-----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, LOEUHzq2gRnzhkFmCjIz+Sy32+OD56NaWkqHFjMlRO9FbOwWlqtMuRs0VaXWwoVY 8xAsZjt3Yaqws7xaIbjgWQ== 0000950130-98-001420.txt : 19980326 0000950130-98-001420.hdr.sgml : 19980326 ACCESSION NUMBER: 0000950130-98-001420 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980325 SROS: NONE 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: 98572615 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, 1997 ----------------- 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 February 28, 1998 - 36,386,537 ---------- 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 February 28, 1998, the registrant's Common Stock, no par value, held by non-affiliates had an aggregate market value of $ 500,279,887. See Item 13. ------------ The following document is incorporated by reference in this Form 10-K: United Water Resources Inc. Proxy Statement to be filed in connection with the Registrant's Annual Meeting tentatively to be held on May 11, 1998 as to Part III, items 10, 11, 12, and 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 13 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 13 states, with more than 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 Mid-Atlantic, whose subsidiaries own and operate water and wastewater systems; United Water UK Limited, an equal partner with Lyonnaise Europe 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 - -------------------------------------------------------------------------------- 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, 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. 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 30% and 20% interest in United Water Services Canada and United Water Services Mexico, respectively. In addition, the Company has entered into "public-private partnerships" with the cities of Hoboken and Jersey City, New Jersey, whereby the municipalities retain ownership of their systems while the Company operates and maintains them. 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 $78.7 million and $74.9 million at December 31, 1997 and 1996, respectively, and is included in equity investments in the consolidated balance sheet. United Water's share of the Partnership's earnings, which totaled $13.6 million and $6 million in 1997 and 1996, 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 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 will not have an effect on United Water's cash flow or ability to pay dividends, nor will it affect the long-term benefit the Company expects to derive from its investment in NWG. On July 28, 1997, United Water Services (formerly the United Water Resources-Lyonnaise des Eaux Partnership), an entity owned by subsidiaries of United Water and Suez Lyonnaise des Eaux (formerly Lyonnaise des Eaux), acquired Montgomery Watson Inc.'s (Montgomery Watson) 50% stake in JMM Operational Services Inc. (JMM-OSI). As a result, JMM-OSI (now known as United Water Services Inc.) became a wholly-owned subsidiary of United Water Services. Prior to the restructuring, United Water Services owned a 50% interest in JMM- OSI, and Montgomery Watson owned the remaining 50% interest. United Water Services provides contract operations and maintenance services for water and wastewater facilities. During 1997, United Water Services pursued additional contract operations. As a result, in January 1998, United Water Services was awarded a ten-year contract to operate the wastewater 3 systems in Milwaukee, Wisconsin. In addition, United Water Services purchased United Water's meter installation subsidiary, United Metering Inc. (United Metering), for book value of $6.2 million, in December 1997. In July 1997, the Company's subsidiaries, United Water Canada and United Water Mexico acquired a 30% and a 20% interest in United Water Services Canada and United Water Services Mexico, respectively. At December 31, 1997, United Water had an equity investment of approximately $20.2 million in North America, relating to contract services, 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. In April 1995, the city of Rio Rancho, New Mexico (the City) and the Company's utility subsidiary, which provided water and wastewater services to customers in Rio Rancho, entered into an original stipulation in settlement of a condemnation action, and on June 30, 1995, the City assumed possession of the operations of the utility subsidiary. The original stipulation was contested by various parties, but the City retained possession of the utility's operations. On March 29, 1996, the Company fully settled the condemnation proceeding with the City. Under the terms of the agreement, the Company accepted $67 million for the water and wastewater systems of its New Mexico operations. This transaction resulted in an after-tax gain of $4.3 million which is included in the Company's 1996 earnings. See Item 8, Note 3 to the consolidated financial statements for further details. In December 1996, the Company announced its intention to dispose of its environmental testing business, Laboratory Resources, a wholly-owned subsidiary of the Company, closing its operations in Teterboro, New Jersey. Subsequently, in January 1997, it sold its laboratory facility in Brooklyn, Connecticut. The Company has accounted for this disposal in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions". The subsidiary had been operating in a very competitive environment over a prolonged period of time and had not contributed to the Company's earnings, with net losses of $1.5 million and $2.6 million in 1996 and 1995, respectively. The Company recorded an impairment loss of $1.5 million net of income taxes for its investment in the environmental testing business, which was included in the net loss for the year ended December 31, 1995 (see Item 7, Significant Items- "Impairment 4 of Long-Lived Assets" in the Management's Discussion and Analysis of Financial Condition and Results of Operations below). The operating results of Laboratory Resources prior to the date of discontinuance are shown separately in the accompanying statement of consolidated income and all of the financial statements of prior periods have been restated to reflect the discontinuance of Laboratory Resources' operations. See Item 8, Note 14 to the consolidated financial statements for further details. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS --------------------------------------------- See 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. REGULATED UTILITY OPERATIONS - ---------------------------- 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 over 177,600 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 rate 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. 5 United Water New York supplies water service to over 63,000 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 250,000 persons. United Water New York's principal source of supply is derived from wells and surface supplies, including the Lake DeForest reservoir. United Waterworks is a holding company that provides water and wastewater services to a total of approximately 340,000 customers in 13 states through its regulated water and wastewater utility subsidiaries. The utility subsidiaries of United Waterworks serve a total population of about 930,000 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 6,000 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. 6 The following table sets forth information concerning United Water's water and wastewater utility operations, particularly the operations of the nine larger utilities which in 1997 accounted for 83.9% of United Water's utility customers, 91.4% of United Water's utility operating revenues and 91.7% of United Water's net investment in utility plant. - ----------------------------------------------------------------------- # of Customers at 1997 Major Utility Operations Dec. 31, 1997 Revenues - ----------------------------------------------------------------------- (in thousands) United Water New Jersey 177,600 $121,628 United Water New York 63,000 42,613 United Waterworks Subsidiaries: United Water Florida 50,922 25,455 United Water Idaho 57,730 22,064 United Water Pennsylvania 46,482 19,064 United Water New Rochelle 30,207 18,010 United Water Delaware 32,152 16,574 United Water Toms River 44,813 14,153 United Water Arkansas 19,195 6,775 - ----------------------------------------------------------------------- Subtotal 522,101 286,336 Other utility operations 100,302 27,010 - ----------------------------------------------------------------------- Total utility operations 622,403 $313,346 - ----------------------------------------------------------------------- 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 1997, the Company's utility revenues were derived as --------- follows: 62% from residential customers, 26% from commercial customers, 8% from industrial customers and 4% from fire protection customers. Of the Company's 595,364 water utility customers at December 31, 1997, 533,645 (90%) were residential customers, 53,327 (9%) were commercial customers and 8,392 (1%) were industrial customers. The Company also had 27,039 wastewater customers at December 31, 1997, 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 1997. Capital Expenditures. The Company's additions to utility plant were $83.3 -------------------- million in 1997 as compared to $74.6 million in 1996. 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, with relatively minor exceptions and qualifications, such 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. A condemnation action was commenced in 1994 against United Waterworks' water and wastewater utility subsidiary in New Mexico and was settled in 1996. See Item 8, Note 3 to the consolidated financial statements, below. Rate Matters. The Company's utility subsidiaries are subject to ------------ regulation by state regulatory commissions (or, in one case, by a local authority) 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 1997 as well as other rate matters, see Item 8, Note 11 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 the Northumbrian Partnership, which acquired a 20% interest in Northumbrian Water Group plc in the United Kingdom, and (c) a 50% investment in a joint venture partnership with Suez Lyonnaise des Eaux which, in turn, owns 100% of United Water Services, which provides operations and management services for water and wastewater treatment facilities. 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 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. Northumbrian Partnership In June 1996, a wholly-owned subsidiary of Untied ------------------------ Water, and Lyonnaise Europe, formed the Partnership, which acquired a 20% interest in NWG. The Company accounts for this investment under the equity method of accounting. United Water Services As mentioned above, on July 28, 1997, United Water --------------------- Services, acquired Montgomery Watson's 50% stake in JMM-OSI resulting in United Water Services Inc. becoming a wholly-owned subsidiary of United Water Services. United Water Services provides contract operations and maintenance services for water and wastewater facilities. During 1997, United Water Services pursued additional contract operations. As a result, in January 1998, United Water Services was awarded a ten-year contract to operate the wastewater systems in Milwaukee, Wisconsin. In addition, United Water Services purchased United Water's meter installation subsidiary, United Metering, for book value of $6.2 million, in December 1997. In July 1997, the Company's subsidiaries, United Water Canada and United Water Mexico, acquired a 30% and a 20% interest in United Water Services Canada and United Water Services Mexico, respectively, which provide contract operations and maintenance services for water and wastewater facilities. The Company's investments in United Water Services, United Water Services Canada and United Water Services Mexico are accounted for under the equity method of accounting. 9 Public-Private Partnerships United Water is a leader in 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 Jersey City and Hoboken, New Jersey in May 1996 and July 1994, respectively. EMPLOYEE RELATIONS - ------------------ The Company and its subsidiaries have approximately 1,400 employees. Subsidiaries of the Company are parties to agreements with labor unions covering approximately 532 employees at 9 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 1986, 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 1986 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. 10 Of the projected $277 million (excluding the effects of inflation) aggregate capital expenditures of United Water's utility subsidiaries over the next five years, approximately 25% are estimated to be related to compliance with environmental laws and regulations. (D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT ---------------------------------------------------------------------- SALES ----- 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. The Company accounts for this investment under the equity method of accounting. See Item 8, Note 2 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 United Water Services Canada and United Water Services Mexico, respectively, which provide contract operations and maintenance services for water and wastewater facilities. Results for 1997 were insignificant to the consolidated financial statements. The Company accounts for these investments under the equity method of accounting. 11 ITEM 2. PROPERTIES - ------- ---------- REGULATED UTILITY OPERATIONS - ---------------------------- United Water's utility subsidiaries own, operate and maintain a total of 363 wells, 84 water treatment plants, with treatment capacities of up to 200 million gallons per day (MGD), 16 wastewater treatment plants, with treatment capacities of up to 3 MGD, and 219 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 7,339 miles of water transmission and distribution mains and 328 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 contracted rights to yields derived from the Passaic and Ramapo rivers. NON-REGULATED OPERATIONS - ------------------------ United Properties owns approximately 629 acres of land held for sale or under development principally in New Jersey and New York 567,671 square feet of office and retail properties. In addition, United Properties owns or holds interests in two golf properties in New Jersey. 12 ITEM 3. LEGAL PROCEEDINGS - ------- ------------------ Three suits were filed by Safas Corporation, New Regime Company and Aircraft Engineering Products against United Water, Dundee Water Power & Land Co. (Dundee) and United Water New Jersey in September and November 1994 and May 1995 in the Superior Court of New Jersey (the NJ Court), Passaic County. The suits allege that the plaintiffs suffered property damage as a result of an alleged breach in a berm surrounding the Dundee Canal, allowing water to escape. The Dundee Canal is the property of Dundee, a corporation of which United Water owns 50% of the outstanding common stock. North Jersey District Water Supply Commission, the other 50% shareholder, has also been named as a defendant. Initially, the plaintiffs in the Safas and New Regime suits voluntarily dismissed United Water and United Water New Jersey without prejudice from their actions. In August 1995, Safas and New Regime reinstituted their suits against United Water and United Water New Jersey. Plaintiffs, in the aggregate, seek damages of several million dollars. On May 14, 1997, United Water and United Water New Jersey filed a motion for Summary Judgment seeking to be dismissed from the action. The plaintiff filed a motion for partial summary judgment for its claim that Dundee is strictly liable for damage resulting from the breach. Both motions were argued before the NJ Court on July 24, 1997. On July 30, 1997, the NJ Court granted the Company's motion for summary judgment dismissing it from the action, but denied United Water New Jersey's motion for summary judgment. The NJ Court also denied plaintiff's motion for partial summary judgment seeking strict liability. The Order granting summary judgment on behalf of the Company was entered on September 29, 1997. The case proceeded to trial on January 20, 1998 against Dundee, United Water New Jersey and North Jersey District Water Supply Commission. On January 26 and 27, 1998, settlements totaling $4,767,447 were reached with all of the plaintiffs and were placed on the record. This amount will be paid by the insurance carriers for Dundee and North Jersey, it having been acknowledged by all parties that United Water New Jersey was not paying any money toward the settlement. United Water New Jersey was dismissed as a party defendant and the case has now been concluded. United Water Delaware (formerly Wilmington Suburban Water Corporation), a subsidiary of United Waterworks, was the subject of a Criminal Violation Notice issued by New Castle County, Delaware Department of Public Works (the Notice). The Notice, dated April 15, 1992, describes the violation as an illegal placement of fill in a floodplain in contravention of the New Castle County Zoning and Drainage Codes. United Water Delaware alleges that the illegal fill was placed on land it owns by one or more third parties without the knowledge or approval of United Water Delaware. Violation notice forms were also issued to other similarly situated property owners, and United Water Delaware has taken part in many discussions concerning the level of participation by all such parties in a remediation. An 13 application for approval of a remediation plan was submitted to the New Castle County Department of Planning on May 26, 1995 and the County accepted this proposal on September 1, 1995. United Water Delaware and New Castle County entered into a Release and Settlement Agreement (the Agreement) dated April 9, 1996. Pursuant to the Agreement, New Castle County had withdrawn the Notice against United Water Delaware. The withdrawal of the Notice was conditioned on United Water Delaware undertaking in good faith to implement the remediation plan. As of April 15, 1997, certain conditions precedent to the Company's obligation to complete the remediation work had not been fulfilled by New Castle County. 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 October 28, 1994, IU International Corporation (IU) filed suit in the Superior Court of the State of Delaware against United Waterworks alleging breach of contract and seeking reimbursement from United Waterworks of more than $3 million, as well as interest thereon. IU's claim is based on certain tax indemnifications that were part of a stock purchase agreement entered into by IU, Lyonnaise American Holding, Inc. (LAH), United Waterworks and GWC Corporation (former parent of United Waterworks) in connection with the 1982 purchase of 50% of the outstanding common stock of United Waterworks by LAH. On June 16, 1995, United Waterworks, LAH and IU entered into a settlement agreement pursuant to which United Waterworks agreed to pay IU $800,000 on the date of execution of such agreement. In addition, United Waterworks agreed to pay IU an additional amount of up to approximately $1.15 million plus interest thereon (such interest commencing as of September 15, 1993) at United Waterworks' average short-term borrowing rate. Such payments become due in the event and at the time that certain tax benefits previously claimed by United Waterworks with respect to its 1992 tax year reach "finality" through the running of the statute of limitations on the 1992 tax year or when it is determined that such tax benefits are allowable by the Internal Revenue Service. On June 16, 1995, United Waterworks paid $800,000 to IU. Pursuant to the settlement agreement, on June 30, 1995, the parties filed with the court a stipulation of dismissal of the lawsuit with prejudice. On September 15, 1996, the statute of limitations expired with respect to the 1992 tax year. As a result, on November 19, 1996, United Waterworks paid IU $977,000 of the $1.15 million. The remaining balance was paid on April 16, 1997. A class action lawsuit was filed in the Supreme Court of the State of New York, New York County, on May 28, 1996 by Steven Tagliaferri and John Ambroselli, individually and on behalf of a class of employees (Plaintiffs) against United Metering Inc., an affiliate of United Water Services, for breach of contract. Plaintiffs claim that United Metering failed to comply with prevailing wage rate regulations in connection with work performed pursuant to certain public works contracts awarded by the New York City Department of Environmental Protection. The damages sought are in excess of $600,000. United 14 Metering filed a response denying Plaintiffs' claims and made a motion for summary judgement seeking dismissal of the lawsuit. Oral argument on such motion was held on March 14, 1997 and on April 1, 1997, a decision was issued granting United Metering's motion to dismiss the lawsuit. Plaintiffs have appealed the decision to the Appellate Division of the Supreme Court of the State of New York. No date has been set by the Court to hear appellate arguments. 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 July 20, 1994, the Townhouse at Lake Isle Home Owners Association, Inc. filed suit against United Water New Rochelle (formerly New Rochelle Water Company), a subsidiary of United Waterworks, in the Supreme Court of the State of New York, Westchester County (the Westchester Court). The suit seeks to recover for alleged property damage arising out of repeated leaks in service lines installed in or about 1982 by the developer of a townhouse complex in Eastchester, New York. The bulk of the relief sought by the plaintiff involves monetary damages for the cost of replacing the service lines, which belong to United Water New Rochelle. The plaintiff did not seek injunctive relief. A default judgment on the issue of liability was entered against United Water New Rochelle on December 2, 1994. United Water New Rochelle has diligently prosecuted motions to reopen and appeal from the default judgment, on the principal ground that the default resulted from a failure by United Water New Rochelle's insurance carrier and claims processing service provider to timely file an answer to the plaintiff's complaint. To date, motions to vacate the default judgment have not been successful. Following an inquest on the issue of damages, the Westchester Court issued a decision, dated December 20, 1996, awarding the plaintiff $1,330,000. The Westchester Court subsequently partially vacated its December 20, 1996 decision on the ground that the relief granted exceeded the plaintiff's original demand and reduced the award to $805,000. On October 7, 1997, the Westchester Court entered a judgment in favor of the plaintiff in the amount of $862,758, which included interest from December 20, 1996. United Water New Rochelle has filed a Notice of Appeal from the judgment, and is also appealing prior decisions on its motions to vacate the default judgment. United Water New Rochelle believes that it has meritorious arguments on appeal and on the original matter, should it be reopened. Further, United Water New Rochelle is seeking reimbursement from third parties of any ultimate liability resulting in this matter. Management believes the resolution of this matter will not have a material adverse effect upon the financial position or results of operations of the Company. 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 alleging personal injuries sustained as a result of contaminated water being delivered to the potential plaintiffs. While suit 15 has not been filed, counsel has reviewed testing data accumulated by the New Jersey Department of Environmental Protection and United Water Toms River which shows that United Water Toms River has delivered water to its customers in complete conformance with all applicable federal and state water quality standards. An agreement tolling the statute of limitations for at least one year has been signed with the potential plaintiffs. Company counsel and officials continue in a dialogue with counsel for the potential plaintiffs and other potential defendants. United Water is not a party to any other litigation other than 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 1997, there were no matters submitted to a vote of security holders. 16 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 1997, 1996 and 1995 and the dividends paid on the common stock in each quarter were as follows: (dollars) STOCK PRICE DIVIDEND - ------------------------------------------------ QUARTER HIGH LOW - ------------------------------------------------ 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 - ----------------------------------------------- 1996 Fourth $16.625 $14.625 $.23 Third 17.500 12.750 .23 Second 13.500 12.000 .23 First 13.250 12.000 .23 - ----------------------------------------------- 1995 Fourth $13.000 $11.750 $.23 Third 13.500 12.500 .23 Second 14.125 12.875 .23 First 14.125 12.500 .23 The high and low stock prices from January 1 to February 28, 1998, were $19.875 and $17.500. There were 18,205 holders of record of United Water's common stock as of February 28, 1998. Dividend Policy The Company has paid continuous 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. 17 ITEM 6. SELECTED FINANCIAL DATA - ------- --------------------------
Year ended December 31, - ------------------------------------------------------------------------------------------------------------ (thousands of dollars except per share data) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Income Statement Data - --------------------- Operating revenues $ 351,409 $ 332,045 $ 319,536 $ 284,767 $191,703 Operating income 95,644 95,699 82,183 83,847 56,500 Net income applicable to common stock 29,331 34,010 17,343 27,887 19,978 Net income per common share .83 1.01 .54 1.01 1.03 Net income per common share- assuming dilution .83 1.00 .54 1.01 1.03 Dividends paid per share .92 .92 .92 .92 .92 ============================================================================================================ Balance Sheet Data (at end of period) - ------------------------------------- Total assets $1,658,342 $1,582,097 $1,516,708 $1,457,427 $740,526 Long-term debt 622,737 558,093 558,658 505,204 276,753 Preferred stock without mandatory redemption 9,000 9,000 9,000 9,000 9,000 Preferred and preference stock with mandatory redemption 86,579 93,261 98,091 98,173 23,840 - ------------------------------------------------------------------------------------------------------------
Operating revenues and operating income represent results from continuing operations. Prior year amounts have been restated to conform with current year presentation. The Merger of United Water with GWC, which occurred on April 22, 1994, affects the comparability of the information presented in the Selected Financial Data for the 1994, 1995, 1996 and 1997 fiscal years versus the information for the respective prior years. 18 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): INVESTMENT IN NORTHUMBRIAN PARTNERSHIP On June 28, 1996, United Water and Lyonnaise Europe (a wholly-owned subsidiary of Suez Lyonnaise des Eaux) formed the Northumbrian Partnership (the Partnership), an equal 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'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 $78.7 million and $74.9 million at December 31, 1997 and 1996, respectively, and is included in equity investments in the consolidated balance sheet. United Water's share of the Partnership's earnings, which totaled $13.6 million and $6 million in 1997 and 1996, 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 will not have an effect on United Water's cash flow or ability to pay dividends, nor will it affect the long-term benefit the Company expects to derive from its investment in NWG. INVESTMENT IN UNITED WATER SERVICES On July 28, 1997, United Water Services (formerly the United Water Resources-Lyonnaise des Eaux Partnership), a joint venture between United Water and Suez Lyonnaise des Eaux (formerly Lyonnaise des Eaux) acquired Montgomery Watson's 50% stake in JMM Operational Services (JMM-OSI). As a result, United Water Services Inc. (formerly JMM-OSI) became a wholly-owned subsidiary of United Water Services. United Water Services provides contract operations and maintenance services for water and wastewater facilities. During 1997, United Water Services pursued additional contract operations. As a 19 result, in January 1998, United Water Services was awarded a ten-year contract to operate the wastewater systems in Milwaukee, Wisconsin. In addition, United Water Services purchased United Water's meter installation subsidiary, United Metering, for book value of $6.2 million, in December 1997. In July 1997, the Company also acquired a 30% and a 20% interest in United Water Services Canada and United Water Services Mexico, respectively. At December 31, 1997, United Water had an equity investment of approximately $20.2 million in North America, relating to contract services, 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. DISCONTINUED OPERATIONS In December 1996, the Company announced its intention to dispose of its environmental testing business, Laboratory Resources, a wholly-owned subsidiary of the Company, closing its operations in Teterboro, New Jersey. Subsequently, in January 1997, it sold its laboratory facility in Brooklyn, Connecticut. The Company has accounted for this disposal in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions". The subsidiary had been operating in a very competitive environment over a prolonged period of time and had not contributed to the Company's earnings, with net losses of $1.5 million and $2.6 million in 1996 and 1995, respectively. The Company recorded an impairment loss of $1.5 million net of income taxes for its investment in the environmental testing business, which was included in the net loss for the year ended December 31, 1995 (see "Impairment of Long-Lived Assets" below). The operating results of Laboratory Resources prior to the date of discontinuance are shown separately in the accompanying statement of consolidated income and all of the financial statements of prior periods have been restated to reflect the discontinuance of Laboratory Resources' operations. See Note 14 to the consolidated financial statements for further details. TRANSFER OF NEW MEXICO OPERATIONS United Waterworks owned a utility subsidiary which provided water and wastewater services to customers in Rio Rancho, New Mexico. In April 1995, the city of Rio Rancho (the City) and the Company's utility subsidiary entered into an original stipulation in settlement of a condemnation action and on June 30, 1995, the City assumed possession of the operations of the utility subsidiary. The original stipulation was contested by various parties, but the City retained possession of the utility's operations. 20 On March 29, 1996, the Company fully settled the condemnation proceeding with the City. Under the terms of the agreement, the Company accepted $67 million for the water and wastewater systems of its New Mexico operations. This transaction resulted in an after-tax gain of $4.3 million which is included in the Company's 1996 earnings. IMPAIRMENT OF LONG-LIVED ASSETS During 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective for financial statements for fiscal years beginning after December 15, 1995. The statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and specifies the criteria for the determination and measurement of an impairment loss. United Water adopted SFAS No. 121 during 1995 and, as a result of changes in market conditions, development plans, projections of cash flows and other considerations, recorded a $12.1 million pre-tax impairment loss for various parcels of land held by its real estate subsidiary and for its investment in the environmental testing business for the year ended December 31, 1995. See Note 1 to the consolidated financial statements for further details. LIQUIDITY AND CAPITAL RESOURCES As shown in the consolidated statement of cash flows, the Company's major uses of cash in 1997 included: $86.8 million of capital expenditures; $37 million of common, preferred and preference dividends paid to shareholders; and a $18.3 million decrease in short-term notes payable. The major sources of funds to meet these cash needs included: a $88.1 million of cash provided by operations; $75.6 million of additional long-term debt; and $25.1 million of proceeds from the issuance of additional shares of common stock. 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 $277 million over the next five years, including $62 million and $61 million in 1998 and 1999, respectively. This total includes $178 million for United Waterworks and $95 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 25% of 21 the projected capital expenditures over the 1998-2002 period. To the best of management's knowledge, the Company is in compliance with all major environmental laws and regulations. United Water anticipates that its future capital expenditures will be funded by internally generated funds, external debt financings and the issuance of additional common and preferred stock, including shares issued to existing shareholders, bondholders, customers and employees under the Company's dividend reinvestment and stock purchase plans. 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, 1997, $34.6 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 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 (LIBOR)-based floating rate and is payable in annual installments through June 2006. The Company purchased an offsetting interest rate cap to limit its exposure under this financing to a maximum interest rate of 8.6%. The remainder of the investment was funded through borrowings on United Water's various short- term bank lines of credit. In November 1996, United Water New Jersey issued three series of Variable Rate Demand Water Facilities Revenue Refunding Bonds (the Bonds) aggregating $130 million ($50 million due 2025 and $80 million due 2026), through the New Jersey Economic Development Authority (the EDA). Proceeds from the Bonds were used to refund an equal aggregate principal amount of 6%-7% bonds issued by the EDA in 1987 to finance or refinance a portion of the costs of acquiring and constructing certain water transmission, transportation, storage and distribution facilities located in Bergen, Passaic and Hudson counties in New Jersey. During 1997, the Company experienced an average interest rate of 3.2% on the Bonds. In December 1996, the Company purchased a five-year interest rate cap to limit its exposure under this financing to a maximum interest rate of 7%. In June 1997, United Water issued $40 million of 7.45%-7.9% Senior Notes ($15 million due 2007 and $25 million due 2022). Proceeds from the notes were used to refinance existing short-term debt of the Company. 22 In August 1997, United Waterworks issued $20 million of 5.3% tax-exempt Water Resource Development Revenue Bonds, due 2027, through the Idaho Water Resource Board. The proceeds will be used to finance a portion of the costs of certain facilities to be owned by United Water Idaho (a subsidiary of United Waterworks). 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. In October 1997, United Waterworks issued $15 million of notes under this program, at a rate of 6.8%, with the full amount maturing in 2007. In February 1998, United Waterworks issued an additional $40 million of notes under this program ($20 million at 6.97% due 2023, $15 million at 7.1% due 2028 and $5 million at 6.9% due 2017). The proceeds were used to redeem outstanding notes payable. At December 31, 1997, United Water had cash and cash equivalents of $8.5 million (excluding restricted cash) and unused short-term bank lines of credit of $157.8 million. The Company and a subsidiary are negotiating committed credit line agreements which would provide $135 million of credit lines, including $67.5 million for a five year period at LIBOR-based rates. Management expects that cash flows provided by operations, unused credit lines currently available and cash generated from the dividend reinvestment and stock purchase plans will be sufficient to meet anticipated future operational needs. YEAR 2000 COMPLIANCE United Water has assembled a task force to ensure all computer systems and applications are prepared for the year 2000. Since 1994, the Company has been in the process of replacing the core business and operating systems with newer technology. As a result, all systems are scheduled to be year 2000 compliant by the end of 1998. All work done in relation to addressing year 2000 compliance has been performed as a by-product of another project. To date, there have been no significant costs associated solely with year 2000 compliance issues. The Company is currently seeking compliance certification from external interface vendors and service providers. An action plan has been developed that will identify any additional costs and resource commitments required. The Company does not believe there will be material future costs associated with year 2000 requirements. 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 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 1997, the Company's regulated utilities received fifteen rate decisions with an aggregate annual revenue increase of $10.7 million. An estimated $5.6 million of this amount was reflected in 1997's revenues while the remaining $5.1 million is expected to increase revenues in 1998. Current year revenues also reflect the carryover impact of the rate awards granted in 1996 in the amount of $5 million. See Note 11 to the consolidated financial statements for further details. In May 1997, United Water Pennsylvania applied for rate relief in the amount of $3 million, or 15.42%, in water revenues. The increase was requested primarily to fund capital investments and meet higher operation and maintenance costs. In January 1998, the Company was granted a favorable decision allowing an increase in revenues of $2.1 million, or 11%. At the end of January 1998, there were six rate cases pending in which the Company has requested an aggregate annual rate increase of $5.1 million. The most significant rate case pending was filed by United Water Idaho. In November 1997, United Water Idaho applied to the Idaho Public Utilities Commission for rate relief in the amount of $3.4 million, or 15.47%, in water revenues to meet increased investment in utility plant and higher operation and maintenance costs. A decision is expected before the end of the second quarter of 1998. 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. Management believes that it will prevail in its appeal and any potential refunds will not have a material effect on earnings. 24 The Company has requested and received recovery of its regulatory assets for postretirement benefits other than pension as well as the recognition of the current expense for these benefits for the majority of its regulated subsidiaries. The regulatory assets are expected to be recovered over an average period of 15 years. At December 31, 1997, eight regulated subsidiaries were awaiting decisions from the applicable commissions. Management believes it will receive favorable decisions on the pending cases prior to the end of 1998. 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 a portfolio of real estate located in New Jersey, New York, Delaware, Idaho and Florida, consisting of commercial properties, golf courses and land available for development. United Properties is pursuing joint ventures, sales or direct development opportunities for the various properties in its portfolio. In December 1995, United Properties recorded a $9.4 million pre-tax impairment loss (which was included in the $12.1 million impairment loss recorded by the Company) for various parcels of land located in Orange and Rockland counties, New York, in accordance with SFAS No. 121. United Properties expects to spend $29.4 million over the next five years for capital expenditures on its existing real estate portfolio, including $10.6 million and $5.3 million in 1998 and 1999, respectively. Funding for United Properties' activities is anticipated to come from sales of properties, operations of existing commercial properties and golf courses, and proceeds of 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 1997 was $29.3 million, or $.83 per common share, as compared to $34 million, or $1.01 per common share, earned in 1996. Earnings for 1997 included a net $10.3 million charge resulting from the "windfall profits" tax in the United Kingdom. Income from continuing operations and before non-recurring items was $39.7 million, or $1.12 for 1997 compared with $34.1 million, or $1.01 for 1996. This increase was attributable to a $6 million increase in equity earnings of affiliates during 1997, which resulted from a full year of operations in the United Kingdom. Earnings for 1996 included a one-time, after-tax gain of $4.3 million, or $.13 per common share, resulting from a condemnation settlement in New Mexico which was offset by a charge relating to the discontinuance of the Company's environmental testing business. United Water's net income applicable to common stock for 1996 was $34 million, or $1.01 per common share, as compared to $17.3 million, or $.54 per common share, earned in 1995. Income from continuing operations and before non- recurring items was $34.1 million, or $1.01 for 1996 compared with $26.6 million, or $.83 for 1995. Earnings for 1996 included a one-time, after-tax gain of $4.3 million, or $.13 per common share, resulting from a condemnation settlement in New Mexico which was offset by a charge relating to the discontinuance of the Company's environmental testing business. Earnings for 1995 26 included the incurrence of non-cash, pre-tax charges of $12.1 million relating to the write-down of various assets at the Company's real estate and environmental testing businesses as well as a pre-tax charge of $1.5 million for costs associated with an unconsummated business development proposal. OPERATING REVENUES Operating revenues increased $19.4 million, or 5.8%, in 1997 and $12.5 million, or 3.9%, in 1996 from the prior years, as follows: - ----------------------------------------------------------------------------- 1997 VS. 1996 1996 vs. 1995 (thousands of dollars) INCREASE (DECREASE) Increase (Decrease) - ----------------------------------------------------------------------------- Utilities: Rate awards $10,650 3.2% 6,591 2.1% Consumption 137 0.0% (3,060) (0.9%) Growth 3,276 1.0% 4,559 1.4% Transfer of New Mexico Operations - - (5,990) (1.9%) Real estate 6,306 1.9% 3,336 1.0% Other operations (1,005) (0.3%) 7,073 2.2% - ----------------------------------------------------------------------------- $19,364 5.8% $12,509 3.9% - ----------------------------------------------------------------------------- 1997 VERSUS 1996 The 3.2% increase in revenues from rate awards in 1997 includes the impact of ten 1996 and fifteen current year increases for the Company's operating utilities. The increase in revenues due to growth is partially attributable to the acquisitions of two utilities in New Jersey in the second quarter of 1996 as well as increased customers at several operating utilities. Real estate revenues were higher as compared to 1996, primarily due to a $5.8 million increase in property sales, which included a significant land sale, in addition to higher golf course revenues. The $1 million decrease in operating revenues from other operations was primarily attributable to lower revenues from meter installation contracts, partially offset by the benefit of a full year of operations from the public-private partnership with Jersey City, New Jersey, which commenced in May 1996. In December 1997, United Water sold United Metering, its meter installation subsidiary, to United Water Services. As a result, United Water will retain 50% ownership in United Metering. 27 1996 VERSUS 1995 The 2.1% increase in revenues from rate awards in 1996 includes the impact of eleven 1995 and ten 1996 increases for the Company's operating utilities. The increase in revenues due to growth is partially attributable to the acquisitions of two utilities in New Jersey in the second quarter of 1996. The transfer of utility operations in Rio Rancho, New Mexico, which occurred in March 1996, and a 0.9% decrease in consumption due to unfavorable weather conditions in several service areas partially offset these revenue increases. Real estate revenues were higher as compared to 1995, primarily due to a $3 million increase in property sales in addition to higher golf course revenues and rental income. The $7.1 million increase in operating revenues from other operations was primarily attributable to the commencement of the public-private partnership with Jersey City, New Jersey, in May 1996, as well as higher revenues from meter installation contracts for the city of New York. OPERATING EXPENSES The changes in operating expenses in 1997 as compared to 1996 were as follows: ---------------------------------------------------------- Total (thousands of dollars) Increase ---------------------------------------------------------- Operation and maintenance $13,069 8.4% Depreciation and amortization 3,842 12.5% General taxes 2,508 5.1% ---------------------------------------------------------- The increase in operation and maintenance expenses was due primarily to a $2.6 million increase in the cost of real estate properties sold, $2.4 million in additional operating expenses as a result of a full year of operations of the public-private partnership with Jersey City, higher outside services and employee benefits costs at several of the Company's subsidiaries, and additional operating expenses incurred relating to the acquisitions of two utilities in New Jersey in May 1996. These increases were partially offset by lower costs from meter installation contracts. The $3.8 million increase in depreciation and amortization was primarily attributable to utility plant additions by United Waterworks' utility subsidiaries, as well as amortization associated with the service contract in Jersey City . General taxes increased $2.5 million, or 5.1%, in 1997 primarily due to higher real estate, franchise and gross receipts taxes in utility operations. 28 The changes in operating expenses in 1996 as compared to 1995 were as follows:
- --------------------------------------------------------------------------------- Total Net of New Mexico (thousands of dollars) Increase (Decrease) New Mexico Increase (Decrease) - --------------------------------------------------------------------------------- Operation and maintenance $(3,406) (2.1%) $(2,957) $ (449) (0.3%) Depreciation and amortization 1,565 5.3% (776) 2,341 8.0% General taxes 834 1.7% (235) 1,069 2.2% - ---------------------------------------------------------------------------------
Operation and maintenance expenses in 1995 included a $12.1 million unusual non- cash charge relating to the write-down of various assets at the Company's real estate and environmental testing businesses. The decrease was offset by an $11.4 million increase in operation and maintenance expenses in 1996 due primarily to $4.5 million in additional operating expenses in connection with the public-private partnership with Jersey City, a $1.8 million increase in the operation and maintenance expenses of the Company's utility subsidiaries due to higher purchased water and chemical costs and $1 million relating to the acquisitions of two utilities in New Jersey in May 1996. Higher cost from meter installation contracts and property sales also contributed to this increase. The $2.3 million increase in depreciation and amortization was primarily attributable to utility plant additions by United Waterworks' utility subsidiaries, as well as amortization attributable to the service contract in Jersey City. General taxes increased $1.1 million, or 2.2%, in 1996 primarily due to higher real estate and franchise taxes in utility operations. INTEREST EXPENSE Interest expense increased $.4 million, or 0.9% in 1997 as compared to 1996 primarily due to additional long-term debt used to finance the Partnership in the United Kingdom as well as to fund capital expenditures at the utility operations. This was partially offset by a lower interest rate experienced on variable rate bonds resulting from a refinancing in November 1996. Consolidated interest expense increased $2.4 million, or 5.6% in 1996 as compared to 1995 predominantly due to additional long-term debt incurred to finance the Partnership in the United Kingdom as well as to fund capital expenditures at the utility operations. 29 EQUITY EARNINGS OF AFFILIATES The $6 million increase in equity earnings of affiliates was mainly due to a $7.6 million increase in earnings from the Northumbrian Partnership, which was formed in June 1996. This increase was partially offset by a $1.4 million decrease in earnings from United Water Services. This decrease was primarily due to business development costs associated with ongoing efforts to expand contract operations. One of the successes which resulted from these efforts came in January 1998, when United Water Services was awarded a ten-year contract, with annual revenues of $30 million, to operate the wastewater systems in Milwaukee, Wisconsin. OTHER INCOME Other income was $1 million lower in 1996 as compared to 1995 primarily due to $838,000 of interest income generated by the remaining $34 million escrow deposit on the transfer of New Mexico operations and a favorable settlement of a $584,000 legal dispute at United Water Toms River in 1995. INCOME TAXES The effective income tax rates on income before preferred and preference stock dividends were 36.4% in 1997, 36.5% in 1996 and 36.8% in 1995. An analysis of income taxes is included in Note 12 to the consolidated financial statements. NEW ACCOUNTING STANDARDS 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. This statement supersedes APB Opinion No. 15, "Earnings per Share". The statement defines two earnings per share calculations, basic and diluted. The objective of basic EPS is to measure the performance of an entity over the reporting period by dividing income available to common stock by the weighted average shares outstanding. The objective of diluted EPS is consistent with that of basic EPS, that is to measure the performance of an entity over the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period. United Water implemented SFAS No. 128 during 1997. See Note 15 to the consolidated financial statements for further details. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which requires that business segment financial information be reported in the financial statements utilizing the management appoach. The Company believes it is in compliance with this statement. See Note 16 to the consolidated financial statements for segment information. 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, 1997 and 1996 34 Statement of Consolidated Income for each of the years ended December 31, 1997, 1996 and 1995 35 Statement of Consolidated Common Equity for each of the years ended December 31, 1997, 1996 and 1995 36 Statement of Consolidated Cash Flows for each of the years ended December 31, 1997, 1996 and 1995 37 Statement of Consolidated Capitalization at December 31, 1997 and 1996 38 Notes to Consolidated Financial Statements 39 - 63 Financial Statement Schedules: For the three years ended December 31, 1997 VIII - Consolidated Valuation and Qualifying Accounts 70 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, during the year ended December 31, 1995, the company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." PRICE WATERHOUSE LLP New York, New York February 25, 1998 33 CONSOLIDATED BALANCE SHEET UNITED WATER RESOURCES AND SUBSIDIARIES
December 31, (thousands of dollars) 1997 1996 - ----------------------------------------------------------------------------------------------------------- ASSETS UTILITY PLANT, including $49,301 and $27,947 under construction $1,439,854 $1,349,194 Less accumulated depreciation 296,820 267,639 1,143,034 1,081,555 UTILITY PLANT ACQUISITION ADJUSTMENTS, Less accumulated amortization of $12,328 and $10,776 63,026 64,710 REAL ESTATE AND OTHER INVESTMENTS, Less accumulated depreciation of $11,497 and $9,909 79,487 83,340 EQUITY INVESTMENTS 99,197 82,433 ---------- ---------- 178,684 165,773 CURRENT ASSETS: Cash and cash equivalents 8,546 8,961 Restricted cash 34,581 27,203 Accounts receivable and unbilled revenues, less allowance of $2,528 and $2,549 57,723 65,911 Prepaid and other current assets 11,705 11,681 ---------- ---------- 112,555 113,756 DEFERRED CHARGES AND OTHER ASSETS: Regulatory assets 79,748 75,179 Prepaid employee benefits 21,426 16,139 Unamortized debt expense 31,019 30,720 Other deferred charges and assets 28,850 34,265 ---------- ---------- 161,043 156,303 $1,658,342 $1,582,097 ========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stock and retained earnings $ 418,601 $ 391,490 Preferred stock without mandatory redemption 9,000 9,000 Preferred stock with mandatory redemption 51,838 53,978 Preference stock, convertible, with mandatory redemption 34,741 39,283 Long-term debt 622,737 558,093 ---------- ---------- 1,136,917 1,051,844 CURRENT LIABILITIES: Notes payable 74,925 93,225 Preferred stock and long-term debt due within one year 8,022 29,546 Accounts payable and other current liabilities 40,156 37,594 Accrued taxes 26,878 17,690 Accrued interest and dividends 8,117 8,411 ---------- ---------- 158,098 186,466 DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes and investment tax credits 183,490 174,530 Customer advances for construction 27,356 25,259 Contributions in aid of construction 133,684 126,395 Other deferred credits and liabilities 18,797 17,603 ---------- ---------- 363,327 343,787 Commitments and contingencies (Notes 6 and 11) ---------- ---------- $1,658,342 $1,582,097 ========== ==========
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 of dollars except per share data) 1997 1996 1995 - ----------------------------------------------------------------------------------- OPERATING REVENUES $351,409 $332,045 $319,536 OPERATING EXPENSES: Operation and maintenance 168,947 155,878 159,284 Depreciation and amortization 34,694 30,852 29,287 General taxes 52,124 49,616 48,782 -------- -------- -------- TOTAL OPERATING EXPENSES 255,765 236,346 237,353 -------- -------- -------- OPERATING INCOME 95,644 95,699 82,183 INTEREST AND OTHER EXPENSES: Interest expense, net of amount capitalized 45,372 44,951 42,548 Allowance for funds used during construction (3,397) (3,355) (1,855) Preferred stock dividends of subsidiaries 2,256 2,277 2,297 Gain on New Mexico settlement -- (10,372) -- Windfall profits tax of affiliate 10,334 -- -- Equity earnings of affiliates (10,647) (4,617) 2,087 Other income, net (2,529) (2,083) (3,093) -------- -------- -------- TOTAL INTEREST AND OTHER EXPENSES 41,389 26,801 41,984 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 54,255 68,898 40,199 PROVISION FOR INCOME TAXES 20,579 25,878 15,439 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS 33,676 43,020 24,760 Preferred and preference stock dividends 4,345 4,613 4,795 -------- -------- -------- NET INCOME APPLICABLE TO COMMON STOCK FROM CONTINUING OPERATIONS $ 29,331 $ 38,407 $ 19,965 DISCONTINUED OPERATIONS: Loss from discontinued operations, net of income tax benefit of $824 in 1996 and $1,235 in 1995 - (1,532) (2,622) Loss on disposal of discontinued business, net of income tax benefit of $1,543 - (2,865) - -------- -------- -------- Loss from discontinued operations - (4,397) (2,622) -------- -------- -------- NET INCOME APPLICABLE TO COMMON STOCK $ 29,331 $ 34,010 $ 17,343 ======== ======== ======== AVERAGE COMMON SHARES OUTSTANDING 35,492 33,707 31,995 NET INCOME (LOSS) PER COMMON SHARE Continuing operations $ .83 $ 1.14 $ .62 Discontinued operations - (.13) (.08) -------- -------- -------- TOTAL $ .83 $ 1.01 $ .54 ======== ======== ======== AVERAGE COMMON SHARES OUTSTANDING-ASSUMING DILUTION 37,838 36,218 31,995 NET INCOME (LOSS) PER COMMON SHARE Continuing operations $ .83 $ 1.12 $ .62 Discontinued operations - (.12) (.08) -------- -------- -------- TOTAL $ .83 $ 1.00 $ .54 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements 35 STATEMENT OF CONSOLIDATED COMMON EQUITY UNITED WATER RESOURCES AND SUBSIDIARIES
Common Stock Cumulative Number Translation Retained (thousands) of shares Amount Adjustment Earnings - ---------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 31,281 $284,784 -- $ 65,711 Dividend reinvestment and stock purchase plans 1,599 19,879 -- -- Net income applicable to common stock -- -- -- 17,343 Cash dividends paid on common stock, $.92 per share -- -- -- (29,415) - ---------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 32,880 304,663 -- 53,639 Dividend reinvestment and stock purchase plans 1,375 18,845 -- -- Cumulative translation adjustment -- -- $6,703 -- Conversion of 5% preference stock 294 4,624 -- -- Net income applicable to common stock -- -- -- 34,010 Cash dividends paid on common stock, $.92 per share -- -- -- (30,994) - ---------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 34,549 328,132 6,703 56,655 Dividend reinvestment and stock purchase plans 1,446 25,083 -- -- Cumulative translation adjustment -- -- 591 -- Conversion of 5% preference stock 300 4,742 -- -- Net income applicable to common stock -- -- -- 29,331 Cash dividends paid on common stock, $.92 per share -- -- -- (32,636) - ---------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 36,295 $357,957 $7,294 $ 53,350 - ----------------------------------------------------------------------------------------------------
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) 1997 1996 1995 - -------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: NET INCOME $ 33,676 $ 38,623 $22,138 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 35,959 32,068 30,922 Deferred income taxes and investment tax credits, net 8,934 18,399 (7,762) Gain on New Mexico settlement -- (10,372) -- Equity earnings of affiliates (313) (4,617) 2,087 Proceeds from sale of United Metering 6,223 -- -- Proceeds from sales of properties 11,068 4,385 1,684 Gain on sale of properties (5,220) (935) (607) Improvements to property under development (1,376) (1,333) (1,178) Loss on disposal of discontinued operations -- 4,408 -- Impairment loss -- -- 12,105 Allowance for funds used during construction (3,397) (3,355) (1,855) Changes in assets and liabilities, net of effect of New Mexico settlement and acquisitions: Accounts receivable and unbilled revenues 2,551 (3,729) (3,335) Prepayments (311) 3,397 (954) Prepaid employee benefits (5,287) (3,757) (861) Regulatory assets (4,569) (8,821) 3,771 Accounts payable and other current liabilities 2,957 2,519 (4,647) Accrued taxes 8,863 (5,727) (2,774) Accrued interest and dividends (294) 16 (1,923) Other, net (1,409) (13,972) (8,005) --------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 88,055 47,197 38,806 --------- -------- -------- INVESTING ACTIVITIES: Additions to utility plant (excludes allowance for funds used during construction) (83,321) (74,569) (70,227) Additions to real estate and other properties (2,080) (5,569) (6,039) Additions to equity investments (15,859) (63,042) (1,900) Acquisitions, net of cash received -- (6,794) -- Proceeds from New Mexico settlement -- 31,670 35,330 Investments in service contracts -- (5,500) -- Change in restricted cash (7,378) 25,474 (22,450) --------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (108,638) (98,330) (65,286) --------- -------- -------- FINANCING ACTIVITIES: Change in notes payable (18,300) 49,725 (32,950) Additional long-term debt 75,565 30,538 67,000 Reduction in preferred stock and long-term debt (34,585) (15,550) (10,299) Issuance of common stock 25,083 18,845 19,879 Dividends on common stock (32,636) (30,994) (29,415) Dividends on preferred and preference stock (4,345) (4,613) (4,795) Net contributions and advances for construction 9,386 7,614 11,749 --------- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 20,168 55,565 21,169 --------- -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (415) 4,432 (5,311) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,961 4,529 9,840 --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,546 $ 8,961 $ 4,529 ======== ======== ========
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) 1997 1996 - ---------------------------------------------------------------------------------------------------------------- COMMON STOCK AND RETAINED EARNINGS: Common stock, no par value--authorized 100,000,000 shares $ 373,927 $ 344,687 Less treasury shares, at cost (15,970) (16,555) Retained earnings 53,350 56,655 Cumulative translation adjustment 7,294 6,703 ---------- ---------- TOTAL COMMON STOCK AND RETAINED EARNINGS 418,601 391,490 ---------- ---------- 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 6,600 and 7,200 shares 600 660 7 3/8% Series, authorized and outstanding 150,000 shares 15,000 15,000 United Water New York: Authorized 100,000 shares, stated value--$100 per share issuable in series: $8.75 Series, authorized and outstanding 24,000 and 26,000 shares 2,200 2,400 $9.84 Series, authorized and outstanding 50,000 shares 4,688 5,000 United Water Idaho: 5%, authorized and outstanding 7,415 and 7,901 shares 605 654 United Water Resources: 7 5/8% Series B, authorized and outstanding 300,000 shares 28,745 30,264 5% Series A, convertible preference, authorized 3,983,976 shares; outstanding 2,628,142 and 2,988,156 shares 34,741 39,283 ---------- ---------- TOTAL PREFERRED AND PREFERENCE STOCK WITH MANDATORY REDEMPTION 86,579 93,261 ---------- ---------- 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 4.54%) 130,000 130,000 United Water New York: First mortgage bonds, 9 3/8%, due 2001 900 1,200 Unsecured promissory notes, 5.65%-8.98%, due 2023-2025 (weighted average 6.74%) 51,000 52,100 United Water Resources: Promissory notes, 9.38%, due 2019 25,000 25,000 Promissory notes, floating LIBOR-based interest rate, due 2006 26,000 28,000 Promissory notes, 7.45%-7.9%, due 2007-2022 (weighted average 7.73%) 40,000 - United Waterworks: Unsecured debt, 6.15%-10.15%, due 1999-2027 (weighted average 7.55%) 280,365 246,630 United Properties Group: Mortgage notes, 8%-10%, due 1999-2006 (weighted average 9.92%) 17,265 17,153 Floating rate LIBOR-based term loan, due 2000 7,251 7,399 New Jersey Wastewater Treatment Loans, 0%-4.2%, due 2013 (weighted average 2.22%) 1,931 2,036 United Water Services: Promissory note with JMM, 8%, due 1999 - 5,000 United Water Mid-Atlantic: Promissory note at floating interest rate, due 2004 3,025 3,575 ---------- ---------- TOTAL LONG-TERM DEBT 622,737 558,093 ---------- ---------- TOTAL CAPITALIZATION $1,136,917 $1,051,844 ========== ==========
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 13 states. 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; United Water USA which owns a 50% stake in United Water Services; United Water Canada and United Water Mexico which own a 30% and a 20% interest in United Water Services Canada and United Water Services Mexico, respectively; 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 and Jersey City, New Jersey, whereby the municipalities retain ownership of their systems while the Company operates and maintains them. United Water's 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. This accounting allows, among other things, the 39 recognition of intercompany profit in situations where it is probable such profit will be recovered in the ratemaking process and the recording of assets and liabilities not generally recorded by non-regulated enterprises. 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. EQUITY INVESTMENTS: The Company holds an indirect investment in NWG and has representation on its board of directors. United Water USA owns a 50% stake in United Water Services; United Water Canada and United Water Mexico own a 30% and 20% interest in United Water Services Canada and United Water Services Mexico, respectively. 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 United Water Services Canada and United Water Services 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. 40 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 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, 1997. 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 $42.8 million and $43.6 million at December 31, 1997 and 1996, respectively. United Water New Jersey's share of the project's operating expenses is included in operation and maintenance expenses. 41 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 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) 1997 1996 - ----------------------------------------------- Recoverable income taxes $39,818 $40,398 Deferred employee benefits 22,918 21,347 Tank painting 3,181 2,731 Other 13,831 10,703 - ----------------------------------------------- Total regulatory assets $79,748 $75,179 - ----------------------------------------------- REAL ESTATE: Real estate properties are carried at the lower of cost, which includes original purchase price and direct development costs, or fair value. Real estate taxes and interest costs are capitalized during the development period. The amount of interest capitalized was $651,251 in 1997, $620,000 in 1996 and $1.4 million in 1995. 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. UNAMORTIZED DEBT EXPENSE: Debt premium, debt discount and deferred debt expenses are amortized to income or expense over the lives of the applicable issues. 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 (PSC) 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, 1997 and 1996, United Water New York and United Water New Rochelle had $3.6 million and $3.1 million, respectively, of net unamortized revenue 42 accruals, resulting from revenues which were less than the amounts used to set rates. These amounts are expected to be recovered 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 $11.2 million, $5.4 million and $2.4 million in 1997, 1996 and 1995, respectively. United Properties owns several office buildings, with an aggregate net book value of $46.6 million (net of accumulated depreciation of $9.7 million) at December 31, 1997, 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, 1997: - --------------------------------------------- (thousands of dollars) - --------------------------------------------- 1998 $ 5,392 1999 5,635 2000 5,955 2001 5,923 2002 5,913 Thereafter 5,500 - --------------------------------------------- Total minimum future rental income $34,318 - --------------------------------------------- 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 provides for monthly service fees which are recorded as revenues when billed. Additionally, certain incentives based on collection and marketing goals are recognized when earned. Service fee revenues for the year and eight months ended December 31, 1997 and 1996 were $9.2 million and $4.7 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, 1997, 1996 and 1995 were $3.9 million, $3.5 million and $3.2 million, respectively. 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 1997, 1996 and 1995 were equivalent 43 to 2.3%, 2.1% and 2.1%, 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. 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) 1997 1996 1995 - ----------------------------------------------------------------- Interest, net of amounts capitalized $44,400 $43,728 $43,701 Income taxes 7,413 11,921 15,415 - ----------------------------------------------------------------- The following is a supplemental schedule of non-cash transactions in 1997: - ------------------------------------------------------------- (thousands of dollars) 1997 - ------------------------------------------------------------- Cumulative translation adjustment $ 591 Conversion of 360,014 shares of 5% preference stock 4,967 - ------------------------------------------------------------- 44 The following is a supplemental schedule of non-cash transactions in 1996: - -------------------------------------------------------------- (thousands of dollars) 1996 - -------------------------------------------------------------- New Mexico settlement: Liabilities transferred to Rio Rancho $20,244 Cumulative translation adjustment 6,703 Conversion of 352,922 shares of 5% preference stock 4,869 Acquisition of Princeton Meadows and Matchaponix: Note receivable forgiven 5,000 Liabilities assumed 5,172 - -------------------------------------------------------------- ASSET IMPAIRMENT: During 1995, as a result of changes in market conditions, development plans, projections of cash flows and other considerations, the Company revalued certain investments in its real estate and environmental testing subsidiaries. Measurements of value used by the Company included market prices and the use of discounted cash flows. The Company recorded a $12.1 million non-cash impairment loss during 1995, included as part of operation and maintenance expenses in the statement of consolidated income, in accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". NOTE 2 - 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 Limited. Investment in the Partnership was $78.7 million and $74.9 million at December 31, 1997 and 1996, respectively, and is included in equity investments in the consolidated balance sheet. United Water's share of the Partnership's earnings, which totaled $13.6 million (excluding the windfall profits tax) and $6 million in 1997 and 1996, 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 45 considered in determining the purchase price. The tax will not have an effect on United Water's cash flow or ability to pay dividends, nor will it affect the long-term benefit the Company expects to derive from its investment in NWG. On July 28, 1997, United Water Services (formerly the United Water Resources- Lyonnaise des Eaux Partnership), a joint venture between United Water and Suez Lyonnaise des Eaux (formerly Lyonnaise des Eaux) acquired Montgomery Watson's 50% stake in JMM Operational Services (JMM-OSI). As a result, United Water Services Inc. (formerly JMM-OSI) became a wholly-owned subsidiary of United Water Services. United Water Services provides contract operations and maintenance services for water and wastewater facilities. During 1997, United Water Services pursued additional contract operations. As a result, in January 1998, United Water Services was awarded a ten-year contract to operate the wastewater systems in Milwaukee, Wisconsin. In addition, United Water Services purchased United Water's meter installation subsidiary, United Metering, for book value of $6.2 million, in December 1997. In July 1997, the Company also acquired a 30% and a 20% interest in United Water Services Canada and United Water Services Mexico, respectively. At December 31, 1997, United Water had an equity investment of approximately $20.2 million in North America, relating to contract services, 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 3 - NEW MEXICO SETTLEMENT On March 29, 1996, the Company settled the condemnation proceeding with the city of Rio Rancho, New Mexico (the City). The agreement was approved on the same day by the Thirteenth Judicial District Court in New Mexico. Under the terms of the agreement, the Company agreed to accept $67 million for the water and wastewater systems of its United Water New Mexico operations. Results of this transaction are included in the Company's first quarter 1996 earnings. The Company lost revenues since June 30, 1995 when the City took possession of the utility's operations. For the first six months of 1995, the Company's Rio Rancho utility had revenues of $6 million. 46 NOTE 4 - 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 range of interest rates at December 31 were as follows: - ----------------------------------------------------------- (thousands of dollars) 1997 1996 - ----------------------------------------------------------- Total credit lines available $235,800 $229,500 Utilized: Drawn 74,925 93,225 Pledged 3,055 3,055 Interest rates 5.9% TO 8.3 % 5.5% to 8.3% - ----------------------------------------------------------- During 1996, the Company utilized approximately $30 million of its various short-term lines of credit to fund its investment in the Northumbrian Partnership. The Company and a subsidiary are negotiating committed credit line agreements which would provide $135 million of credit lines, including $67.5 million for a five year period at LIBOR-based rates. NOTE 5 - LONG-TERM DEBT The long-term debt repayments over each of the next five years are as follows: 1998--$5.9 million; 1999--$6 million; 2000--$13.4 million; 2001--$21 million and 2002--$6 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 debt issued by those subsidiaries. In June 1997, United Water issued $40 million of 7.45%-7.9% Senior Notes ($15 million due 2007 and $25 million due 2022). Proceeds from the notes were used to refinance existing short-term debt of the Company. 47 In August 1997, United Waterworks issued $20 million of 5.3% tax-exempt Water Resource Development Revenue Bonds, due 2027, through the Idaho Water Resource Board. The proceeds will be used to finance a portion of the costs of certain facilities to be owned by United Water Idaho (a subsidiary of United Waterworks). 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. In October 1997, United Waterworks issued $15 million of notes under this program, at a rate of 6.8%, with the full amount maturing in 2007. In February 1998, United Waterworks issued an additional $40 million of notes under this program ($20 million at 6.97% due 2023, $15 million at 7.1% due 2028 and $5 million at 6.9% due 2017). The proceeds were used to redeem outstanding notes payable. NOTE 6 - COMMITMENTS AND CONTINGENCIES Capital Expenditures The future capital expenditures of the Company's utility subsidiaries are projected to aggregate $277 million over the next five years, including $62 million and $61 million in 1998 and 1999, respectively. United Properties currently projects spending $29.4 million over the next five years for capital expenditures on its existing real estate portfolio, including $10.6 million and $5.3 million in 1998 and 1999, respectively. Operating Leases United Water's total consolidated rental expense was approximately $6.2 million in 1997, $5.1 million in 1996 and $4.1 million in 1995. The minimum future lease payments under all non-cancelable operating leases, which consist primarily of buildings and automobiles, at December 31, 1997 are as follows: - ---------------------------------------------- (thousands of dollars) - ---------------------------------------------- 1998 $ 4,506 1999 3,059 2000 1,860 2001 1,018 2002 448 Thereafter 1,109 - ---------------------------------------------- Total minimum future lease payments $12,000 - ---------------------------------------------- 48 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 with the potential plaintiffs that would toll the statute of limitations for a time period of at least one year. Management believes if a lawsuit is commenced, it 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 7 - 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 total $2,073,000 in 1998 through 2000 and $4,216,000 in each of the years 2001 and 2002. The redemption of cumulative preferred stock was $260,000 in each of the years 1997, 1996 and 1995. 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 commencing 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 10% of 49 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 1997, 360,014 shares of the Series A preference stock with a value of $5 million were converted into 299,958 shares of United Water common stock with a value of $4.7 million. As a result, at December 31, 1997, LAH owned approximately 28.4% of the issued and outstanding United Water common stock and approximately 98.2% 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. NOTE 8 - 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, 1994 704,792 $14.829 Granted 210,020 13.250 Exercised (12,047) 11.501 Canceled or expired (88,095) 14.491 - ------------------------------------------------------------------ Outstanding at December 31, 1995 814,670 $14.508 Granted 204,300 12.250 Exercised (120,813) 12.965 Canceled or expired (10,340) 14.703 - ------------------------------------------------------------------ Outstanding at December 31, 1996 887,817 $14.196 Granted 370,840 15.580 Exercised (439,605) 15.032 Canceled or expired (19,002) 15.574 - ------------------------------------------------------------------ OUTSTANDING AT DECEMBER 31, 1997 800,050 $14.345 - ------------------------------------------------------------------ All options are currently exercisable and represent the only stock options outstanding at December 31, 1997. A total of 1,572,483 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 50 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, at which, they are distributed. United Water recorded compensation expense of $2.3 million in 1997, $2.5 million in 1996 and $228,000 in 1995 with respect to the management incentive plan. The increase in compensation expense in 1997 and 1996 is attributable to stock appreciation. 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) 1997 1996 1995 - ------------------------------------------------------------------------- Net income: As reported $29,331 $34,010 $17,343 Pro forma 29,355 34,079 17,160 Earnings per common share: As reported $ .83 $ 1.01 $ .54 Pro forma .83 1.01 .54 Earnings per common share-assuming dilution: As reported $ .83 $ 1.00 $ .54 Pro forma .83 1.01 .54 - ------------------------------------------------------------------------- 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, 1997, 1996 and 1995, respectively: expected volatility of 20.31%, 21.46% and 21.48%; risk-free interest rates of 6.4%, 5.47% and 7.85%; expected life of 6 years and dividend yields of 5.92% in 1997 and 0.0% for 1996 and 1995. The weighted average fair value of each option granted during the years ended December 31, 1997, 51 1996 and 1995 was $2.30, $4.30 and $5.52, 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. In May 1988, the shareholders approved a restricted stock plan for certain key employees. United Water issued 1,250 shares in 1996 and 2,500 shares in 1995 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 and $67,000 in 1995 with respect to this restricted stock plan. NOTE 9 - 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. 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 in 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 52 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 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 GWC Corporation 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. NOTE 10 - EMPLOYEE BENEFITS 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 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 plan's funded status and reconciles that funded status to the amounts recognized in the Company's balance sheet as of December 31: - ----------------------------------------------------------------------------- (thousands of dollars) 1997 1996 - ----------------------------------------------------------------------------- Accumulated postretirement benefit obligation (APBO): Retirees $(17,706) $(13,484) Fully eligible actives (16,241) (12,729) Other actives (17,953) (16,690) - ----------------------------------------------------------------------------- Total (51,900) (42,903) Plan assets at fair value 21,704 16,696 - ----------------------------------------------------------------------------- Funded status (30,196) (26,207) Unrecognized transition obligation 21,911 23,351 Unrecognized gain (7,818) (11,426) - ----------------------------------------------------------------------------- Accrued postretirement benefit cost $(16,103) $(14,282) - ----------------------------------------------------------------------------- 53 Net periodic postretirement benefit cost components were as follows: - ----------------------------------------------------------------------- (thousands of dollars) 1997 1996 1995 - ----------------------------------------------------------------------- Service cost $ 2,091 $ 2,404 $2,521 Interest cost 3,299 3,095 3,578 Actual return on plan assets (3,562) (1,887) 88 Amortization of transition obligation 1,441 1,441 1,453 Amortization of gain (462) (114) -- Net amortization and deferral 2,166 789 (649) - ----------------------------------------------------------------------- Net periodic postretirement benefit cost $ 4,973 $ 5,728 $6,991 - ----------------------------------------------------------------------- The assumed discount rate and expected return on assets used in determining the APBO were as follows: - -------------------------------------------------- 1997 1996 1995 - -------------------------------------------------- Assumed discount rate 7.625% 8.0% 7.375% Expected return on assets 9.5% 9.5% 8.25% - -------------------------------------------------- The associated health care cost trend rate used in measuring the postretirement benefit obligation at December 31, 1997 was 9.0%, gradually declining to 5.0% in 2002 and thereafter. Increasing the assumed health care cost trend rate by one percentage point in each year would increase the APBO as of December 31, 1997, by $7.8 million, to a total of $59.7 million, and the aggregate net periodic postretirement benefit cost for 1997 by $1.4 million, to a total of $6.4 million. 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, 1997 and 1996, United Water had regulatory assets relating to deferred employee benefits of $22.9 million and $21.3 million, respectively, for recovery in future rates. 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 1997. 54 The components of net periodic pension income for the Company's qualified and supplemental defined benefit plans were as follows: - ---------------------------------------------------------------- (thousands of dollars) 1997 1996 1995 - ---------------------------------------------------------------- Current year service cost $ 3,726 $ 3,945 $ 2,959 Interest cost 9,842 9,379 9,144 Actual return on plan assets (33,027) (20,442) (32,235) Net amortization and deferral 14,888 4,382 19,632 - ---------------------------------------------------------------- Net periodic pension income $ (4,571) $ (2,736) $ (500) - ---------------------------------------------------------------- The status of the funded plans at December 31 was as follows: - -------------------------------------------------------------------- (thousands of dollars) 1997 1996 - -------------------------------------------------------------------- Accumulated benefit obligation: Vested $113,577 $102,964 Non-vested 2,841 2,608 - -------------------------------------------------------------------- Total $116,418 $105,572 - -------------------------------------------------------------------- Fair value of plan assets (primarily stocks and bonds, including $11.2 million and $8.9 million, respectively, in common stock of United Water) $200,853 $174,561 Projected benefit obligation (PBO) 138,092 124,342 - -------------------------------------------------------------------- Plan assets in excess of PBO 62,761 50,219 Unrecognized prior service cost 2,015 2,185 Unrecognized net gain (39,154) (31,442) Remaining unrecognized net transition asset from applying the standard in 1987 (amortized over 18 years) (4,196) (4,823) - -------------------------------------------------------------------- Prepaid pension cost recognized in the consolidated balance sheet $ 21,426 $ 16,139 - -------------------------------------------------------------------- The major actuarial assumptions used in the foregoing calculations were as follows: - ----------------------------------------------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------- Assumed discount rate 7.375% 7.75% 7.25% Assumed range of compensation increase 3.75-4.5% 3.75-4.5% 3.75-5% Expected long-term rate of return on plan assets 9.5% 9.5% 8.75% - ----------------------------------------------------------------------- 55 SUPPLEMENTAL BENEFIT PLANS: Certain categories of employees are covered by non- funded supplemental plans. The projected benefit obligations of these plans at December 31, 1997 and 1996 totaled $6.2 million and $6.5 million, respectively. The unfunded accumulated benefit obligation of $5.9 million has been recorded in other deferred credits and liabilities and an intangible pension asset of $678,000 is included in deferred charges and other assets at December 31, 1997. 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 $1,155,000, $1,167,000 and $1,093,000 in 1997, 1996 and 1995, respectively, to defined contribution savings plans. NOTE 11 - RATE MATTERS The following rate decisions were rendered to United Water's regulated utilities during 1997: - --------------------------------------------------------------------------- Effective Allowed Annual % (thousands of dollars) Date ROE Increase Increase - --------------------------------------------------------------------------- New York 5/01 11.00 $ 880 2.1 Great Gorge - Wastewater 5/13 -- (a) 130 21.6 Florida - Water 5/19 11.57 2,362 32.4 - Wastewater 5/19 11.57 2,290 14.6 Connecticut 7/01 -- (130) (b) -- Delaware 7/15 10.75 1,550 11.0 New Rochelle 7/19 -- 390 (c) 2.2 South Gate 8/05 -- 7 (d) 0.4 Arkansas 10/15 10.75 867 13.6 Virginia 10/20 -- 128 (e) 16.1 New Rochelle 11/19 10.70 900 5.2 Connecticut 12/01 -- 47 (f) 1.9 New Jersey 1/01/98 -- 1,075 (f) 0.9 Toms River 1/01/98 -- 234 (f) 1.6 Lambertville 1/01/98 -- 18 (f) 2.7 - --------------------------------------------------------------------------- Totals $ 10,748 - --------------------------------------------------------------------------- (a) Not applicable since the Company has a negative rate base. (b) Gross earnings tax repeal. (c) Pass-through for purchased water expense increase. (d) Annual adjustment clause increase based on inflation and other factors. (e) Interim increases, granted subject to refund. (f) Limited issue proceeding for postretirement benefits. 56 At December 31, 1997, the most significant rate cases pending were filed by United Water Pennsylvania and United Water Idaho. In May 1997, United Water Pennsylvania applied for rate relief in the amount of $3 million, or 15.42%, in water revenues. The increase was requested primarily to fund capital investments and meet higher operation and maintenance costs. In January 1998, the Company was granted a favorable decision allowing an increase in revenues of $2.1 million, or 11%. In November 1997, United Water Idaho applied to the Idaho Public Utilities Commission for rate relief in the amount of $3.4 million, or 15.47%, in water revenues to meet increased investment in utility plant and higher operation and maintenance costs. A decision is expected before the end of the second quarter of 1998. 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. Management believes that it will prevail in its appeal and any potential refunds will not have a material effect on earnings. The Company has requested and received recovery of its regulatory assets for postretirement benefits other than pension as well as the recognition of the current expense for these benefits for the majority of its regulated subsidiaries. The regulatory assets are expected to be recovered over an average period of 15 years. At December 31, 1997, eight regulated subsidiaries were awaiting decisions from the applicable commissions. Management believes it will receive favorable decisions on the pending cases prior to the end of 1998. 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. 57 NOTE 12 - 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) 1997 1996 - ------------------------------------------------------------- Basis differences of property, plant and equipment $130,891 $122,410 Real estate transactions and capitalized costs 15,586 15,886 Other liabilities 32,929 33,279 - ------------------------------------------------------------- Gross deferred tax liabilities 179,406 171,575 - ------------------------------------------------------------- Alternative minimum tax credit carryforwards (11,223) (9,716) Other assets (7,189) (10,335) - ------------------------------------------------------------- Gross deferred tax assets (18,412) (20,051) - ------------------------------------------------------------- Deferred investment tax credits 22,496 23,006 - ------------------------------------------------------------- Total deferred income taxes and investment tax credits $183,490 $174,530 - ------------------------------------------------------------- INCOME TAX PROVISION: A reconciliation of income tax expense at the statutory federal income tax rate to the actual income tax expense for 1997, 1996 and 1995 is as follows: - ----------------------------------------------------------------------------- (thousands of dollars) 1997 1996 1995 - ----------------------------------------------------------------------------- Statutory tax rate 35% 35% 35% Federal taxes at statutory rates on pretax income before preferred stock dividends of subsidiaries $19,779 $22,544 $13,523 Utility plant acquisition adjustment 641 1,725 682 State income taxes, net of federal benefit 835 1,823 290 Deferred investment tax credits (510) (499) (489) Equity in foreign investments (1,135) (2,476) - Other 969 394 198 - ----------------------------------------------------------------------------- Provision for income taxes $20,579 $23,511 $14,204 - ----------------------------------------------------------------------------- 58 Income tax expense for 1997, 1996 and 1995 consisted of the following: - ------------------------------------------------------------------------------- (thousands of dollars) 1997 1996 1995 - ------------------------------------------------------------------------------- Current: Federal $10,668 $ 5,919 $11,518 State 969 1,310 1,731 - ------------------------------------------------------------------------------- Total current $11,637 $ 7,229 $13,249 - ------------------------------------------------------------------------------- Deferred (prepaid): Accelerated depreciation $ 7,437 $ 7,612 $ 8,420 Contributions and advances for construction 200 (1,855) (3,228) Prepaid employee benefits 1,400 1,931 1,626 UWNJ debt refinancing - 3,053 - Real estate transactions and capitalized costs (181) 64 (3,383) Alternative minimum tax (1,507) (741) (1,007) Investment tax credits (510) (499) (489) State income taxes, net of federal benefit 316 972 (718) Transfer of New Mexico operations - 5,365 - Other 1,787 380 (266) - ------------------------------------------------------------------------------- Total deferred $ 8,942 $16,282 $ 955 - ------------------------------------------------------------------------------- Total provision for income taxes $20,579 $23,511 $14,204 - ------------------------------------------------------------------------------- The Company considers the undistributed earnings of United Water UK to be permanently reinvested and has not provided deferred taxes on these earnings. 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 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts at December 31, 1997 and 1996, 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 duration. 59 The estimated fair values of United Water's financial instruments at December 31 were as follows: - --------------------------------------------------------- Carrying Fair (thousands of dollars) amount value - --------------------------------------------------------- 1997 Long-term debt $622,737 $673,321 Preferred and preference stock with mandatory redemption 86,579 96,425 - --------------------------------------------------------- 1996 Long-term debt $558,093 $573,230 Preferred and preference stock with mandatory redemption 93,261 96,832 - --------------------------------------------------------- The Company's customer advances for construction have a carrying value of $27.4 million and $25.3 million at December 31, 1997 and 1996, 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 two interest rate caps to limit its exposure to maximum interest rates of 7% on the United Water New Jersey Variable Rate Demand Water Facilities Refunding Bonds aggregating $130 million and 8.6% on the long-term note agreement with Credit Lyonnais for $30 million. The fair values and carrying amounts of these financial instruments were not material at December 31, 1997. NOTE 14 - DISCONTINUED OPERATIONS In December 1996, the Company announced its intention to dispose of its environmental testing business, closing its Laboratory Resources' operation in Teterboro, New Jersey. Subsequently, in January 1997, it sold its laboratory facility in Brooklyn, Connecticut. The subsidiary had been operating in a very competitive environment over a prolonged period of time and had not contributed to the Company's earnings, with net losses of $1.5 million and $2.6 million in 1996 and 1995, respectively. The Company recorded an impairment loss of $1.5 million net of income taxes for its investment in the environmental testing business in accordance with the provisions of SFAS 121, which was included in the net loss for the year ended December 31, 1995. The Company recorded an estimated provision of $1.1 million, net of income taxes, for severance, future lease obligations and other related costs, included in the loss on 60 disposal of discontinued business in the accompanying statement of consolidated income. The operating results of Laboratory Resources prior to the date of discontinuance are shown separately in the accompanying statement of consolidated income and all of the financial statements of prior periods have been restated to reflect the discontinuance of Laboratory Resources' operations. Assets of $1.4 million, consisting primarily of cash and accounts receivable, and $5.1 million are included in the consolidated balance sheet at December 31, 1996 and 1995, respectively. 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. This statement supersedes APB Opinion No. 15, "Earnings per Share". The statement defines two earnings per share calculations, basic and diluted. The objective of basic EPS is to measure the performance of an entity over the reporting period by dividing income available to common stock by the weighted average shares outstanding. The objective of diluted EPS is consistent with that of basic EPS, that is to measure the performance of an entity over the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period. The calculation of diluted EPS is similar to basic EPS except both the numerator and denominator are increased for the conversion of potential common shares. The following table is a reconciliation of the numerator and denominator under each method: FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------- Per Share (thousands of dollars except per share data) Income Shares Amount - -------------------------------------------------------------------------- BASIC EPS: Net income applicable to common stock from continuing operations $29,331 35,492 $ .83 Net income applicable to common stock $29,331 35,492 $ .83 ASSUMING DILUTION: Net income applicable to common stock from continuing operations $29,331 35,492 Stock options - 156 Convertible preference stock 2,076 2,190 ------- ------ Net income applicable to common $31,407 37,838 $ .83 - -------------------------------------------------------------------------- 61 FOR THE YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------- Per Share (thousands of dollars except per share data) Income Shares Amount - ----------------------------------------------------------------------------- BASIC EPS: Net income applicable to common stock from continuing operations $38,407 33,707 $1.14 Loss from discontinued operations (4,397) 33,707 (.13) Net income applicable to common stock $34,010 33,707 $1.01 ASSUMING DILUTION: Net income applicable to common stock from continuing operations $38,407 33,707 Stock options - 21 Convertible preference stock 2,342 2,490 ------- ------ $40,749 36,218 $1.12 Loss from discontinued operations (4,397) 36,218 (.12) Net income applicable to common $36,352 36,218 $1.00 - ----------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1995 - ----------------------------------------------------------------------------- Per Share (thousands of dollars except per share data) Income Shares Amount - ----------------------------------------------------------------------------- BASIC EPS: Net income applicable to common stock from continuing operations $19,965 31,995 $ .62 Loss from discontinued operations (2,622) 31,995 (.08) Net income applicable to common stock $17,343 31,995 $ .54 ASSUMING DILUTION*: Net income applicable to common stock from continuing operations $19,965 31,995 Convertible preference stock 2,523 2,784 ------- ------ $22,488 34,779 $ .65 Loss from discontinued operations (2,622) 34,779 (.08) Net income applicable to common $19,866 34,779 $ .57 - ----------------------------------------------------------------------------- *According to SFAS No. 128, diluted EPS shall not have an antidilutive effect on earnings. Therefore, basic EPS figures are presented on the face of the consolidated statement of income. 62 NOTE 16 - SEGMENT INFORMATION - -------------------------------------------------------------------------------- Parent, Non- Regulated Water Real Services and (thousands of dollars) Utilities Estate Eliminations Consolidated - -------------------------------------------------------------------------------- 1997 Operating revenues $ 313,346 $20,075 $ 17,988 $ 351,409 Income before income taxes 60,391 5,879 (12,015) 54,255 Depreciation and amortization 31,519 1,419 1,756 34,694 Capital expenditures 83,342 2,431 1,004 86,777 Identifiable assets 1,433,458 88,231 136,653 1,658,342 - -------------------------------------------------------------------------------- 1996 Operating revenues $ 299,283 $13,769 $ 18,993 $ 332,045 Income before income taxes 69,905 2,576 (3,583) 68,898 Depreciation and amortization 28,157 1,296 1,399 30,852 Capital expenditures 75,726 2,831 2,914 81,471 Identifiable assets 1,385,448 90,212 106,437 1,582,097 - -------------------------------------------------------------------------------- 1995 Operating revenues $ 297,183 $10,433 $ 11,920 $ 319,536 Income before income taxes 55,084 (7,228) (7,657) 40,199 Depreciation and amortization 27,180 1,299 808 29,287 Capital expenditures 70,854 3,789 2,801 77,444 Identifiable assets 1,361,492 92,265 62,951 1,516,708 - -------------------------------------------------------------------------------- 63 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) UNITED WATER RESOURCES AND SUBSIDIARIES
- ----------------------------------------------------------------------------------- QUARTER (thousands of dollars, except per share data) FIRST SECOND THIRD FOURTH - ----------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------- 1996 Operating revenues $69,759 $82,581 $97,871 $81,834 Operating income 14,092 24,415 33,920 23,272 Net income applicable to common stock 4,881 7,363 15,521 6,245 Net income per common share $ .15 $ .22 $ .46 $ .18 Net income per common share-diluted $ .15 $ .22 $ .44 $ .18 - ----------------------------------------------------------------------------------- 1995 Operating revenues $69,323 $81,257 $94,215 $74,741 Operating income 14,286 24,289 35,213 8,399 Net income applicable to common stock 831 7,571 14,394 (5,453) Net income per common share $ .03 $ .24 $ .45 $ (.17) Net income per common share-diluted $ .03 $ .24 $ .43 $ (.17) - -----------------------------------------------------------------------------------
As disclosed in Note 2 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. As disclosed in Note 3 to the consolidated financial statements, the Company settled the condemnation proceeding with the city of Rio Rancho. As a result, an after-tax gain of $4.3 million is included in the Company's 1996 first quarter earnings. As disclosed in Note 1 to the consolidated financial statements, the Company recorded a $12.1 million non-cash, pre-tax impairment loss in the fourth quarter of 1995 for various parcels of land held by its real estate subsidiary and for its investment in the environmental testing business. 64 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 1997. 65 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------------- ITEM 11. EXECUTIVE COMPENSATION - -------- ----------------------- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND - -------- --------------------------------------------------------- MANAGEMENT ---------- ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- -------------------------------------------------- The information called for by Items 10 (including any information relating to delinquent filers under Section 16 of the Securities Exchange Act of 1934), 11, 12 and 13 is omitted because the registrant will file with the Securities and Exchange Commission, not later than 120 days after the close of the year covered by this Form 10-K, a definitive proxy statement pursuant to Regulation 14A involving the election of directors. 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. 66 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 1997: 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 Articles 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 Goverance 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) 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. 67 4(e) Certficate 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(f) 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(g) Rights Agreement dated July 12, 1989, amended September 15, 1993, between United Water Resources Inc. and ChaseMellon 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) 10(a) Executive Employment Agreement, effective January 1, 1998, between and among United Water Resources Inc. and Donald L. Correll 10(b) Executive Employment Agreement, effective January 1, 1998, between and among United Water Resources Inc. and David E. Chardavoyne 10(c) Executive Employment Agreement, effective January 1, 1998, between and among United Water Resources Inc. and Frank DeMicco 10(d) Executive Employment Agreement, effective January 1, 1998, between and among United Water Resources Inc. and Joseph Simunovich 10(e) Executive Employment Agreement, effective January 1, 1998, between and among United Water Resources Inc. and John J. Turner 10(f) Executive Employment Agreement, effective January 1, 1998, between and among United Water Resources Inc. and William Colford 10(g) Executive Employment Agreement, effective January 1, 1998, between and among United Water Resources Inc. and Robert Iacullo 10(h) Executive Employment Agreement, effective January 1, 1998, between and among United Water Resources Inc. and John Marino 10(i) Executive Employment Agreement, effective January 1, 1998, between and among United Water Resources Inc. and John Martinowich 10(j) Executive Employment Agreement between and among United Water Resources Inc. and Richard B. McGlynn (Filed as Exhibit 10(c) to Form 10-K for the fiscal year ended December 31, 1994) 68 21 Subsidiaries of registrant 23 Consent of Independent Accountants 27 Financial Data Schedule 69 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, ------------------------------ 1997 1996 1995 ---- ---- ---- ALLOWANCE FOR DOUBTFUL ACCOUNTS: Balance at beginning of period $ 2,549 $ 1,299 $ 1,373 Charges to costs and expenses 1,587 3,162 1,967 Accounts written off (1,770) (2,116) (2,275) Recoveries of accounts written off 162 204 234 ------- ------- -------- BALANCE AT END OF PERIOD $ 2,528 $ 2,549 $ 1,299 ======= ======= ======== REAL ESTATE VALUATION RESERVE: Balance at beginning of period $ 3,465 $ 12,696 $ 3,266 Charges to costs and expenses --- --- 9,430 Sales of properties (264) (9,231) --- ------- ------- ------- BALANCE AT END OF PERIOD $ 3,201 $ 3,465 $12,696 ======= ======= ======= 70 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 12, 1998 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 12, 1998 - ------------------------- (Donald L. Correll) Secretary DOUGLAS W. HAWES and Director March 12, 1998 - ------------------------- (Douglas W. Hawes) JOHN J. TURNER Treasurer March 12, 1998 - ------------------------- (John J. Turner) DIRECTORS --------- EDWARD E. BARR 3/12/98 JON F. HANSON 3/12/98 - --------------------------- ------- -------------------- ------- (Edward E. Barr) Date (Jon F. Hanson) Date FRANK J. BORELLI 3/12/98 DOUGLAS W. HAWES 3/12/98 - --------------------------- ------- -------------------- ------- (Frank J. Borelli) Date (Douglas W. Hawes) Date THIERRY BOURBIE 3/12/98 GEORGE F. KEANE 3/12/98 - --------------------------- ------- -------------------- ------- (Thierry Bourbie) Date (George F. Keane) Date LAWRENCE R. CODEY 3/12/98 DENNIS M. NEWNHAM 3/12/98 - --------------------------- ------- -------------------- ------- (Lawrence R. Codey) Date (Dennis M. Newnham) Date DONALD L. CORRELL 3/12/98 JACQUES F. PETRY 3/12/98 - --------------------------- ------- -------------------- ------- (Donald L. Correll) Date (Jacques F. Petry) Date PETER DEL COL 3/12/98 MARCIA L. WORTHING 3/12/98 - --------------------------- ------- -------------------- ------- (Peter Del Col) Date (Marcia L. Worthing) Date ROBERT L. DUNCAN, JR. 3/12/98 - --------------------------- ------- (Robert L. Duncan, Jr.) Date EX-10.A 2 AGREEMENT BETWEEN UWRI AND DONALD CORRELL Exhibit 10(a) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1998 (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: 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. 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 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 (the "Term"). 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. 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. 1 Compensation and Benefits. ------------------------- 1 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 $365,000 per annum, and shall be subject to annual review by the Board for discretionary annual increases. 2 MIP. The Executive shall participate in the United Water --- Resources Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. 3 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"). 4 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. 5 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. 6 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. 2 Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: 1 Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. 2 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." 3 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: (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 which is materially injurious to the business or reputation of the Company or any of its affiliates; 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 of Directors of the Company (the "Board"), the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. 4 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 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 (i) -------- ------- 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 -3- 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 Chief Executive Officer of either the Company or the top-tier parent company thereof, or (b) the securities of the company of which the Executive is Chief Executive Officer 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; (ii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iii) 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 (iv) the willful violation by the Company of any of the Company's material obligations hereunder. 5 Without Cause. The Company may terminate the Executive's ------------- employment hereunder without Cause by providing the Executive with a Notice of Termination. 6 Without Good Reason. The Executive may terminate the ------------------- Executive's employment hereunder without Good Reason by providing the Company with a Notice of Termination. 3 Termination Procedure. --------------------- 1 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 10. 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. 2 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; -4- (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. 4 Compensation Upon Termination. ----------------------------- 1 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. 2 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. 3 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- 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. 4 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 300% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within 24 months following a Change of Control, as defined below, continue to pay the Executive an annual MIP payment for each of the 3 calendar 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 then current "Cash Target Amount" under the MIP, to be paid 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 -6- 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 24 months following a Change of Control, as defined below, (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: 1 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) -7- 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 2 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 3 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). 5 Restrictions. ------------ 1 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 -8- 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. 2 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) -9- 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). 3 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. 4 Nondisclosure of Confidential Information. During the Term, ----------------------------------------- the Executive shall hold in a fiduciary capacity -10- 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. 5 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. 6 Excise Tax Gross-Up Payment. If any payments to the Executive by --------------------------- the Company 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 -11- 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. 7 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 -12- 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. 8 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. 9 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. 10 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. 11 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. -13- 12 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. 13 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. 14 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 17 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 17. 15 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: Title: DONALD L. CORRELL _________________________________ -14- EX-10.B 3 AGREEMENT BETWEEN UWRI AND DAVID CHARDAVOYNE Exhibit 10(b) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1998 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and David E. Chardavoyne (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: 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. 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 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 (the "Term"). 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. Title, Duties and Authority. The Executive shall serve as President --------------------------- of United Waterworks 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. Compensation and Benefits. ------------------------- 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 $200,000 per annum, and shall be subject to annual review by the Board for discretionary annual increases. MIP. The Executive shall participate in the United Water Resources --- Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. 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"). 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. 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. 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. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. 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 -2- 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." 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: (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 which is materially injurious to the business or reputation of the Company or any of its affiliates; 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 of Directors of the Company (the "Board") the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. 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 material and adverse change in the Executive's title, status, authority, duties or function (in each -3- case, other than as may be contemplated by this Agreement); provided, however, -------- ------- that the requirements of this clause (i) 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 (y) the Executive shall no longer be President of the Company, or (z) the Company shall no longer be a first-tier subsidiary of such parent company of the Company, the securities of which are common stock which is (or American Depositary Shares 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; (ii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iii) 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 (iv) the willful violation by the Company of any of the Company's material obligations hereunder. Without Cause. The Company may terminate the Executive's employment ------------- hereunder without Cause by providing the Executive with a Notice of Termination. Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. Termination Procedure. --------------------- 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 10. 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. -4- 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. Compensation Upon Termination. ----------------------------- 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. 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 -5- Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. 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. 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, continue to pay the Executive an annual MIP payment for each of the 2 calendar years immediately following his Date of Termination (or until such earlier time -6- that the Executive violates the provisions of Section 8), each such payment in an amount equal to his then current "Cash Target Amount" under the MIP, to be paid 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 24 months following a Change of Control, as defined below, (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 "discount rate," as defined in Statement of Financial Accounting Standard 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: 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 -7- 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 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 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 -8- deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). Restrictions. ------------ 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. 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 -9- 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). 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, -10- 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. 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. Specific Performance. Without intending to -------------------- -11- 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. 1 Excise Tax Gross-Up Payment. If any payments to the Executive by --------------------------- the Company 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. -12- 2 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: David E. Chardavoyne 27 Coventry Lane Trumbull, CT 06611 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. 3 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. 4 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. 5 Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed -13- by the laws of the State of New Jersey without regard to conflicts of law principles. 6 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. 7 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. 8 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. 9 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 17 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 17. 10 Severability. The invalidity or unenforceability of any provision ------------ of this Agreement shall not affect the validity or enforceability of any other provision hereof. -14- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_______________________________ Name: Title: DAVID E. CHARDAVOYNE _________________________________ -15- EX-10.C 4 AGREEMENT BETWEEN UWRI AND FRANK DEMICCO Exhibit 10(c) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1998 (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: 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. 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 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 (the "Term"). 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. 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. Compensation and Benefits. ------------------------- 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 $200,000 per annum, and shall be subject to annual review by the Board for discretionary annual increases. MIP. The Executive shall participate in the United Water Resources --- Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. 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"). 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. 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. 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. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. 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 -2- 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." 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: (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 which is materially injurious to the business or reputation of the Company or any of its affiliates; 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 of Directors of the Company (the "Board") the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. 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 material and adverse change in the Executive's title, status, authority, duties or function (in each -3- case, other than as may be contemplated by this Agreement); provided, however, -------- ------- that the requirements of this clause (i) 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 (y) the Executive shall no longer be President of the Company, or (z) the Company shall no longer be a first-tier subsidiary of such parent company of the Company, the securities of which are common stock which is (or American Depositary Shares 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; (ii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iii) 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 (iv) the willful violation by the Company of any of the Company's material obligations hereunder. Without Cause. The Company may terminate the Executive's employment ------------- hereunder without Cause by providing the Executive with a Notice of Termination. Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. Termination Procedure. --------------------- 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 10. 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. -4- 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. Compensation Upon Termination. ----------------------------- 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. 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 -5- Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. 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. 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, continue to pay the Executive an annual MIP payment for each of the 2 calendar years immediately following his Date of Termination (or until such earlier time -6- that the Executive violates the provisions of Section 8), each such payment in an amount equal to his then current "Cash Target Amount" under the MIP, to be paid 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 24 months following a Change of Control, as defined below, (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 "discount rate," as defined in Statement of Financial Accounting Standard 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: 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 -7- 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 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 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 -8- deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). Restrictions. ------------ 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. 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 -9- 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). 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, -10- 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. 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. Specific Performance. Without intending to -------------------- -11- 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. 1 Excise Tax Gross-Up Payment. If any payments to the Executive by --------------------------- the Company 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. -12- 2 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. 3 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. 4 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. 5 Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed -13- by the laws of the State of New Jersey without regard to conflicts of law principles. 6 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. 7 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. 8 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. 9 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 17 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 17. 10 Severability. The invalidity or unenforceability of any provision ------------ of this Agreement shall not affect the validity or enforceability of any other provision hereof. -14- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_______________________________ Name: Title: FRANK J. DEMICCO _________________________________ -15- EX-10.D 5 AGREEMENT BETWEEN UWRI AND JOSEPH SIMUNOVICH Exhibit 10(d) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1998 (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: 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. 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 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 (the "Term"). 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. Title, Duties and Authority. The Executive shall serve as President --------------------------- of United Water Management and Services 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. Compensation and Benefits. ------------------------- 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. MIP. The Executive shall participate in the United Water Resources --- Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. 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"). 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. 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. 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. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. 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 -2- 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." 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: (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 which is materially injurious to the business or reputation of the Company or any of its affiliates; 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 of Directors of the Company (the "Board") the Company is entitled to terminate the Executive for Cause as set forth above, and specifying the particulars thereof in detail. 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 material and adverse change in the Executive's title, status, authority, duties or function (in each -3- case, other than as may be contemplated by this Agreement); provided, however, -------- ------- that the requirements of this clause (i) 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 (y) the Executive shall no longer be President of the Company, or (z) the Company shall no longer be a first-tier subsidiary of such parent company of the Company, the securities of which are common stock which is (or American Depositary Shares 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; (ii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iii) 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 (iv) the willful violation by the Company of any of the Company's material obligations hereunder. Without Cause. The Company may terminate the Executive's employment ------------- hereunder without Cause by providing the Executive with a Notice of Termination. Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. Termination Procedure. --------------------- 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 10. 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. -4- 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. Compensation Upon Termination. ----------------------------- 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. 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 -5- Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. 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. 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, continue to pay the Executive an annual MIP payment for each of the 2 calendar years immediately following his Date of Termination (or until such earlier time -6- that the Executive violates the provisions of Section 8), each such payment in an amount equal to his then current "Cash Target Amount" under the MIP, to be paid 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 24 months following a Change of Control, as defined below, (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 "discount rate," as defined in Statement of Financial Accounting Standard 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: 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 -7- 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 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 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 -8- deemed to refer to the sum of the Maximum Stockholder Investment Percentage plus two percentage points). Restrictions. ------------ 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. 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 -9- 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). 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, -10- 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. 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. Specific Performance. Without intending to -------------------- -11- 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. 1 Excise Tax Gross-Up Payment. If any payments to the Executive by --------------------------- the Company 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. -12- 2 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. 3 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. 4 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. 5 Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed -13- by the laws of the State of New Jersey without regard to conflicts of law principles. 6 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. 7 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. 8 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. 9 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 17 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 17. 10 Severability. The invalidity or unenforceability of any provision ------------ of this Agreement shall not affect the validity or enforceability of any other provision hereof. -14- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. UNITED WATER RESOURCES INC. By:_______________________________ Name: Title: JOSEPH SIMUNOVICH _________________________________ -15- EX-10.E 6 AGREEMENT BETWEEN UWRI AND JOHN TURNER Exhibit 10(e) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1998 (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 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 (the "Term"). 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-Finance 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-Finance 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-Finance 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 $156,000 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 -2- 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: (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 which is materially injurious to the business or reputation of the Company or any of its affiliates; 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 material and adverse change in the Executive's title, status, authority, duties or function (in each -3- case, other than as may be contemplated by this Agreement); provided, however, -------- ------- that the requirements of this clause (i) 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- Finance 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; (ii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iii) 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 (iv) 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 10. 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 -4- 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 -5- 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 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 150% 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 150% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within 24 months following a Change of Control, as defined below, continue to pay the Executive an annual -6- MIP payment 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), each such payment in an amount based upon his current "Cash Target Amount" under the MIP, to be paid 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 24 months following a Change of Control, as defined below, 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 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 "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 -7- 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 -8- 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 -9- 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 -10- 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. -11- (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 to the Executive by --------------------------- the Company 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 -12- proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 10. 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 Drive 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. 11. 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. 12. 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. -13- 13. 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. 14. 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. 15. 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. 16. 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. 17. 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 17 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 17. -14- 18. 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: Title: JOHN J. TURNER _________________________________ -15- EX-10.F 7 AGREEMENT BETWEEN UWRI AND WILLIAM COLFORD Exhibit 10(f) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1998 (the "Commencement Date") by and between United Water Resources Inc., a New Jersey corporation, and its subsidiaries (collectively, the "Company"), and William D. Colford (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: 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. 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 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 (the "Term"). 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. Title, Duties and Authority. The Executive shall serve as Vice --------------------------- President-Support Services of United Water Management and Services Inc. and shall have such responsibilities and duties (consistent with the Executive's position as Vice President-Support Services) 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-Support Services. 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. Compensation and Benefits. ------------------------- 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 $153,000 per annum, and shall be subject to annual review by the Company for discretionary annual increases. MIP. The Executive shall participate in the United Water Resources --- Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. 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"). 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. 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. 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. Termination. The Executive's employment hereunder may be terminated ----------- under the following circumstances: Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. 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 -2- 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." 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: (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 which is materially injurious to the business or reputation of the Company or any of its affiliates; 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. (a) 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: -3- (i) 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); (ii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iii) 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 (iv) the willful violation by the Company of any of the Company's material obligations hereunder. Without Cause. The Company may terminate the Executive's employment ------------- hereunder without Cause by providing the Executive with a Notice of Termination. Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. Termination Procedure. --------------------- 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 10. 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. 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); -4- (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. Compensation Upon Termination. ----------------------------- 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. 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. 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 -5- Date of Termination. Other than the foregoing, the Company shall have no further obligations to the Executive hereunder. 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 150% 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 150% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within 24 months following a Change of Control, as defined below, continue to pay the Executive an annual MIP payment 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), each such payment in an amount based upon his current "Cash Target Amount" under the MIP, to be paid 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 -6- within 24 months following a Change of Control, as defined below, 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 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 "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: 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 -7- Governance Agreement between United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as of April 22, 1994) plus two percentage points; or 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 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. ------------ 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. 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 -9- 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). 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 -10- 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. 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. 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 -11- competent jurisdiction to restrain the breach or threatened breach of or otherwise to specifically enforce any of the covenants contained in this Section 8. Excise Tax Gross-Up Payment. If any payments to the Executive by the --------------------------- Company 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. 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 -12- States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: William D. Colford 338 James Street 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. 1. 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. 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. 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. Amendments. No provision of this Agreement may be ---------- -13- 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. 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. 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. 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 17 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 17. 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. -14- UNITED WATER RESOURCES INC. By:_______________________________ Name: Title: WILLIAM D. COLFORD _________________________________ -15- EX-10.G 8 AGREEMENT BETWEEN UWRI AND ROBERT IACULLO Exhibit 10(g) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1998 (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: 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. 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 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 (the "Term"). 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. 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. Compensation and Benefits. ------------------------- 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 $127,000 per annum, and shall be subject to annual review by the Company for discretionary annual increases. MIP. The Executive shall participate in the United Water Resources --- Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. 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. 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. 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. 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. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. 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 -2- full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." 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: (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 which is materially injurious to the business or reputation of the Company or any of its affiliates; 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. 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 material and adverse change in the Executive's title, status, authority, duties or function (in each -3- case, other than as may be contemplated by this Agreement); (ii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iii) 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 (iv) the willful violation by the Company of any of the Company's material obligations hereunder. Without Cause. The Company may terminate the Executive's employment ------------- hereunder without Cause by providing the Executive with a Notice of Termination. Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. Termination Procedure. --------------------- 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 10. 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. 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 -4- 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. Compensation Upon Termination. ----------------------------- 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. 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. 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. -5- 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 150% 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 150% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within 24 months following a Change of Control, as defined below, continue to pay the Executive an annual MIP payment 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), each such payment in an amount based upon his current "Cash Target Amount" under the MIP, to be paid 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. -6- For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: 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 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 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 -7- 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). Restrictions. ------------ 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. 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; -8- 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). Public Support and Assistance. The Executive ----------------------------- -9- 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. 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; -10- (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. 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. Excise Tax Gross-Up Payment. If any payments to the Executive by the --------------------------- Company 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 -11- 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. 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. 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. -12- 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. 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. 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. 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. 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. 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 -13- Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 17 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 17. 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: Title: ROBERT J. IACULLO _________________________________ -14- EX-10.H 9 AGREEMENT BETWEEN UWRI AND JOHN MARINO Exhibit 10(h) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1998 (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: 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. 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 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 (the "Term"). 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. 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. Compensation and Benefits. ------------------------- 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 $142,000 per annum, and shall be subject to annual review by the Company for discretionary annual increases. MIP. The Executive shall participate in the United Water Resources --- Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. 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. 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. 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. 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. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. 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 -2- full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." 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: (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 which is materially injurious to the business or reputation of the Company or any of its affiliates; 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. 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 material and adverse change in the Executive's title, status, authority, duties or function (in each -3- case, other than as may be contemplated by this Agreement); (ii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iii) 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 (iv) the willful violation by the Company of any of the Company's material obligations hereunder. Without Cause. The Company may terminate the Executive's employment ------------- hereunder without Cause by providing the Executive with a Notice of Termination. Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. Termination Procedure. --------------------- 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 10. 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. 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 -4- 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. Compensation Upon Termination. ----------------------------- 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. 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. 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. -5- 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 150% 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 150% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within 24 months following a Change of Control, as defined below, continue to pay the Executive an annual MIP payment 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), each such payment in an amount based upon his current "Cash Target Amount" under the MIP, to be paid 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. -6- For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: 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 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 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 -7- 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). Restrictions. ------------ 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. 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; -8- 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). Public Support and Assistance. The Executive ----------------------------- -9- 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. 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; -10- (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. 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. Excise Tax Gross-Up Payment. If any payments to the Executive by the --------------------------- Company 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 -11- 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. 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. 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. -12- 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. 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. 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. 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. 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. 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 -13- Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 17 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 17. 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: Title: JOHN T. MARINO _________________________________ -14- EX-10.I 10 AGREEMENT BETWEEN UWRI AND JOHN MARTINOWICH Exhibit 10(i) EMPLOYMENT AGREEMENT -------------------- AGREEMENT effective as of January 1, 1998 (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: 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. 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 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 (the "Term"). 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. 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. Compensation and Benefits. ------------------------- 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 $128,500 per annum, and shall be subject to annual review by the Company for discretionary annual increases. MIP. The Executive shall participate in the United Water Resources --- Inc. Management Incentive Plan (the "MIP") or any successor plan established by the Company. 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. 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. 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. 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. Termination. The Executive's employment hereunder may be ----------- terminated under the following circumstances: Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death. 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 -2- full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." 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: (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 which is materially injurious to the business or reputation of the Company or any of its affiliates; 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. 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 material and adverse change in the Executive's title, status, authority, duties or function (in each -3- case, other than as may be contemplated by this Agreement); (ii) any failure to pay the Executive's Base Salary or MIP payment(s) when due; (iii) 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 (iv) the willful violation by the Company of any of the Company's material obligations hereunder. Without Cause. The Company may terminate the Executive's employment ------------- hereunder without Cause by providing the Executive with a Notice of Termination. Without Good Reason. The Executive may terminate the Executive's ------------------- employment hereunder without Good Reason by providing the Company with a Notice of Termination. Termination Procedure. --------------------- 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 10. 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. 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 -4- 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. Compensation Upon Termination. ----------------------------- 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. 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. 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. -5- 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 150% 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 24 months following a Change of Control, as defined below, 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 24 months following a Change of Control, as defined below, within 30 days of the Executive's Date of Termination, pay the Executive an amount equal to 150% of his then current "Cash Target Amount" under the MIP, or (B) if the Executive's Date of Termination does not occur within 24 months following a Change of Control, as defined below, continue to pay the Executive an annual MIP payment 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), each such payment in an amount based upon his current "Cash Target Amount" under the MIP, to be paid 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. -6- For purposes of this Agreement, a "Change of Control" of the Company shall mean the first to occur of any of the following events: 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 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 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 -7- 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). Restrictions. ------------ 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. 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; -8- 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). Public Support and Assistance. The Executive ----------------------------- -9- 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. 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; -10- (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. 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. Excise Tax Gross-Up Payment. If any payments to the Executive by the --------------------------- Company 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 -11- 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. 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. 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. -12- 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. 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. 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. 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. 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. 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 -13- Company or any affiliate of the Company or any other person or enterprise at the Company's request. Nothing in this Section 17 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 17. 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: Title: JOHN MARTINOWICH _________________________________ -14- EX-21 11 SUBSIDIARIES OF UNITED WATER RESOURCES INC. 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 7 subsidiaries in the real estate business 3 states United Water UK Limited N/A Laboratory Resources, Inc. New Jersey Twelve (12) other subsidiaries in businesses 4 states related to the water industry or providing services to affiliates EX-23 12 CONSENT OF PRICE WATERHOUSE LLP 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. 33-61617), and the Registration Statement on Form S-8 (No. 333-30229) of United Water Resources of our report dated February 25, 1998, 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. 33-61617). PRICE WATERHOUSE LLP New York, New York March 23, 1998 EX-27.1 13 FINANCIAL DATA SCHEDULE
UT This schedule contains summary information extracted 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-31-1997 JAN-01-1997 DEC-31-1997 PER-BOOK 1,143,034 178,684 112,555 161,043 63,026 1,658,342 365,251 0 53,350 418,601 86,579 9,000 622,737 0 74,925 0 7,762 260 0 0 438,478 1,658,342 351,409 20,579 255,765 276,344 75,065 3,983 79,048 45,372 33,676 4,345 29,331 32,636 0 88,055 0.83 0.83
EX-27.2 14 FINANCIAL DATA SCHEDULE
UT This schedule contains summary information extracted 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 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 PER-BOOK 1,091,217 165,733 102,516 150,078 64,294 1,573,838 342,718 0 44,250 386,968 93,270 9,000 558,180 0 70,925 0 29,214 260 0 0 426,021 1,573,838 80,006 1,885 65,362 67,247 12,759 3,507 16,266 11,029 5,237 1,135 4,102 7,967 0 26,611 0.12 0.12
EX-27.3 15 FINANCIAL DATA SCHEDULE
UT This schedule contains summary information extracted from the consolidated Balance sheet, Statement of Consolidated Income and jStatement of consolidated cash Flows and is qualifed in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 PER-BOOK 1,105,255 169,177 108,783 152,906 63,917 1,600,038 352,886 0 47,283 400,169 88,315 9,000 590,137 0 65,725 0 20,236 260 0 0 426,196 1,600,038 167,767 7,686 128,132 135,818 31,949 7,633 39,582 22,030 17,552 2,206 15,346 16,112 0 30,187 0.44 0.44
EX-27.4 16 FINANCIAL DATA SCHEDULE
UT This schedule contains summary information extracted from the Consolidated Balance Sheet, Statement of Consolidated Income and Statement of Consolidated Cash Flows and is qualified in its entirety by refefence to such financial statements. 1000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 PER-BOOK 1,114,648 177,606 133,452 157,042 63,470 1,646,218 359,881 0 54,124 414,005 88,046 9,000 608,734 0 73,025 0 21,108 260 0 0 432,040 1,646,218 267,457 15,871 193,653 209,524 57,933 937 58,870 33,785 25,085 3,275 21,810 24,341 0 55,271 0.62 0.62
EX-27.5 17 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED 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-31-1996 JAN-01-1996 DEC-31-1996 PER-BOOK 1,081,555 165,773 113,756 156,303 64,710 1,582,097 334,835 0 56,655 391,490 93,261 9,000 558,093 0 93,225 0 29,286 260 0 0 407,482 1,582,097 332,045 23,511 236,346 259,857 72,188 11,386 83,574 44,951 38,623 4,613 34,010 30,994 0 47,197 1.01 1.00
EX-27.6 18 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET, STATEMENT OF CONSOLIDATED INCOME AND STATEMENT OF CONSOLIDATED CASE FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 PER-BOOK 1,016,791 98,464 157,464 138,170 63,290 1,474,179 309,206 0 42,818 352,024 98,141 9,000 558,243 42,500 0 0 13,359 260 0 0 400,652 1,474,179 71,293 7,452 57,659 65,111 6,182 10,865 17,047 10,966 6,081 1,200 4,881 15,314 0 9,730 .15 .15
EX-27.7 19 FINANCIAL DATA SCHEDULE
UT This schedule contains summary information extracted 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 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 PER-BOOK 1,043,851 156,708 129,922 134,593 65,441 1,530,515 317,883 0 50,582 368,465 93,439 9,000 574,226 0 57,725 0 26,347 260 0 0 401,053 1,530,515 155,640 12,784 118,087 130,871 24,769 11,611 36,380 21,796 14,584 2,340 12,244 15,301 0 19,900 .37 .37
EX-27.8 20 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED 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 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 PER-BOOK 1,056,280 160,086 133,284 143,704 65,027 1,558,381 323,655 0 50,020 373,675 93,248 9,000 573,065 0 77,725 0 16,354 260 0 0 415,054 1,558,381 255,118 21,953 184,058 206,011 49,107 15,747 64,854 33,612 31,242 3,477 27,765 22,716 0 31,672 .83 .82
EX-27.9 21 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED 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-31-1995 JAN-01-1995 DEC-31-1995 PER-BOOK 1,081,278 98,082 134,936 130,514 71,898 1,516,708 304,663 0 53,639 358,302 98,091 9,000 558,658 0 43,500 0 13,315 260 0 0 435,582 1,516,708 319,536 14,204 237,353 251,557 67,979 (3,293) 64,686 42,548 22,138 4,795 17,343 29,415 0 38,806 .54 .54
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