-----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, Qk/Lw4Ssj0n38mbGUM84lnRyvs4B7tNEtKzEfLR05O2PFj0Ics5W/uJqBCVmQaw8 xV4nLnUlLoF5b31PMayo2g== 0000074778-98-000028.txt : 19980813 0000074778-98-000028.hdr.sgml : 19980813 ACCESSION NUMBER: 0000074778-98-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORANGE & ROCKLAND UTILITIES INC CENTRAL INDEX KEY: 0000074778 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 131727729 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04315 FILM NUMBER: 98683411 BUSINESS ADDRESS: STREET 1: ONE BLUE HILL PLZ CITY: PEARL RIVER STATE: NY ZIP: 10965 BUSINESS PHONE: 9143526000 MAIL ADDRESS: STREET 1: ONE BLUE HILL PLAZA CITY: PEARL RIVER STATE: NY ZIP: 10965 FORMER COMPANY: FORMER CONFORMED NAME: ROCKLAND LIGHT & POWER CO DATE OF NAME CHANGE: 19681202 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4315 ORANGE AND ROCKLAND UTILITIES, INC. (Exact name of registrant as specified in its charter) New York 13-1727729 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Blue Hill Plaza, Pearl River, New York 10965 (Address of principal executive offices) (Zip code) (914) 352-6000 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) 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 the number of shares outstanding of each of the issuer's class of common stock, as of the close of the latest practicable date. Common Stock - $5 Par Value 13,519,349 shares (Class) (Outstanding at July 31, 1998) TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets (Unaudited) at June 30, 1998 and December 31, 1997 1 Consolidated Statements of Income (Unaudited) for the three months and six months ended June 30, 1998 and June 30, 1997 3 Consolidated Cash Flow Statements (Unaudited) for the six months ended June 30, 1998 and June 30, 1997 5 Notes to Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 18 ITEM 6. Exhibits and Reports on Form 8-K 20 Signatures PART I. FINANCIAL INFORMATION Item I. Financial Statements ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) Assets
June 30, December 31, 1998 1997 (Thousands of Dollars) Utility Plant: Electric $1,050,008 $1,047,857 Gas 234,649 232,206 Common 93,868 64,570 Utility Plant in Service 1,378,525 1,344,633 Less accumulated depreciation 489,819 471,865 Net Utility Plant in Service 888,706 872,768 Construction work in progress 50,822 63,445 Net Utility Plant 939,528 936,213 Non-utility Property: Non-utility property 11,663 11,651 Less accumulated depreciation, depletion and amortization 1,187 1,109 Net Non-utility Property 10,476 10,542 Current Assets: Cash and cash equivalents 7,047 3,513 Temporary cash investments 518 518 Customer accounts receivable, less allowance for uncollectible accounts of $2,774 and $2,530 48,306 61,817 Accrued utility revenue 24,047 22,869 Other accounts receivable, less allowance for uncollectible accounts of $212 and $258 12,171 20,450 Materials and supplies (at average cost) 27,703 35,269 Prepaid property taxes 12,467 21,575 Prepayments and other current assets 38,310 21,469 Total Current Assets 170,569 187,480 Deferred Debits: Income tax recoverable in future rates 74,869 74,731 Deferred revenue taxes 11,340 10,923 Deferred pension and other post retirement benefits 8,455 9,334 IPP settlement costs 10,425 14,238 Unamortized debt expense (amortized over term of securities) 10,701 11,153 Other deferred debits 31,111 29,705 Total Deferred Debits 146,901 150,084 Net Assets of Discontinued Operations 1,112 1,645 Total $1,268,586 $1,285,964 The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) Capitalization and Liabilities
June 30, December 31, 1998 1997 (Thousands of Dollars) Capitalization: Common stock (13,519,327 & 13,589,011 shares outstanding) $ 67,596 $ 67,945 Premium on capital stock 132,310 132,985 Capital stock expense (6,045) (6,084) Retained earnings 169,853 181,473 Total 363,714 376,319 Non-redeemable preferred stock (428,443 shares outstanding) (Note 7) - 42,844 Non-redeemable cumulative preference stock (11,144 and 11,639 shares outstanding) (Note 7) - 379 Total Non-Redeemable Stock - 43,223 Long-term debt 356,636 356,637 Total Capitalization 720,350 776,179 Non-current Liabilities: Reserve for claims and damages 4,613 4,591 Postretirement benefits 12,996 15,334 Pension costs 45,520 43,618 Obligations under capital leases 1,561 1,646 Total Non-current Liabilities 64,690 65,189 Current Liabilities: Notes payable and obligations due within one year (Note 7) 178,108 130,609 Accounts payable 48,129 57,630 Accrued Federal income and other taxes 2,062 2,929 Refundable fuel and gas costs 3,177 3,848 Refunds to customers 1,613 986 Other current liabilities 35,857 30,678 Total Current Liabilities 268,946 226,680 Deferred Taxes and Other: Deferred Federal income taxes 193,663 192,514 Deferred investment tax credits 14,097 14,482 Accrued Order 636 transition costs 1,340 1,340 Other deferred credits 5,500 9,580 Total Deferred Taxes and Other 214,600 217,916 Total $1,268,586 $1,285,964 The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Unaudited)
Three Months Six Months Ended June 30, Ended June 30, 1998 1997 1998 1997 (Thousands of Dollars) Operating Revenues: Electric $115,748 $111,879 $221,844 $218,980 Gas 23,602 25,146 82,428 103,052 Total Utility Revenues 139,350 137,025 304,272 322,032 Diversified Activities 199 170 358 482 Total Operating Revenues 139,549 137,195 304,630 322,514 Operating Expenses: Operations: Fuel used in electric production 25,875 15,770 42,149 28,184 Electricity purchased for resale 10,183 14,004 26,170 32,860 Gas purchased for resale 12,510 13,800 43,465 61,917 Other expenses of operation 34,146 36,321 68,371 68,908 Maintenance 10,737 9,028 18,029 17,987 Depreciation and amortization 8,740 8,838 17,301 18,215 Taxes other than income taxes 21,532 23,435 45,336 49,587 Federal income taxes 3,114 2,931 9,615 10,394 Total Operating Expenses 126,837 124,127 270,436 288,052 Income from Operations 12,712 13,068 34,194 34,462 Other Income and (Deductions): Allowance for other funds used during construction 6 19 3 34 Investigation costs - - - (3,390) Other - net 27 740 648 752 Taxes other than income taxes (68) (66) (138) (132) Federal income taxes 143 (19) 92 1,390 Total Other Income &(Deductions) 108 674 605 (1,346) Income Before Interest Charges 12,820 13,742 34,799 33,116 Interest Charges: Interest on long-term debt 6,016 6,011 11,961 12,161 Other interest 1,927 1,773 4,484 3,315 Amortization of debt premium, expense-net 285 412 568 808 Allowance for borrowed funds used during construction (484) (165) (1,094) (393) Total Interest Charges 7,744 8,031 15,919 15,891 Income from Continuing Operations 5,076 5,711 18,880 17,225 (continued)
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) (continued)
Three Months Six Months Ended June 30, Ended June 30, 1998 1997 1998 1997 (Thousands of Dollars) Discontinued Operations (Note 5): Loss from discontinued operations, net of related income taxes $ - $(2,140) $ - $(6,738) Estimated net loss on disposal of discontinued operations - (4,565) - (4,565) Loss with respect to discontinued operations - (6,705) - (11,303) Net Income (Loss) 5,076 (994) 18,880 5,922 Dividends on preferred and preference stock, at required rates 699 699 1,399 1,399 Earnings applicable to common stock $4,377 $(1,693) $17,481 $ 4,523 Avg. number of common shares outstanding (000's) 13,519 13,654 13,520 13,654 Basic Earnings Per Average Common Share Outstanding: Continuing Operations $ .32 $ .37 $ 1.29 $ 1.16 Discontinued Operations $ - $ (.50) $ - $ (.83) Total $ .32 $ (.13) $ 1.29 $ .33 Dividends declared per common share outstanding $ 1.29 $ 1.29 $ 1.94 $ 1.94 The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Cash Flow Statements (Unaudited)
Six Months Ended June 30, 1998 1997 (Thousands of Dollars) Cash Flow from Operations: Net income $18,880 $5,922 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,076 17,991 Deferred Federal income taxes 776 (873) Deferred investment tax credit (385) (397) Deferred and refundable fuel and gas costs (671) 1,371 Allowance for funds used during construction (1,098) (427) Other non-cash charges 78 2,000 Changes in certain current assets and liabilities: Accounts receivable (net) and accrued utility revenues 20,612 7,333 Materials and supplies 7,566 5,986 Prepaid property taxes 9,108 8,248 Prepayments and other current assets (16,841) (17,596) Operating accounts payable (9,501) (15,856) Accrued Federal Income and other taxes (867) 243 Accrued interest 185 (432) Refunds to customers 627 665 Other current liabilities (4,425) (3,451) Discontinued Operations 533 8,193 Other-net 419 9,887 Net Cash Provided from Operations 42,072 28,807 Cash Flow from Investing Activities: Additions to plant (21,740) (29,982) Temporary cash investments - 769 Allowance for funds used during construction 1,097 427 Net Cash Used in Investing Activities (20,643) (28,786) Cash Flow from Financing Activities: Proceeds from: Issuance of long-term debt - 20,083 Issuance of capital lease obligations - 2,020 Retirements of: Common stock (3,225) - Preference and preferred stock - (1,390) Long-term debt (19) (25,243) Capital lease obligations (79) (129) Net borrowings (repayments) under short-term debt arrangements* 4,285 25,181 Dividends on preferred and common stock (18,857) (19,043) Net Cash Used in Financing Activities (17,895) 1,479 Net Change in Cash and Cash Equivalents 3,534 1,500 Cash and Cash Equivalents at Beginning of Period 3,513 3,321 Cash and Cash Equivalents at End of Period $ 7,047 $ 4,821 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest, net of amounts capitalized $15,729 $15,858 Federal income taxes $14,500 $10,000 *Debt with maturities of 90 days or less. The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet as of June 30, 1998, the consolidated statements of income for the three month and six month periods ended June 30, 1998 and 1997, and the consolidated cash flow statements for the six month periods then ended have been prepared by Orange and Rockland Utilities, Inc. (the "Company") without an audit. In the opinion of management, all adjustments (which include normal recurring adjustments and the adjustments necessitated by discontinued operations) necessary to fairly present the financial position and results of operations at June 30, 1998, and for all periods presented, have been made. The amounts in the consolidated balance sheet as of December 31, 1997 have been derived from audited financial statements. 2. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these unaudited consolidated financial statements, notes to consolidated financial statements and management's discussion and analysis of financial condition and results of operations be read in conjunction with the consolidated financial statements, the review of the Company's results of operations and financial condition and the notes to consolidated financial statements included in the Company's December 31, 1997 Annual Report to Shareholders. The results of operations for the period ended June 30, 1998 are not necessarily indicative of the results of operations for the full year. 3. The consolidated financial statements include the accounts of the Company, all subsidiaries and the Company's pro rata share of an unincorporated joint venture. All inter-company balances and transactions have been eliminated. 4. Contingencies at June 30, 1998 are substantially the same as the contingencies described in the "Notes to Consolidated Financial Statements" included in the Company's December 31, 1997 Annual Report to Shareholders, which material is incorporated by reference to the Company's December 31, 1997 Form 10-K Annual Report, and in Item 3, Legal Proceedings of the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1997, except changes in the status of regulatory matters which are updated in Part I, Item 2 under the caption "Regulatory Activities" and the status of certain Legal Proceedings which are updated in Part II, Item 1, "Legal Proceedings". 5. In August, 1997, NORSTAR Management, Inc. ("NMI"), a wholly owned indirect subsidiary of the Company sold certain of the assets of NORSTAR Energy Limited Partnership ("NORSTAR"),a natural gas services and marketing company of which NMI is the general partner. During the second quarter of 1998, NMI continued to wind down the remaining portion of the NORSTAR business. All activity has been completed with the exception of finalizing the remaining accounts receivable and payable balances. The resolution of these items is not expected to have a material effect on the Company's 1998 consolidated financial position or results of operations. 6. On May 10, 1998, the Company, Consolidated Edison, Inc. ("CEI") and C Acquisition Corp., a wholly owned subsidiary of CEI, ("Merger Sub") entered into an Agreement and Plan of Merger ("Merger Agreement")providing for a merger transaction among the Company, CEI and the Merger Sub. Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company (the "Merger"), with the Company becoming the surviving corporation and becoming a wholly owned subsidiary of CEI. The Merger is expected to occur shortly after all of the conditions to the consummation of the Merger, including the receipt of certain regulatory approvals, are met or waived. The Company anticipates that regulatory approvals can be obtained in twelve months. 7. The Merger Agreement requires the redemption of the Company's Cumulative Preferred Stock and Cumulative Preference Stock. The Company intends to redeem those issues as soon as practicable, but in any event prior to the effective date of the merger. These issues of stock are reflected on the Consolidated Balance Sheet at June 30, 1998 as Current Liabilities. Effective July 1, 1998, through the first half of 1999, the Company will accrete the estimated call price over the carrying amount for the Preferred and Preference Stock being redeemed. 8. Certain amounts reported for the prior year have been reclassified to conform with the current year presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition: Financial Performance The Company's consolidated basic earnings per average common share outstanding for the second quarter of 1998 were $0.32 as compared to $(0.13) for the second quarter of 1997. Discontinued operations had no effect on the second quarter of 1998 and accounted for a loss of $0.50 for the second quarter of 1997. Fluctuations within the components of earnings are discussed in the "Results of Operations". The average number of common shares outstanding was 13.5 million for the second quarter of 1998 and 13.7 million for the second quarter of 1997. The return on average common equity from continuing operations for the twelve months ended June 30, 1998 was 11.62% as compared to 11.03% for the twelve months ended June 30, 1997. The return on average common equity, including the effect of discontinued operations, for the twelve months ended June 30, 1998 was 10.65% as compared to 7.45% for the twelve months ended June 30, 1997. Capital Resources and Liquidity At June 30, 1998, the Company and its utility subsidiaries had unsecured bank lines of credit totaling $140.0 million. The Company borrows under the lines of credit through the issuance of promissory notes to the banks. However, the Company primarily utilizes such lines of credit to fully support commercial paper borrowings. The aggregate amount of borrowings through the issuance of promissory notes and commercial paper cannot exceed the aggregate lines of credit. In addition, non-utility lines of credit amounted to $20.0 million at June 30, 1997, and the non- utility subsidiaries may undertake short-term borrowings or make short-term investments.The average daily balance of short-term borrowings for the six months ended June 30, 1998 amounted to $119.7 million at an effective interest rate of 5.9% as compared to $95.1 million at an effective interest rate of 5.7% for the same period of 1997. The average daily balance of temporary cash investments for the six months ended June 30, 1998 was $0.6 million with an effective interest rate of 5.2% compared to $1.0 million at an effective interest rate of 5.2% for the same period of 1997. The non-utility subsidiaries of the Company and of Rockland Electric Company ("RECO"), a wholly owned utility subsidiary of the Company, had no bank lines of credit at June 30, 1998. The Company has outstanding 428,443 shares of Non-Redeemable Cumulative Preferred Stock and 11,144 shares of Non-Redeemable Preference Stock (the "Preferred and Preference Stock") in various series, which together amount to $43.2 million. As provided in the Merger Agreement, the Company intends to call for redemption all outstanding shares of the Preferred and Preference Stock as soon as practicable, but not later than the effective date of the merger. The Company intends to issue long-term debt of approximately $45 million to provide funds for the redemption of the Preferred and Preference Stock. The Company currently has no other plans for the issuance of additional Company debt or equity securities. The Company's Pennsylvania subsidiary, Pike County Light & Power Company ("Pike"), has outstanding an aggregate of $2,683,500 of First Mortgage Bonds as follows: Series A, 9.00% due 2001 (the "Series A Bonds") and Series B, 9.95% due 2020 (the "Series B Bonds"). In light of current interest rates, it has been determined that it may be economical to refund the Series A Bonds and the Series B Bonds. On July 29, 1998, Pike filed a petition with the Pennsylvania Public Utility Commission ("PPUC") requesting authority to issue up to $3.5 million of First Mortgage Bonds, the proceeds of which would be used primarily for the refinancing of the Series A Bonds and the Series B Bonds, with any remaining funds being used to finance capital expenditures and for other corporate purposes. A decision on this petition is expected during September 1998. Regulatory Activities New York Competitive Opportunities Proceeding Reference is made to Item 3, Legal Proceedings, under the caption "New York Competitive Opportunities Proceeding" in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, in the Company's Form 10-Q Quarterly Report for the quarter ended March 31, 1998, for a description of the New York Public Service Commission's ("NYPSC") Competitive Opportunities Proceeding (Case Nos. 94-E-0952 and 96-E-0900). The Company and Consolidated Edison Company of New York, Inc. ("Con Edison") filed with the NYPSC a revised agreement dated May 18, 1998 which provides for the joint auction of the Bowline Plant. The parties have agreed that the gross proceeds from the sale of the Bowline Plant will be allocated on the basis of their ownership interest (i.e., Con Edison's 66 2/3 percent interest and the Company's 33 1/3 percent interest). In addition, in consideration for Con Edison's agreement to a joint sale of the Bowline Plant as part of the Company auction and to comply with the Company's auction timetable, the parties agreed that Con Edison will be entitled to a premium, which will be triggered when the sale of the Bowline Plant results in a net gain to the Company. When triggered, Con Edison's premium will be equal to 3 1/3 percent of the gross proceeds from the sale of the Bowline Plant, but in no event shall Con Edison's premium exceed the lesser of (i) $9 million or (ii) the Company's net gain on its share of the Bowline Plant. In addition, the parties agreed that Con Edison will not share in the proceeds from the sale of a 97 acre parcel of land, solely owned by the Company, adjacent to the Bowline Plant. The Company has commenced the process of auctioning its generating assets. Final bids are expected to be submitted in October 1998. The Company is unable to predict the outcome of this regulatory proceeding and the effect on the Company's consolidated financial position or results of operations. New Jersey Energy Master Plan Reference is made to Item 3, Legal Proceedings, under the caption "New Jersey - Energy Master Plan" in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, for information regarding the New Jersey Board of Public Utilities ("NJBPU") order "Adopting and Releasing Final Report in its Energy Master Plan Phase II Proceeding to Investigate the Future Structure of the Electric Power Industry (Docket No. EX 94120585Y)." The Order required RECO and other New Jersey investor owned electric utilities each to file unbundled rates, a stranded cost proposal and a restructuring plan. Hearings were conducted in the stranded cost and unbundling phases. The NJBPU issued an order extending the return date for a decision from the Administrative Law Judge until August 14, 1998. Hearings in the restructuring phase scheduled for May 1998 were held before the NJBPU. The NJBPU has indicated that it will rule on these filings by October 1998. It is not possible to predict the outcome of the NJBPU proceeding or its effect, if any, on the Company's consolidated financial position or results of operations. Pennsylvania - Competitive Legislation Reference is made to Item 3, Legal Proceedings, under the caption "Pennsylvania - Competition Legislation" in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 for a description of the "Electricity Generation Customer Choice and Competition Act." The Company's subsidiary, Pike, is a Pennsylvania electric and gas utility company. On July 23, 1998 the PPUC issued an Order approving the Joint Petition for Complete Settlement of Pike's Proposed Restructuring Plan. This Joint Petition, dated May 15, 1998, was supported by all parties in Pike's electric restructuring proceeding and provides for full retail access for all customers as of May 1, 1999. The settlement provides for the recovery, through a competitive transition charge, of stranded costs relating to non- utility generator ("NUG") contracts, NUG contract buyout costs previously incurred and deferred fuel costs incurred to May 1, 1999. Pike's share of any net gains from the divestiture of the Company's electric generating facilities will be used to offset stranded costs. Proposed Merger with Consolidated Edison, Inc. Reference is made to the Company's Current Report on Form 8-K dated May 12, 1998, for a description of the Agreement and Plan of Merger, dated as of May 10, 1998, entered into among the Company, CEI and Merger Sub. The Company has called a Special Meeting of the Common Shareholders of the Company, to be held on August 20, 1998, to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger. On June 22, 1998 the Company, CEI and Con Edison filed a Joint Petition with the NYPSC requesting approval of the merger between the Company and the Merger Sub (the "Merger"). The Parties have requested that the NYPSC review and approve this Joint Petition prior to March 31, 1999. On July 2, 1998 the Company, CEI and Con Edison filed a Joint Petition with the NJBPU requesting approval of the Merger. The Parties have requested that the NJBPU review and approve this Joint Petition on or before February 1, 1999. On July 2, 1998 Pike filed an Application with the PPUC requesting approval of the Merger. Pike requested that the PPUC review and approve this Application prior to March 31, 1999. QUARTERLY COMPARISON Results of Operations The Company's total consolidated basic earnings per average common share outstanding for the second quarter of 1998 were $0.32 as compared to $(0.13) for the second quarter of 1997. The lower earnings experienced during the second quarter of 1997 were primarily the result of the loss of $0.50 per share experienced by the Company's now discontinued gas marketing subsidiary operations. Earnings from continuing operations were $0.32 per share for the second quarter of 1998, compared with $0.37 per share in the same period a year ago. This decline is primarily the result of higher property taxes and depreciation expense of $0.8 million and $0.5 million, respectively, which increased, after eliminating regulatory adjustments related to the December 1, 1997 New York Electric Restructuring Plan. The depreciation expense increase of $0.5 million is primarily the result of an increase of $0.3 million of depreciation due to various plant additions, with the balance related to the Company's new Customer Information Management System which was installed during June 1998. Also contributing to the decline were lower firm gas sales volumes of 6.5 percent due primarily to milder than normal weather. Partially offsetting the decline were higher electric sales volumes (other than off-system sales) of 5.3 percent in the second quarter of 1998. Comparative results also reflect the Company's continued success in containing other operating and maintenance expenses. Electric and Gas Revenues Electric and gas operating revenues, including fuel cost and purchased gas cost recoveries, increased by $2.3 million during the second quarter of 1998 as compared to the same quarter of 1997, as a result of higher electric sales and fuel cost recoveries, offset by a reduction in base rates effective December 1997. Electric operating revenues during the current quarter were $115.7 million as compared to $111.9 million for the second quarter of 1997, an increase of $3.8 million. Total sales of electric energy to retail customers during the second quarter of 1998 were 1,166,031 megawatt hours ("Mwh"), compared with 1,107,458 Mwh during the comparable period a year ago. Revenues from these sales were $110.4 million for the second quarter compared with $110.5 million for the same period in 1997. Electric revenue was reduced by $1.9 million during the second quarter of 1998 due to the change necessitated by the New Jersey Uniform Transitional Utilities Assessment Act. This Act, although it resulted in a change in the method of recording the tax by lowering revenue and correspondingly lowering taxes other than income taxes, did not affect the Company's tax liability or the Company's net income for the period. In addition, partially offsetting the effect of the higher sales was the impact of base rate reductions effective December 1, 1997. Sales to other utilities for the second quarter of 1998 amounted to 198,585 Mwh with revenues of $4.7 million compared to 29,589 Mwh and $0.6 million in 1997. Revenues from these sales are primarily a recovery of costs, and under the applicable tariff regulations, have a minimal impact on earnings. Gas operating revenues during the second quarter of 1998 were $23.6 million compared to $25.1 million for the second quarter of 1997, a decrease of $1.5 million. This decrease is primarily the result of a decrease in the volume of gas sold and the timing of fuel cost recoveriesa. Sales to firm customers totaled 2,878 million cubic feet ("Mmcf"), compared with 3,081 Mmcf during the same period a year ago. Gas revenues from firm customers were $20.3 million, compared with $21.1 million in the second quarter of 1997. The level of revenue from gas sales in New York is subject to a weather normalization clause that provides for revenue adjustments, which are either collected from or refunded to customer, for degree day variations of 2.2% or more from base rate forecast levels. Interruptible gas sales were 696 Mmcf for the second quarter of 1998 compared to 844 Mmcf for the same period of 1997. Revenues from interruptible customers were $2.3 million in 1998 compared to $3.0 million in 1997. Fuel, Purchased Electricity and Purchased Gas Costs The cost of fuel used in the production of electricity and purchased electricity costs amounted to $36.1 million for the second quarter of 1998 compared to $29.8 million for the second quarter of 1997, an increase of $6.3 million. This increase reflects the increased demand for electricity, including sales to other utilities, which was partially offset by a decrease in fuel and purchased power prices. Purchased gas costs for utility operations were $12.5 million in the second quarter of 1998 compared to $13.8 million in 1997, a decrease of $1.3 million. This decrease in gas costs is attributable to the lower volume of gas purchased for resale. Other Operating and Maintenance Expenses The Company's total operating and maintenance expenses excluding fuel, purchased power and gas purchased for resale for the second quarter of 1998 decreased by $2.3 million compared with the same period in 1997. Utility operating expenses decreased $1.8 million. Diversified operating expenses decreased by $0.5 million. The decrease in utility operating expenses is the result of reductions in taxes other than income taxes of $1.9 million and lower depreciation and amortization of $0.1 million. The reduction in taxes other than income taxes is primarily due to the change necessitated by the New Jersey Uniform Transitional Utilities Assessment Act discussed above. The reduction was also impacted by regulatory adjustments related to the New York Electric Restructuring Plan partially offset by an increase in property taxes of $0.8 million. Depreciation and amortization also decreased due to the regulatory adjustments approved in the New York Electric Restructuring Case. After eliminating the regulatory adjustments, depreciation expense increased due to normal plant additions and the amortization of the Company's new customer accounting system. Other operating and maintenance expenses increased by $0.2 million. Diversified Activities The Company's diversified activities consist of energy related services and business ventures and land development conducted through wholly owned non-utility subsidiaries. Revenues from all diversified activities were $199,000 for the second quarter of 1998 compared with $ 170,000 a year ago. Other Income, Deductions and Interest Charges - Net Other income, net of interest charges and other deductions, decreased by $0.3 million during the second quarter of 1998 when compared to the same quarter of 1997 due primarily to the gain on disposition of property in 1997 by one of the Company's diversified land development subsidiaries. YEAR TO DATE COMPARISON Results of Operations Basic earnings per average common share outstanding for the first half of 1998 amounted to $1.29 per share as compared to $0.33 per share for the first six months of 1997. Discontinued operations had no effect on the first half of 1998 but accounted for a loss of $0.83 per share for the first half of 1997. Settlement costs related to litigation with the Company's former Chairman had no effect on the first half of 1998 but reduced earnings by $0.16 per share for the first half of 1997. During the first quarter of 1998, gas operating revenues were adversely affected by below-normal sales resulting from the warm winter weather, the effect of which was somewhat mitigated by the Company's gas weather normalization clause. Electric and Gas Revenues Electric and gas operating revenues, including fuel cost and purchased gas cost recoveries, decreased by $17.8 million in the first six months of 1998 as compared to the same period of 1997. Electric operating revenues during the current period were $221.8 million as compared to $219.0 million for the first six months of 1997, an increase of $2.8 million. Total sales of electric energy to retail customers during the first six months of 1998 were 2,295,542 Mwh, compared to 2,224,176 Mwh during the comparable period a year ago. This increase is attributable to increased usage per customer when compared to the same period a year ago. Revenues from these sales during the first six months of 1998 were $212.0 million as compared to $215.2 million for the same period in 1997. Electric revenue was reduced due to a reduction in base rates effective December 1997 as well as the change necessitated by the New Jersey Uniform Transitional Utilities Assessment Act discussed above. Sales to other utilities for the first six months of 1998 amounted to 319,563 Mwh with revenues of $8.1 million compared to 97,513 Mwh and $2.1 million in 1997. Revenues from these sales are primarily a recovery of costs and under the applicable tariff regulations, have a minimal impact on earnings. Gas operating revenues during the first six months of 1998 were $82.4 million compared to $103.1 million for the first six months of 1997, a decrease of $20.7 million. Revenues decreased due to lower gas cost recoveries and lower sales volumes from a mild winter. Record warm weather conditions during the first quarter of 1998 resulted in a decrease in gas sales as compared to the first quarter of 1997. Sales to firm customers during the first six months of 1998 totaled 10,738 Mmcf, compared with 12,077 Mmcf during the same period a year ago. Gas revenues from firm customers were $74.9 million, compared with $93.7 million in the first six months of 1997. The level of revenue from gas sales in New York is subject to a weather normalization clause that provides for revenue adjustments, which are either collected from or refunded to customers, for degree day variations of 2.2% or more from base rate forecast levels. Fuel, Purchased Electricity and Purchased Gas Costs The cost of fuel used in the production of electricity and purchased electricity costs increased by $7.3 million during the first six months of 1998 when compared to the same period of 1997. This increase reflects increased demand which was partially offset by a decrease in the price of fuel and purchased power. Purchased gas costs for utility operations were $43.5 million in the first six months of 1998 compared to $61.9 million in 1997, a decrease of $18.4 million. This decrease in gas costs is attributable to a lower the volume of gas purchased for resale and lower prices. Other Operating and Maintenance Expenses The Company's total operating and maintenance expenses, excluding fuel, purchased power and gas purchased for resale for the first six months of 1998 decreased by $6.4 million compared with the same period in 1997. The decrease in expenses associated with utility operating expenses amounted to $6.1 million. The change in diversified operating and maintenance expenses was a decrease of $0.3 million. The decrease in utility operating expenses is the result of reductions in taxes other than income taxes of $4.2 million, lower depreciation and amortization expense of $0.9 million and lower Federal income tax expense of $0.9 million. The reduction in taxes other than income taxes is primarily due to the change necessitated by the New Jersey Uniform Transitional Utilities Assessment Act discussed above, offset by a $1.4 million increase in property taxes for the first half of 1998 as compared to the first half of 1997. Depreciation and amortization expense decreased due to the regulatory adjustments approved in the New York Electric Restructuring Case. After eliminating the regulatory adjustments, depreciation expense increased due to plant additions and the amortization of the Company's new customer accounting system. Other operating and maintenance expense decreased by $0.1 million. Diversified Activities Revenues from diversified activities decreased by $124,000 million for the first six months of 1998 as compared to the same period of 1997. Other Income, Deductions and Interest Charges - Net Other income, net of interest charges and other deductions, increased by $1.9 million during the first six months of 1998 when compared to the same period of 1997. The increase is due primarily to the absence of investigation costs in 1998. PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 for a description of a petition filed by the Company, the six other New York State investor-owned electric utilities, and the Energy Association of New York State ("Petitioners") in the New York State Supreme Court pursuant to Article 78 of the New York Civil Practice Law and Rules challenging the NYPSC's May 20, 1996 Order in the NYPSC Competitive Opportunities Proceeding, (Case Nos. 94-E-0952 and 96-E-0900). By Decision and Order on Motion dated July 14, 1998, the Appellate Division has granted a motion to extend the time to perfect appeals to October 12, 1998. Reference is made to Part II, Item 1, Legal Proceedings, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, for a description of the complaint filed by the Public Utility Law Project of New York, Inc. against the NYPSC, the New York State Department of Public Service and the Company in the Company's Electric Restructuring Proceeding (Case 96-E- 0900). On May 26, 1998, the Company filed a motion to dismiss the complaint. The Company is unable to predict the outcome of this regulatory proceeding or the effect on the Company's consolidated financial position or results of operations. Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and to Part II, Item I, Legal Proceedings, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, for a description of matters related to the Cottman Avenue/Metal Bank Superfund Site ("Site") in Philadelphia, Pennsylvania. On July 21, 1998, the Company joined the Metal Bank Group by agreeing to pay $350,000. This amount represents the Company's pro rata share of past expenses incurred by the Group in conducting a remedial investigation and feasibility study at the Site. On June 26, 1998, the United States Environmental Protection Agency ("EPA") issued an Administrative Order for Remedial Design and Remedial Action to the Company and other potentially responsible parties ("PRPs"). This Order requires the Company and the other PRPs to select a contractor, prepare a remedial design work plan for the EPA's review and approval, and remediate the Site. On July 23, 1998, the Company and the other members of the Metal Bank Group met with the EPA to discuss the Order. By letter dated July 28, 1998, the Company and the other members of the Metal Bank Group notified the EPA of their intent to proceed with the work required by the Order. On June 25, 1998, Econo-Truck Inc. ("Econo-Truck") served the Company with a Summons with Notice requesting total compensatory and punitive damages of $28 million for, among other things, trespass, nuisance and tortious interference with business. The Company has not yet been served by Econo-Truck with a complaint in this action. The Company is unable to predict the outcome of this proceeding or its effect on the Company's consolidated financial position or results of operations. Forward-Looking Information The Company has made forward-looking statements in this Form 10-Q Quarterly Report with respect to the financial condition, results of operations and business of the Company in the future, which involve certain risks and uncertainties. Forward-looking statements are included in Item 1 of Part I in the Notes to Consolidated Financial Statements and in Item 2 of Part I, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the captions "Capital Resources and Liquidity" and "Regulatory Activities" as well as in this Part II Item I under the caption "Legal Proceedings" with respect to certain pending litigation matters. For all of those statements, the Company claims the protections of the safe harbor for forward- looking statements contained in the Private Securities Litigation Reform Act of 1995. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits + 10.56 Agreement among the Company, Consolidated Edison, Inc., C Acquisition Corp. and N. M Jakobs dated July 15, 1998, providing for the termination of Ms. Jakobs employment with the Company at the effective time of the Merger and the payment of certain amounts in accordance with the severance agreement between the Company and N. M. Jakobs dated October 27, 1997 as amended January 8, 1998. + 10.57 Severance Agreement entered into between Orange and Rockland Utilities, Inc. and G. V. Bubolo, Jr. effective April 10, 1998. 27 Financial Data Schedule + Denotes executive compensation plans and arrangements. (b) Reports on Form 8-K On July 10, 1998, the Company filed a Current Report on Form 8-K dated June 18, 1998 regarding litigation entitled Virgilio Ciullo, et al. v. Orange and Rockland Utilities, Inc., et al. SIGNATURES Pursuant to the requirements 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. ORANGE AND ROCKLAND UTILITIES, INC. (Registrant) Date: August 11, 1998 By ROBERT J. McBENNETT Robert J. McBennett Treasurer Date: August 11, 1998 By EDWARD M. McKENNA Edward M. McKenna Controller SIGNATURES EX-27 2
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORANGE AND ROCKLAND UTILITIES, INC. QUATERLY REPORT ON FORM 10-Q FOR THE QUATER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS DEC-31-1998 JUN-30-1998 PER-BOOK 939,528 10,476 170,569 146,901 1,112 1,268,586 67,596 126,265 169,853 363,714 0 0 356,636 0 0 134,685 40 43,223 1,561 176 368,551 1,268,586 304,630 9,615 260,821 270,436 34,194 605 34,799 15,919 18,880 1,399 17,481 26,178 11,961 42,072 1.29 0
EX-10.56 3 July 15, 1998 Nancy M. Jakobs Vice President, Human Resources Orange and Rockland Utilities, Inc. One Blue Hill Plaza Pearl River, NY 10965 Dear Ms. Jakobs: The purpose of this letter agreement is to set forth the understanding between Orange and Rockland Utilities, Inc. (the "Company"), Consolidated Edison, Inc. ("Buyer"), C Acquisition Corp. ("Buyer Sub") and you in connection with the transactions (the "Transactions") described in the Agreement and Plan of Merger, dated as of May 10, 1998, among the Company, Buyer and Buyer Sub (the "Merger Agreement"), including with respect to the application of the agreement entered into between the Company and you, dated October 27, 1997, as thereafter amended (the "Agreement"). This letter agreement is being entered into for good and valuable consideration, with knowledge that you are relying hereon in agreeing to terminate your employment and with the intent to be legally bound hereby. 1. Change in Control. The parties hereto confirm and agree that the approval by the shareholders of the Company of the Transactions will constitute a "Change in Control" of the Company (as defined in Section 1 of the Agreement). 2. Termination of Employment. The parties hereto agree that, provided your employment with the Company has not previously been terminated, your employment with the Company will terminate at the Effective Time (as defined in the Merger Agreement). The parties hereto further agree and confirm that, for purposes of the Agreement, such termination shall be deemed to be a termination of your employment by you for Good Reason following a "Change in Control" of the Company. 3. Payments; Benefits. The parties further confirm and agree that, in accordance with the foregoing paragraphs 1 and 2, if the Transactions are consummated, the Company shall, or Buyer shall cause Buyer Sub to, subject to Section 3(e) of the Agreement, (a) pay to you at the Effective Time, in a lump sum cash payment, the amounts described in Sections 3(a) of the Agreement, together with any unpaid compensation (including salary, accrued but unused vacation and any Annual Team Incentive Plan payment payable for the calendar year in which the termination of your employment occurs) with respect to the period ending on the Effective Time, (b) pay to you, commencing at the Effective Time, the benefits to which you are entitled under the Officers' Supplemental Retirement Plan of the Company (the "SERP"), calculated and paid in accordance with the terms of (i) Section 6(F) of the SERP (or, if the Committee (as defined in the SERP) determines that you no longer qualify for a Disability Retirement Allowance under Section 6(F) of the SERP, in accordance with the terms of Section 6(D) or 6(E) thereof, as applicable), (ii) Section 3(c) of the Agreement and (iii) the letter agreements between you and the Company dated as of September 21, 1995, and July 21, 1997, (c) provide to you, for the twenty-four month period commencing at the Effective Time, the benefits described in Section 3(b) of the Agreement (relating to life, disability, accident and health insurance benefits) and (d) honor and perform all other obligations to you and agreements for your benefit contained in the Agreement. 4. Other Benefits. The parties further confirm and agree that the Company shall, and Buyer shall cause Buyer Sub to honor and perform all of their respective other obligations to you and agreements for your benefit including, but not limited to, all obligations under the Company Long-Term Performance Share Unit Plan. You hereby acknowledge that, except as set forth herein, you are not entitled to receive severance, termination or similar benefits under any other plan, agreement or arrangement of the Company. 5. No Continuing Obligations. The parties hereto confirm and agree that upon your termination of employment pursuant to this letter agreement, you shall have no further obligations under the Agreement except as expressly provided in Section 3(d) thereof. 6. Miscellaneous. This letter agreement may not be modified or amended without the prior written consent of all the parties hereto, shall be governed by the laws of the State of New York without regard to its conflicts of laws rules, may be executed in two or more counterparts each of which shall constitute an original and, together with the Agreement, shall constitute the entire agreement of the parties with respect to the subject matter hereof. If this letter sets forth our agreement on the subject matter hereof, please sign and return to the Company and Buyer the enclosed copies of this letter, which will then constitute our agreement on this subject. Sincerely, ORANGE AND ROCKLAND UTILITIES, INC. By: /s/ D. Louis Peoples Name: Denton Louis Peoples Title: Vice Chairman and Chief Executive Officer CONSOLIDATED EDISON, INC. By: /s/ Joan S. Freilich Name: Joan S. Freilich Title: Executive Vice President and Chief Financial Officer C ACQUISITION CORP. By: /s/ Kevin Burke Name: Kevin Burke Title: President In accordance with the provisions set forth above, I hereby agree that (i) my employment with the Company and any subsidiaries thereof will terminate and (ii) I will relinquish all offices and directorships I hold with the Company or any subsidiaries thereof, in each case, effective as of the Effective Time. /s/ Nancy M. Jakobs Nancy M. Jakobs EX-10.57 4 ORANGE AND ROCKLAND UTILITIES, INC. SEVERANCE AGREEMENT THIS AGREEMENT, effective this 10th day of April, 1998 by and between Orange and Rockland Utilities, Inc. (the "Company") and George V. Bubolo, Jr. (the "Employee''). W I T N E S S E T H T H A T WHEREAS, the Employee is an integral part of the Company's management who participates in the decision making process relative to planning and policy for the Company; and WHEREAS, on January 3, 1991 the Board of Directors of the Company determined that it would be in the best interests of the Company and its shareholders to assure continuity in the management of the Company's administration and operations in the event of a Change in Control by entering into a severance agreement with the officers of the Company; and WHEREAS, the Board of Directors of the Company approved the appointment of the Employee to the position of Vice President - Energy Delivery Services of the Company on April 8, 1998; and WHEREAS, the Company wishes to encourage the Employee to continue his services with the Company for the period during and after an actual or threatened Change in Control; and NOW THEREFORE, it is hereby agreed by and between the parties hereto as follows: 1. Definitions. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. "Board" shall mean the Board of Directors of the Company. "Cause" shall mean (a) the Employee's conviction of a felony or (b) the Employee's fraud or dishonesty which has resulted or is likely to result in material economic damage to the Company, as determined in good faith by a vote of 2/3 of the non-employee directors of the Company at a meeting of the Board of Directors at which the Employee is provided an opportunity to be heard. "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) any Person is or becomes the Beneficial Owner, 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 affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing 20% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company (as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act)) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation or approve the issuance of voting securities of the Company in connection with a merger or consolidation of the Company (or any direct or indirect subsidiary of the Company) pursuant to applicable stock exchange requirements, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 65% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, 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 affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing 20% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 65% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, no "Change in Control" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Good Reason" shall mean a determination by the Employee in good faith that there has been any (i) material change by the Company of the Employee's functions, duties or responsibilities which change would cause the Employee's position with the Company to become of less dignity, responsibility, importance, prestige or scope including, without limitation, the assignment to the Employee of duties and responsibilities inconsistent with his positions; (ii) assignment or reassignment by the Company of the Employee without the Employee's consent, to another place of employment more that 50 miles from the Employee's current place of employment; (iii) liquidation, dissolution, consolidation or merger of the Company that has not been approved by a majority of those members of the Board who were members of the Board prior to the Change in Control, or transfer of all or substantially all of its assets, other than a transaction or series of transactions in which the resulting or surviving transferee entity has, in the aggregate, a net worth at least equal to that of the Company and assumes this Agreement and all obligations and undertakings of the Company hereunder; or (iv) reduction in the Employee's total compensation or any component thereof; by written notice to the Company, specifying the event relied upon for such termination and given at any time within 6 months after the occurrence of such event. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 2. Term. This Agreement shall commence on the date hereof and shall continue in effect for a period of twenty-four (24) months following the date of an occurrence of a Change in Control (or, if later, twenty-four (24) months following the date of the consummation of the transaction the approval of which by the Company's shareholders constitutes a Change in Control under subsection (iii) or (iv) of the definition of "Change in Control," above) (hereinafter the "Term of this Agreement"). 3. Severance Benefit. a. In the event of any termination of the Employee's employment hereunder at any time during the Term of this Agreement (x) by the Employee for Good Reason, or (y) by the Company for any reason other than Cause, then, within 5 business days after any such termination, the Company shall pay to the Employee or the estate of the Employee as severance pay, a lump sum cash amount equal to three times the Employee's "base amount" as defined and determined under section 28OG of the Internal Revenue Code of 1986, as amended (the "Code"), less one dollar ("2.99 times the base amount"). b. For a period of 24 months (commencing with the month in which termination of employment as described in paragraph 3a above shall have occurred), the Employee shall be entitled to all benefits under the Company's welfare benefit plans as if the Employee were still employed during such period, at the same level of benefits as existed immediately prior to the Change in Control, and if and to the extent that such benefits shall not be payable or provided under any such plan, the Company shall pay or provide such benefits on an individual basis. The benefits provided in accordance with this paragraph 3b shall be secondary to any comparable benefits provided by another employer. c. Notwithstanding anything else herein to the contrary, to the extent that the Employee is entitled to receive severance payments from another Company severance plan, arrangement or program, the payments to be made pursuant to paragraph 3a hereof shall be correspondingly reduced before implementation of paragraph e below, and, if necessary, the Employee shall make an appropriate refund to the Employer without interest. d. If Independent Tax Counsel shall determine that the aggregate payments made to the Employee pursuant to paragraphs 3a and b above and any other payments to the Employee from the Company which constitute "parachute payments" as defined in section 28OG of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor thereto) ("Parachute Payments") would be subject to the excise tax imposed by section 4999 of the Code (the "Excise Tax"), then the lump sum cash payment payable to the Employee under paragraph 3a above shall be reduced to an amount and to the extent necessary so that such payment would not be subject to the Excise Tax. Notwithstanding the preceding sentence, in the event of a Change in Control that occurs prior to April 8, 2003, the Employee shall be entitled to all payments under paragraphs 3a and b above and any other Parachute Payments unless the total of such payments, after giving effect to the Excise Tax, is less than the amount to which the Employee would have been entitled under the preceding sentence. For purposes of this paragraph 3d, "Independent Tax Counsel" shall mean a lawyer with expertise in the area of executive compensation tax law, who shall be selected by the Employee and shall be reasonably acceptable to the Company, and whose fees and disbursements shall be paid by the Company. e. If it is established pursuant to a final determination of a court or a final Internal Revenue Service proceeding that, notwithstanding the good faith of the Employee and the Company in applying the terms of this Agreement, any part of the aggregate payments paid to the Employee under this Agreement constitutes an "excess parachute payment" for purposes of sections 28OG and 4999 of the Code, then the amount equal to the excess shall be deemed for all purposes to be a loan from the Company to the Employee made on the date of receipt. The Employee shall have an obligation to repay such loan to the Company within six months of demand, together with interest thereon at the lowest applicable Federal rate (as defined in section 1274(d) of the Code) from the date of the Employee's receipt until the date of such repayment. If it is determined for any reason that the amount described in paragraph a or b above in incorrectly calculated or reduced, the Company shall pay to the Employee the increased amount, if any, necessary so that, after such an adjustment, the Employee shall have received or be entitled to receive the maximum payments that he may receive without any such payment constituting an "excess parachute payment." 4. Source of Payments. All payments provided for in paragraph 3 above shall be paid in cash from the general funds of the Company; provided, however, that such payments shall be reduced by the amount of any payments made to the Employee or his or her dependents, beneficiaries or estate from any trust or special or separate fund established by the Company to assure such payments. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Employee shall have no right, title or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and the Employee or any other person. To the extent that any person acquires a right to receive payments from the Company such right shall be no greater than the right of an unsecured creditor of the Company. 5. Litigation Expenses; Arbitration. a. In the event of any litigation or other proceeding between the Company and the Employee with respect to the subject matter of this Agreement and the enforcement of rights hereunder, the Company shall reimburse the Employee for all reasonable costs and expenses relating to such litigation or other proceeding as they are incurred, including reasonable attorneys fees and expenses, regardless of whether such litigation results in any settlement or judgment or order in favor of any party; provided, however, that any claim or action initiated by the Employee relating to this Agreement shall have been made or brought after reasonable inquiry and shall be well grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. The obligation of the Company under this paragraph 5 shall survive the termination for any reason of this Agreement (whether such termination is by the Company, by the Employee, upon the expiration of this Agreement or otherwise). b. In the event of any dispute or difference between the Company and the Employee with respect to the subject matter of this Agreement and the enforcement of rights hereunder, the Employee may, in his or her sole discretion by notice to the Company, require such dispute or difference to be submitted to arbitration. The arbitrator or arbitrators shall be selected by agreement of the parties or, if they cannot agree on an arbitrator or arbitrators within 30 days after the Employee had notified the Company of his or her desire to have the question settled by arbitration, then the arbitrator or arbitrators shall be selected by the American Arbitration Association (the "AAA") in New York, New York upon the application of the Employee. The determination reached in such arbitration shall be final and binding on both parties without any right of appeal or further dispute. Execution of the determination by such arbitrator may be sought in any court of competent jurisdiction. The arbitrators shall not be bound by judicial formalities and may abstain from following the strict rules of evidence and shall interpret this Agreement as an honorable engagement and not merely as a legal obligation. Unless otherwise agreed by the parties, any such arbitration shall take place in New York, New York, and shall be conducted in accordance with the Rules of AAA. 6. Income Tax Withholding. The Company may withhold from any payments made under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 7. Entire Understanding. This Agreement contains the entire understanding between the Company and the Employee with respect to the subject matter hereof, i.e., benefits payable to the Employee upon termination of employment following a Change in Control, and supersedes any prior severance agreement between the Company and the Employee, including the Prior Agreement, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Employee of any kind elsewhere provided and not expressly provided for in this Agreement. 8. Severability. If, for any reason, any one or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement not held so invalid, illegal or unenforceable, and each other provision or part of a provision shall to the full extent consistent with law continue in full force and effect. If this Agreement is held invalid or cannot be enforced, then to the full extent permitted by law any prior agreement between the Company and the Employee shall be deemed reinstated as if this Agreement had not been executed. 9. Consolidation, Merger, or Sale of Assets. If the Company consolidates or merges into or with, or transfers all or substantially all of its assets to, another corporation with a net worth at least equal to that of the Company and which assumes this Agreement and all obligations and undertakings of the Company hereunder, the term "the Company," as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. 10. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, first class, if to the Employee to the address shown in the personnel records of the Company and, if to the Company, as follows: Orange and Rockland Utilities, Inc. One Blue Hill Plaza Pearl River, New York 10965 Attention: Vice President and General Counsel or to such other address as either party shall have previously specified in writing to the other. 11. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 12. Binding Agreement. This Agreement shall be binding upon, and shall inure to the benefit of, the Employee and the Company and their respective permitted successors and assigns. 13. Modification and Waiver. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement except by written instrument signed by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 14. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 15. Governing Law. This Agreement and its validity, interpretation, performance, and enforcement shall be governed by the laws of the State of New York without giving effect to the choice of law provisions in effect in such State. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has signed this Agreement, all effective as of the date first above written. ORANGE AND ROCKLAND UTILITIES, INC. By: /s/ Michael J. Del Giudice GEORGE V. BUBOLO, JR. /s/ George V. Bubolo, Jr. -----END PRIVACY-ENHANCED MESSAGE-----