive, except that the right to receive payments or benefits hereunder may be transferred by will or the laws of descent and distribution. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives. 10. Arbitration. Except as provided in Section 8(e), all ----------- controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration under the rules of the American Arbitration Association then in effect in the State of New Jersey, as the sole and exclusive remedy of either party, and judgment upon any such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The costs of arbitration shall be borne by the unsuccessful party or otherwise as determined by the arbitrators in their discretion. 11. Governing Law. The validity, interpretation, construction ------------- and performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflicts of law principles. IV. Amendments. No provision of this Agreement may be modified, ---------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated for such purpose by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. V. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. VI. Entire Agreement. This Agreement sets forth the entire ---------------- agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. VII. Indemnification. The Company shall indemnify the Executive to --------------- the full extent permitted by the New Jersey Business Corporation Act and any provision of the By-Laws of the Company, as amended from time to time, generally applicable to officers and directors of the Company, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorneys' fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the actions by the Executive as an officer or employee of, the Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 18 or elsewhere in this Agreement is intended to prevent the Company from indemnifying the Executive to any greater extent than is required by this Section 18. VIII. Severability. The invalidity or unenforceability of any ------------ provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_____________________________ Name: Donald L. Correll Title: Chairman and Chief Executive Officer MICHAEL C. J. FALLON ________________________________ MARCIA L. WORTHING ________________________________ EX-10.D 7 EXECUTIVE EMPLOYMENT AGREEMENT: JOHN MARTINOWICH Exhibit 10(d) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1999 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and John Martinowich (the "Executive") (this "Agreement"). The Company desires to employ the Executive and the Executive is willing to be employed by the Company, on the terms and conditions hereinafter provided. In order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The Executive's employment under this Agreement shall ---- commence on the Commencement Date and shall end at the close of business on December 31, 2000; provided, however, that the term of this Agreement (the -------- ------- "Term") shall thereafter be automatically extended for each succeeding 1-year period unless either party hereto provides the other party with a written notice at least 60 days prior to the end of the then current Term, advising that the party providing the notice shall not agree to so extend the Term; and provided, -------- further, that should a Change of Control occur during the Term, the Term shall - ------- be extended to the date which is the end of the 24-month period immediately following the consummation of the transaction which constitutes the Change of Control. Notwithstanding the preceding, the Term shall not extend beyond the date on which the Executive attains age 65 without the prior written consent of the Company; provided, however, that the end of the Term solely on account of -------- ------- the Executive attaining age 65 shall not entitle the Executive to any benefits under Section 7. 3. Title, Duties and Authority. The Executive shall serve as Vice --------------------------- President-External Affairs/Business Development of United Water Management and Services Inc. and shall have such responsibilities and duties (consistent with the Executive's position as Vice President-External Affairs/Business Development) as may from time to time be assigned to the Executive by the Company, and shall have all of the powers and duties usually incident to the office of Vice President-External Affairs/Business Development. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company, except for vacations, illness or incapacity. 4. Compensation and Benefits. ------------------------- (a) Base Salary. During the Term, the Company shall pay the Executive ----------- a base salary ("Base Salary"), payable in equal installments in accordance with the Company's normal practice for paying base salaries to its executive employees. The Base Salary shall initially be payable at the rate of $143,900 per annum, and shall be subject to annual review by the Company for discretionary annual increases. (b) MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. (c) Employee Benefits. The Executive shall be entitled to participate ----------------- in all of the Company's employee benefit plans made available by the Company (or any affiliate thereof) to its executives during the Term as may be in effect from time to time. In addition, during the Term, the Executive shall accrue benefits under the United Water Resources Inc. Supplemental Retirement Plan for Executives (the "SERP"). (d) Expenses. During the Term, the Executive shall be entitled to -------- receive prompt reimbursement upon submission of expense claims to the Company for all reasonable and customary expenses incurred by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company for its executive employees. (e) Vacations. The Executive shall be entitled to paid vacation, paid --------- holidays, sick days and personal days pursuant to the Company's regular policies applicable to its executive employees. (f) Taxes. The Company may withhold from any amounts payable under ----- this Agreement such federal, state, local and/or other taxes as shall be required to be withheld pursuant to any applicable law or regulation. 5. Termination. The Executive's employment hereunder may be terminated ----------- under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall become entitled to the receipt of benefits under the Company's long-term disability plan, and within 30 days after a written Notice of Termination (as defined in Section 6(a)) is given to the Executive by the Company, the Executive shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following which is materially injurious to the business or reputation of the Company or any of its affiliates: (i) the failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the willful violation by the Executive of any of the Executive's material obligations hereunder; (iii) the willful engaging by the Executive in misconduct; or (iv) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive shall not be terminated for Cause without: (A) at least 15 days' advance notice to the Executive setting forth the reasons for the Company's intention to terminate the Executive's employment hereunder for Cause; (B) the failure of the Executive to cure the nonperformance, violation or misconduct described in the notice referred to in clause (A) of this paragraph, if cure thereof is possible, to the reasonable satisfaction of the Board of Directors of United Water Resources Inc. (the "Board"), within 15 days of such notice; and (C) delivery to the Executive of a Notice of Termination (as defined in Section 6(a)) from the Company notifying him that in the good faith opinion of a majority of the Board, the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. (d) Good Reason. The Executive may terminate his employment hereunder ----------- for "Good Reason" by providing a Notice of Termination to the Company within 30 days after the occurrence, without the Executive's consent, of one of the following events that has not been cured within 15 days after written notice thereof has been given to the Company by the Executive: (i) a reduction of the Executive's Base Salary; (ii) a material and adverse change in the Executive's title, status, authority, duties or function (in each case, other than as may be contemplated by this Agreement); (iii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iv) a change of the Executive's place of employment by the Company to a location which is greater than 50 miles from the location of the Executive's place of employment by the Company as of the Commencement Date; or (v) the willful violation by the Company of any of the Company's material obligations hereunder. (e) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. (f) Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. 6. Termination Procedure. --------------------- (a) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than a termination on account of the Executive's death pursuant to Section 5(a)) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder pursuant to the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean: ------------------- (i) if the Executive's employment is terminated on account of the Executive's death pursuant to Section 5(a), the date of the Executive's death; (ii) if the Executive's employment is terminated on account of the Executive's Disability pursuant to Section 5(b), 30 days after a Notice of Termination has been provided pursuant thereto (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty 30-day period); (iii) if the Executive's employment is terminated for Cause pursuant to Section 5(c), the date specified in the Notice of Termination provided pursuant thereto; and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is provided or any later date (within 30 days) set forth in such Notice of Termination. 7. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment with the Company is ----- terminated on account of the Executive's death pursuant to Section 5(a), the Company shall as soon as practicable pay to the Executive's estate or as may be directed by the legal representatives of the Executive's estate any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"). The Company shall provide the Executive through the Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (b) Disability. If the Executive's employment with the Company is ---------- terminated on account of the Executive's Disability pursuant to Section 5(b), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee. The Company shall provide the Executive through the Executive's Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (c) By the Company for Cause or By the Executive Without Good Reason. ---------------------------------------------------------------- If the Executive's employment with the Company is terminated by the Company for Cause pursuant to Section 5(c) or by the Executive without Good Reason pursuant to Section 5(f), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and the Executive shall forfeit his entire then unpaid MIP payment(s), if any. The Company shall provide the Executive through his Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Termination By the Company Without Cause or By the Executive for ---------------------------------------------------------------- Good Reason. If the Executive's employment with the Company is terminated by - ----------- the Company (other than for Disability or Cause), or by the Executive for Good Reason pursuant to Section 5(d), then the Company shall: (i) within 30 days of the Executive's Date of Termination, pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through his Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of his Base Salary in effect as of his Date of Termination, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay the Executive his Base Salary in effect as of his Date of Termination for the 18-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8) at the times such payments would otherwise have been made under Section 4(a); (iii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), pay the Executive (I) 100% of his "Cash Target Amount" under the MIP payment (as of his Date of Termination) for the MIP year immediately following his Date of Termination, and (II) 50% of his "Cash Target Amount" under the MIP (as of his Date of Termination) for the second year immediately following his Date of Termination (unless the Executive earlier violates the provisions of Section 8), each such payment to be made at the times such payments would otherwise have been made under the MIP; (iv) provide the Executive for the 18-month period commencing immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination; and (v) solely if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), (A) his SERP benefit shall become fully vested and nonforfeitable, (B) if he had not attained age 55 as of his Date of Termination, he shall be deemed to have attained age 55 for purposes of the early retirement provisions of the SERP, (C) if he had not accumulated 10 years of service under the SERP as of his Date of Termination, he shall be deemed to have 10 years of service for SERP benefit accrual purposes and (D) within 30 days of his Date of Termination, the Company shall pay the Executive an amount equal to the present value of his accrued SERP benefit (utilizing a discount rate for calculating such present value equal to the "discount rate," as defined in Statement of Financial Accounting Standards No. 87 published by the Financial Accounting Standards Board, utilized for purposes of the most recent audit disclosure relating to the Company's tax-qualified defined benefit pension plan preceding the Change of Control by the "enrolled actuary" (as defined in Section 7701(a)(35) of the Internal Revenue Code of 1986, as amended (the "Code")), who signed the Schedule B to the most recent Internal Revenue Service Form 5500 relating to the Company's tax- qualified defined benefit pension plan, filed prior to the Change of Control). Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) the Company or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries or other affiliates controlled by the Company or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of the Company's then outstanding securities; provided, however, that if such -------- ------- "Person" shall be Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1999), individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity, or a plan of liquidation of the Company or an agreement for the sale or disposition by the Company of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 20% of the combined voting power of the Company's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). 8. Restrictions. ------------ (a) Reasonable Covenants. It is expressly understood by and between -------------------- the Company and the Executive that the covenants contained in this Section 8 are an essential element of this Agreement and that but for the agreement by the Executive to comply with these covenants and thereby not to diminish the value of the organization and goodwill of the Company or any affiliate of the Company, if any, including without limitation relations with their employees, suppliers, customers and accounts, the Company would not enter into this Agreement. The Executive has independently consulted with his legal counsel and after such consultation agrees that such covenants are reasonable and proper. (b) Noncompetition; No Diversion of Customers; Etc. During the Term ---------------------------------------------- and for 18 months after the Executive's Date of Termination, the Executive shall not: (i) engage directly, alone or in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or entity, in competition with the businesses of the Company and/or any of its affiliates as of the Executive's Date of Termination; (ii) divert to any competitor of the Company or any of its affiliates, any customer of the Company or any of its affiliates or any "prospective customer" (as defined in the last paragraph of this Section 8(b)) of the Company or any of its affiliates; or (iii) solicit or encourage any officer, employee or consultant of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates for employment by or with any competitor of the Company or any of its affiliates; provided, however, that the Executive may invest in stocks, bonds or other - -------- ------- securities of any competitor of the Company or any of its affiliates if: (A) such stocks, bonds or other securities are listed on any national or regional securities exchange or have been registered under Section 11(g) of the Securities Exchange Act of 1934; (B) the Executive's investment does not exceed, in the case of any class of the capital stock of any one issuer, 1% of the issued and outstanding shares, or, in the case of other securities, 1% of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by the Company and/or any of its affiliates with any state, district, territory or possession of the United States or any governmental subdivision, agency or instrumentality thereof by virtue of any statute, law, regulation or administrative practice. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered severable and shall become and shall be immediately amended solely with respect to such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. Except as provided in this Section 8 and in Section 3, nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or industry in any capacity. For purposes of clause (ii) of this Section 8(b), the term "prospective customer" shall mean any entity, business or individual included on a list of prospective customers provided to the Executive by the Company within 15 days following his Date of Termination, which list contains the names of those entities, businesses and individuals with whom the Company had been in contact prior to the Executive's Date of Termination for purposes of establishing a customer relationship therewith. Any entity, business or individual not appearing on the aforementioned list of prospective customers due to the failure of the Executive to advise the Company of such contact shall be considered a "prospective customer" for purposes of clause (ii) of this Section 8(b). (c) Public Support and Assistance. The Executive agrees that ----------------------------- following any termination of his employment hereunder by the Company, the Executive shall not disclose or cause to be disclosed any negative, adverse or derogatory comments or information of a substantial nature about the Company or its management, or about any product or service provided by the Company, or about the Company's prospects for the future (including any such comments or information with respect to affiliates of the Company). The Company and/or any of its affiliates may seek the assistance, cooperation or testimony of the Executive following any such termination in connection with any investigation, litigation or proceeding arising out of matters within the knowledge of the Executive and related to the Executive's position as an officer or employee of the Company, and in any such instance, the Executive shall provide such assistance, cooperation or testimony and the Company shall pay the Executive's reasonable costs and expenses in connection therewith; in addition, if such assistance, cooperation or testimony requires more than a nominal commitment of the Executive's time, the Company shall compensate the Executive for such time at a per diem rate derived from the Executive's Base Salary at the time of the Executive's Date of Termination. (d) Nondisclosure of Confidential Information. During the Term, the ----------------------------------------- Executive shall hold in a fiduciary capacity for the benefit of the Company and its affiliates all Confidential Information (as defined below). After termination of the Executive's employment with the Company, the Executive shall keep secret and confidential all Confidential Information and shall not use or disclose to any third party in any fashion or for any purpose whatsoever, any Confidential Information. As used herein, "Confidential Information" shall mean any information regarding this Agreement, or any other information regarding the Company or its affiliates which is not available to the general public, and/or not generally known outside the Company or any such affiliate, to which the Executive has or shall have had access at any time during the course of the Executive's employment with the Company, including, without limitation, any information relating to the Company's (and its affiliates'): (i) business, operations, plans, strategies, prospects or objectives; (ii) products, technologies, processes, specifications, research and development operations or plans; (iii) customers and customer lists; (iv) sales, service, support and marketing practices and operations; (v) financial condition and results of operations; (vi) operational strengths and weaknesses; and (vii) personnel and compensation policies and procedures. Notwithstanding the foregoing provisions of this Section 8, the Executive may discuss this Agreement with the members of the Executive's immediate family and with the Executive's personal legal and tax advisors. (e) Specific Performance. Without intending to limit the remedies -------------------- available to the Company, the Executive agrees that damages at law would be an insufficient remedy to the Company in the event that the Executive violates any of the provisions of this Section 8, and that the Company may apply for and, upon the requisite showing, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. 9. Excise Tax Gross-Up Payment. If any payments made and/or benefits --------------------------- provided to the Executive by the Company, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Company payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive, whose fees and expenses shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which the Executive resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 10. Legal Fees. To provide the Executive with reasonable assurances ---------- that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform any of its obligations under this Agreement, the Company shall pay all of the reasonable attorneys' fees and expenses and court and arbitration costs incurred by the Executive and any of his beneficiaries, heirs and legal representatives, should a court of competent jurisdiction or an arbitrator determine that the Company shall have failed to perform any of its obligations under this Agreement. 11 Notice. For the purposes of this Agreement, notices, demands and ------ all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: John Martinowich 534 Alosio Drive River Vale, NJ 07675 If to the Company: Office of the General Counsel United Water Resources Inc. 200 Old Hook Road Harrington Park, NJ 07640-1799 or to such other address as either of the parties may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12 Successors. Without the prior written consent of the Executive, ---------- this Agreement cannot be assigned by the Company except that it shall be binding automatically on any successors and assigns of all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). In addition, without the prior written consent of the Company, this Agreement cannot be assigned by the Executive, except that the right to receive payments or benefits hereunder may be transferred by will or the laws of descent and distribution. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives. 13 Arbitration. Except as provided in Section 8(e), all ----------- controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration under the rules of the American Arbitration Association then in effect in the State of New Jersey, as the sole and exclusive remedy of either party, and judgment upon any such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The costs of arbitration shall be borne by the unsuccessful party or otherwise as determined by the arbitrators in their discretion. 14 Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflicts of law principles. 15 Amendments. No provision of this Agreement may be modified, ---------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated for such purpose by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16 Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 17 Entire Agreement. This Agreement sets forth the entire agreement ---------------- of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 18 Indemnification. The Company shall indemnify the Executive to --------------- the full extent permitted by the New Jersey Business Corporation Act and any provision of the By-Laws of the Company, as amended from time to time, generally applicable to officers and directors of the Company, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorneys' fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the actions by the Executive as an officer or employee of, the Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 18 or elsewhere in this Agreement is intended to prevent the Company from indemnifying the Executive to any greater extent than is required by this Section 18. 19 Severability. The invalidity or unenforceability of any ------------ provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_______________________________ Name: Donald L. Correll Title: Chairman and Chief Executive Officer JOHN MARTINOWICH _________________________________ MARCIA L. WORTHING _________________________________ EX-10.E 8 EXECUTIVE EMPLOYMENT AGREEMENT: WALTON HILL Exhibit 10(e) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1999 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and Walton F. Hill (the "Executive") (this "Agreement"). The Company desires to employ the Executive and the Executive is willing to be employed by the Company, on the terms and conditions hereinafter provided. In order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The Executive's employment under this Agreement shall ---- commence on the Commencement Date and shall end at the close of business on December 31, 2001; provided, however, that the term of this Agreement (the -------- ------- "Term") shall thereafter be automatically extended for each succeeding 1-year period unless either party hereto provides the other party with a written notice at least 60 days prior to the end of the then current Term, advising that the party providing the notice shall not agree to so extend the Term; and provided, -------- further, that should a Change of Control occur during the Term, the Term shall - ------- be extended to the date which is the end of the 24-month period immediately following the consummation of the transaction which constitutes the Change of Control. Notwithstanding the preceding, the Term shall not extend beyond the date on which the Executive attains age 65 without the prior written consent of the Company; provided, however, that the end of the Term solely on account of -------- ------- the Executive attaining age 65 shall not entitle the Executive to any benefits under Section 7. 3. Title, Duties and Authority. The Executive shall serve as Vice --------------------------- President-Regulatory Business of United Water Management and Services Inc. and shall have such responsibilities and duties (consistent with the Executive's position as Vice President-Regulatory Business) as may from time to time be assigned to the Executive by the Company, and shall have all of the powers and duties usually incident to the office of Vice President-Regulatory Business. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company, except for vacations, illness or incapacity. 4. Compensation and Benefits. ------------------------- (a) Base Salary. During the Term, the Company shall pay the Executive ----------- a base salary ("Base Salary"), payable in equal installments in accordance with the Company's normal practice for paying base salaries to its executive employees. The Base Salary shall initially be payable at the rate of $134,000 per annum, and shall be subject to annual review by the Company for discretionary annual increases. (b) MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. (c) Employee Benefits. The Executive shall be entitled to participate ----------------- in all of the Company's employee benefit plans made available by the Company (or any affiliate thereof) to its executives during the Term as may be in effect from time to time. (d) Expenses. During the Term, the Executive shall be entitled to -------- receive prompt reimbursement upon submission of expense claims to the Company for all reasonable and customary expenses incurred by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company for its executive employees. (e) Vacations. The Executive shall be entitled to paid vacation, paid --------- holidays, sick days and personal days pursuant to the Company's regular policies applicable to its executive employees. (f) Taxes. The Company may withhold from any amounts payable under ----- this Agreement such federal, state, local and/or other taxes as shall be required to be withheld pursuant to any applicable law or regulation. 5. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall become entitled to the receipt of benefits under the Company's long-term disability plan, and within 30 days after a written Notice of Termination (as defined in Section 6(a)) is given to the Executive by the Company, the Executive shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following which is materially injurious to the business or reputation of the Company or any of its affiliates: (i) the failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the willful violation by the Executive of any of the Executive's material obligations hereunder; (iii) the willful engaging by the Executive in misconduct; or (iv) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive shall not be terminated for Cause without: (A) at least 15 days' advance notice to the Executive setting forth the reasons for the Company's intention to terminate the Executive's employment hereunder for Cause; (B) the failure of the Executive to cure the nonperformance, violation or misconduct described in the notice referred to in clause (A) of this paragraph, if cure thereof is possible, to the reasonable satisfaction of the Board of Directors of United Water Resources Inc. (the "Board"), within 15 days of such notice; and (C) delivery to the Executive of a Notice of Termination (as defined in Section 6(a)) from the Company notifying him that in the good faith opinion of a majority of the Board, the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. (d) Good Reason. The Executive may terminate his employment hereunder ----------- for "Good Reason" by providing a Notice of Termination to the Company within 30 days after the occurrence, without the Executive's consent, of one of the following events that has not been cured within 15 days after written notice thereof has been given to the Company by the Executive: (i) a reduction of the Executive's Base Salary; (ii) a material and adverse change in the Executive's title, status, authority, duties or function (in each case, other than as may be contemplated by this Agreement); (iii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iv) a change of the Executive's place of employment by the Company to a location which is greater than 50 miles from the location of the Executive's place of employment by the Company as of the Commencement Date; or (v) the willful violation by the Company of any of the Company's material obligations hereunder. (e) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. (f) Without Good Reason. The Executive may terminate the ------------------- Executive's employment hereunder without Good Reason by providing the Company with a Notice of Termination. 6. Termination Procedure. --------------------- (a) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than a termination on account of the Executive's death pursuant to Section 5(a)) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder pursuant to the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean: ------------------- (i) if the Executive's employment is terminated on account of the Executive's death pursuant to Section 5(a), the date of the Executive's death; (ii) if the Executive's employment is terminated on account of the Executive's Disability pursuant to Section 5(b), 30 days after a Notice of Termination has been provided pursuant thereto (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period); (iii) if the Executive's employment is terminated for Cause pursuant to Section 5(c), the date specified in the Notice of Termination provided pursuant thereto; and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is provided or any later date (within 30 days) set forth in such Notice of Termination. 7. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment with the Company is ----- terminated on account of the Executive's death pursuant to Section 5(a), the Company shall as soon as practicable pay to the Executive's estate or as may be directed by the legal representatives of the Executive's estate any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"). The Company shall provide the Executive through the Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (b) Disability. If the Executive's employment with the Company ---------- is terminated on account of the Executive's Disability pursuant to Section 5(b), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee. The Company shall provide the Executive through the Executive's Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (c) By the Company for Cause or By the Executive Without Good --------------------------------------------------------- Reason. If the Executive's employment with the Company is terminated by the - ------ Company for Cause pursuant to Section 5(c) or by the Executive without Good Reason pursuant to Section 5(f), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and the Executive shall forfeit his entire then unpaid MIP payment(s), if any. The Company shall provide the Executive through his Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Termination By the Company Without Cause or By the Executive ------------------------------------------------------------ for Good Reason. If the Executive's employment with the Company is terminated by - --------------- the Company (other than for Disability or Cause), or by the Executive for Good Reason pursuant to Section 5(d), then the Company shall: (i) within 30 days of the Executive's Date of Termination, pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through his Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of his Base Salary in effect as of his Date of Termination, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay the Executive his Base Salary in effect as of his Date of Termination for the 18-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8) at the times such payments would otherwise have been made under Section 4(a); (iii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), pay the Executive (I) 100% of his "Cash Target Amount" under the MIP (as of his Date of Termination) for the MIP year immediately following his Date of Termination, and (II) 50% of his "Cash Target Amount" under the MIP (as of his Date of Termination) for the second year immediately following his Date of Termination (unless the Executive earlier violates the provisions of Section 8), each such payment to be made at the times such payments would otherwise have been made under the MIP; and (iv) provide the Executive for the 18-month period commencing immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) the Company or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries or other affiliates controlled by the Company or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of the Company's then outstanding securities; provided, however, that if such "Person" shall be -------- ------- Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1999), individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity, or a plan of liquidation of the Company or an agreement for the sale or disposition by the Company of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 20% of the combined voting power of the Company's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). 8. Restrictions. ------------ (a) Reasonable Covenants. It is expressly understood by and between -------------------- the Company and the Executive that the covenants contained in this Section 8 are an essential element of this Agreement and that but for the agreement by the Executive to comply with these covenants and thereby not to diminish the value of the organization and goodwill of the Company or any affiliate of the Company, if any, including without limitation relations with their employees, suppliers, customers and accounts, the Company would not enter into this Agreement. The Executive has independently consulted with his legal counsel and after such consultation agrees that such covenants are reasonable and proper. (b) Noncompetition; No Diversion of Customers; Etc. During the Term ---------------------------------------------- and for 18 months after the Executive's Date of Termination, the Executive shall not: (i) engage directly, alone or in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or entity, in competition with the businesses of the Company and/or any of its affiliates as of the Executive's Date of Termination; (ii) divert to any competitor of the Company or any of its affiliates, any customer of the Company or any of its affiliates or any "prospective customer" (as defined in the last paragraph of this Section 8(b)) of the Company or any of its affiliates; or (iii) solicit or encourage any officer, employee or consultant of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates for employment by or with any competitor of the Company or any of its affiliates; provided, however, that the Executive may invest in stocks, bonds or other - -------- ------- securities of any competitor of the Company or any of its affiliates if: (A) such stocks, bonds or other securities are listed on any national or regional securities exchange or have been registered under Section 11(g) of the Securities Exchange Act of 1934; (B) the Executive's investment does not exceed, in the case of any class of the capital stock of any one issuer, 1% of the issued and outstanding shares, or, in the case of other securities, 1% of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by the Company and/or any of its affiliates with any state, district, territory or possession of the United States or any governmental subdivision, agency or instrumentality thereof by virtue of any statute, law, regulation or administrative practice. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered severable and shall become and shall be immediately amended solely with respect to such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. Except as provided in this Section 8 and in Section 3, nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or industry in any capacity. For purposes of clause (ii) of this Section 8(b), the term "prospective customer" shall mean any entity, business or individual included on a list of prospective customers provided to the Executive by the Company within 15 days following his Date of Termination, which list contains the names of those entities, businesses and individuals with whom the Company had been in contact prior to the Executive's Date of Termination for purposes of establishing a customer relationship therewith. Any entity, business or individual not appearing on the aforementioned list of prospective customers due to the failure of the Executive to advise the Company of such contact shall be considered a "prospective customer" for purposes of clause (ii) of this Section 8(b). (c) Public Support and Assistance. The Executive agrees that ----------------------------- following any termination of his employment hereunder by the Company, the Executive shall not disclose or cause to be disclosed any negative, adverse or derogatory comments or information of a substantial nature about the Company or its management, or about any product or service provided by the Company, or about the Company's prospects for the future (including any such comments or information with respect to affiliates of the Company). The Company and/or any of its affiliates may seek the assistance, cooperation or testimony of the Executive following any such termination in connection with any investigation, litigation or proceeding arising out of matters within the knowledge of the Executive and related to the Executive's position as an officer or employee of the Company, and in any such instance, the Executive shall provide such assistance, cooperation or testimony and the Company shall pay the Executive's reasonable costs and expenses in connection therewith; in addition, if such assistance, cooperation or testimony requires more than a nominal commitment of the Executive's time, the Company shall compensate the Executive for such time at a per diem rate derived from the Executive's Base Salary at the time of the Executive's Date of Termination. (d) Nondisclosure of Confidential Information. During the Term, ----------------------------------------- the Executive shall hold in a fiduciary capacity for the benefit of the Company and its affiliates all Confidential Information (as defined below). After termination of the Executive's employment with the Company, the Executive shall keep secret and confidential all Confidential Information and shall not use or disclose to any third party in any fashion or for any purpose whatsoever, any Confidential Information. As used herein, "Confidential Information" shall mean any information regarding this Agreement, or any other information regarding the Company or its affiliates which is not available to the general public, and/or not generally known outside the Company or any such affiliate, to which the Executive has or shall have had access at any time during the course of the Executive's employment with the Company, including, without limitation, any information relating to the Company's (and its affiliates'): (i) business, operations, plans, strategies, prospects or objectives; (ii) products, technologies, processes, specifications, research and development operations or plans; (iii) customers and customer lists; (iv) sales, service, support and marketing practices and operations; (v) financial condition and results of operations; (vi) operational strengths and weaknesses; and (vii) personnel and compensation policies and procedures. Notwithstanding the foregoing provisions of this Section 8, the Executive may discuss this Agreement with the members of the Executive's immediate family and with the Executive's personal legal and tax advisors. (e) Specific Performance. Without intending to limit the remedies available to the Company, the Executive agrees that damages at law would be an insufficient remedy to the Company in the event that the Executives violates any of the provisions of this Section 8, and that the Company may apply for and, upon the requisite showing, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. 9. Excise Tax Gross-Up Payment. If any payments made and/or benefits --------------------------- provided to the Executive by the Company, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Company payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive, whose fees and expenses shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which the Executive resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 10. Legal Fees. To provide the Executive with reasonable assurances ---------- that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform any of its obligations under this Agreement, the Company shall pay all of the reasonable attorneys' fees and expenses and court and arbitration costs incurred by the Executive and any of his beneficiaries, heirs and legal representatives, should a court of competent jurisdiction or an arbitrator determine that the Company shall have failed to perform any of its obligations under this Agreement. 11. Notice. For the purposes of this Agreement, notices, demands and ------ all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Walton F. Hill 15 Wethersfield Lane Highland Mills, NY 10930 If to the Company: Office of the General Counsel United Water Resources Inc. 200 Old Hook Road Harrington Park, NJ 07640-1799 or to such other address as either of the parties may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Successors. Without the prior written consent of the Executive, ---------- this Agreement cannot be assigned by the Company except that it shall be binding automatically on any successors and assigns of all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). In addition, without the prior written consent of the Company, this Agreement cannot be assigned by the Executive, except that the right to receive payments or benefits hereunder may be transferred by will or the laws of descent and distribution. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives. 13 Arbitration. Except as provided in Section 8(e), all ----------- controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration under the rules of the American Arbitration Association then in effect in the State of New Jersey, as the sole and exclusive remedy of either party, and judgment upon any such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The costs of arbitration shall be borne by the unsuccessful party or otherwise as determined by the arbitrators in their discretion. 14 Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflicts of law principles. 15 Amendments. No provision of this Agreement may be modified, ---------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated for such purpose by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16 Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 17 Entire Agreement. This Agreement sets forth the entire agreement ---------------- of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 18 Indemnification. The Company shall indemnify the Executive to --------------- the full extent permitted by the New Jersey Business Corporation Act and any provision of the By-Laws of the Company, as amended from time to time, generally applicable to officers and directors of the Company, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorneys' fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the actions by the Executive as an officer or employee of, the Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 18 or elsewhere in this Agreement is intended to prevent the Company from indemnifying the Executive to any greater extent than is required by this Section 18. 19 Severability. The invalidity or unenforceability of any ------------ provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_____________________________ Name: Donald L. Correll Title: Chief Executive Officer WALTON F. HILL ________________________________ MARCIA L. WORTHING ________________________________ EX-10.F 9 EXECUTIVE EMPLOYMENT AGREEMENT: ROBERT IACULLO Exhibit 10(f) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1999 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and Robert J. Iacullo (the "Executive") (this "Agreement"). The Company desires to employ the Executive and the Executive is willing to be employed by the Company, on the terms and conditions hereinafter provided. In order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The Executive's employment under this Agreement shall ---- commence on the Commencement Date and shall end at the close of business on December 31, 2000; provided, however, that the term of this Agreement (the -------- ------- "Term") shall thereafter be automatically extended for each succeeding 1-year period unless either party hereto provides the other party with a written notice at least 60 days prior to the end of the then current Term, advising that the party providing the notice shall not agree to so extend the Term; and provided, -------- further, that should a Change of Control occur during the Term, the Term shall - ------- be extended to the date which is the end of the 24-month period immediately following the consummation of the transaction which constitutes the Change of Control. Notwithstanding the preceding, the Term shall not extend beyond the date on which the Executive attains age 65 without the prior written consent of the Company; provided, however, that the end of the Term solely on account of -------- ------- the Executive attaining age 65 shall not entitle the Executive to any benefits under Section 7. 3. Title, Duties and Authority. The Executive shall serve as Vice --------------------------- President of United Waterworks, Inc. and Vice President of United Water Management and Services Inc. and shall have such responsibilities and duties (consistent with the Executive's positions as Vice President) as may from time to time be assigned to the Executive by the Company, and shall have all of the powers and duties usually incident to the office of Vice President. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company, except for vacations, illness or incapacity. 4. Compensation and Benefits. ------------------------- (a) Base Salary. During the Term, the Company shall pay the Executive ----------- a base salary ("Base Salary"), payable in equal installments in accordance with the Company's normal practice for paying base salaries to its executive employees. The Base Salary shall initially be payable at the rate of $165,000 per annum, and shall be subject to annual review by the Company for discretionary annual increases. (b) MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. (c) Employee Benefits. The Executive shall be entitled to participate ----------------- in all of the Company's employee benefit plans made available by the Company (or any affiliate thereof) to its executives during the Term as may be in effect from time to time. In addition, during the Term, the Executive shall accrue benefits under the United Water Resources Inc. Supplemental Retirement Plan for Key Executives (the "SERP"). (d) Expenses. During the Term, the Executive shall be entitled to -------- receive prompt reimbursement upon submission of expense claims to the Company for all reasonable and customary expenses incurred by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company for its executive employees. (e) Vacations. The Executive shall be entitled to paid vacation, paid --------- holidays, sick days and personal days pursuant to the Company's regular policies applicable to its executive employees. (f) Taxes. The Company may withhold from any amounts payable under ----- this Agreement such federal, state, local and/or other taxes as shall be required to be withheld pursuant to any applicable law or regulation. 5. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate upon ----- the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall become entitled to the receipt of benefits under the Company's long-term disability plan, and within 30 days after a written Notice of Termination (as defined in Section 6(a)) is given to the Executive by the Company, the Executive shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following which is materially injurious to the business or reputation of the Company or any of its affiliates: (i) the failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the willful violation by the Executive of any of the Executive's material obligations hereunder; (iii) the willful engaging by the Executive in misconduct; or (iv) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive shall not be terminated for Cause without: (A) at least 15 days' advance notice to the Executive setting forth the reasons for the Company's intention to terminate the Executive's employment hereunder for Cause; (B) the failure of the Executive to cure the nonperformance, violation or misconduct described in the notice referred to in clause (A) of this paragraph, if cure thereof is possible, to the reasonable satisfaction of the Board of Directors of United Water Resources Inc. (the "Board"), within 15 days of such notice; and (C) delivery to the Executive of a Notice of Termination (as defined in Section 6(a)) from the Company notifying him that in the good faith opinion of a majority of the Board, the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. (d) Good Reason. The Executive may terminate his employment hereunder ----------- for "Good Reason" by providing a Notice of Termination to the Company within 30 days after the occurrence, without the Executive's consent, of one of the following events that has not been cured within 15 days after written notice thereof has been given to the Company by the Executive: (i) a reduction of the Executive's Base Salary; (ii) a material and adverse change in the Executive's title, status, authority, duties or function (in each case, other than as may be contemplated by this Agreement); (iii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iv) a change of the Executive's place of employment by the Company to a location which is greater than 50 miles from the location of the Executive's place of employment by the Company as of the Commencement Date; or (v) the willful violation by the Company of any of the Company's material obligations hereunder. (e) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. (f) Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. 6. Termination Procedure. --------------------- (a) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than a termination on account of the Executive's death pursuant to Section 5(a)) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder pursuant to the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean: ------------------- (i) if the Executive's employment is terminated on account of the Executive's death pursuant to Section 5(a), the date of the Executive's death; (ii) if the Executive's employment is terminated on account of the Executive's Disability pursuant to Section 5(b), 30 days after a Notice of Termination has been provided pursuant thereto (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty 30-day period); (iii) if the Executive's employment is terminated for Cause pursuant to Section 5(c), the date specified in the Notice of Termination provided pursuant thereto; and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is provided or any later date (within 30 days) set forth in such Notice of Termination. 7. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment with the Company is ----- terminated on account of the Executive's death pursuant to Section 5(a), the Company shall as soon as practicable pay to the Executive's estate or as may be directed by the legal representatives of the Executive's estate any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"). The Company shall provide the Executive through the Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (b) Disability. If the Executive's employment with the Company is ---------- terminated on account of the Executive's Disability pursuant to Section 5(b), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee. The Company shall provide the Executive through the Executive's Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (c) By the Company for Cause or By the Executive Without Good Reason. ---------------------------------------------------------------- If the Executive's employment with the Company is terminated by the Company for Cause pursuant to Section 5(c) or by the Executive without Good Reason pursuant to Section 5(f), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and the Executive shall forfeit his entire then unpaid MIP payment(s), if any. The Company shall provide the Executive through his Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Termination By the Company Without Cause or By the Executive for ---------------------------------------------------------------- Good Reason. If the Executive's employment with the Company is terminated by - ----------- the Company (other than for Disability or Cause), or by the Executive for Good Reason pursuant to Section 5(d), then the Company shall: (i) within 30 days of the Executive's Date of Termination, pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through his Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of his Base Salary in effect as of his Date of Termination, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay the Executive his Base Salary in effect as of his Date of Termination for the 18-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8) at the times such payments would otherwise have been made under Section 4(a); (iii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), pay the Executive (I) 100% of his "Cash Target Amount" under the MIP (as of his Date of Termination) for the MIP year immediately following his Date of Termination, and (II) 50% of his "Cash Target Amount" under the MIP (as of his Date of Termination) for the second year immediately following his Date of Termination (in each case unless the Executive earlier violates the provisions of Section 8), each such payment to be made at the times such payments would otherwise have been made under the MIP; (iv) provide the Executive for the 18-month period commencing immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination; and (v) solely if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval),(A) his SERP benefit shall become fully vested and nonforfeitable, (B) if he had not attained age 55 as of his Date of Termination, he shall be (I) deemed to have attained age 55 for purposes of the early retirement provisions of the SERP, and (II) credited with an additional number of years of service for SERP benefit accrual purposes equal to the difference between his age as of his Date of Termination and age 55, (C) if he had not accumulated 10 years of service under the SERP as of his Date of Termination, he shall be deemed to have 10 years of service for SERP benefit accrual purposes and (D) within 30 days of his Date of Termination, the Company shall pay the Executive an amount equal to the present value of his accrued SERP benefit (utilizing a discount rate for calculating such present value equal to the "discount rate," as defined in Statement of Financial Accounting Standards No. 87 published by the Financial Accounting Standards Board, utilized for purposes of the most recent audit disclosure relating to the Company's tax- qualified defined benefit pension plan preceding the Change of Control by the "enrolled actuary" (as defined in Section 7701 (a)(35) of the Internal Revenue Code of 1986, as amended (the "Code")), who signed the Schedule B to the most recent Internal Revenue Service Form 5500 relating to the Company's tax-qualified defined benefit pension plan, filed prior to the Change of Control). Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) the Company or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries or other affiliates controlled by the Company or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of the Company's then outstanding securities; provided, however, that if such -------- ------- "Person" shall be Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1999), individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity, or a plan of liquidation of the Company or an agreement for the sale or disposition by the Company of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 20% of the combined voting power of the Company's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). 8. Restrictions. ------------ (a) Reasonable Covenants. It is expressly understood by and between -------------------- the Company and the Executive that the covenants contained in this Section 8 are an essential element of this Agreement and that but for the agreement by the Executive to comply with these covenants and thereby not to diminish the value of the organization and goodwill of the Company or any affiliate of the Company, if any, including without limitation relations with their employees, suppliers, customers and accounts, the Company would not enter into this Agreement. The Executive has independently consulted with his legal counsel and after such consultation agrees that such covenants are reasonable and proper. (b) Noncompetition; No Diversion of Customers; Etc. During the Term ---------------------------------------------- and for 18 months after the Executive's Date of Termination, the Executive shall not: (i) engage directly, alone or in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or entity, in competition with the businesses of the Company and/or any of its affiliates as of the Executive's Date of Termination; (ii) divert to any competitor of the Company or any of its affiliates, any customer of the Company or any of its affiliates or any "prospective customer" (as defined in the last paragraph of this Section 8(b)) of the Company or any of its affiliates; or (iii) solicit or encourage any officer, employee or consultant of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates for employment by or with any competitor of the Company or any of its affiliates; provided, however, that the Executive may invest in stocks, bonds or other - -------- ------- securities of any competitor of the Company or any of its affiliates if: (A) such stocks, bonds or other securities are listed on any national or regional securities exchange or have been registered under Section 11(g) of the Securities Exchange Act of 1934; (B) the Executive's investment does not exceed, in the case of any class of the capital stock of any one issuer, 1% of the issued and outstanding shares, or, in the case of other securities, 1% of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by the Company and/or any of its affiliates with any state, district, territory or possession of the United States or any governmental subdivision, agency or instrumentality thereof by virtue of any statute, law, regulation or administrative practice. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered severable and shall become and shall be immediately amended solely with respect to such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. Except as provided in this Section 8 and in Section 3, nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or industry in any capacity. For purposes of clause (ii) of this Section 8(b), the term "prospective customer" shall mean any entity, business or individual included on a list of prospective customers provided to the Executive by the Company within 15 days following his Date of Termination, which list contains the names of those entities, businesses and individuals with whom the Company had been in contact prior to the Executive's Date of Termination for purposes of establishing a customer relationship therewith. Any entity, business or individual not appearing on the aforementioned list of prospective customers due to the failure of the Executive to advise the Company of such contact shall be considered a "prospective customer" for purposes of clause (ii) of this Section 8(b). (c) Public Support and Assistance. The Executive agrees that ----------------------------- following any termination of his employment hereunder by the Company, the Executive shall not disclose or cause to be disclosed any negative, adverse or derogatory comments or information of a substantial nature about the Company or its management, or about any product or service provided by the Company, or about the Company's prospects for the future (including any such comments or information with respect to affiliates of the Company). The Company and/or any of its affiliates may seek the assistance, cooperation or testimony of the Executive following any such termination in connection with any investigation, litigation or proceeding arising out of matters within the knowledge of the Executive and related to the Executive's position as an officer or employee of the Company, and in any such instance, the Executive shall provide such assistance, cooperation or testimony and the Company shall pay the Executive's reasonable costs and expenses in connection therewith; in addition, if such assistance, cooperation or testimony requires more than a nominal commitment of the Executive's time, the Company shall compensate the Executive for such time at a per diem rate derived from the Executive's Base Salary at the time of the Executive's Date of Termination. (d) Nondisclosure of Confidential Information. During the Term, the ----------------------------------------- Executive shall hold in a fiduciary capacity for the benefit of the Company and its affiliates all Confidential Information (as defined below). After termination of the Executive's employment with the Company, the Executive shall keep secret and confidential all Confidential Information and shall not use or disclose to any third party in any fashion or for any purpose whatsoever, any Confidential Information. As used herein, "Confidential Information" shall mean any information regarding this Agreement, or any other information regarding the Company or its affiliates which is not available to the general public, and/or not generally known outside the Company or any such affiliate, to which the Executive has or shall have had access at any time during the course of the Executive's employment with the Company, including, without limitation, any information relating to the Company's (and its affiliates'): (i) business, operations, plans, strategies, prospects or objectives; (ii) products, technologies, processes, specifications, research and development operations or plans; (iii) customers and customer lists; (iv) sales, service, support and marketing practices and operations; (v) financial condition and results of operations; (vi) operational strengths and weaknesses; and (vii) personnel and compensation policies and procedures. Notwithstanding the foregoing provisions of this Section 8, the Executive may discuss this Agreement with the members of the Executive's immediate family and with the Executive's personal legal and tax advisors. (e) Specific Performance. Without intending to limit the remedies -------------------- available to the Company, the Executive agrees that damages at law would be an insufficient remedy to the Company in the event that the Executive violates any of the provisions of this Section 8, and that the Company may apply for and, upon the requisite showing, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. 9. Excise Tax Gross-Up Payment. If any payments made and/or benefits --------------------------- provided to the Executive by the Company, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Company payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive, whose fees and expenses shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which the Executive resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 10. Legal Fees. To provide the Executive with reasonable assurances ---------- that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform any of its obligations under this Agreement, the Company shall pay all of the reasonable attorneys' fees and expenses and court and arbitration costs incurred by the Executive and any of his beneficiaries, heirs and legal representatives, should a court of competent jurisdiction or an arbitrator determine that the Company shall have failed to perform any of its obligations under this Agreement. 11. Notice. For the purposes of this Agreement, notices, demands and ------ all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Robert J. Iacullo 23 Holiday Drive West Caldwell, NJ 07006 If to the Company: Office of the General Counsel United Water Resources Inc. 200 Old Hook Road Harrington Park, NJ 07640-1799 or to such other address as either of the parties may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Successors. Without the prior written consent of the Executive, ---------- this Agreement cannot be assigned by the Company except that it shall be binding automatically on any successors and assigns of all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). In addition, without the prior written consent of the Company, this Agreement cannot be assigned by the Executive, except that the right to receive payments or benefits hereunder may be transferred by will or the laws of descent and distribution. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives. 13. Arbitration. Except as provided in Section 8(e), all ----------- controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration under the rules of the American Arbitration Association then in effect in the State of New Jersey, as the sole and exclusive remedy of either party, and judgment upon any such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The costs of arbitration shall be borne by the unsuccessful party or otherwise as determined by the arbitrators in their discretion. 14. Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflicts of law principles. 15. Amendments. No provision of this Agreement may be modified, ---------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated for such purpose by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement ---------------- of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 18. Indemnification. The Company shall indemnify the Executive to --------------- the full extent permitted by the New Jersey Business Corporation Act and any provision of the By-Laws of the Company, as amended from time to time, generally applicable to officers and directors of the Company, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorneys' fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the actions by the Executive as an officer or employee of, the Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 18 or elsewhere in this Agreement is intended to prevent the Company from indemnifying the Executive to any greater extent than is required by this Section 18. 19. Severability. The invalidity or unenforceability of any ------------ provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_____________________________ Name: Donald L. Correll Title: Chairman and Chief Executive Officer ROBERT J. IACULLO ________________________________ MARCIA L. WORTHING ________________________________ EX-10.G 10 EXECUTIVE EMPLOYMENT AGREEMENT: JOSEPH SIMUNOVICH Exhibit 10(g) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1999 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and Joseph Simunovich (the "Executive") (this "Agreement"). The Company desires to employ the Executive and the Executive is willing to be employed by the Company, on the terms and conditions hereinafter provided. In order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The Executive's employment under this Agreement shall ---- commence on the Commencement Date and shall end at the close of business on December 31, 2000; provided, however, that the term of this Agreement (the -------- ------- "Term") shall thereafter be automatically extended for each succeeding 1-year period unless either party hereto provides the other party with a written notice at least 60 days prior to the end of the then current Term, advising that the party providing the notice shall not agree to so extend the Term; and provided, -------- further, that should a Change of Control occur during the Term, the Term shall - ------- be extended to the date which is the end of the 24-month period immediately following the consummation of the transaction which constitutes the Change of Control. Notwithstanding the preceding, the Term shall not extend beyond the date on which the Executive attains age 65 without the prior written consent of the Company; provided, however, that the end of the Term solely on account of -------- ------- the Executive attaining age 65 shall not entitle the Executive to any benefits under Section 7. 3. Title, Duties and Authority. The Executive shall serve as --------------------------- President and Chief of Staff of United Water Management and Services Inc. and shall have such responsibilities and duties (consistent with the Executive's positions as President and Chief of Staff) as may from time to time be assigned to the Executive by the Board of Directors of United Water Resources Inc. (the "Board"), and shall have all of the powers and duties usually incident to the offices of President and Chief of Staff. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company, except for vacations, illness or incapacity. 4. Compensation and Benefits. ------------------------- (a) Base Salary. During the Term, the Company shall pay the Executive ----------- a base salary ("Base Salary"), payable in equal installments in accordance with the Company's normal practice for paying base salaries to its executive employees. The Base Salary shall initially be payable at the rate of $240,000 per annum, and shall be subject to annual review by the Board for discretionary annual increases. (b) MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. (c) Employee Benefits. The Executive shall be entitled to participate ----------------- in all of the Company's employee benefit plans made available by the Company (or any affiliate thereof) to its executives during the Term as may be in effect from time to time. In addition, during the Term, the Executive shall accrue benefits under the United Water Resources Inc. Supplemental Retirement Plan for Key Executives (the "SERP"). (d) Expenses. During the Term, the Executive shall be entitled to -------- receive prompt reimbursement upon submission of expense claims to the Company for all reasonable and customary expenses incurred by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company for its executive employees. (e) Vacations. The Executive shall be entitled to paid vacation, paid --------- holidays, sick days and personal days pursuant to the Company's regular policies applicable to its executive employees. (f) Taxes. The Company may withhold from any amounts payable under ----- this Agreement such federal, state, local and/or other taxes as shall be required to be withheld pursuant to any applicable law or regulation. 5. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due ---------- to physical or mental illness, the Executive shall become entitled to the receipt of benefits under the Company's long-term disability plan, and within 30 days after a written Notice of Termination (as defined in Section 6(a)) is given to the Executive by the Company, the Executive shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following which is materially injurious to the business or reputation of the Company or any of its affiliates: (i) the failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the willful violation by the Executive of any of the Executive's material obligations hereunder; (iii) the willful engaging by the Executive in misconduct; or (iv) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive shall not be terminated for Cause without: (A) at least 15 days' advance notice to the Executive setting forth the reasons for the Company's intention to terminate the Executive's employment hereunder for Cause; (B) the failure of the Executive to cure the nonperformance, violation or misconduct described in the notice referred to in clause (A) of this paragraph, if cure thereof is possible, to the reasonable satisfaction of the Board, within 15 days of such notice; and (C) delivery to the Executive of a Notice of Termination (as defined in Section 6(a)) from the Company notifying him that in the good faith opinion of a majority of the Board, the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. (d) Good Reason. The Executive may terminate his employment ----------- hereunder for "Good Reason" by providing a Notice of Termination to the Company within 30 days after the occurrence, without the Executive's consent, of one of the following events that has not been cured within 15 days after written notice thereof has been given to the Company by the Executive: (i) a reduction of the Executive's Base Salary; (ii) a material and adverse change in the Executive's title, status, authority, duties or function (in each case, other than as may be contemplated by this Agreement); (iii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iv) a change of the Executive's place of employment by the Company to a location which is greater than 50 miles from the location of the Executive's place of employment by the Company as of the Commencement Date; or (v) the willful violation by the Company of any of the Company's material obligations hereunder. (e) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. (f) Without Good Reason. The Executive may terminate the ------------------- Executive's employment hereunder without Good Reason by providing the Company with a Notice of Termination. 6. Termination Procedure. --------------------- (a) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than a termination on account of the Executive's death pursuant to Section 5(a)) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder pursuant to the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean: ------------------- (i) if the Executive's employment is terminated on account of the Executive's death pursuant to Section 5(a), the date of the Executive's death; (ii) if the Executive's employment is terminated on account of the Executive's Disability pursuant to Section 5(b), 30 days after a Notice of Termination has been provided pursuant thereto (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty 30-day period); (iii) if the Executive's employment is terminated for Cause pursuant to Section 5(c), the date specified in the Notice of Termination provided pursuant thereto; and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is provided or any later date (within 30 days) set forth in such Notice of Termination. 7. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment with the Company is ----- terminated on account of the Executive's death pursuant to Section 5(a), the Company shall as soon as practicable pay to the Executive's estate or as may be directed by the legal representatives of the Executive's estate any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"). The Company shall provide the Executive through the Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (b) Disability. If the Executive's employment with the Company is ---------- terminated on account of the Executive's Disability pursuant to Section 5(b), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee. The Company shall provide the Executive through the Executive's Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (c) By the Company for Cause or By the Executive Without Good Reason. ---------------------------------------------------------------- If the Executive's employment with the Company is terminated by the Company for Cause pursuant to Section 5(c) or by the Executive without Good Reason pursuant to Section 5(f), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and the Executive shall forfeit his entire then unpaid MIP payment(s), if any. The Company shall provide the Executive through his Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Termination By the Company Without Cause or By the Executive for Good Reason or During the Thirteenth Month Following a Change of Control. If the Executive's employment with the Company is terminated by the Company (other than for Disability or Cause), or by the Executive (1) for Good Reason pursuant to Section 5(d), or (2) with or without Good Reason (other than to avoid his termination by the Company for Cause) during the thirteenth calendar month beginning after the consummation of any transaction which constitutes a Change of Control, as defined below, then the Company shall: (i) within 30 days of the Executive's Date of Termination, pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through his Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 300% of his Base Salary in effect as of his Date of Termination, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay the Executive his Base Salary in effect as of his Date of Termination for the 24-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8) at the times such payments would otherwise have been made under Section 4(a); (iii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 300% of the greater of (I) his then current "Cash Target Amount" under the MIP, or (II) his most recently paid or declared cash award under the MIP, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), pay the Executive an annual MIP payment for each of the 2 MIP years immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), each such payment in an amount equal to his "Cash Target Amount" under the MIP (as of his Date of Termination), and to be made at the times such payments would otherwise have been made under the MIP; (iv) provide the Executive for the 24-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination; and (v) solely if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), (A) his SERP benefit shall become fully vested and nonforfeitable, (B) if he had not attained age 55 as of his Date of Termination, he shall be deemed to have attained age 55 for purposes of the early retirement provisions of the SERP, (C) if he had not accumulated 10 years of service under the SERP as of his Date of Termination, he shall be deemed to have 10 years of service for SERP benefit accrual purposes and (D) within 30 days of his Date of Termination, the Company shall pay the Executive an amount equal to the present value of his accrued SERP benefit (utilizing a discount rate for calculating such present value equal to the "discount rate," as defined in Statement of Financial Accounting Standards No. 87 published by the Financial Accounting Standards Board, utilized for purposes of the most recent audit disclosure relating to the Company's tax- qualified defined benefit pension plan preceding the Change of Control by the "enrolled actuary" (as defined in Section 7701(a)(35) of the Internal Revenue Code of 1986, as amended (the "Code")), who signed the Schedule B to the most recent Internal Revenue Service Form 5500 relating to the Company's tax-qualified defined benefit pension plan, filed prior to the Change of Control). Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) the Company or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries or other affiliates controlled by the Company or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of the Company's then outstanding securities; provided, however, that if such -------- ------- "Person" shall be Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1999), individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity, or a plan of liquidation of the Company or an agreement for the sale or disposition by the Company of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 20% of the combined voting power of the Company's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). 8. Restrictions. ------------ (a) Reasonable Covenants. It is expressly understood by and between -------------------- the Company and the Executive that the covenants contained in this Section 8 are an essential element of this Agreement and that but for the agreement by the Executive to comply with these covenants and thereby not to diminish the value of the organization and goodwill of the Company or any affiliate of the Company, if any, including without limitation relations with their employees, suppliers, customers and accounts, the Company would not enter into this Agreement. The Executive has independently consulted with his legal counsel and after such consultation agrees that such covenants are reasonable and proper. (b) Noncompetition; No Diversion of Customers; Etc. During the Term ---------------------------------------------- and for 24 months after the Executive's Date of Termination, the Executive shall not: (i) engage directly, alone or in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or entity, in competition with the businesses of the Company and/or any of its affiliates as of the Executive's Date of Termination; (ii) divert to any competitor of the Company or any of its affiliates, any customer of the Company or any of its affiliates or any "prospective customer" (as defined in the last paragraph of this Section 8(b)) of the Company or any of its affiliates; or (iii) solicit or encourage any officer, employee or consultant of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates for employment by or with any competitor of the Company or any of its affiliates; provided, however, that the Executive may invest in stocks, bonds or other - -------- ------- securities of any competitor of the Company or any of its affiliates if: (A) such stocks, bonds or other securities are listed on any national or regional securities exchange or have been registered under Section 11(g) of the Securities Exchange Act of 1934; (B) the Executive's investment does not exceed, in the case of any class of the capital stock of any one issuer, 1% of the issued and outstanding shares, or, in the case of other securities, 1% of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by the Company and/or any of its affiliates with any state, district, territory or possession of the United States or any governmental subdivision, agency or instrumentality thereof by virtue of any statute, law, regulation or administrative practice. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered severable and shall become and shall be immediately amended solely with respect to such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. Except as provided in this Section 8 and in Section 3, nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or industry in any capacity. For purposes of clause (ii) of this Section 8(b), the term "prospective customer" shall mean any entity, business or individual included on a list of prospective customers provided to the Executive by the Company within 15 days following his Date of Termination, which list contains the names of those entities, businesses and individuals with whom the Company had been in contact prior to the Executive's Date of Termination for purposes of establishing a customer relationship therewith. Any entity, business or individual not appearing on the aforementioned list of prospective customers due to the failure of the Executive to advise the Company of such contact shall be considered a "prospective customer" for purposes of clause (ii) of this Section 8(b). (c) Public Support and Assistance. The Executive agrees that ----------------------------- following any termination of his employment hereunder by the Company, the Executive shall not disclose or cause to be disclosed any negative, adverse or derogatory comments or information of a substantial nature about the Company or its management, or about any product or service provided by the Company, or about the Company's prospects for the future (including any such comments or information with respect to affiliates of the Company). The Company and/or any of its affiliates may seek the assistance, cooperation or testimony of the Executive following any such termination in connection with any investigation, litigation or proceeding arising out of matters within the knowledge of the Executive and related to the Executive's position as an officer or employee of the Company, and in any such instance, the Executive shall provide such assistance, cooperation or testimony and the Company shall pay the Executive's reasonable costs and expenses in connection therewith; in addition, if such assistance, cooperation or testimony requires more than a nominal commitment of the Executive's time, the Company shall compensate the Executive for such time at a per diem rate derived from the Executive's Base Salary at the time of the Executive's Date of Termination. (d) Nondisclosure of Confidential Information. During the Term, the ----------------------------------------- Executive shall hold in a fiduciary capacity for the benefit of the Company and its affiliates all Confidential Information (as defined below). After termination of the Executive's employment with the Company, the Executive shall keep secret and confidential all Confidential Information and shall not use or disclose to any third party in any fashion or for any purpose whatsoever, any Confidential Information. As used herein, "Confidential Information" shall mean any information regarding this Agreement, or any other information regarding the Company or its affiliates which is not available to the general public, and/or not generally known outside the Company or any such affiliate, to which the Executive has or shall have had access at any time during the course of the Executive's employment with the Company, including, without limitation, any information relating to the Company's (and its affiliates'): (i) business, operations, plans, strategies, prospects or objectives; (ii) products, technologies, processes, specifications, research and development operations or plans; (iii) customers and customer lists; (iv) sales, service, support and marketing practices and operations; (v) financial condition and results of operations; (vi) operational strengths and weaknesses; and (vii) personnel and compensation policies and procedures. Notwithstanding the foregoing provisions of this Section 8, the Executive may discuss this Agreement with the members of the Executive's immediate family and with the Executive's personal legal and tax advisors. (e) Specific Performance. Without intending to limit the remedies -------------------- available to the Company, the Executive agrees that damages at law would be an insufficient remedy to the Company in the event that the Executive violates any of the provisions of this Section 8, and that the Company may apply for and, upon the requisite showing, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. 9. Excise Tax Gross-Up Payment. If any payments made and/or benefits --------------------------- provided to the Executive by the Company, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Company payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive, whose fees and expenses shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which the Executive resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross- Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 10. Legal Fees. To provide the Executive with reasonable assurances ---------- that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform any of its obligations under this Agreement, the Company shall pay all of the reasonable attorneys' fees and expenses and court and arbitration costs incurred by the Executive and any of his beneficiaries, heirs and legal representatives, should a court of competent jurisdiction or an arbitrator determine that the Company shall have failed to perform any of its obligations under this Agreement. 11. Notice. For the purposes of this Agreement, notices, demands and ------ all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Joseph Simunovich 725 Holly Court Norwood, NJ 07648 If to the Company: Office of the General Counsel United Water Resources Inc. 200 Old Hook Road Harrington Park, NJ 07640-1799 or to such other address as either of the parties may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Successors. Without the prior written consent of the Executive, ---------- this Agreement cannot be assigned by the Company except that it shall be binding automatically on any successors and assigns of all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). In addition, without the prior written consent of the Company, this Agreement cannot be assigned by the Executive, except that the right to receive payments or benefits hereunder may be transferred by will or the laws of descent and distribution. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives. 13. Arbitration. Except as provided in Section 8(e), all ----------- controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration under the rules of the American Arbitration Association then in effect in the State of New Jersey, as the sole and exclusive remedy of either party, and judgment upon any such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The costs of arbitration shall be borne by the unsuccessful party or otherwise as determined by the arbitrators in their discretion. 14. Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflicts of law principles. 15. Amendments. No provision of this Agreement may be modified, ---------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated for such purpose by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement ---------------- of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 18. Indemnification. The Company shall indemnify the Executive to --------------- the full extent permitted by the New Jersey Business Corporation Act and any provision of the By-Laws of the Company, as amended from time to time, generally applicable to officers and directors of the Company, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorneys' fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the actions by the Executive as an officer or employee of, the Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 18 or elsewhere in this Agreement is intended to prevent the Company from indemnifying the Executive to any greater extent than is required by this Section 18. 19. Severability. The invalidity or unenforceability of any ------------ provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_____________________________ Name: Donald L. Correll Title: Chairman and Chief Executive Officer JOSEPH SIMUNOVICH ________________________________ MARCIA L. WORTHING ________________________________ EX-10.H 11 EXECUTIVE EMPLOYMENT AGREEMENT: JOHN MARINO Exhibit 10(h) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1999 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and John T. Marino (the "Executive") (this "Agreement"). The Company desires to employ the Executive and the Executive is willing to be employed by the Company, on the terms and conditions hereinafter provided. In order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The Executive's employment under this Agreement shall ---- commence on the Commencement Date and shall end at the close of business on December 31, 2000 ; provided, however, that the term of this Agreement (the -------- ------- "Term") shall thereafter be automatically extended for each succeeding 1-year period unless either party hereto provides the other party with a written notice at least 60 days prior to the end of the then current Term, advising that the party providing the notice shall not agree to so extend the Term; and provided, -------- further, that should a Change of Control occur during the Term, the Term shall - ------- be extended to the date which is the end of the 24-month period immediately following the consummation of the transaction which constitutes the Change of Control. Notwithstanding the preceding, the Term shall not extend beyond the date on which the Executive attains age 65 without the prior written consent of the Company; provided, however, that the end of the Term solely on account of -------- ------- the Executive attaining age 65 shall not entitle the Executive to any benefits under Section 7. 3. Title, Duties and Authority. The Executive shall serve as --------------------------- Treasurer of United Water Management and Services Inc. and shall have such responsibilities and duties (consistent with the Executive's position as Treasurer) as may from time to time be assigned to the Executive by the Company, and shall have all of the powers and duties usually incident to the office of Treasurer. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company, except for vacations, illness or incapacity. 4. Compensation and Benefits. ------------------------- (a) Base Salary. During the Term, the Company shall pay the Executive ----------- a base salary ("Base Salary"), payable in equal installments in accordance with the Company's normal practice for paying base salaries to its executive employees. The Base Salary shall initially be payable at the rate of $150,000 per annum, and shall be subject to annual review by the Company for discretionary annual increases. (b) MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. (c) Employee Benefits. The Executive shall be entitled to participate ----------------- in all of the Company's employee benefit plans made available by the Company (or any affiliate thereof) to its executives during the Term as may be in effect from time to time. In addition, during the Term, the Executive shall accrue benefits under the United Water Resources Inc. Supplemental Retirement Plan for Key Executives (the "SERP"). (d) Expenses. During the Term, the Executive shall be entitled to -------- receive prompt reimbursement upon submission of expense claims to the Company for all reasonable and customary expenses incurred by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company for its executive employees. (e) Vacations. The Executive shall be entitled to paid vacation, paid --------- holidays, sick days and personal days pursuant to the Company's regular policies applicable to its executive employees. (f) Taxes. The Company may withhold from any amounts payable under ----- this Agreement such federal, state, local and/or other taxes as shall be required to be withheld pursuant to any applicable law or regulation. 5. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall become entitled to the receipt of benefits under the Company's long-term disability plan, and within 30 days after a written Notice of Termination (as defined in Section 6(a)) is given to the Executive by the Company, the Executive shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following which is materially injurious to the business or reputation of the Company or any of its affiliates: (i) the failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the willful violation by the Executive of any of the Executive's material obligations hereunder; (iii) the willful engaging by the Executive in misconduct; or (iv) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive shall not be terminated for Cause without: (A) at least 15 days' advance notice to the Executive setting forth the reasons for the Company's intention to terminate the Executive's employment hereunder for Cause; (B) the failure of the Executive to cure the nonperformance, violation or misconduct described in the notice referred to in clause (A) of this paragraph, if cure thereof is possible, to the reasonable satisfaction of the Board of Directors of United Water Resources Inc. (the "Board"), within 15 days of such notice; and (C) delivery to the Executive of a Notice of Termination (as defined in Section 6(a)) from the Company notifying him that in the good faith opinion of a majority of the Board, the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. (d) Good Reason. The Executive may terminate his employment hereunder ----------- for "Good Reason" by providing a Notice of Termination to the Company within 30 days after the occurrence, without the Executive's consent, of one of the following events that has not been cured within 15 days after written notice thereof has been given to the Company by the Executive: (i) a reduction of the Executive's Base Salary; (ii) a material and adverse change in the Executive's title, status, authority, duties or function (in each case, other than as may be contemplated by this Agreement); (iii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iv) a change of the Executive's place of employment by the Company to a location which is greater than 50 miles from the location of the Executive's place of employment by the Company as of the Commencement Date; or (v) the willful violation by the Company of any of the Company's material obligations hereunder. (e) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. (f) Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. 6. Termination Procedure. --------------------- (a) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than a termination on account of the Executive's death pursuant to Section 5(a)) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder pursuant to the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean: ------------------- (i) if the Executive's employment is terminated on account of the Executive's death pursuant to Section 5(a), the date of the Executive's death; (ii) if the Executive's employment is terminated on account of the Executive's Disability pursuant to Section 5(b), 30 days after a Notice of Termination has been provided pursuant thereto (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty 30-day period); (iii) if the Executive's employment is terminated for Cause pursuant to Section 5(c), the date specified in the Notice of Termination provided pursuant thereto; and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is provided or any later date (within 30 days) set forth in such Notice of Termination. 7. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment with the Company is ----- terminated on account of the Executive's death pursuant to Section 5(a), the Company shall as soon as practicable pay to the Executive's estate or as may be directed by the legal representatives of the Executive's estate any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"). The Company shall provide the Executive through the Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (b) Disability. If the Executive's employment with the Company is ---------- terminated on account of the Executive's Disability pursuant to Section 5(b), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee. The Company shall provide the Executive through the Executive's Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (c) By the Company for Cause or By the Executive Without Good Reason. ---------------------------------------------------------------- If the Executive's employment with the Company is terminated by the Company for Cause pursuant to Section 5(c) or by the Executive without Good Reason pursuant to Section 5(f), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and the Executive shall forfeit his entire then unpaid MIP payment(s), if any. The Company shall provide the Executive through his Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Termination By the Company Without Cause or By the Executive for ---------------------------------------------------------------- Good Reason. If the Executive's employment with the Company is terminated by - ----------- the Company (other than for Disability or Cause), or by the Executive for Good Reason pursuant to Section 5(d), then the Company shall: (i) within 30 days of the Executive's Date of Termination, pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through his Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of his Base Salary in effect as of his Date of Termination, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay the Executive his Base Salary in effect as of his Date of Termination for the 18-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8) at the times such payments would otherwise have been made under Section 4(a); (iii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), pay the Executive (I) 100% of his "Cash Target Amount" under the MIP (as of his Date of Termination) for the MIP year immediately following his Date of Termination, and (II) 50% of his "Cash Target Amount" under the MIP (as of his Date of Termination) for the second MIP year immediately following his Date of Termination (in each case unless the Executive earlier violates the provisions of Section 8), each such payment to be made at the times such payments would otherwise have been made under the MIP; (iv) provide the Executive for the 18-month period commencing immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination; and (v) solely if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), (A) his SERP benefit shall become fully vested and nonforfeitable, (B) if he had not attained age 55 as of his Date of Termination, he shall be (I) deemed to have attained age 55 for purposes of the early retirement provisions of the SERP, and (II) credited with an additional number of years of service for SERP benefit accrual purposes equal to the difference between his age as of his Date of Termination and age 55, (C) if he had not accumulated 10 years of service under the SERP as of his Date of Termination, he shall be deemed to have 10 years of service for SERP benefit accrual purposes and (D) within 30 days of his Date of Termination, the Company shall pay the Executive an amount equal to the present value of his accrued SERP benefit (utilizing a discount rate for calculating such present value equal to the "discount rate," as defined in Statement of Financial Accounting Standards No. 87 published by the Financial Accounting Standards Board, utilized for purposes of the most recent audit disclosure relating to the Company's tax-qualified defined benefit pension plan preceding the Change of Control by the "enrolled actuary" (as defined in Section 7701 (a) (35) of the Internal Revenue Code of 1986, as amended (the "Code")), who signed the Schedule B to the most recent Internal Revenue Service Form 5500 relating to the Company's tax-qualified defined benefit pension plan, filed prior to the Change of Control). Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) the Company or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries or other affiliates controlled by the Company or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of the Company's then outstanding securities; provided, however, that if such -------- ------- "Person" shall be Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1998), individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity, or a plan of liquidation of the Company or an agreement for the sale or disposition by the Company of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 20% of the combined voting power of the Company's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). 8. Restrictions. ------------ (a) Reasonable Covenants. It is expressly understood by and between -------------------- the Company and the Executive that the covenants contained in this Section 8 are an essential element of this Agreement and that but for the agreement by the Executive to comply with these covenants and thereby not to diminish the value of the organization and goodwill of the Company or any affiliate of the Company, if any, including without limitation relations with their employees, suppliers, customers and accounts, the Company would not enter into this Agreement. The Executive has independently consulted with his legal counsel and after such consultation agrees that such covenants are reasonable and proper. (b) Noncompetition; No Diversion of Customers; Etc. During the Term ---------------------------------------------- and for 18 months after the Executive's Date of Termination, the Executive shall not: (i) engage directly, alone or in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or entity, in competition with the businesses of the Company and/or any of its affiliates as of the Executive's Date of Termination; (ii) divert to any competitor of the Company or any of its affiliates, any customer of the Company or any of its affiliates or any "prospective customer" (as defined in the last paragraph of this Section 8(b)) of the Company or any of its affiliates; or (iii) solicit or encourage any officer, employee or consultant of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates for employment by or with any competitor of the Company or any of its affiliates; provided, however, that the Executive may invest in stocks, bonds or other - -------- ------- securities of any competitor of the Company or any of its affiliates if: (A) such stocks, bonds or other securities are listed on any national or regional securities exchange or have been registered under Section 11(g) of the Securities Exchange Act of 1934; (B) the Executive's investment does not exceed, in the case of any class of the capital stock of any one issuer, 1% of the issued and outstanding shares, or, in the case of other securities, 1% of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by the Company and/or any of its affiliates with any state, district, territory or possession of the United States or any governmental subdivision, agency or instrumentality thereof by virtue of any statute, law, regulation or administrative practice. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered severable and shall become and shall be immediately amended solely with respect to such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. Except as provided in this Section 8 and in Section 3, nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or industry in any capacity. For purposes of clause (ii) of this Section 8(b), the term "prospective customer" shall mean any entity, business or individual included on a list of prospective customers provided to the Executive by the Company within 15 days following his Date of Termination, which list contains the names of those entities, businesses and individuals with whom the Company had been in contact prior to the Executive's Date of Termination for purposes of establishing a customer relationship therewith. Any entity, business or individual not appearing on the aforementioned list of prospective customers due to the failure of the Executive to advise the Company of such contact shall be considered a "prospective customer" for purposes of clause (ii) of this Section 8(b). (c) Public Support and Assistance. The Executive agrees that ----------------------------- following any termination of his employment hereunder by the Company, the Executive shall not disclose or cause to be disclosed any negative, adverse or derogatory comments or information of a substantial nature about the Company or its management, or about any product or service provided by the Company, or about the Company's prospects for the future (including any such comments or information with respect to affiliates of the Company). The Company and/or any of its affiliates may seek the assistance, cooperation or testimony of the Executive following any such termination in connection with any investigation, litigation or proceeding arising out of matters within the knowledge of the Executive and related to the Executive's position as an officer or employee of the Company, and in any such instance, the Executive shall provide such assistance, cooperation or testimony and the Company shall pay the Executive's reasonable costs and expenses in connection therewith; in addition, if such assistance, cooperation or testimony requires more than a nominal commitment of the Executive's time, the Company shall compensate the Executive for such time at a per diem rate derived from the Executive's Base Salary at the time of the Executive's Date of Termination. (d) Nondisclosure of Confidential Information. During the Term, the ----------------------------------------- Executive shall hold in a fiduciary capacity for the benefit of the Company and its affiliates all Confidential Information (as defined below). After termination of the Executive's employment with the Company, the Executive shall keep secret and confidential all Confidential Information and shall not use or disclose to any third party in any fashion or for any purpose whatsoever, any Confidential Information. As used herein, "Confidential Information" shall mean any information regarding this Agreement, or any other information regarding the Company or its affiliates which is not available to the general public, and/or not generally known outside the Company or any such affiliate, to which the Executive has or shall have had access at any time during the course of the Executive's employment with the Company, including, without limitation, any information relating to the Company's (and its affiliates'): (i) business, operations, plans, strategies, prospects or objectives; (ii) products, technologies, processes, specifications, research and development operations or plans; (iii) customers and customer lists; (iv) sales, service, support and marketing practices and operations; (v) financial condition and results of operations; (vi) operational strengths and weaknesses; and (vii) personnel and compensation policies and procedures. Notwithstanding the foregoing provisions of this Section 8, the Executive may discuss this Agreement with the members of the Executive's immediate family and with the Executive's personal legal and tax advisors. (e) Specific Performance. Without intending to limit the remedies -------------------- available to the Company, the Executive agrees that damages at law would be an insufficient remedy to the Company in the event that the Executive violates any of the provisions of this Section 8, and that the Company may apply for and, upon the requisite showing, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. 9. Excise Tax Gross-Up Payment. If any payments made and/or benefits --------------------------- provided to the Executive by the Company, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Company payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive, whose fees and expenses shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which the Executive resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 10. Legal Fees. To provide the Executive with reasonable assurances ---------- that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform any of its obligations under this Agreement, the Company shall pay all of the reasonable attorneys' fees and expenses and court and arbitration costs incurred by the Executive and any of his beneficiaries, heirs and legal representatives, should a court of competent jurisdiction or an arbitrator determine that the Company shall have failed to perform any of its obligations under this Agreement. 11. Notice. For the purposes of this Agreement, notices, demands and ------ all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: John T. Marino 602 Stonewall Court Wyckoff, NJ 07481 If to the Company: Office of the General Counsel United Water Resources Inc. 200 Old Hook Road Harrington Park, NJ 07640-1799 or to such other address as either of the parties may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Successors. Without the prior written consent of the Executive, ---------- this Agreement cannot be assigned by the Company except that it shall be binding automatically on any successors and assigns of all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). In addition, without the prior written consent of the Company, this Agreement cannot be assigned by the Executive, except that the right to receive payments or benefits hereunder may be transferred by will or the laws of descent and distribution. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives. 13. Arbitration. Except as provided in Section 8(e), all ----------- controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration under the rules of the American Arbitration Association then in effect in the State of New Jersey, as the sole and exclusive remedy of either party, and judgment upon any such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The costs of arbitration shall be borne by the unsuccessful party or otherwise as determined by the arbitrators in their discretion. 14. Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflicts of law principles. 15. Amendments. No provision of this Agreement may be modified, ---------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated for such purpose by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16 Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 17 Entire Agreement. This Agreement sets forth the entire agreement ---------------- of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements,communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 18 Indemnification. The Company shall indemnify the Executive to --------------- the full extent permitted by the New Jersey Business Corporation Act and any provision of the By-Laws of the Company, as amended from time to time, generally applicable to officers and directors of the Company, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorneys' fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the actions by the Executive as an officer or employee of, the Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 18 or elsewhere in this Agreement is intended to prevent the Company from indemnifying the Executive to any greater extent than is required by this Section 18. 19 Severability. The invalidity or unenforceability of any ------------ provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_______________________________ Name: Donald L. Correll Title: Chairman and Chief Executive Officer JOHN T. MARINO _________________________________ MARCIA L. WORTHING _________________________________ EX-10.I 12 EXECUTIVE EMPLOYMENT AGREEMENT: JOHN TURNER Exhibit 10(i) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1999 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and John J. Turner (the "Executive") (this "Agreement"). The Company desires to employ the Executive and the Executive is willing to be employed by the Company, on the terms and conditions hereinafter provided. In order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The Executive's employment under this Agreement shall ---- commence on the Commencement Date and shall end at the close of business on December 31, 2000 ; provided, however, that the term of this Agreement (the -------- ------- "Term") shall thereafter be automatically extended for each succeeding 1-year period unless either party hereto provides the other party with a written notice at least 60 days prior to the end of the then current Term, advising that the party providing the notice shall not agree to so extend the Term; and provided, -------- further, that should a Change of Control occur during the Term, the Term shall - ------- be extended to the date which is the end of the 24-month period immediately following the consummation of the transaction which constitutes the Change of Control. Notwithstanding the preceding, the Term shall not extend beyond the date on which the Executive attains age 65 without the prior written consent of the Company; provided, however, that the end of the Term solely on account of -------- ------- the Executive attaining age 65 shall not entitle the Executive to any benefits under Section 7. 3. Title, Duties and Authority. The Executive shall serve as Vice --------------------------- President and Chief Financial Officer of United Water Management and Services Inc. and Treasurer of United Water Resources Inc. and shall have such responsibilities and duties (consistent with the Executive's positions as Vice President and Chief Financial Officer of United Water Management and Services Inc. and Treasurer of United Water Resources Inc.) as may from time to time be assigned to the Executive by the Company, and shall have all of the powers and duties usually incident to the offices of Vice President and Chief Financial Officer of United Water Management and Services Inc. and Treasurer of United Water Resources Inc. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company, except for vacations, illness or incapacity. 4. Compensation and Benefits. ------------------------- (a) Base Salary. During the Term, the Company shall pay the Executive ----------- a base salary ("Base Salary"), payable in equal installments in accordance with the Company's normal practice for paying base salaries to its executive employees. The Base Salary shall initially be payable at the rate of $175,000 per annum, and shall be subject to annual review by the Company for discretionary annual increases. (b) MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. (c) Employee Benefits. The Executive shall be entitled to participate ----------------- in all of the Company's employee benefit plans made available by the Company (or any affiliate thereof) to its executives during the Term as may be in effect from time to time. In addition, during the Term, the Executive shall accrue benefits under the United Water Resources Inc. Supplemental Retirement Plan for Key Executives (the "SERP"). (d) Expenses. During the Term, the Executive shall be entitled to -------- receive prompt reimbursement upon submission of expense claims to the Company for all reasonable and customary expenses incurred by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company for its executive employees. (e) Vacations. The Executive shall be entitled to paid vacation, paid --------- holidays, sick days and personal days pursuant to the Company's regular policies applicable to its executive employees. (f) Taxes. The Company may withhold from any amounts payable under ----- this Agreement such federal, state, local and/or other taxes as shall be required to be withheld pursuant to any applicable law or regulation. 5. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall become entitled to the receipt of benefits under the Company's long-term disability plan, and within 30 days after a written Notice of Termination (as defined in Section 6(a)) is given to the Executive by the Company, the Executive shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following which is materially injurious to the business or reputation of the Company or any of its affiliates: (i) the failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the willful violation by the Executive of any of the Executive's material obligations hereunder; (iii) the willful engaging by the Executive in misconduct; or (iv) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive shall not be terminated for Cause without: (A) at least 15 days' advance notice to the Executive setting forth the reasons for the Company's intention to terminate the Executive's employment hereunder for Cause; (B) the failure of the Executive to cure the nonperformance, violation or misconduct described in the notice referred to in clause (A) of this paragraph, if cure thereof is possible, to the reasonable satisfaction of the Board of Directors of United Water Resources Inc. (the "Board"), within 15 days of such notice; and (C) delivery to the Executive of a Notice of Termination (as defined in Section 6(a)) from the Company notifying him that in the good faith opinion of a majority of the Board, the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. (d) Good Reason. The Executive may terminate his employment hereunder ----------- for "Good Reason" by providing a Notice of Termination to the Company within 30 days after the occurrence, without the Executive's consent, of one of the following events that has not been cured within 15 days after written notice thereof has been given to the Company by the Executive: (i) a reduction of the Executive's Base Salary; (ii) a material and adverse change in the Executive's title, status, authority, duties or function (in each case, other than as may be contemplated by this Agreement); provided, however, that the requirements -------- ------- of this clause (ii) shall be deemed to have been satisfied as of any time during the 12-month period immediately following a Change of Control (solely for purposes of a Change of Control triggered by shareholder approval referred to in clause (iii) of the definition of "Change of Control" contained in Section 7, at any time during the 12-month period immediately following the date of the consummation of the transaction requiring such shareholder approval), that (a) the Executive shall no longer be Vice President and Chief Financial Officer of United Water Management and Services Inc. and Treasurer of United Water Resources Inc. (or shall no longer occupy a similar position with either the Company or the top-tier parent company thereof), or (b) the securities of the company of which the Executive is Treasurer (or holds a similar position) are not common stock which is (or American Depositary Receipts which are) traded on a nationally recognized stock exchange or quoted on NASDAQ; provided, -------- further, that the Executive's entitlement to utilize the immediately ------- preceding proviso shall terminate at the end of such 12-month period; (iii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iv) a change of the Executive's place of employment by the Company to a location which is greater than 50 miles from the location of the Executive's place of employment by the Company as of the Commencement Date; or (v) the willful violation by the Company of any of the Company's material obligations hereunder. (e) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. (f) Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. 6. Termination Procedure. --------------------- (a) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than a termination on account of the Executive's death pursuant to Section 5(a)) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder pursuant to the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean: ------------------- (i) if the Executive's employment is terminated on account of the Executive's death pursuant to Section 5(a), the date of the Executive's death; (ii) if the Executive's employment is terminated on account of the Executive's Disability pursuant to Section 5(b), 30 days after a Notice of Termination has been provided pursuant thereto (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty 30-day period); (iii) if the Executive's employment is terminated for Cause pursuant to Section 5(c), the date specified in the Notice of Termination provided pursuant thereto; and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is provided or any later date (within 30 days) set forth in such Notice of Termination. 7. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment with the Company is ----- terminated on account of the Executive's death pursuant to Section 5(a), the Company shall as soon as practicable pay to the Executive's estate or as may be directed by the legal representatives of the Executive's estate any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"). The Company shall provide the Executive through the Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (b) Disability. If the Executive's employment with the Company is ---------- terminated on account of the Executive's Disability pursuant to Section 5(b), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee. The Company shall provide the Executive through the Executive's Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (c) By the Company for Cause or By the Executive Without Good Reason. ---------------------------------------------------------------- If the Executive's employment with the Company is terminated by the Company for Cause pursuant to Section 5(c) or by the Executive without Good Reason pursuant to Section 5(f), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and the Executive shall forfeit his entire then unpaid MIP payment(s), if any. The Company shall provide the Executive through his Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Termination By the Company Without Cause or By the Executive for ---------------------------------------------------------------- Good Reason. If the Executive's employment with the Company is terminated by - ----------- the Company (other than for Disability or Cause), or by the Executive for Good Reason pursuant to Section 5(d), then the Company shall: (i) within 30 days of the Executive's Date of Termination, pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through his Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of his Base Salary in effect as of his Date of Termination, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay the Executive his Base Salary in effect as of his Date of Termination for the 18-month period immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8) at the times such payments would otherwise have been made under Section 4(a); (iii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), pay the Executive (I) 100% of his "Cash Target Amount" under the MIP (as of his Date of Termination) for the MIP year immediately following his Date of Termination, and (II) 50% of his "Cash Target Amount" under the MIP (as of his Date of Termination) for the second MIP year immediately following his Date of Termination (in each case unless the Executive earlier violates the provisions of Section 8), each such payment to be made at the times such payments would otherwise have been made under the MIP; (iv) provide the Executive for the 18-month period commencing immediately following his Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of his Date of Termination; and (v) solely if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), if the Executive is a participant in the SERP, (A) his SERP benefit shall become fully vested and nonforfeitable, (B) if he had not attained age 55 as of his Date of Termination, he shall be (I) deemed to have attained age 55 for purposes of the early retirement provisions of the SERP, and (II) credited with an additional number of years of service for SERP benefit accrual purposes equal to the difference between his age as of his Date of Termination and age 55, (C) if he had not accumulated 10 years of service under the SERP as of his Date of Termination, he shall be deemed to have 10 years of service for SERP benefit accrual purposes and (D) within 30 days of his Date of Termination, the Company shall pay the Executive an amount equal to the present value of his accrued SERP benefit (utilizing a discount rate for calculating such present value equal to the "discount rate" as defined in Statement of Financial Accounting Standards No.87 published by the Financial Accounting Standards Board, utilized for purposes of the most recent audit disclosure relating to the Company's tax-qualified defined benefit pension plan preceding the Change of Control by the "enrolled actuary" (as defined in Section 7701(a)(35) of the Internal Revenue Code of 1986, as amended (the "Code")), who signed the Schedule B to the most recent Internal Revenue Service Form 5500 relating to the Company's tax-qualified defined benefit pension plan, filed prior to the Change of Control). Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) the Company or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries or other affiliates controlled by the Company or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of the Company's then outstanding securities; provided, however, that if such -------- ------- "Person" shall be Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1999), individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity, or a plan of liquidation of the Company or an agreement for the sale or disposition by the Company of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 20% of the combined voting power of the Company's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). 8. Restrictions. ------------ (a) Reasonable Covenants. It is expressly understood by and between -------------------- the Company and the Executive that the covenants contained in this Section 8 are an essential element of this Agreement and that but for the agreement by the Executive to comply with these covenants and thereby not to diminish the value of the organization and goodwill of the Company or any affiliate of the Company, if any, including without limitation relations with their employees, suppliers, customers and accounts, the Company would not enter into this Agreement. The Executive has independently consulted with his legal counsel and after such consultation agrees that such covenants are reasonable and proper. (b) Noncompetition; No Diversion of Customers; Etc. During the Term ---------------------------------------------- and for 18 months after the Executive's Date of Termination, the Executive shall not: (i) engage directly, alone or in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or entity, in competition with the businesses of the Company and/or any of its affiliates as of the Executive's Date of Termination; (ii) divert to any competitor of the Company or any of its affiliates, any customer of the Company or any of its affiliates or any "prospective customer" (as defined in the last paragraph of this Section 8(b)) of the Company or any of its affiliates; or (iii) solicit or encourage any officer, employee or consultant of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates for employment by or with any competitor of the Company or any of its affiliates; provided, however, that the Executive may invest in stocks, bonds or other - -------- ------- securities of any competitor of the Company or any of its affiliates if: (A) such stocks, bonds or other securities are listed on any national or regional securities exchange or have been registered under Section 11(g) of the Securities Exchange Act of 1934; (B) the Executive's investment does not exceed, in the case of any class of the capital stock of any one issuer, 1% of the issued and outstanding shares, or, in the case of other securities, 1% of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by the Company and/or any of its affiliates with any state, district, territory or possession of the United States or any governmental subdivision, agency or instrumentality thereof by virtue of any statute, law, regulation or administrative practice. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered severable and shall become and shall be immediately amended solely with respect to such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. Except as provided in this Section 8 and in Section 3, nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or industry in any capacity. For purposes of clause (ii) of this Section 8(b), the term "prospective customer" shall mean any entity, business or individual included on a list of prospective customers provided to the Executive by the Company within 15 days following his Date of Termination, which list contains the names of those entities, businesses and individuals with whom the Company had been in contact prior to the Executive's Date of Termination for purposes of establishing a customer relationship therewith. Any entity, business or individual not appearing on the aforementioned list of prospective customers due to the failure of the Executive to advise the Company of such contact shall be considered a "prospective customer" for purposes of clause (ii) of this Section 8(b). (c) Public Support and Assistance. The Executive agrees that ----------------------------- following any termination of his employment hereunder by the Company, the Executive shall not disclose or cause to be disclosed any negative, adverse or derogatory comments or information of a substantial nature about the Company or its management, or about any product or service provided by the Company, or about the Company's prospects for the future (including any such comments or information with respect to affiliates of the Company). The Company and/or any of its affiliates may seek the assistance, cooperation or testimony of the Executive following any such termination in connection with any investigation, litigation or proceeding arising out of matters within the knowledge of the Executive and related to the Executive's position as an officer or employee of the Company, and in any such instance, the Executive shall provide such assistance, cooperation or testimony and the Company shall pay the Executive's reasonable costs and expenses in connection therewith; in addition, if such assistance, cooperation or testimony requires more than a nominal commitment of the Executive's time, the Company shall compensate the Executive for such time at a per diem rate derived from the Executive's Base Salary at the time of the Executive's Date of Termination. (d) Nondisclosure of Confidential Information. During the Term, the ----------------------------------------- Executive shall hold in a fiduciary capacity for the benefit of the Company and its affiliates all Confidential Information (as defined below). After termination of the Executive's employment with the Company, the Executive shall keep secret and confidential all Confidential Information and shall not use or disclose to any third party in any fashion or for any purpose whatsoever, any Confidential Information. As used herein, "Confidential Information" shall mean any information regarding this Agreement, or any other information regarding the Company or its affiliates which is not available to the general public, and/or not generally known outside the Company or any such affiliate, to which the Executive has or shall have had access at any time during the course of the Executive's employment with the Company, including, without limitation, any information relating to the Company's (and its affiliates'): (i) business, operations, plans, strategies, prospects or objectives; (ii) products, technologies, processes, specifications, research and development operations or plans; (iii) customers and customer lists; (iv) sales, service, support and marketing practices and operations; (v) financial condition and results of operations; (vi) operational strengths and weaknesses; and (vii) personnel and compensation policies and procedures. Notwithstanding the foregoing provisions of this Section 8, the Executive may discuss this Agreement with the members of the Executive's immediate family and with the Executive's personal legal and tax advisors. (e) Specific Performance. Without intending to limit the remedies -------------------- available to the Company, the Executive agrees that damages at law would be an insufficient remedy to the Company in the event that the Executive violates any of the provisions of this Section 8, and that the Company may apply for and, upon the requisite showing, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. 9. Excise Tax Gross-Up Payment. If any payments made and/or benefits --------------------------- provided to the Executive by the Company, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Company payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive, whose fees and expenses shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which the Executive resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 10. Legal Fees. To provide the Executive with reasonable assurances ---------- that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform any of its obligations under this Agreement, the Company shall pay all of the reasonable attorneys' fees and expenses and court and arbitration costs incurred by the Executive and any of his beneficiaries, heirs and legal representatives, should a court of competent jurisdiction or an arbitrator determine that the Company shall have failed to perform any of its obligations under this Agreement. 11. Notice. For the purposes of this Agreement, notices, demands and ------ all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: John J. Turner 14 Eastbrook Road Harrington Park, NJ 07640 If to the Company: Office of the General Counsel United Water Resources Inc. 200 Old Hook Road Harrington Park, NJ 07640-1799 or to such other address as either of the parties may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Successors. Without the prior written consent of the Executive, ---------- this Agreement cannot be assigned by the Company except that it shall be binding automatically on any successors and assigns of all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). In addition, without the prior written consent of the Company, this Agreement cannot be assigned by the Executive, except that the right to receive payments or benefits hereunder may be transferred by will or the laws of descent and distribution. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives. 13. Arbitration. Except as provided in Section 8(e), all ----------- controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration under the rules of the American Arbitration Association then in effect in the State of New Jersey, as the sole and exclusive remedy of either party, and judgment upon any such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The costs of arbitration shall be borne by the unsuccessful party or otherwise as determined by the arbitrators in their discretion. 14. Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflicts of law principles. 15. Amendments. No provision of this Agreement may be modified, ---------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated for such purpose by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement ---------------- of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 18. Indemnification. The Company shall indemnify the Executive to --------------- the full extent permitted by the New Jersey Business Corporation Act and any provision of the By-Laws of the Company, as amended from time to time, generally applicable to officers and directors of the Company, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorneys' fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the actions by the Executive as an officer or employee of, the Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 18 or elsewhere in this Agreement is intended to prevent the Company from indemnifying the Executive to any greater extent than is required by this Section 18. 19. Severability. The invalidity or unenforceability of any ------------ provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_______________________________ Name: Donald L. Correll Title: Chairman and Chief Executive Officer JOHN J. TURNER __________________________________ MARCIA L. WORTHING __________________________________ EX-10.J 13 EXECUTIVE EMPLOYMENT AGREEMENT: RICHARD MCGLYNN Exhibit 10(j) EXECUTIVE EMPLOYMENT AGREEMENT between and among UNITED WATER RESOURCES INC. and RICHARD B. MCGLYNN TABLE OF CONTENTS -----------------
Page ---- SECTION 1: EMPLOYMENT, TERM, DUTIES AND RESPONSIBILITIES............................... 2 1.1 Employment.................................................................. 2 1.2 Period of Employment........................................................ 2 1.3 Non-Disclosure.............................................................. 3 1.4 Term of Employment.......................................................... 3 1.5 Duties and Responsibilities................................................. 4 SECTION 2: COMPENSATION AND BENEFITS................................................... 4 2.1 Base Salary................................................................. 4 2.2 Employee Benefits........................................................... 5 2.3 Executive Compensation Plans................................................ 6 SECTION 3: TERMINATION................................................................. 6 3.1 Termination by Employer Other Than for Cause or by Employee with Good Reason...................................................................... 6 3.2 Termination by Employee or by Employer for Cause............................ 13 3.3 Expiration of Period of Employment.......................................... 13 SECTION 4: SOURCE OF PAYMENTS.......................................................... 14 SECTION 5: NON-COMPETITION............................................................. 14 SECTION 6: EXCISE TAX GROSS-UP PAYMENT................................................. 15 SECTION 7: GOVERNING LAW............................................................... 16 SECTION 8: NO ATTACHMENT............................................................... 16 SECTION 9: ARBITRATION................................................................. 17 SECTION 10: NOTICES..................................................................... 17 SECTION 11: MISCELLANEOUS............................................................... 19
AGREEMENT, dated as of January 1, 1999, by and between United Water Resources Inc. (the "Employer"), and Richard B. McGIynn (the "Employee"). IN CONSIDERATION OF the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: SECTION 1: EMPLOYMENT, TERM, DUTIES AND RESPONSIBILITIES - --------------------------------------------------------- 1.1 Employment. ---------- Employer hereby agrees to employ Employee, and Employee agrees to serve as employee of Employer during the Period of Employment, as Vice President- General Counsel of the Employer. It is understood and agreed that the position of Vice President-General Counsel is an Executive Officer level position and shall be considered as such for all purposes. 1.2 Period of Employment. -------------------- If at any time during the Period of Employment, the Employer fails, without Employee's consent, to cause Employee to be elected or re-elected as Vice President-General Counsel of the Employer, or removes Employee from such offices, or if at any time during the Period of Employment, Employee shall fail to be vested by the Board of Directors of the Employer with the power and authority of an Executive Officer of Employer at a level equivalent to Employee's current position, Employee shall have the right by written notice to Employer to terminate his services hereunder, effective as of the last day of the month after the month of receipt by Employer of the written notice, in which event the Period of Employment, as hereinafter defined, shall so terminate on the last day of such month; termination under these circumstances shall be deemed pursuant to Section 3.1 hereof as a termination by Employee with "Good Reason" (as defined therein) with all the consequences which flow from such termination. 1.3 Non-Disclosure. -------------- Employee shall not, at any time during or following the Period of Employment, disclose, use, transfer or sell, except in the course of employment with Employer, any confidential information or proprietary data of Employer and the parent company and subsidiaries of Employer so long as such information or proprietary data remains confidential and has not been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. 1.4 Term of Employment. ------------------ The "Period of Employment" shall be the 2 year period commencing January 1, 1999 and ending on December 31, 2000; provided, however, if a Change of Control occurs prior to December 31, 2000, such ending date shall be the 24-month anniversary of the Change of Control, as defined below (or if the Change of Control is shareholder approval of a transaction pursuant to paragraph (iii) of the definition of Change of Control, below, the 24-month anniversary of the consummation of such transaction). 1.5 Duties and Responsibilities. --------------------------- Employee shall devote Employee's full business time, attention and best efforts to the affairs of Employer and the parent company and subsidiaries of Employer during the Period of Employment as an Executive Officer of Employer at a level equivalent to Employee's current position, provided, -------- however, that Employee may engage in other activities, such as activities ------- involving professional, charitable, educational, religious and similar types of organizations, speaking engagements, membership on the Board of Directors of other organizations (as Employer may from time to time agree to), and similar type activities to the extent that such other activities do not inhibit or prohibit the performance of Employee's duties under this Agreement, or conflict in any material way with the business of Employer and the parent company and subsidiaries of Employer. Employer acknowledges that Employee is currently serving as a Director of Conectiv, Inc. and agrees to Employee's continuing to serve in that capacity during the term of this Agreement. SECTION 2: COMPENSATION AND BENEFITS - ------------------------------------- 2.1 Base Salary. ----------- Employer will pay to Employee during the Period of Employment a base annual salary of $194,000, payable in accordance with Employer's normal payroll policies for senior executives, subject to applicable withholding of taxes and other applicable payroll deductions. It is agreed between the parties that Employer shall review the base annual salary annually and in light of such review may, in the discretion of the Board of Directors of Employer (but shall not be obligated to), increase such base annual salary taking into account any change in Employee's then responsibilities, increases in the cost of living, increases in compensation of other executives of Employer and the parent company and subsidiaries of Employer, performance by Employee, and other pertinent factors. 2.2 Employee Benefits. ----------------- (a) Vacation and Sick Leave. ----------------------- Employee shall be entitled to 25 days paid vacation per year and to reasonable sick leave as determined by the Board of Directors of Employer (the "Board") but no less than Employer's policy at the date of this Agreement. (b) Regular Reimbursed Business Expenses. ------------------------------------ Employer shall reimburse Employee for all travel and other expenses and disbursements reasonably incurred by Employee in the performance of Employee's duties during the Period of Employment, in accordance with Employer's established policies. (c) Employer's Benefit Plans or Arrangements. ---------------------------------------- Employee, subject to the provisions of this Agreement, shall be entitled to participate in all employee benefit plans of Employer in which other executives of Employer participate, as presently in effect or as they may be modified or added to by Employer from time to time, including, without limitation, plans providing retirement benefits, medical insurance, disability insurance, and accidental death or dismemberment insurance and shall be entitled to full credit thereunder for all service with Employer and any successor. Employee shall be provided with the use of a company car with all lease, operating costs, insurance, etc. paid by Employer. Benefits shall be at least comparable to those provided by the current plans of Employer. In addition, Employee shall participate in a nonqualified retirement plan established by Employer for Employee, substantially in the form attached hereto as Exhibit A (the "Nonqualified Retirement Plan"). 2.3 Executive Compensation Plans. ---------------------------- Employee, subject to the provisions of this Agreement, shall be entitled to participate in all executive compensation plans of Employer, as presently in effect or as they may be modified or added to by Employer from time to time, including without limitation, management incentive plans, deferred compensation plans, supplemental "top hat" retirement plans and stock and stock option plans. Employee shall be entitled to benefit opportunities and incentives at least comparable to those to which Employee is entitled at the date of this Agreement. SECTION 3: TERMINATION - ----------------------- 3.1 Termination by Employer Other Than for Cause or by Employee with Good --------------------------------------------------------------------- Reason. If Employer should terminate the Period of Employment other than ------ for Cause, as defined herein, or if Employee should terminate the Period of Employment with Good Reason, Employer shall: (i) within 30 days of termination of the Period of Employment, pay Employee any base annual salary accrued and due to Employee under Section 2.1 through his Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the termination of the Period of Employment occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the termination of the Period of Employment, pay Employee an amount equal to 200% of his base annual salary in effect as of the termination of the Period of Employment, or (B) if the termination of the Period of Employment does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay Employee his base annual salary in effect as of the termination of the Period of Employment for the 18-month period immediately following the termination of the Period of Employment (or until such earlier time that Employee violates the provisions of Section 5) at the times such payments would otherwise have been made under Section 2.1; (iii) (A) if the termination of the Period of Employment occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the termination of the Period of Employment, pay Employee an amount equal to 200% of his then current "Cash Target Amount" under the MIP, or (B) if the termination of the Period of Employment does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), pay Employee (I) 100% of his "Cash Target Amount" under the MIP (as of the termination of the Period of Employment) for the MIP year immediately following the termination of the Period of Employment, and (II) 50% of his "Cash Target Amount" under the MIP (as of the termination of the Period of Employment) for the second MIP year immediately following the termination of the Period of Employment (in each case unless Employee earlier violates the provisions of Section 5), each such payment to be made at the times such payments would otherwise have been paid under the MIP; (iv) provide Employee for the 18-month period commencing immediately following the termination of the Period of Employment (or until such earlier time that Employee violates the provisions of Section 5), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to Employee pursuant to Section 2.2 as of the termination of the Period of Employment; and (v) solely if the termination of the Period of Employment occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), (A) Employee's Nonqualified Retirement Plan benefit shall become fully vested and nonforfeitable, (B) if he had not attained age 55 as of the termination of the Period of Employment, he shall be deemed to have attained age 55 for purposes of the early retirement provisions of the Nonqualified Retirement Plan, (C) if he had not accumulated 10 years of service under the Nonqualified Retirement Plan as of the termination of the Period of Employment, he shall be deemed to have 10 years of service for Nonqualified Retirement Plan benefit accrual purposes and (D) within 30 days of the termination of the Period of Employment, Employer shall pay to Employee an amount equal to the present value of his accrued Nonqualified Retirement Plan benefit (utilizing a discount rate for calculating such present value equal to the "discount rate," as defined in Statement of Financial Accounting Standards No. 87 published by the Financial Accounting Standards Board, utilized for purposes of the most recent audit disclosure relating to Employer's tax-qualified defined benefit pension plan preceding the Change of Control by the "enrolled actuary" (as defined in Section 7701 (a)(35) of the Internal Revenue Code of 1986, as amended (the "Code")), who signed the Schedule B to the most recent Internal Revenue Service Form 5500 relating to Employer's tax- qualified defined benefit pension plan, filed prior to the Change of Control). Other than the foregoing, Employer shall have no further obligations to Employee hereunder. For purposes of this Agreement, a "Change of Control" of Employer shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) Employer or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of Employer or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of Employer in substantially the same proportions as their ownership of Employer, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Employer (not including in the securities beneficially owned by such Person any securities acquired directly from Employer or its subsidiaries or other affiliates controlled by Employer or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of Employer's then outstanding securities; provided, however, that if such "Person" shall -------- ------- be Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1999), individuals who at the beginning of such period constitute Employer's Board, together with any new director (other than a director designated by a person who has entered into an agreement with Employer to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by Employer's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of Employer approve a merger or consolidation of Employer with any other entity, or a plan of liquidation of Employer or an agreement for the sale or disposition by Employer of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of Employer, at least 80% of the combined voting power of the voting securities of Employer or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of Employer (or similar transaction) in which no person acquires more than 20% of the combined voting power of Employer's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). "Cause" shall mean the continued and willful failure by Employee to perform substantially his duties with Employer (other than any such failure resulting from incapacity due to physical or mental illness) after a notice demanding substantial performance is delivered to Employee by Employer; conviction of a felony; excessive absenteeism not related to illness, sick leave or vacations, but only after written notice from Employer followed by a repetition of such excessive absenteeism; misconduct or dishonesty that is harmful to the interest of Employer; or material breach by Employee of this Agreement. Employee's termination with "Good Reason" shall mean Employee's termination of his employment pursuant to Section 1.2 above; a reduction by Employer in Employee's base annual salary as in effect immediately prior to such reduction; or a material breach by Employer of its obligations under this Agreement. 3.2 Termination by Employee or by Employer for Cause. ------------------------------------------------ (a) Employee shall have the right, upon 30 days' notice given to Employer in accordance with Section 10 hereof, or as otherwise agreed to by Employer, to terminate the Period of Employment. (b) If Employee should terminate the Period of Employment pursuant to Section 3.2(a) above or Employer should terminate the Period of Employment for Cause, as herein defined, Employee will be entitled to be paid the base annual salary otherwise payable to Employee under Section 2.1 through the end of the month in which the Period of Employment is terminated. Employee shall be entitled to all other earned and accrued benefits to which Employee would otherwise be entitled through the termination date. 3.3 Expiration of Period of Employment. ---------------------------------- On December 31, 2000, provided that this Agreement shall then still be in effect, Employer shall make a lump sum cash payment to Employee in an amount equal to 6 months of Employee's base annual salary at such level as shall be in effect immediately prior to such date. SECTION 4: SOURCE OF PAYMENTS - ------------------------------ All payments provided herein shall be paid from the general funds of Employer unless otherwise properly payable under any contract, trust or other arrangement maintained by Employer for purposes of such payment. Employer shall not be required to segregate any funds, create any trust or make any special deposits to fund any obligations under this Agreement, provided, however, that Employer, -------- -------- at its sole and absolute discretion, may take any steps it deems appropriate to meet its obligation hereunder. SECTION 5: NON-COMPETITION - --------------------------- Without the consent in writing of the Board of Directors of Employer, during the Period of Employment and for a period of two years after termination of Employee's employment for any reason whatsoever, Employee will not permit his name to be used by, or engage in, or carry on, directly or indirectly, either for himself or as a member of a partnership or as more than a five percent (5%) stockholder, investor, officer or director of a corporation or as an employee, agent, associate or consultant of any person, partnership or corporation, any business in competition with the business carried on in the United States by Employer and the parent company and subsidiaries of Employer. SECTION 6: EXCISE TAX GROSS-UP PAYMENT - --------------------------------------- If any payments made and/or benefits provided to Employee by Employer, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, Employer shall pay to Employee an additional amount (the "Gross-Up Payment") such that the net amount retained by Employee, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Employer payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by Employer and reasonably acceptable to Employee, whose fees and expenses shall be paid by Employer. For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which Employee resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Employee's employment, Employee shall repay to Employer, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross- Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by Employee to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Employee's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), Employer shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by Employee with respect to such excess) at the time that the amount of such excess is finally determined. Employee and Employer shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. SECTION 7: GOVERNING LAW - ------------------------- This Agreement is governed by and is to be construed and enforced in accordance with the laws of the State of New Jersey, without reference to rules relating to conflicts of law. If under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement; the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. SECTION 8: NO ATTACHMENT - ------------------------- Except as required by law, no right to receive any payment or benefit under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. SECTION 9: ARBITRATION - ----------------------- Any claim, controversy or dispute arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration by an independent impartial arbitrator in accordance with the rules of the American Arbitration Association then obtaining. The decision of the arbitrator shall be final and binding and judgment upon the award rendered may be entered in any court having jurisdiction thereof. In any such claim, controversy or dispute involving a request for relief by way of injunction to prevent the disclosure or further disclosure of confidential information belonging to Employer, the arbitrator shall be appointed by the American Arbitration Association without submission of any such list of prospective arbitrators to the parties, and the proceedings shall be carried out as expeditiously as possible by the parties without undue delay. SECTION 10: NOTICES - -------------------- All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person, or forty-eight (48) hours after deposit thereof in the U.S. mails, postage prepaid, for delivery as registered or certified mail B addressed, in the case of Employee, to him at his residential address, and in the case of Employer, to its corporate headquarters, attention of the Secretary, or to such other address as Employee or Employer may designate in writing at any time or from time to time to the other party. If to the Employee: Richard B. McGlynn 30 Hurlingham Club Road Far Hills, NJ 07931 If to the Employer: Donald L. Correll United Water Resources 200 Old Hook Road Harrington, Park, NJ 07640 In lieu of personal notice by deposit in the U.S. mail, a party may give notice by telegram, telex or telecopier. SECTION 11: MISCELLANEOUS - -------------------------- This Agreement constitutes the entire understanding between Employer and Employee relating to employment of Employee by Employer and supersedes and cancels all prior written and oral agreements and understandings with respect to the subject matter of this Agreement. This Agreement may be amended but only by a subsequent written agreement of the parties. This Agreement shall be binding upon and shall inure to the benefit of Employee, Employee's heirs, executors, administrators and beneficiaries, and Employer and its successors, whether by merger, combination sale of assets or otherwise. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the year and day first above written. United Water Resources Inc. By:_______________________________ Chairman _______________________________ Richard B. McGlynn EX-10.K 14 EXECUTIVE EMPLOYMENT AGREEMENT: W. MARIE ZANAVICH Exhibit 10(k) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1999 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and W. Marie Zanavich (the "Executive) this "Agreement"). The Company desires to employ the Executive and the Executive is willing to be employed by the Company, on the terms and conditions hereinafter provided. In order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. Term. The Executive's employment under this Agreement shall ---- commence on the Commencement Date and shall end at the close of business on December 31, 2001; provided, however, that the term of this Agreement (the -------- ------- "Term") shall thereafter be automatically extended for each succeeding one-year period unless either party hereto provides the other party with a written notice at least 60 days prior to the end of the then current Term, advising that the party providing the notice shall not agree to so extend the Term; and provided, -------- further, that should a Change of Control occur during the Term, the Term shall - ------- be extended to the date which is the end of the 24-month period immediately following the consummation of the transaction which constitutes the Change of Control. Notwithstanding the preceding, the Term shall not extend beyond the date on which the Executive attains age 65 without the prior written consent of the Company; provided, however, that the end of the Term solely on account of -------- ------- the Executive attaining age 65 shall not entitle the Executive to any benefits under Section 7. 3. Title, Duties and Authority. The Executive shall serve as Vice --------------------------- President Information Technology/CIO of United Water Management and Services Inc. and shall have such responsibilities and duties (consistent with the Executive's position as Vice President Information Technology/CIO) as may from time to time be assigned to the Executive by the Company, and shall have all of the powers and duties usually incident to the office of Vice President Information Technology/CIO. The Executive shall devote substantially all of her working time and efforts to the business and affairs of the Company, except for vacations, illness or incapacity. 4. Compensation and Benefits. ------------------------- (a) Base Salary. During the Term, the Company shall pay the Executive ----------- a base salary ("Base Salary"), payable in equal installments in accordance with the Company's normal practice for paying base salaries to its executive employees. The Base Salary shall initially be payable at the rate of $140,710 per annum, and shall be subject to annual review by the Company for discretionary annual increases. (b) MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. (c) Employee Benefits. The Executive shall be entitled to participate ----------------- in all of the Company's employee benefit plans made available by the Company (or any affiliate thereof) to its executives during the Term as may be in effect from time to time. (d) Expenses. During the Term, the Executive shall be entitled to -------- receive prompt reimbursement upon submission of expense claims to the Company for all reasonable and customary expenses incurred by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company for its executive employees. (e) Vacations. The Executive shall be entitled to paid vacation, paid --------- holidays, sick days and personal days pursuant to the Company's regular policies applicable to its executive employees. (f) Taxes. The Company may withhold from any amounts payable under ----- this Agreement such federal, state, local and/or other taxes as shall be required to be withheld pursuant to any applicable law or regulation. 5. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall become entitled to the receipt of benefits under the Company's long-term disability plan, and within 30 days after a written Notice of Termination (as defined in Section 6(a)) is given to the Executive by the Company, the Executive shall not have returned to the performance of her duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following which is materially injurious to the business or reputation of the Company or any of its affiliates: (i) the failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the willful violation by the Executive of any of the Executive's material obligations hereunder; (iii) the willful engaging by the Executive in misconduct; or (iv) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive shall not be terminated for Cause without: (A) at least 15 days' advance notice to the Executive setting forth the reasons for the Company's intention to terminate the Executive's employment hereunder for Cause; (B) the failure of the Executive to cure the nonperformance, violation or misconduct described in the notice referred to in clause (A) of this paragraph, if cure thereof is possible, to the reasonable satisfaction of the Board of Directors of United Water Resources Inc. (the "Board"), within 15 days of such notice; and (C) delivery to the Executive of a Notice of Termination (as defined in Section 6(a)) from the Company notifying her that in the good faith opinion of a majority of the Board, the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. (d) Good Reason. The Executive may terminate her employment hereunder ----------- for "Good Reason" by providing a Notice of Termination to the Company within 30 days after the occurrence, without the Executive's consent, of one of the following events that has not been cured within 15 days after written notice thereof has been given to the Company by the Executive: (i) a reduction of the Executive's Base Salary; (ii) a material and adverse change in the Executive's title, status, authority, duties or function (in each case, other than as may be contemplated by this Agreement); (iii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iv) a change of the Executive's place of employment by the Company to a location which is greater than 50 miles from the location of the Executive's place of employment by the Company as of the Commencement Date; or (v) the willful violation by the Company of any of the Company's material obligations hereunder. (e) Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. (f) Without Good Reason. The Executive may terminate the ------------------- Executive's employment hereunder without Good Reason by providing the Company with a Notice of Termination. 6. Termination Procedure. --------------------- (a) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than a termination on account of the Executive's death pursuant to Section 5(a)) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 11. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder pursuant to the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean: ------------------- (i) if the Executive's employment is terminated on account of the Executive's death pursuant to Section 5(a), the date of the Executive's death; (ii) if the Executive's employment is terminated on account of the Executive's Disability pursuant to Section 5(b), 30 days after a Notice of Termination has been provided pursuant thereto (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period); (iii) if the Executive's employment is terminated for Cause pursuant to Section 5(c), the date specified in the Notice of Termination provided pursuant thereto; and (iv) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is provided or any later date (within 30 days) set forth in such Notice of Termination. 7. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment with the Company is ----- terminated on account of the Executive's death pursuant to Section 5(a), the Company shall as soon as practicable pay to the Executive's estate or as may be directed by the legal representatives of the Executive's estate any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"). The Company shall provide the Executive through the Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (b) Disability. If the Executive's employment with the Company is ---------- terminated on account of the Executive's Disability pursuant to Section 5(b), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and such prorated MIP payment, the amount, if any, of which shall be determined in the sole discretion of the Compensation Committee. The Company shall provide the Executive through the Executive's Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of the Executive's Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (c) By the Company for Cause or By the Executive Without Good Reason. ---------------------------------------------------------------- If the Executive's employment with the Company is terminated by the Company for Cause pursuant to Section 5(c) or by the Executive without Good Reason pursuant to Section 5(f), the Company shall as soon as practicable pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through the Executive's Date of Termination and the Executive shall forfeit her entire then unpaid MIP payment(s), if any. The Company shall provide the Executive through her Date of Termination with continued participation in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of her Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Termination By the Company Without Cause or By the Executive for ---------------------------------------------------------------- Good Reason. If the Executive's employment with the Company is terminated by - ----------- the Company (other than for Disability or Cause), or by the Executive for Good Reason pursuant to Section 5(d), then the Company shall: (i) within 30 days of the Executive's Date of Termination, pay the Executive any Base Salary accrued and due to the Executive under Section 4(a) through her Date of Termination and any unpaid MIP payment(s) for any previously completed calendar year(s); (ii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of her Base Salary in effect as of her Date of Termination, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), continue to pay the Executive her Base Salary in effect as of her Date of Termination for the 18-month period immediately following her Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8) at the times such payments would otherwise have been made under Section 4(a); (iii) (A) if the Executive's Date of Termination occurs within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 200% of her then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within the period beginning on the date of a Change of Control, as defined below, and ending 24 months following the Change of Control, as defined below (or, if the Change of Control, as defined below, is in connection with shareholder approval pursuant to paragraph (iii) of the definition of Change of Control, ending 24 months following the consummation of the transaction which was the subject of shareholder approval), pay the Executive (I) 100% of her "Cash Target Amount" under the MIP (as of her Date of Termination) for the MIP year immediately following her Date of Termination, and (II) 50% of her "Cash Target Amount" under the MIP (as of her Date of Termination) for the second MIP year immediately following her Date of Termination (in each case unless the Executive earlier violates the provisions of Section 8), each such payment to be made at the times such payments would otherwise have been made under the MIP; and (iv) provide the Executive for the 18-month period commencing immediately following her Date of Termination (or until such earlier time that the Executive violates the provisions of Section 8), with continued participation (or equivalent benefits if such participation is not legally permissible (cash payments in the case of tax-qualified retirement plan benefits)) in the employee benefit plans provided to the Executive pursuant to Section 4(c) as of her Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: (i) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A) the Company or any of its subsidiaries, (B) a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or an underwriter temporarily holding securities pursuant to an offering of such securities, in each case with respect to the securities so held, or (C) a corporation or other entity owned, directly or indirectly, by holders of voting securities of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries or other affiliates controlled by the Company or any such subsidiary) representing 20% or more of the combined ordinary (in the absence of contingencies) voting power of the Company's then outstanding securities; provided, however, that if such -------- ------- "Person" shall be Suez Lyonnaise des Eaux or an affiliate thereof, solely for purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the amount of the "Maximum Stockholder Investment Percentage" (as defined in Section 1.1 of the Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or (ii) during any period of not more than two consecutive calendar years (commencing January 1, 1999), individuals who at the beginning of such period constitute the Board, together with any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction triggering the operation of clause (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other entity, or a plan of liquidation of the Company or an agreement for the sale or disposition by the Company of its assets as an entirety or substantially as an entirety, other than (A) a transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding, by being converted into voting securities of the surviving entity, or otherwise), in combination with the ownership by any trustee or other fiduciary of securities under an employee benefit plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or (B) a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 20% of the combined voting power of the Company's then outstanding securities (or if such person so acquiring more than 20% of such combined voting power is Suez Lyonnaise des Eaux or an affiliate thereof, solely for the purposes thereof the above reference to "20%" shall instead be deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). 8. Restrictions. ------------ (a) Reasonable Covenants. It is expressly understood by and between -------------------- the Company and the Executive that the covenants contained in this Section 8 are an essential element of this Agreement and that but for the agreement by the Executive to comply with these covenants and thereby not to diminish the value of the organization and goodwill of the Company or any affiliate of the Company, if any, including without limitation relations with their employees, suppliers, customers and accounts, the Company would not enter into this Agreement. The Executive has independently consulted with her legal counsel and after such consultation agrees that such covenants are reasonable and proper. (b) Noncompetition; No Diversion of Customers; Etc. During the Term ---------------------------------------------- and for 18 months after the Executive's Date of Termination, the Executive shall not: (i) engage directly, alone or in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization or entity, in competition with the businesses of the Company and/or any of its affiliates as of the Executive's Date of Termination; (ii) divert to any competitor of the Company or any of its affiliates, any customer of the Company or any of its affiliates or any "prospective customer" (as defined in the last paragraph of this Section 8 (b)) of the Company or any of its affiliates; or (iii) solicit or encourage any officer, employee or consultant of the Company or any of its affiliates to leave the employ of the Company or any of its affiliates for employment by or with any competitor of the Company or any of its affiliates; provided, however, that the Executive may invest in stocks, bonds or other - -------- ------- securities of any competitor of the Company or any of its affiliates if: (A) such stocks, bonds or other securities are listed on any national or regional securities exchange or have been registered under Section 11(g) of the Securities Exchange Act of 1934; (B) the Executive's investment does not exceed, in the case of any class of the capital stock of any one issuer, 1% of the issued and outstanding shares, or, in the case of other securities, 1% of the aggregate principal amount thereof issued and outstanding; and (C) such investment would not prevent, directly or indirectly, the transaction of business by the Company and/or any of its affiliates with any state, district, territory or possession of the United States or any governmental subdivision, agency or instrumentality thereof by virtue of any statute, law, regulation or administrative practice. If, at any time, the provisions of this Section 8(b) shall be determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8(b) shall be considered severable and shall become and shall be immediately amended solely with respect to such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Section 8(b) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. Except as provided in this Section 8 and in Section 3, nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or industry in any capacity. For purposes of clause (ii) of this Section 8(b), the term "prospective customer" shall mean any entity, business or individual included on a list of prospective customers provided to the Executive by the Company within 15 days following her Date of Termination, which list contains the names of those entities, businesses and individuals with whom the Company had been in contact prior to the Executive's Date of Termination for purposes of establishing a customer relationship therewith. Any entity, business or individual not appearing on the aforementioned list of prospective customers due to the failure of the Executive to advise the Company of such contact shall be considered a "prospective customer" for purposes of clause (ii) of this Section 8(b) (c) Public Support and Assistance. The Executive agrees that ----------------------------- following any termination of her employment hereunder by the Company, the Executive shall not disclose or cause to be disclosed any negative, adverse or derogatory comments or information of a substantial nature about the Company or its management, or about any product or service provided by the Company, or about the Company's prospects for the future (including any such comments or information with respect to affiliates of the Company). The Company and/or any of its affiliates may seek the assistance, cooperation or testimony of the Executive following any such termination in connection with any investigation, litigation or proceeding arising out of matters within the knowledge of the Executive and related to the Executive's position as an officer or employee of the Company, and in any such instance, the Executive shall provide such assistance, cooperation or testimony and the Company shall pay the Executive's reasonable costs and expenses in connection therewith; in addition, if such assistance, cooperation or testimony requires more than a nominal commitment of the Executive's time, the Company shall compensate the Executive for such time at a per diem rate derived from the Executive's Base Salary at the time of the Executive's Date of Termination. (d) Nondisclosure of Confidential Information. During the Term, the ------------------------------------------ Executive shall hold in a fiduciary capacity for the benefit of the Company and its affiliates all Confidential Information (as defined below). After termination of the Executive's employment with the Company, the Executive shall keep secret and confidential all Confidential Information and shall not use or disclose to any third party in any fashion or for any purpose whatsoever, any Confidential Information. As used herein, "Confidential Information" shall mean any information regarding this Agreement, or any other information regarding the Company or its affiliates which is not available to the general public, and/or not generally known outside the Company or any such affiliate, to which the Executive has or shall have had access at any time during the course of the Executive's employment with the Company, including, without limitation, any information relating to the Company's (and its affiliates'): (i) business, operations, plans, strategies, prospects or objectives; (ii) products, technologies, processes, specifications, research and development operations or plans; (iii) customers and customer lists; (iv) sales, service, support and marketing practices and operations; (v) financial condition and results of operations; (vi) operational strengths and weaknesses; and (vii) personnel and compensation policies and procedures. Notwithstanding the foregoing provisions of this Section 8, the Executive may discuss this Agreement with the members of the Executive's immediate family and with the Executive's personal legal and tax advisors. (e) Specific Performance. Without intending to limit the remedies -------------------- available to the Company, the Executive agrees that damages at law would be an insufficient remedy to the Company in the event that the Executives violates any of the provisions of this Section 8, and that the Company may apply for and, upon the requisite showing, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. 9. Excise Tax Gross-Up Payment. If any payments made and/or benefits --------------------------- provided to the Executive by the Company, whether or not under this Agreement ("Payments"), are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Payments and all income taxes and Excise Tax upon such Company payment, shall be equal to the Payments. The determination of whether any Payments are subject to the Excise Tax shall be based on the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive, whose fees and expenses shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of income taxation applicable to any individual residing in the jurisdiction in which the Executive resides in the calendar year in which the Gross-Up Payment is to be made. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross- Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 10 Legal Fees. To provide the Executive with reasonable assurances ---------- that the purposes of this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform any of its obligations under this Agreement, the Company shall pay all of the reasonable attorneys' fees and expenses and court and arbitration costs incurred by the Executive and any of his beneficiaries, heirs and legal representatives, should a court of competent jurisdiction or an arbitrator determine that the Company shall have failed to perform any of its obligations under this Agreement. 11 Notice. For the purposes of this Agreement, notices, demands and ------ all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: W. Marie Zanavich 1 Broadway Park Ridge, NJ 07656 If to the Company: Office of the General Counsel United Water Resources Inc. 200 Old Hook Road Harrington Park, NJ 07640-1799 or to such other address as either of the parties may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12 Successors. Without the prior written consent of the Executive, ---------- this Agreement cannot be assigned by the Company except that it shall be binding automatically on any successors and assigns of all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). In addition, without the prior written consent of the Company, this Agreement cannot be assigned by the Executive, except that the right to receive payments or benefits hereunder may be transferred by will or the laws of descent and distribution. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives. 13 Arbitration. Except as provided in Section 8(e), all ----------- controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration under the rules of the American Arbitration Association then in effect in the State of New Jersey, as the sole and exclusive remedy of either party, and judgment upon any such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The costs of arbitration shall be borne by the unsuccessful party or otherwise as determined by the arbitrators in their discretion. 14 Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflicts of law principles. 15 Amendments. No provision of this Agreement may be modified, ---------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated for such purpose by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16 Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 17 Entire Agreement. This Agreement sets forth the entire agreement ---------------- of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 18 Indemnification. The Company shall indemnify the Executive to --------------- the full extent permitted by the New Jersey Business Corporation Act and any provision of the By-Laws of the Company, as amended from time to time, generally applicable to officers and directors of the Company, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorneys' fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the actions by the Executive as an officer or employee of, the Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 18 or elsewhere in this Agreement is intended to prevent the Company from indemnifying the Executive to any greater extent than is required by this Section 18. 19 Severability. The invalidity or unenforceability of any ------------ provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_____________________________ Name: Donald L. Correll Title: Chairman and Chief Executive Officer W. MARIE ZANAVICH _______________________________ MARCIA L. WORTHING _______________________________ EX-21 15 SUBSIDIARIES OF REGISTRANT Exhibit 21 UNITED WATER RESOURCES INC. LIST OF SUBSIDIARIES OF THE REGISTRANT Names of Companies and their Subsidiaries States of Incorporation - ----------------------------------------- ----------------------- United Water New Jersey Inc. New Jersey United Water New York Inc. New York United Waterworks Inc. Delaware United Water Idaho Inc. Idaho United Water Florida Inc. Florida United Water Pennsylvania Inc. Pennsylvania United Water New Rochelle Inc. New York United Water Delaware Inc. Delaware United Water Toms River Inc. New Jersey 14 other subsidiaries in the water services business 7 states United Water Mid-Atlantic Inc. New Jersey Owns 9 subsidiaries in the water services business New Jersey United Properties Group Incorporated New York Owns 9 subsidiaries in the real estate business 3 states United Water UK Limited N/A Laboratory Resources, Inc. New Jersey Fifteen (15) other subsidiaries in businesses related 4 states to the water industry or providing services to affiliates EX-23 16 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS ------------------------------------- We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 333-77581) and the Registration Statement on Form S-8 (No. 333-30229) of United Water Resources of our report dated February 24, 2000, appearing on page 33 of this Annual Report on Form 10-K. We also consent to the reference to us under the heading "Experts" in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 333-77581). PRICEWATERHOUSECOOPERS LLP New York, New York March 23, 2000 EX-27 17 FINANCIAL DATA SCHEDULE
UT This schedule contains summary information from the Consolidated Balance Sheet, Statement of Consolidated Income and Statement of Consolidated Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 PER-BOOK 1,262,188 214,591 104,764 160,808 60,714 1,803,065 414,161 0 54,629 468,790 33,104 9,000 639,017 0 134,000 0 5,546 15,573 0 0 498,035 1,803,065 362,336 14,405 284,941 299,346 62,990 20,028 83,018 49,204 33,814 2,697 31,117 39,340 0 61,772 0.81 0.80
-----END PRIVACY-ENHANCED MESSAGE-----