SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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AQUA AMERICA, INC.
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(Name of Registrant as Specified in Its Charter)
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paid previously. Identify the previous filing by registration statement
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1) Amount Previously Paid:
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AQUA AMERICA, INC.
(formerly PHILADELPHIA SUBURBAN CORPORATION)
762 W. Lancaster Avenue
Bryn Mawr, Pennsylvania 19010
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Notice of Annual Meeting of Shareholders
To Be Held May 20, 2004
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TO THE SHAREHOLDERS OF
AQUA AMERICA, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of AQUA
AMERICA, INC. will be held at the Springfield Country Club, 400 West Sproul
Road, Springfield, Pennsylvania 19064, at 10:00 A.M., local time, on Thursday,
May 20, 2004, for the following purposes:
1. To elect three directors to the class of directors for terms expiring
at the 2007 Annual Meeting;
2. To consider and act upon an Amendment to Aqua America, Inc.'s Articles
of Incorporation increasing the authorized shares of Aqua America, Inc.'s
Common Stock, par value $.50 per share, from 100,000,000 shares to
300,000,000 shares;
3. To approve the 2004 Equity Compensation Plan; and
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record at the close of business on March 29, 2004 will
be entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments thereof.
By order of the Board of Directors,
ROY H. STAHL
Secretary
April 9, 2004
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REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, AS A SHAREHOLDER
YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES,
OR VOTE ELECTRONICALLY, THROUGH THE INTERNET OR BY TELEPHONE, BY FOLLOWING
THE INSTRUCTIONS SET OUT ON THE PROXY CARD.
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AQUA AMERICA, INC.
(formerly PHILADELPHIA SUBURBAN CORPORATION)
762 W. Lancaster Avenue
Bryn Mawr, Pennsylvania 19010
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PROXY STATEMENT
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This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Aqua America, Inc. ("Aqua America" or the
"Company") to be used at the Annual Meeting of Shareholders to be held
Thursday, May 20, 2004 and at any adjournments thereof. This proxy statement
and the enclosed proxy are being mailed to shareholders on or about April 9,
2004.
The cost of soliciting proxies will be paid by the Company, which has
arranged for reimbursement, at the rate suggested by the New York Stock
Exchange, of brokerage houses, nominees, custodians and fiduciaries for the
forwarding of proxy materials to the beneficial owners of shares held of
record. In addition, the Company has retained The Altman Group, to assist in
the solicitation of proxies from (i) brokers, bank nominees and other
institutional holders, and (ii) individual holders of record. The fee to The
Altman Group for normal proxy solicitation is $4,000 plus expenses, which will
be paid by the Company. Directors, officers and regular employees of the
Company may also solicit proxies, although no additional compensation will be
paid by the Company for such efforts.
The proxy statement and Annual Report to Shareholders for the year ended
December 31, 2003, including financial statements and other information with
respect to the Company and its subsidiaries, are being mailed by standard
mail, to shareholders of record as of March 29, 2004. The proxy statement and
Annual Report are being sent electronically to those shareholders of record as
of March 29, 2004 who requested electronic delivery of these materials.
Additional copies of the Annual Report may be obtained by writing to the
Company.
PURPOSE OF THE MEETING
As the meeting is the Annual Meeting of Shareholders, the shareholders of
the Company will be requested to: (1) elect three directors to hold office as
provided by law and the Company's Bylaws; (2) approve the adoption by the
Board of Directors of an Amendment to Aqua America, Inc.'s Articles of
Incorporation increasing the authorized shares of Aqua America's Common Stock
from 100,000,000 shares to 300,000,000 shares; and (3) approve the 2004 Equity
Compensation Plan.
VOTING AT THE MEETING
Holders of shares of the Company's Common Stock of record at the close of
business on March 29, 2004 are entitled to vote at the meeting. As of that
date, there were 92,828,436 shares of Common Stock outstanding and entitled to
be voted at the meeting. Each shareholder entitled to vote shall have the
right to one vote on each matter presented at the meeting for each share of
Common Stock outstanding in such shareholder's name.
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The holders of a majority of the shares entitled to vote, present in person
or represented by proxy at the meeting, constitute a quorum. Directors are to
be elected by a plurality of the votes cast at the meeting. The affirmative
vote of a majority of the votes cast by those shareholders present in person
or represented by proxy at the meeting is required for approval of Proposal
No. 2 and Proposal No. 3, or to take action with respect to any other matter
that may properly be brought before the meeting. Shares cannot be voted at the
meeting unless the holder of record is present in person or by proxy. The
enclosed proxy card is a means by which a shareholder may authorize the voting
of his or her shares at the meeting if they are unable to attend in person.
Alternatively, under the Pennsylvania Business Corporation Law and the
Pennsylvania Electronic Transaction Act, you may vote electronically, over the
Internet or by telephone, following the instructions set out on the proxy
card. The shares of Common Stock represented by each properly executed proxy
card or electronic proxy will be voted at the meeting in accordance with each
shareholder's direction. Shareholders are urged to specify their choices by
marking the appropriate boxes on the enclosed proxy card or electronic proxy;
if the proxy card or electronic proxy is signed, but no choice has been
specified, the shares will be voted as recommended by the Board of Directors.
If any other matters are properly presented to the meeting for action, the
proxy holders will vote the proxies (which confer discretionary authority to
vote on such matters) in accordance with their best judgment.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect, other than for purposes of determining the presence of a
quorum. Abstentions may not be specified for the election of directors.
Abstentions on Proposal No. 2 and Proposal No. 3 will be counted for purposes
of determining whether there is a quorum, but will not be counted for purposes
of determining the aggregate number of votes cast. Brokers that are member
firms of the New York Stock Exchange ("NYSE") and who hold shares in street
name for customers, but have not received instructions from a beneficial
owner, have the authority under the rules of the NYSE to vote those shares
with respect to the election of directors, but not for Proposal No. 2,
Proposal No. 3 or for any other matter. Accordingly, abstentions and broker
non-votes will have no effect on the vote on Proposal No. 2 or Proposal No. 3.
Proxies received from brokers with respect to shares held in street name, even
if such shares are not voted by brokers, will be considered present and
entitled to vote at the meeting.
Execution of the accompanying proxy or voting electronically will not affect
a shareholder's right to attend the meeting and vote in person. Any
shareholder giving a proxy or voting electronically has the right to revoke
the proxy or the electronic vote by giving written notice of revocation to the
Secretary of the Company at any time before the proxy is voted by executing a
proxy bearing a later date, which is voted at the meeting, or by attending the
meeting and voting in person.
Your proxy vote is important. Accordingly, you are asked to complete, sign
and return the accompanying proxy card or vote electronically regardless of
whether or not you plan to attend the meeting.
(Proposal No. 1)
ELECTION OF DIRECTORS
Voting on Proposal No. 1
The Board of Directors is divided into three classes. One class is elected
each year to hold office for a three-year term and until successors of such
class are duly elected and qualified, except in the event of death,
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resignation or removal. The Company is required by its Amended and Restated
Articles of Incorporation and Bylaws to maintain the size of its classes of
directors as nearly equal in number as possible.
In accordance with the Board of Directors' Corporate Governance Guidelines,
Mr. DiBona, Chairman of the Corporate Governance Committee spoke with each of
the directors with terms expiring at the 2004 Annual Meeting of Shareholders
to discuss nominating the director for re-election to another term. Following
these discussions, Mr. DiBona reported to the Corporate Governance Committee
that Mr. Smoot would be willing to serve on the Board of Directors for an
additional three-year term and that, in accordance with prior discussions with
Mr. Hirsig, he would continue to serve on the Board of Directors through the
end of his current term that ends at the 2004 Annual Meeting of Shareholders.
The Corporate Governance Committee considered possible candidates for
nomination to be elected at the 2004 Annual Meeting of Shareholders. Mr.
DiBona proposed for the Committee's consideration, William Hankowsky,
Chairman, President and Chief Executive Officer of Liberty Property Trust.
After reviewing Mr. Hankowsky's qualifications and experience, the Corporate
Governance Committee unanimously voted to recommend him to the Board of
Directors as a nominee for election at the 2004 Annual Meeting of
Shareholders. The Committee noted that both Mr. Menario and Mr. McCaughan
would reach the Company's retirement age for directors of 70 in 2005. In light
of the valuable service of Mr. Menario and Mr. McCaughan as members of the
Board of Directors, the Committee recommended to the Board of Directors that
both Mr. Menario and Mr. McCaughan serve through the end of calendar year 2005
and both directors have agreed to so serve. In view of the foregoing and in
accordance with the requirements of the Company's Articles of Incorporation to
maintain the size of the classes of directors as nearly equal as possible, the
Committee recommended and the Board of Directors at its March 2, 2004 meeting
approved the simultaneous: (i) expansion of the class of directors to be
elected at the 2004 Annual Meeting by one; (ii) election of Mr. Menario, who
was a member of the class of directors with terms expiring at the 2005 Annual
Meeting of Shareholders to the class of directors with terms expiring at the
2004 Annual Meeting of Shareholders; and (iii) reduction in the class of
directors with terms expiring at the 2005 Annual Meeting of Shareholders by
one. The Board of Directors also voted to approve the nomination of Mr.
Richard L. Smoot, Mr. John E. Menario and Mr. William Hankowsky for election
to the class of directors to be elected at the 2004 Annual Meeting of
Shareholders.
Therefore, two existing directors, Mr. Smoot and Mr. Menario, and one new
director nominee, Mr. Hankowsky, will stand for election by a plurality of the
votes cast at the 2004 Annual Meeting, and five directors will continue to
serve until either the 2005 or 2006 Annual Meetings, depending on the period
remaining in their terms. At the 2004 Annual Meeting, proxies in the
accompanying form, properly executed, will be voted for the election of the
three nominees listed below, unless authority to do so has been withheld in
the manner specified in the instructions on the proxy card. Discretionary
authority is reserved to cast votes for the election of a substitute should
any nominee be unable or unwilling to serve as a director. Each nominee has
stated his willingness to serve and the Company believes that each nominee
will be available to serve.
The Board of Directors recommends that the shareholders vote FOR the
election of Messrs. Smoot, Menario and Hankowsky as directors.
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Information Regarding Nominees and Directors
For each of the three nominees for election as directors at the 2004 Annual
Meeting and the five directors in the classes of directors whose terms of
office are to expire either at the 2005 Annual Meeting or the 2006 Annual
Meeting, as set forth herein, there follows information as to the positions
and offices with the Company held by each, the principal occupation of each
during the past five years, and certain directorships of public companies and
other organizations held by each.
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NOMINEES FOR ELECTION AT ANNUAL MEETING
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Richard L. Smoot.... In 2002, Mr. Smoot retired as Regional Chairman Advisory
Radnor, PA Board Philadelphia and Southern New Jersey, The PNC
Director since 1997 Financial Services Group, a position he held since 2001.
He continues to be a member of the PNC Advisory Board.
From 1991 through 2000, Mr. Smoot served as President
and Chief Executive Officer of PNC Bank in Philadelphia
and Southern New Jersey, and its predecessor, Provident
National Bank. He also served as Executive Vice
President responsible for Operations and Data Processing
for the Bank from 1987 to 1991. Before joining PNC Bank
in 1987, Mr. Smoot served 10 years as First Vice
President and Chief Operating Officer of the Federal
Reserve Bank of Philadelphia. Mr. Smoot is Chairman of
The Philadelphia Orchestra and The Settlement Music
School. Mr. Smoot is also a director of P.H. Glatfelter
Company and Southco Inc. Age: 63.
William P. Hankowsky.. Mr. Hankowsky has been Chairman, President and Chief
Philadelphia, PA Executive Officer of Liberty Property Trust, a fully
Nominee for Director integrated real estate firm, since 2001. Mr. Hankowsky
joined Liberty in 2001 as Executive Vice President and
Chief Investment Officer. Prior to joining Liberty, he
served for 11 years as President of the Philadelphia
Industrial Development Corporation. Prior to that, he
was Commerce Director for the City of Philadelphia. Mr.
Hankowsky serves on various charitable and civic boards,
including the Philadelphia Convention and Visitors
Bureau, the Academy of Music of Philadelphia and the
Kimmel Regional Performing Arts Center. Age: 52.
John E. Menario..... In 2003, Mr. Menario retired as Assistant to the
Portland, ME President of Banknorth Group, Inc., a position he held
Director since 1999 since 1996. He served as Senior Executive Vice President
and Chief Operating Officer of Peoples Heritage
Financial Group, Inc., from 1990 to 1996. Mr. Menario is
also a director of Banknorth Insurance Group. Age: 68.
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DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 2005
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G. Fred DiBona, Jr........ Mr. DiBona has served since 1990 as President and
Villanova, PA Chief Executive Officer of Independence Blue
Director since 1993 Cross, the Delaware Valley region's largest health
insurer. He also serves as Chairman, President and
Chief Executive Officer of most of Independence
Blue Cross' subsidiaries and affiliates. Between
1987 and 1990, Mr. DiBona served as President and
Chief Executive Officer for Pennsylvania Blue
Shield's holding company, Keystone Ventures, Inc.
Mr. DiBona is also a director of Independence Blue
Cross and its subsidiaries, The GEO Group, Inc.,
Exelon Corporation, Tasty Baking Company, Eclipsys
Corporation, Crown Holdings, Inc. and various
civic and charitable organizations. Age: 53.
Mary C. Carroll .......... Ms. Carroll is a consultant, and an advisor to
Bryn Mawr, PA nonprofit corporations, businesses and government
Director since 1981 agencies and is a recognized civic volunteer. She
is the Honorary Trade Representative of Nepal for
the U.S. and Chairman of the Nepal Foundation. She
is a founder, director or trustee of various civic
and charitable organizations, including the YMCA
of Philadelphia and Vicinity and the National
Parks Mid-Atlantic Council. Age: 63.
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DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 2006
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John F. McCaughan ........ In 1998, Mr. McCaughan retired as President of the
Doylestown, PA BetzDearborn, Inc. Foundation, having served in
Director since 1984 that capacity since 1995. From 1995 to 1996, Mr.
McCaughan was Chairman of Betz Laboratories, Inc.,
which provides engineered chemical treatment of
water, wastewater and process systems. Mr.
McCaughan was Chairman and Chief Executive Officer
of Betz Laboratories from 1982 to 1994. He is also
a director of Penn Mutual Life Insurance Company,
Petroferm, Inc. and numerous charitable
organizations. Age: 68.
Richard H. Glanton, Esq... Mr. Glanton is Senior Vice President of Corporate
Philadelphia, PA Development at Exelon Corporation. From 1986 to
Director since 1995 2003 was a partner in the law firm of Reed Smith
LLP in Philadelphia. Mr. Glanton is a director of
The GEO Group, Inc. Age: 57.
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Nicholas DeBenedictis..... Mr. DeBenedictis has served as Chief Executive
Ardmore, PA Officer of the Company since July 1992 and
Director since 1992 Chairman of the Board since May 1993. He also
serves as Chairman and Chief Executive Officer of
the Company's principal subsidiaries, including
Aqua Pennsylvania, Inc. Between April 1989 and
June 1992, he served as Senior Vice President for
Corporate Affairs of PECO Energy Company (now
known as Exelon). From December 1986 to April
1989, he served as President of the Greater
Philadelphia Chamber of Commerce and from 1983 to
1986 he served as the Secretary of the
Pennsylvania Department of Environmental
Resources. Mr. DeBenedictis is a director of
Exelon Corporation, P.H. Glatfelter Company and
Met-Pro Corporation and a member of the advisory
boards of PNC Bank in Philadelphia and Southern
New Jersey and Pennoni Associates. He also serves
on the Board of the Greater Philadelphia Chamber
of Commerce, the Pennsylvania Business Roundtable,
and Hahnemann/MCP University and is a Trustee of
Drexel University. Age: 58.
CORPORATE GOVERNANCE
The Board of Directors operates pursuant to a set of written Corporate
Governance Guidelines. Copies of these Guidelines can be obtained free of
charge from the Corporate Governance portion of the Investor Relations section
of the Company's website -- www.aquaamerica.com or by contacting the Company
at the address appearing on the first page of this proxy statement, attention
Investor Relations Department. (See Additional Information on page 41).
Director Independence
The Board of Directors is, among other things, responsible for determining
whether each of the directors is independent in light of any relationship each
director may have with the Company. The Board of Directors has adopted the
following standards for determining a director's independence, which are
consistent with the listing standards of the New York Stock Exchange:
A director will not be deemed independent if, within the period
prescribed by the New York Stock Exchange:
o the director was employed by the Company;
o someone in the director's immediate family was employed as an
executive officer of the Company;
o the director was employed by or affiliated with the Company's
present or former internal auditors or outside independent
auditors;
o someone in the director's immediate family was employed or
affiliated with the Company's present or former internal
auditors or outside independent auditors in a professional
capacity;
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o the director or someone in her/his immediate family was
employed as an executive officer of another entity that
concurrently has or had as a member of its compensation
committee of the board of directors any of the Company's
executive officers; or
o the director received, or someone in the director's immediate
family received, more than $100,000 per year (i.e., during any
twelve month period) in direct compensation from the Company,
other than director and committee fees and pension or other
forms of deferred compensation for prior service (provided such
compensation is not contingent in any way on continued service)
and, in the case of an immediate family member, other than
compensation for service as a non-executive employee of the
Company;
o the director was an executive officer or employee, or someone
in her/his immediate family was an executive officer of,
another company that made payments to, or received payments
from, the Company for property or services in an amount which,
in any single fiscal year of the other company, exceeded $1
million or two percent, whichever is greater, of the other
company's consolidated gross revenues; or
o the director served as an executive officer of a charitable
organization, and the Company made charitable contributions to
the charitable organization in any single fiscal year of the
charitable organization that exceeded $1 million or two
percent, whichever is greater, of the charitable organization's
consolidated gross revenues.
These standards are set forth in the Company's Corporate Governance
Guidelines.
Based on a review applying these standards, the Board of Directors has
affirmatively determined that each of the Company's directors, other than the
Chief Executive Officer, Mr. DeBenedictis, is independent and that none of the
directors, other than Mr. DeBenedictis, has a material relationship with the
Company.
The Board of Directors has appointed Mr. DiBona, in his capacity as Chairman
of the Corporate Governance Committee, as the presiding independent director.
As the presiding independent director, Mr. DiBona's responsibilities include:
presiding at all meetings of the Board of Directors at which the Chairman is
not present, including executive sessions of the independent directors;
serving as liaison between the Chairman and the independent directors;
approving information sent to the Board; approving meeting agendas for the
Board; approving meeting schedules to assure that there is sufficient time for
discussion of all agenda items; calling meetings of the independent directors,
if appropriate; and, if requested by major shareholders, ensuring that he is
available for consultation and direct communications with such shareholders.
Board Committees
The Board of Directors held six meetings in 2003. The Company's Bylaws
provide that the Board of Directors, by resolution adopted by a majority of
the whole Board, may designate an Executive Committee and one or more other
committees, with each such committee to consist of two or more directors. The
Board of Directors annually elects from its members the Executive, Audit,
Executive Compensation and Employee Benefits, Corporate Governance, and
Pension Committees. Each director attended at least 75% of the aggregate
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of all meetings of the Board and the Committees on which they served in 2003.
The Board of Directors encourages all directors to attend the Company's Annual
Meeting of Shareholders. All the directors were in attendance at the 2003
Annual Meeting of Shareholders.
Executive Committee. The Company's Bylaws provide that the Executive
Committee shall have and exercise all of the authority of the Board in the
management of the business and affairs of the Company, with specific
exceptions. The Executive Committee is intended to serve in the event that
action by the Board of Directors is necessary or desirable between regular
meetings of the Board, or at a time when convening a meeting of the entire
Board is not practical, and to make recommendations to the entire Board with
respect to various matters. The Executive Committee did not meet in 2003. The
Executive Committee currently has five members, and the Chairman of the
Company serves as Chairman of the Executive Committee.
Audit Committee. The Audit Committee is composed of three directors, whom
the Board of Directors has affirmatively determined meet the standards of
independence required of audit committee members by the New York Stock
Exchange and applicable Securities and Exchange ("SEC") rules. Based on a
review of the background and experience of the members of the Audit Committee,
the Board of Directors has determined that all members of the Audit Committee
are financially literate, and two members of the Committee, the Chairman of
the Committee, Mr. Smoot, and Mr. Menario are audit committee financial
experts within the meaning of applicable SEC rules. The Audit Committee was
required to meet at least four times during the year and met six times during
2003. The Committee operates pursuant to a written charter, a copy of which is
attached as Appendix A to this Proxy Statement. The primary responsibilities
of the Audit Committee are to monitor the integrity of the Company's financial
reporting process and systems of internal controls, including the review of
the Company's annual audited financial statements, and to monitor the
independence of the Company's independent accountants. The Audit Committee has
the exclusive authority to select, evaluate and, where appropriate, replace
the Company's independent accountants.
The Audit Committee has considered the extent and scope of non-audit
services provided to the Company by its independent accountants and has
determined that such services are compatible with the independent accountants
maintaining their independence. For more information, see the Audit Committee
Report on page 25.
Executive Compensation and Employee Benefits Committee. The Executive
Compensation and Employee Benefits Committee is composed of three directors,
whom the Board of Directors has affirmatively determined are independent
directors. The Executive Compensation and Employee Benefits Committee has the
power to administer and make awards of stock options, dividend equivalents and
restricted stock under the Company's 1994 Equity Compensation Plan. In
addition, the Executive Compensation and Employee Benefits Committee reviews
the recommendations of the Company's Chief Executive Officer as to appropriate
compensation of the Company's officers (other than the Chief Executive
Officer) and determines the compensation of such officers and the Company's
Chief Executive Officer for the ensuing year. The Executive Compensation and
Employee Benefits Committee held five meetings in 2003.
Corporate Governance Committee. The Corporate Governance Committee is
composed of three directors, whom the Board of Directors has affirmatively
determined are independent directors. The Corporate Governance Committee is
responsible for identifying and considering qualified nominees for directors
and developing and
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periodically reviewing the Corporate Governance Guidelines by which the Board
of Directors is organized and executes its responsibilities. In addition, the
Chair of the Corporate Governance Committee conducts corporate governance
discussions in executive sessions with the Board of Directors. The Corporate
Governance Committee met twice during 2003.
The Corporate Governance Committee considers candidates for Board membership
suggested by its members and other Board members, as well as management and
shareholders. In considering candidates for the Board, the Charter of the
Corporate Governance Committee requires that the Committee consider the
candidates' personal abilities and qualifications, independence and the
diversity of their background, expertise and experience in fields and
disciplines relevant to the Company In addition, directors should have
experience in positions with a high degree of responsibility, be leaders in
the companies or institutions with which they are affiliated and be selected
based upon contributions that they can make to the Company. The Committee
considers all of these qualities when selecting, subject to Board
ratification, candidates for director.
Pension Committee. The Pension Committee serves as the Plan Administrator
for the Company's qualified benefit plans. The Committee reviews and
recommends to the Board any actions to be taken by the Board in the discharge
of the Board's fiduciary responsibilities under the Company's qualified
benefit plans and meets periodically with the Company's investment consultant.
The Committee consists of three members and met two times in 2003.
Each of the Committees of the Board of Directors operates pursuant to a
written Committee Charter. Copies of these Charters can be obtained free of
charge from the Corporate Governance portion of the Investor Relations section
of the Company's website - www.aquaamerica.com or by contacting the Company at
the address appearing on the first page of this Proxy Statement to the
attention of the Investor Relations Department.
The current members of the Committees of the Board of Directors are as
follows:
Executive Compensation and
Executive Committee Employee Benefits Committee Audit Committee
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Nicholas DeBenedictis* John F. McCaughan* Richard L. Smoot*
G. Fred DiBona, Jr. G. Fred DiBona, Jr. John E. Menario
John F. McCaughan Alan R. Hirsig Alan R. Hirsig
Richard L. Smoot
Richard H. Glanton, Esq.
Corporate Governance
Pension Committee Committee
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Richard H. Glanton, Esq.* G. Fred DiBona, Jr.*
Mary C. Carroll Richard H. Glanton, Esq.
Nicholas DeBenedictis Mary C. Carroll
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* Chairman
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(Proposal No. 2)
AMENDMENT TO AQUA AMERICA'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Voting on Proposal No. 2
At the Aqua America Annual Meeting, there will be presented to shareholders
a proposal to approve the Board of Directors' adoption of an Amendment to the
Company's Articles of Incorporation increasing the authorized shares of the
Company's Common Stock, par value $.05 per share, from 100 million shares to
300 million shares. At its March 2, 2004 meeting, the Board of Directors
unanimously approved the proposed Amendment to the Company's Articles of
Incorporation increasing the authorized shares, subject to shareholder
approval at the Aqua America Annual Meeting. The Amendment to the Articles of
Incorporation will not be effective unless and until shareholder approval is
obtained.
The text of the proposed Amendment to the Articles of Incorporation is set
forth in Appendix B to this Proxy Statement.
Purposes and Effects
Under the Company's Articles of Incorporation, the Company has 100 million
shares of Common Stock authorized to be issued. Without an increase to the
Company's authorized shares, Aqua America would only be able to issue another
7 million shares in connection with acquisitions, financings, stock splits or
other purposes for which the Company may from time to time issue shares of its
Common Stock. The number of authorized shares of Aqua America's Common Stock
was last increased from 40 million shares to 100 million shares in 1998 after
approval by the shareholders.
Over the past twelve years, the number of Aqua America's shares of Common
Stock outstanding has increased by over 85 million shares to approximately 93
million shares outstanding as of December 31, 2003. Of this increased number
of shares outstanding, approximately 65% or 55 million shares were issued in
connection with the five stock splits in the form of stock distributions
authorized by the Board of Directors. Another 15% or 13 million shares were
issued in connection with the Company's merger with Consumers Water Company in
1999 and 9% or 7.6 million shares were issued in connection with equity
financings by the Company.
Having additional shares of authorized stock available for issuance will
give Aqua America greater flexibility in the event that additional shares are
needed in connection with raising additional capital, possible acquisitions,
stock distributions and stock splits and other corporate purposes. Aqua
America has no present plans for any such stock dividend, acquisition or
offering, but expects to continue to review acquisition opportunities as they
may become available. If the recommended Amendment to the Articles of
Incorporation is approved, the Aqua America Board of Directors will have the
authority to issue the additional shares of Common Stock or any part thereof
in an efficient manner, without the time constraints of requiring further
action by the shareholders, except as required by applicable law or
regulations. Future issuances of such shares could dilute existing
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shareholders. The Aqua America Board of Directors believes that the
availability of the additional shares of Common Stock for the purposes stated
would be beneficial to the Company.
Vote Required for Approval
Approval of the Amendment to the Articles of Incorporation requires the
affirmative vote of the majority of the votes cast by all shareholders of Aqua
America Common Stock present in person or represented by proxy at the Annual
Meeting. The holders of Aqua America Common Stock are entitled to one vote on
all matters properly brought before the Aqua America Annual Meeting for each
share of Aqua America Common Stock held by such persons. Votes may be cast in
person at the Aqua America Annual Meeting or by proxy. A properly executed
proxy marked "ABSTAIN," although counted for purposes of determining whether
there is a quorum, will not be counted for purposes of determining the
aggregate number of votes cast. Similarly, broker non-votes will also be
counted for purposes of determining whether there is a quorum, but will not be
counted for purposes of determining the aggregate number of votes cast.
Accordingly, abstentions and broker non-votes will have no effect on the
approval of Proposal No. 2.
The Board of Directors unanimously recommends a vote FOR approval of
the Amendment to the Aqua America, Inc. Articles of Incorporation.
(Proposal No. 3)
APPROVAL OF 2004
EQUITY COMPENSATION PLAN
Voting on Proposal No. 3
At the Aqua America Annual Meeting, there will be presented to shareholders
a proposal to approve and adopt the Aqua America, Inc. 2004 Equity
Compensation Plan (the "Plan") under which 3,675,000 shares of the Company's
Common Stock will initially be reserved for issuance. The Plan will be a
successor plan to the Company's existing Amended and Restated Aqua America,
Inc. (formerly Philadelphia Suburban Corporation) 1994 Equity Compensation
Plan (the "1994 Plan") which will be frozen upon the approval of the Plan. The
Plan is substantially similar to the 1994 Plan, as previously approved by the
shareholders, and differs only as follows: (1) the Plan authorizes the
Committee to designate certain pre-established performance goals specified
within the terms of the Plan, the accomplishment of which will be required in
order for restricted stock grants under the Plan to become vested for the
grantee, (2) no more than fifty percent (50%) of the total shares authorized
for issuance under the Plan may be issued as restricted stock awards and (3)
the expiration date for the Plan will be March 17, 2014. The Executive
Committee of the Board of Directors unanimously approved the proposed Plan,
subject to shareholder approval at their Annual Meeting. The Plan is effective
on March 18, 2004, subject to approval of the shareholders.
The text of the proposed 2004 Equity Compensation Plan is set
forth in Appendix C to this Proxy Statement.
11
Purposes and Effects
Under the 1994 Plan as presently existing, the Committee may grant
restricted stock awards to key employees. Under the Plan, the Committee may
also grant certain restricted stock awards, the vesting of which is
conditioned upon the achievement of certain specified performance goals. In
addition to increasing the performance standards in order for the executive to
earn the long-term incentive, the new Plan will allow the Company to treat the
restricted stock awards as performance-based compensation for purposes of
Section 162(m) of the Internal Revenue Code. If this proposal is approved, the
Plan will allow the Company to continue to provide key employees of the
Company the opportunity to acquire a meaningful equity interest in the Company
as an incentive for them to remain in service, while maintaining the Company's
ability to deduct the full amount of the compensation paid to such Plan
participants upon the achievement of the performance goals. The Board believes
that such equity incentives are a significant factor in the Company's ability
to attract and retain the key individuals who are essential to the Company's
growth and financial success. Additionally, the Board believes that expanding
the Company's exemption under Code Section 162(m) for performance-based
compensation under the terms of the Plan, as proposed, is a financial benefit
to the Company for the long-term.
Vote Required for Approval
Approval of the 2004 Equity Compensation Plan requires the affirmative vote
of the majority of the votes cast by all shareholders of the Company's Common
Stock. The holders of the Company's Common Stock are entitled to one vote on all
matters properly brought before the Annual Meeting for each share of Common
Stock held by such persons. Votes may be cast in person at the Annual Meeting or
by proxy. A properly executed proxy marked "ABSTAIN," although counted for
purposes of determining whether there is a quorum will not be counted for
purposes of determining the aggregate number of votes cast. Similarly, broker
non-votes will also be counted for purposes of determining whether there is a
quorum, but will not be counted for purposes of determining the aggregate number
of votes cast. Accordingly, abstentions and broker non-votes will have no effect
on the approval of Proposal No. 3. Should such shareholder approval not be
obtained, then the 2004 Equity Compensation Plan will not be implemented and no
option grants or restricted stock awards will be made under the Plan. In the
event such shareholder approval is obtained, no further stock option grants or
restricted stock awards will be made under the 1994 Plan. In the event
shareholder approval of the 2004 Equity Compensation Plan is not obtained, the
1994 Plan will continue under its current terms; however, restricted stock
awards which are granted under the 1994 Plan will not qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code.
The Executive Committee on behalf of the Board of Directors unanimously
recommends a vote FOR approval of the 2004 Equity Compensation Plan.
Description of the 2004 Equity Compensation Plan
The description of the 2004 Equity Compensation Plan contained herein is
qualified in its entirety by reference to the Plan document.
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General. The purpose of the 2004 Equity Compensation Plan is to provide an
incentive, in the form of a proprietary interest in the Company, to officers,
other key employees and non-employee directors of the Company and its
subsidiaries and key consultants, to increase their interest in the Company's
welfare, and to provide a means through which the Company can attract and
retain officers, other key employees and non-employee directors and key
consultants of significant abilities. Subject to adjustment as described
below, the maximum aggregate number of shares of the Common Stock of the
Company that may be issued or transferred under the Plan shall be 3,675,000
shares; provided, however, that no more than 50% of these shares shall be
available for issuance as restricted stock. The maximum number of shares of
Common Stock that may be subject to grants made under the 2004 Equity
Compensation Plan, to any individual during any calendar year is 150,000
shares. Shares of Common Stock related to the unexercised or undistributed
portion of any terminated, expired or forfeited grant also may be made
available for distribution in connection with future awards under the Plan.
Additionally, if and to the extent stock options granted under the 1994 Plan
terminate or expire without being exercised, or if any shares of restricted
stock are forfeited, or shares of Common Stock otherwise issuable under the
1994 Plan are withheld by the Company in satisfaction of withholding taxes
incurred in connection with the exercise of a stock option or vesting of a
restricted stock award, the shares subject to such awards may be made
available for distribution in connection with future awards under the Plan.
Administration of the Plan. The 2004 Equity Compensation Plan is
administered and interpreted by a Committee of the Board (the "Committee")
consisting of not less than three independent directors appointed by the Board
from among its members. Under the terms of the 2004 Equity Compensation Plan,
each of the members of the Committee may be "outside directors" as defined in
Section 162(m) of the Code and shall also be "non-employee directors" as
defined under Rule 16b-3 under the Exchange Act. The Committee has full power
and authority to administer and interpret the 2004 Equity Compensation Plan,
to make factual determinations and to adopt or amend such rules, regulations,
agreements and instruments for implementing the 2004 Equity Compensation Plan
and for conduct of its business as it deems necessary or advisable, in its
sole discretion. The Committee or the Board, subject to the terms of the 2004
Equity Compensation Plan, in its sole discretion, may make grants under the
2004 Equity Compensation Plan to eligible officers and other key employees and
key consultants. The Board may also ratify or approve grants made by the
Committee if the Committee deems it appropriate in a particular circumstance.
Non-employee directors are eligible to receive annual grants of 1,093 shares
of restricted stock, subject to adjustment as provided under the 2004 Equity
Compensation Plan. Reference to the Committee in the following paragraphs
shall also mean the Board when acting under its authority to make, approve or
ratify grants under the 2004 Equity Compensation Plan.
Grants. Incentives under the 2004 Equity Compensation Plan consist of
incentive stock options, nonqualified stock options, restricted stock grants
and dividend equivalents (hereinafter collectively referred to as "Grants").
All Grants are subject to the terms and conditions set forth in the 2004
Equity Compensation Plan and to those other terms and conditions consistent
with the 2004 Equity Compensation Plan as the Committee deems appropriate and
as are specified in writing by the Committee to the designated individual (the
"Agreement"). The Committee must approve the form and provisions of each
Agreement.
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Grants in Connection with Corporate Transactions and Otherwise. The 2004
Equity Compensation Plan, permits the Committee to make Grants under the 2004
Equity Compensation Plan in connection with the acquisition, by purchase,
lease, merger, consolidation or otherwise, of the business or assets of any
corporation, firm or association, including Grants to employees thereof who
become key employees of the Company or any of its subsidiaries, or for other
proper corporate purposes. Without limiting the foregoing, the Committee may
make a Grant to an employee of another corporation who becomes an employee of
the Company or any of its subsidiaries by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option or restricted stock grant made by such corporation. The terms and
conditions of the substitute grants may vary from the terms and conditions
required by the 2004 Equity Compensation Plan and from those of the
substituted stock incentives. The Committee will prescribe the provisions of
the substitute grants.
Eligibility for Participation. Officers and other key employees of the
Company and key consultants are eligible to participate in the 2004 Equity
Compensation Plan and non-employee directors are eligible to receive annual
restricted stock grants under the 2004 Equity Compensation Plan (hereinafter
referred to individually as the "Participant" and collectively as the
"Participants"). The Committee or the Board may select the persons to receive
Grants (the "Grantees") from among the Participants and determine the number
of shares of common stock subject to a particular Grant. As of March 30, 2004,
there were approximately 250 key employees, 7 non-employee directors and no
consultants eligible to participate in the Plan.
Granting of Options. The Committee may grant options qualifying as
incentive stock options ("ISOs") within the meaning of section 422 of the Code
and/or nonqualified stock options ("NQSOs") in accordance with the terms and
conditions set forth in the 2004 Equity Compensation Plan or any combination
of ISOs or NQSOs (hereinafter referred to collectively as "Stock Options").
The Committee may grant only NQSOs to key consultants under the Plan.
Term, Purchase Price, Exercisability and Method of Exercise. The exercise
price of Common Stock subject to an ISO or NQSO is the fair market value of
such stock on the date the Stock Option is granted, except that the exercise
price of an ISO granted to an employee who owns more than 10% of the total
combined voting power of all classes of the stock of the Company or its
subsidiaries may not be less than 110% of the fair market value of the
underlying shares of Common Stock on the date of grant. On March 14, 2004, the
fair market value of a share of Common Stock was $20.66 per share.
The Committee determines the option exercise period for each Stock Option;
provided, however, that the exercise period for an ISO may not exceed ten
years from the date of grant and the exercise period for a NQSO may not exceed
ten years and one day from the date of grant. In addition, the exercise period
of an ISO granted to an employee who owns more than 10% of the total voting
power of all outstanding stock of the Company or its subsidiaries may not
exceed five years from the date of grant. The time when Stock Options become
exercisable is determined by the Committee, in its sole discretion, and is
specified in the Agreement. A Grantee may exercise a Stock Option by
delivering a notice of exercise to the Committee with accompanying payment of
the option price. The Grantee may pay the option price in cash, by delivering
shares of Common Stock already owned by the Grantee and having a fair market
value on the last trading day prior to the date of exercise equal to the
option
14
price or with a combination of cash and shares. The Grantee must pay the
option price and the amount of any withholding tax due, if any, at the time of
exercise. Shares of Common Stock are not to be issued or transferred upon
exercise of the Stock Option until the option price and the withholding
obligation are fully paid.
Restricted Stock Grants. The Committee may issue or transfer shares of
Common Stock under a Grant (a "Restricted Stock Grant") pursuant to the 2004
Equity Compensation Plan to officers and other key employees. Shares of Common
Stock issued pursuant to a Restricted Stock Grant may be issued for
consideration or for no consideration, and the Committee grants to each
Grantee a number of shares of Common Stock determined in its sole discretion.
The total number of shares of Common Stock subject to Restricted Stock Grants
under the 2004 Equity Compensation Plan, as amended and restated, is limited
to a maximum of 50% of the total number of shares authorized for issuance
under the Plan. If a Grantee's employment terminates during the period, if
any, designated in the Agreement as the period during which the transfer of
the shares is restricted (the "Restriction Period"), the Restricted Stock
Grant terminates with respect to all shares covered by the Grant as to which
the restrictions on transfer have not lapsed, and those shares of Common Stock
must be immediately returned to the Company.
The 2004 Equity Compensation Plan authorizes the issuance of Restricted
Stock Grants under which the lapsing of the Restriction Period is determined
based on the achievement of certain performance goals. Subject to shareholder
approval of 2004 Equity Compensation Plan, the Company anticipates that any
compensation resulting from the lapse of restrictions on Restricted Stock
Grants under the 2004 Equity Compensation Plan that are subject to the
performance goals will qualify as performance-based compensation for purposes
of Code Section 162(m) and will not have to be taken into account for purposes
of the $1 million limitation per covered individual on the deductibility of
the compensation paid to certain executive officers of the Company.
Accordingly, all compensation deemed paid with respect to those Restricted
Stock Grants will remain deductible by the Company without limitation under
Code Section 162(m).
Upon approval of the 2004 Equity Compensation Plan, the Committee may make
Restricted Stock based upon the achievement of the following performance
goals: (1) total return to shareholders; (2) dividends; (3) earnings per
share; (4) customer growth; (5) cost reduction goals; (6) the achievement of
specified operational goals, including water quality and the reliability of
water supply; (7) measures of customer satisfaction; (8) net income (before or
after taxes) or operating income, before or after non-recurring items; (9)
earnings before interest, taxes, depreciation and amortization or operating
income before depreciation and amortization; (10) revenue targets; (11) return
on assets, capital or investment; (12) cash flow; (13) budget comparisons;
(14) implementation or completion of projects or processes strategic or
critical to the Company's business operations; and (15) any combination of, or
a specified increase in, any of the foregoing. In addition, such performance
goals may be based upon the attainment of specified levels of the Company's
performance under one or more of the measures described above relative to the
performance of other entities and may also be based on the performance of any
of the Company's business units or divisions or any parent or subsidiary.
Performance goals may be based upon the attainment of specified levels of the
Company's performance under one or more of the measures described above during
a specified time period, which may differ from the Restriction Period.
Performance goals may include a minimum threshold level of performance below
which no award will be earned, levels of
15
performance at which specified portions of an award will be earned and a
maximum level of performance at which an award will be fully earned. The
Committee will not have discretion to increase the amount of compensation that
is payable upon achievement of the designated performance goals, but the
Committee may reduce the amount of compensation that is payable upon
achievement of the designated performance goals.
Non-employee directors of the Company are entitled to receive grants of
1,093 shares of restricted stock each year on the first of the month following
the annual meeting of shareholders. Shares granted to non-employee directors
may not be sold for six months following the date of grant.
During the Restriction Period, a Grantee has all of the rights of a
shareholder, including the right to vote and receive dividends, except that
during the Restriction Period, a Grantee may not sell, assign, transfer,
pledge or otherwise dispose of the shares of Common Stock to which such
Restriction Period applies, except to a successor grantee in the event of the
Grantee's death. All restrictions imposed under the Restricted Stock Grant
lapse upon the expiration of the applicable Restriction Period. In addition,
the Committee may determine as to any or all Restricted Stock Grants that all
restrictions will lapse under such other circumstances as it deems equitable.
Non-Employee Director Grants. The 2004 Equity Compensation Plan provides
that as of the first day of the month following the Company's annual meeting
of shareholders, each non-employee director will receive a grant of 1,093
shares of Common Stock. Such shares shall not be sold for 6 months following
the date of the grant. No other restrictions apply to such shares.
Notwithstanding any other provision of the 2004 Equity Compensation Plan, this
provision may not be amended more than once every 12 months, except for
amendments necessary to conform the 2004 Equity Compensation Plan to changes
of the provisions of, or the regulations relating to, the Code.
Dividend Equivalents. The Committee may grant dividend equivalents to
officers and other key employees either alone or in conjunction with all or
any part of any Stock Option granted under the 2004 Equity Compensation Plan.
A dividend equivalent is equal to the dividend payable on a share of Common
Stock of the Company. The Company will credit to an account maintained for the
Grantee on its books and records an amount that is generally equal to the
dividend equivalents subject to the Grant during the accumulation period
designated by the Committee.
The amount of a dividend equivalent is determined by applying the following
factors: (i) the number of dividend equivalents granted, (ii) the per-share
cash dividend, or the per-share fair market value of any non-cash dividend,
paid by the Company during the applicable accumulation period and (iii) the
length of the applicable accumulation period designated by the Committee at
the time of grant.
Generally, a Grantee will receive payment of a percentage of his dividend
equivalents as specified by the Committee at the time of grant, at the end of
the performance period established by the Committee at the time of the grant.
A performance period will generally be four years, but may be as long as eight
years or as short as two years from the date of grant, depending on the
performance criteria established by the Committee at the time of the grant. A
Grantee's dividend equivalents may be subject to more than one performance
period and more than one set of performance criteria.
16
Generally, no payments of dividend equivalents will be made before the end
of the applicable performance period or periods or to any Grantee whose
employment terminates before the end of the applicable performance period or
periods for any reason other than retirement under the Company's or a
subsidiary's retirement plan, death or total disability, unless the Committee,
in its sole discretion, determines otherwise.
Payment of dividend equivalents, at the discretion of the Committee, may be
made solely in cash, solely in credits to be applied toward payment of an
exercisable related option or a combination of cash and such credits. A
Grantee may also defer receipt of the payment of dividend equivalents, if he
elects to do so on or before December 31 of the year preceding the beginning
of the last full year of the applicable performance period.
Section 162(m). Under Section 162(m) of the Code, the Company may be
precluded from claiming a federal income tax deduction for total remuneration
in excess of $1 million paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total
remuneration includes amounts received upon the exercise of stock options
granted under the 2004 Equity Compensation Plan, amounts received in
connection with dividend equivalents granted under the 2004 Equity
Compensation Plan and the value of shares received when the shares of
restricted stock became transferable (or such other time when income is
recognized). An exception exists, however, for "qualified performance-based
compensation." The 2004 Equity Compensation Plan, is intended to allow grants
of stock options to meet the requirements of "qualified performance-based
compensation." Stock options should generally meet the requirements of
"qualified performance-based compensation," if the exercise price is at least
equal to the fair market value of the Common Stock on the date of grant. In
addition, restricted stock granted pursuant to the terms of the proposed 2004
Equity Compensation Plan, the vesting of which is conditioned upon the
achievement of certain performance goals should also meet the requirements of
"qualified performance-based compensation."
Transferability. Grants are generally not transferable by the participant,
except in the event of death. However, the Plan provides that the Committee
may grant NQSOs that allow the participant to transfer the NQSOs on such terms
as the Committee deems appropriate.
Amendment and Termination of the 2004 Equity Compensation Plan. The 1994
Plan, originally approved by the shareholders of the Company on May 19, 1994,
and re-approved on May 15, 2003 is scheduled to terminate on May 14, 2014. The
Board may amend or terminate the 2004 Equity Compensation Plan at any time;
provided, however, that the Board may not, without shareholder approval, make
any amendment that requires shareholder approval pursuant to Section 422 or
162(m) of the Code. Unless sooner terminated by the Board, the proposed 2004
Equity Compensation Plan is scheduled to terminate on March 17, 2014, subject
to the approval of this Proposal No. 3 by the shareholders.
Amendment and Termination of Outstanding Grants. An amendment of the 2004
Equity Compensation Plan that occurs after a Grant is made will not result in
the amendment of the Grant unless the Grantee consents or unless the Committee
revokes a Grant, the terms of which are contrary to applicable law. The
termination of the 2004 Equity Compensation Plan will not impair the power and
authority of the Committee with respect to outstanding Grants.
17
Adjustment Provisions; Change of Control of the Company. If there is any
change in the number or kind of shares of Common Stock through the declaration
of stock dividends, or through a recapitalization, stock split, or
combinations or exchanges of such shares, or merger, recapitalization or
consolidation of the Company, reclassification or change in the par value or
by reason of any other extraordinary or unusual event, the number of shares of
Common Stock available for Grants and the number of such shares covered by
outstanding Grants, the price per share or the applicable market value of such
Grants or the terms and conditions applicable to dividend equivalents will be
proportionately adjusted by the Committee to reflect any increase or decrease
in the number or kind of issued shares of Common Stock.
In the event of a Change of Control of the Company, (i) all outstanding
Stock Options will become immediately exercisable, (ii) all restrictions on
the transfer of shares with respect to a Restricted Stock Grant which have
not, prior to such date, been forfeited will immediately lapse and (iii) all
outstanding dividend equivalents which have not, prior to such date, been
forfeited will become immediately payable, regardless of whether the
applicable performance period has ended. A Change of Control of the Company
will be deemed to have taken place with certain exceptions if (i) a person or
group, other than the Company, one of its affiliates or one of its employee
benefit plans acquires 20% or more of the Common Stock then outstanding or
(ii) during any 24-month period, there is a change in the majority of the
Board other than by approval of the Board immediately prior to such change.
Other Plan Provisions. A Grant under the 2004 Equity Compensation Plan will
not be construed as conferring upon any Grantee a contract of employment or
service, and such Grant will not confer upon the Grantee any rights upon
termination of employment or service, other than certain limited rights as to
the exercise of a Stock Option for a designated period of time following such
termination.
Federal Income Tax Consequences. The current federal income tax treatment
of grants under the 2004 Equity Compensation Plan is generally described
below. Local and state tax authorities may also tax incentive compensation
awarded under the 2004 Equity Compensation Plan, and tax laws are subject to
change. Participants are urged to consult with their personal tax advisors
concerning the application of the general principles discussed below to their
own situations and the application of state and local tax laws.
Non-Qualified Stock Options. There are no federal income tax consequences
to Grantees or to the Company upon the grant of an NQSO under the Equity
Compensation Plan. Upon the exercise of NQSOs, Grantees will recognize
ordinary compensation income in an amount equal to the excess of the fair
market value of the shares at the time of exercise over the exercise price of
the NQSO, and the Company generally will be entitled to a corresponding
federal income tax deduction. Upon the sale of shares acquired by exercise of
an NQSO, a Grantee will have a capital gain or loss in an amount equal to the
difference between the amount realized upon the sale and the Grantee's
adjusted tax basis in the shares (the exercise price plus the amount of
ordinary income recognized by the Grantee at the time of exercise of the
NQSO). The capital gain tax rate will depend on the length of time the shares
were held and other factors.
Incentive Stock Options. Grantees will not be subject to federal income
taxation upon the grant or exercise of ISOs granted under the 2004 Equity
Compensation Plan, and the Company will not be entitled to a federal
18
income tax deduction by reason of such grant or exercise. However, the amount
by which the fair market value of the shares at the time of exercise exceeds
the Stock Option price (or the Grantee's other tax basis in the shares) is an
item of tax preference subject to the alternative minimum tax applicable to
the person exercising the ISO. A sale of shares acquired by exercise of an ISO
that does not occur within one year after the exercise or within two years
after the grant of the ISO generally will result in the recognition of capital
gain or loss in the amount of the difference between the amount realized on
the sale and the Stock Option price (or the Grantee's other tax basis in the
shares), and the Company will not be entitled to any tax deduction in
connection therewith. The capital gain tax rate will depend on the length of
time the shares were held and other factors.
If such sale occurs within one year from the date of exercise of the ISO or
within two years from the date of grant (a "disqualifying disposition") and is
a transaction in which a loss, if sustained, would be recognized, the Grantee
generally will recognize ordinary compensation income equal to the lesser of
(i) the excess of the fair market value of the shares on the date of exercise
over the exercise price (or the Grantee's other tax basis in the shares), or
(ii) the excess of the amount realized on the sale of the shares over the
exercise price (or the Grantee's other tax basis in the shares). In the case
of a disqualifying disposition where a loss, if sustained, would not be
recognized, the Grantee will recognize ordinary income equal to the excess of
the fair market value of the shares on the date of exercise over the Stock
Option price (or the Grantee's other tax basis in the shares). Any amount
realized on a disqualifying disposition in excess of the amount treated as
ordinary compensation income (or any loss realized) will be a capital gain (or
loss). The capital gain tax rate will depend upon the length of time the
shares were held and other factors. The Company generally will be entitled to
a tax deduction on a disqualifying disposition corresponding to the ordinary
compensation income recognized by the Grantee.
Generally, where previously acquired Common Stock is used to exercise an
outstanding ISO or NQSO, appreciation on such stock will not be recognized as
income. However, if such Common Stock was acquired pursuant to the exercise of
an ISO, a disqualifying disposition will be deemed to have occurred if such
stock is used to exercise another ISO prior to the expiration of the
applicable holding periods.
Restricted Stock. A Grantee normally will not recognize taxable income upon
the award of a Restricted Stock Grant, and the Company will not be entitled to
a deduction, until such stock is transferable by the Grantee or no longer
subject to a substantial risk of forfeiture for federal tax purposes,
whichever occurs earlier. When the Common Stock is either transferable or is
no longer subject to a substantial risk of forfeiture, the Grantee will
recognize ordinary compensation income in an amount equal to the fair market
value of the Common Stock at that time, less any consideration paid by the
Grantee for such Restricted Stock, and the Company will be entitled to a
deduction in the same amount. A Participant may, however, elect to recognize
ordinary compensation income in the year the Restricted Stock Grant is awarded
in an amount equal to the fair market value of the Common Stock at that time,
determined without regard to the restrictions. In this event, the Company will
be entitled to a deduction in the same year, provided the Company complies
with the applicable withholding requirements for federal tax purposes. Any
gain or loss recognized by the Grantee upon subsequent disposition of the
Common Stock will be capital gain or loss. If, after making the election, any
Common Stock subject to a Restricted Stock Grant is forfeited, or if the
market value declines during the Restriction Period, the Grantee is not
entitled to any tax deduction or tax refund.
19
Non-Employee Directors Grants. Restricted Stock Grants under the 2004
Equity Compensation Plan to non-employee directors will generally constitute
taxable ordinary income to the director equal to the fair market value of the
shares on the date of grant and the Company will be entitled to a tax
deduction in the same amount. Any gain or loss recognized by the director upon
subsequent disposition of the shares is a capital gain or loss and a long-term
capital gain or loss if the directors have satisfied the applicable holding
periods for the shares under the Code.
Dividend Equivalents. Generally, a Grantee will not recognize any income
upon the grant of dividend equivalents and the Company will not be entitled to
a deduction, until the Grantee receives payment of the dividend equivalent or
the dividend equivalent payment is credited towards the exercise of a related
Stock Option. At the time the dividend equivalent is paid to the Grantee or
credited towards the exercise of a related Stock Option, the Grantee will
recognize ordinary compensation income in the amount of the payment or credit
and the Company will be entitled to a deduction in the same amount.
Section 162(m) of the Code. The Company's income tax deduction in any of
the foregoing cases may be limited by the $1 million limit of Section 162(m)
of the Code if the Grant does not qualify as "qualified performance-based
compensation" under Section 162(m) of the Code.
Tax Withholding. The acceptance, exercise or surrender of a Grant will
constitute a Grantee's full consent to whatever action the Committee deems
necessary to satisfy any federal, state and local income and employment
withholding tax obligations arising under the 2004 Equity Compensation Plan.
The Company may require Grantees who exercise NQSOs or who possess shares of
Common Stock as to which the restrictions on transfer have lapsed to remit an
amount sufficient to cover the Grantee's federal, state and local withholding
tax obligations associated with the exercise of such Grants. Grantees, upon
the receipt of shares following the exercise of ISOs, are obligated to (i)
immediately notify the Company of the disposition of any or all ISO shares
within two years of the date of grant of the ISO or one year of the date of
such exercise, and (ii) remit to the Company an amount sufficient to satisfy
any withholding obligation arising from such disposition. If acceptable to the
Committee, Grantees may deliver Common Stock or cash in order to satisfy all
such withholding obligations.
Summary of Benefits under the Plan
The proposed 2004 Equity Compensation Plan is substantially similar to the
1994 Equity Compensation Plan, as previously approved by the shareholders, and
differs only in the following respects: (1) the addition of the ability of the
Committee to grant restricted stock awards which are subject to restrictions
which lapse upon the achievement of specified performance goals, thereby
qualifying such awards as exempt from the $1 million limitation on the
deductibility of executive compensation, based on their status as
"performance-based compensation", (2) no more than fifty percent (50%) of the
total shares authorized for issuance under the Plan may be issued as
restricted stock grants, and (3) an expiration date of March 17, 2014. The
2004 Equity Compensation Plan does not alter the considerations of the
Committee with respect to grants under the 1994 Plan. For information with
respect to grants to certain executive officers during the year ended under
the 1994 Plan, see
20
the table captioned "Option Grants in Last Fiscal Year" on page 34 and for
information with respect to grants to the Company's non-employee directors,
see page 38.
New Plan Benefits. As of March 29, 2004, 26,500 shares of restricted stock
have been granted under the 2004 Equity Compensation Plan, subject to
shareholder approval of the 2004 Equity Compensation Plan. The table below
sets forth the number of shares of restricted stock granted to executive
officers of the Company under the 2004 Equity Compensation Plan, assuming
shareholder approval of the Plan.
NEW PLAN BENEFITS
2004 EQUITY COMPENSATION PLAN
--------------------------------------------------------------------------------
Name and Position (1) Dollar Value ($)(2) Number of Units
--------------------------------------------------------------------------------
Nicholas DeBenedictis 334,080 16,000
Chief Executive
Officer
--------------------------------------------------------------------------------
Roy H. Stahl 114,840 5,500
Exec. V.P. & Gen.
Counsel
--------------------------------------------------------------------------------
David P. Smeltzer 83,520 4,000
Senior V.P.-Finance &
CFO
--------------------------------------------------------------------------------
Richard R. Riegler 20,880 1,000
Senior V.P. Eng. &
Environ. Aff.
--------------------------------------------------------------------------------
Richard D. Hugus - -
President - Southern
Operations
--------------------------------------------------------------------------------
Executive Officer
Group 553,320 26,500
--------------------------------------------------------------------------------
Non-Executive Director
Group (3) - -
--------------------------------------------------------------------------------
Nominees for Director - -
--------------------------------------------------------------------------------
All Employees - -
--------------------------------------------------------------------------------
(1) Only the indicated executive officers have received grants under the
2004 Equity Compensation Plan. Information with respect to these
executive officers is provided in this table. Other benefits under the
Plan are not determinable at this time, as awards are made from time
to time in the discretion of a Committee of the Board of Directors.
(2) The dollar value of the restricted stock grants made under the 2004
Equity Compensation Plan is calculated on the closing price of the
Company's Common Stock on the date of grant.
(3) Non-executive directors are entitled to receive a grant of 1,093
shares of restricted stock under the Plan on the first day of the
month following the annual meeting of shareholders. The dollar value
of stock grants to non-executive directors is dependent on the fair
market value of the Company's Common Stock on the date of grant and,
therefore, cannot be determined at this time.
21
Securities Authorized for Issuance under Equity Compensation Plans
EQUITY COMPENSATION PLAN INFORMATION
-------------------------- ---------------------------- ----------------------- ---------------------------
Number of
securities remaining
available for
Number of Securities future issuance
to be issued upon Weighted-average under equity
exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
-------------------------- ---------------------------- ----------------------- ---------------------------
Equity compensation
plans approved
by security holders 3,564,601 $14.98 4,293,941
-------------------------- ---------------------------- ----------------------- ---------------------------
Equity compensation
plans not approved
by security holders 0 0 0
-------------------------- ---------------------------- ----------------------- ---------------------------
Total 3,564,601 $14.98 4,293,941
-------------------------- ---------------------------- ----------------------- ---------------------------
22
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of January 31, 2004
with respect to shares of Common Stock of the Company beneficially owned by
each director, nominee for director and executive officer and by all
directors, nominees and executive officers of the Company as a group. This
information has been provided by each of the directors, executive officers and
the nominee at the request of the Company. Beneficial ownership of securities
as shown below has been determined in accordance with applicable guidelines
issued by the SEC. Beneficial ownership includes the possession, directly or
indirectly, through any formal or informal arrangement, either individually or
in a group, of voting power (which includes the power to vote, or to direct
the voting of, such security) and/or investment power (which includes the
power to dispose of, or to direct the disposition of, such security).
Sole voting Shared voting Total and
and/or sole and/or shared percent of class
Beneficial Owner investment power(1) investment power outstanding(2)
---------------- ------------------- ---------------- ----------------
Mary C. Carroll .................................. 11,222 2,225(3) 13,447
Nicholas DeBenedictis ............................ 498,412 236,126(4) 734,538
G. Fred DiBona, Jr. .............................. 12,031 -- 12,031
Richard H. Glanton, Esq. ......................... 8,911 -- 8,911
William P. Hankowsky ............................. -- -- --
Alan R. Hirsig ................................... 11,612 -- 11,612
Richard D. Hugus ................................. 46,995 -- 46,995
John F. McCaughan ................................ 19,683 -- 19,683
John E. Menario .................................. 320 12,258(5) 12,578
Richard R. Riegler ............................... 107,995 15,304(6) 123,299
David P. Smeltzer ................................ 78,429 2,447 80,876
Richard L. Smoot ................................. 7,578 -- 7,578
Roy H. Stahl ..................................... 141,852 65,183 207,035
All directors and executive
officers as a group (12 persons) ................ 945,040(7) 333,543(8) 1,278,583(1.38%)
---------------
(1) Includes shares held under the Company's Thrift Plan.
(2) Percentages for each person or group are based on the aggregate of the
shares of Common Stock outstanding as of March 1, 2004 (92,684,950
shares) and all shares issuable to such person or group upon the exercise
of outstanding stock options exercisable within 60 days of that date.
Percentage ownership of less than 1% of the class then outstanding as of
March 1, 2004 has not been shown.
(3) The shareholdings indicated are owned of record by Mrs. Carroll's
husband. Mrs. Carroll disclaims beneficial ownership of those shares.
(4) The shareholdings indicated include 1,964 shares owned of record by Mr.
DeBenedictis' wife. Mr. DeBenedictis disclaims beneficial ownership of
those shares.
23
(5) The shareholdings indicated include 96 shares owned of record by Mr.
Menario's wife. Mr. Menario disclaims beneficial ownership of those
shares.
(6) The shareholdings indicated include 15,304 shares owned of record by Mr.
Riegler's wife. Mr. Riegler disclaims beneficial ownership of those
shares.
(7) The shareholdings indicated include 586,528 shares exercisable under the
1994 Equity Compensation Plan on or before April 1, 2004.
(8) The shareholdings indicated include 301,791 shares (i) held in joint
ownership with spouses, (ii) held as custodian for minor children or
(iii) owned by family members.
24
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility
for the financial statements and the reporting process, including the system
of internal controls. In fulfilling its oversight responsibilities, the
Committee reviewed the audited financial statements in the Annual Report with
management, including a discussion of the quality of the accounting
principles, practices and judgments; the reasonableness of significant
judgments; the clarity of disclosures in the financial statements; the
integrity of the Company's financial reporting processes and controls; and the
selection and evaluation of the independent accountants, including the review
of all relationships between the independent accountants and the Company.
The Committee reviewed with the independent accountants, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles in the United States
of America, their judgments as to the quality of the Company's accounting
principles and such other matters as are required to be discussed with the
Committee under generally accepted auditing standards (including Statement on
Auditing Standards No. 61). In addition, the Committee has discussed with the
independent accountants the accountants' independence from management and the
Company, including the matters in the written disclosures required by the
Independence Standards Board (including Independence Standards Board Standard
No. 1), and considered the compatibility of non-audit services with the
accountants' independence.
The Committee discussed with the Company's internal and independent
accountants, the overall scope and plans for their respective audits. The
Committee meets with the internal and independent accountants, with and
without management present, to discuss the results of their examinations,
their evaluations of the Company's internal controls, and the overall quality
of the Company's financial reporting. The Committee held six (6) meetings
during 2003.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board of Directors has
approved, that the Company's audited financial statements be included in the
Annual Report on Form 10-K for the year ended December 31, 2003 for filing
with the SEC.
The Audit Committee has the authority to select, evaluate and, where
appropriate, replace the Company's independent accountants. The Committee has
selected PricewaterhouseCoopers LLP as the Company's independent accountants
for the year ending December 31, 2004.
A copy of the Audit Committee's Charter is attached to this proxy statement
as Appendix A.
Respectfully submitted,
Richard L. Smoot
John E. Menario
Alan R. Hirsig
25
EXECUTIVE COMPENSATION
REPORT OF THE EXECUTIVE COMPENSATION AND EMPLOYEE BENEFITS COMMITTEE
Overall Objectives
Aqua America's executive compensation program is designed to motivate its
senior executives to achieve the Company's goals of providing its customers
with high quality, cost-effective, reliable water services and providing the
Company's shareholders with a market-based return on their investment.
Toward that end, the program:
o Provides compensation levels that are competitive with those
provided by companies with which the Company may compete for
executive talent.
o Motivates key senior executives to achieve strategic business
initiatives and rewards them for their achievement.
o Creates a strong link between stockholder and financial
performance and the compensation of the Company's senior
executives.
In administering the executive compensation program, the Executive
Compensation and Employee Benefits Committee (the "Committee") attempts to
strike an appropriate balance among the above-mentioned objectives, each of
which is discussed in greater detail below.
At present, the executive compensation program is comprised of three
components: base salary, annual cash incentive opportunities and equity
incentive opportunities. In determining the relative weighting of compensation
components and the target level of compensation for the Company's executives,
the Committee considers compensation programs of a peer group of companies.
Because of the limited number of investor-owned water utilities from which
comparable compensation data is available, the Committee utilizes survey data
from a composite market ("Composite Market") compiled by a nationally
recognized compensation consulting firm in assessing the competitiveness of
the components of the Company's compensation program. The Composite Market for
the base salary and annual cash incentive elements of the program consists of
25% water utilities, 25% other utilities and 50% general industrial
businesses. There are ten water utilities in the water utilities portion of
the Composite Market.
Due to continued consolidation in the investor-owned water utility industry,
there are no publicly traded water utilities in the Composite Market that are
of comparable size to the Company. Consequently, as of the proxy statement
filed in 2000, the Company began using the Dow Jones Utility Index instead of
the Edward Jones Water Utility Index as the peer group for the stock
performance chart in the Company's proxy. None of the water utilities in the
Composite Market is in the Dow Jones Utility Index.
Competitive compensation levels are targeted at the median of the third
quartile range of compensation levels in the Composite Market, except for
equity incentives, which are targeted at the 50th percentile of the
26
compensation consulting firm's data base of general industrial organizations,
including utilities, that have long-term incentive programs.
Compensation Components
Base Salary
To ensure that its pay levels are competitive, the Company, with the
assistance of its compensation consultant, regularly compares its executive
compensation levels with those of other companies and sets its salary
structure in line with competitive data from the Composite Market. Individual
salaries are considered for adjustment annually and any adjustments are based
on general movement in external salary levels, individual performance, and
changes in individual duties and responsibilities.
Cash Incentive Awards
The annual cash incentive plan is based on target incentive awards for each
executive, which are stated as a percentage of their base salaries. Annual
incentive awards for executive officers are calculated by a formula that
multiplies the executive's target incentive percentage by a Company rating
factor based on the Company's overall financial performance and an individual
rating factor based on the executive's performance against established
objectives. These factors can range from 0% to 125% for the Company rating
factor and 0% to 150% for the individual rating factor. Each of these
percentages are correlated with defined objectives and approved by the
Committee each year. Regardless of the Company's financial performance, the
Committee retains the authority to determine the final Company rating factor,
and the actual payment and amount of any bonus is always subject to the
discretion of the Committee.
Equity Incentives
As part of its review of the total compensation package for the Company's
officers, the Committee, with the assistance of its compensation consulting
firm, reviewed the Company's equity incentive compensation program. Given the
importance of dividends to a utility investor, the consultant recommended
using a combination of stock options with dividend equivalents to best link
executive long-term incentives to corporate performance and shareholder
interests.
Under the terms of the Company's 1994 Equity Compensation Plan, which was
approved by the shareholders at the 1994 Annual Meeting, and the proposed 2004
Equity Compensation Plan, the Committee and the Board of Directors may grant
stock options, dividend equivalents and restricted stock to officers,
directors and key employees, and stock options to key consultants of the
Company and its subsidiaries who are in a position to contribute materially to
the successful operation of the business of the Company. The purpose of the
Plan is to help align executive compensation with shareholder interests by
providing the participants with a long-term equity interest in the Company.
The Plan, we believe, provides the Company the ability to attract and retain
employees of significant abilities.
27
Summary of Actions Taken by the Committee
Salary Increase
Under the Company's salary program, the base salary budget is based on
salary levels for comparable positions in the Composite Market. The projected
overall annual increase is based on annual salary budget increase data
reported by published surveys. Under these guidelines, actual salary increases
are determined based on a combination of an assessment of the individual's
performance and the individual's salary compared to the market. In the case of
executive officers named in this Proxy Statement, the determination of salary
levels is made by the Committee.
Mr. DeBenedictis' salary for 2003 was consistent with the target level for
the CEO position within the Composite Market. Mr. DeBenedictis' salary for
2004, which was approved by the Board of Directors on February 3, 2004 and
effective on April 1, 2004, is consistent with published salary survey
information on salary levels and projected annual salary increases for 2004
and is based on the Committee's favorable assessment of his and the Company's
performance.
Annual Incentive Award
At its February 2, 2004 meeting, the Committee determined the annual cash
incentive awards to be made to the participants in the annual incentive plan.
The awards were based on the Company's performance compared to its financial
goal for 2003 as well as the participants' achievement of their individual
objectives. Mr. DeBenedictis' annual incentive compensation for 2003 was based
on the Company's earnings and the Committee's assessment of Mr. DeBenedictis'
individual performance. Mr. DeBenedictis' achievements in 2003 included
completing the AquaSource acquisition as well as 17 other smaller acquisitions
and growth ventures, entering into an agreement to acquire Heater Utilities in
North Carolina, improvements to the Company's customer service operations and
continued cost containment.
28
Equity Incentives
In 2003, because there was a limited number of shares remaining in the
Company's 1994 Equity Compensation Plan until the shareholders' approval of
additional shares for the Plan at the 2003 Annual Meeting, the normal awards
of stock options for the Company's executive officers were deferred until
after the shareholders' approval of the additional shares for the Plan.
Therefore, effective March 3, 2003, the Committee approved the 2003 grant of
incentive stock options and dividend equivalents under the Company's 1994
Equity Compensation Plan to certain of its key employees, including the award
of dividend equivalents for its executive officers, at the fair market value
on the date of grant for such stock options of $16.65 (adjusted for the effect
of the Company's stock split in the form of a stock distribution to
shareholders on December 1, 2003). Effective May 15, 2003, following the
shareholders' approval of additional shares for the Company's 1994 Equity
Compensation Plan, the Committee approved the 2003 grant of incentive options
under the Plan to its executive officers at the fair market value on the date
of grant of $18.34 (adjusted for the effect of the Company's stock split in
the form of a stock distribution to shareholders on December 1, 2003).
Effective March 1, 2004, the Committee approved, under the Company's 1994
Equity Compensation Plan, grants of incentive stock options and dividend
equivalents to certain key employees, including its executive officers, at the
fair market value of the Company's stock on the date of grant for such stock
options of $21.53. The options are exercisable in installments of one-third
each year starting on the first anniversary of the date of grant and expire at
the end of 10 years from the date of grant. The dividend equivalents will
accumulate dividends over a period of four years. In 2003, Mr. DeBenedictis
received a grant of 68,750 dividend equivalents on March 3, 2003 and 68,749
stock options on May 15, 2003. For 2004, Mr. DeBenedictis received a grant of
70,000 stock options and dividend equivalents on March 1, 2004. At its March
1, 2004 meeting, the Committee also approved management's recommendation to
reduce the performance period for the dividend equivalents granted in 2002 and
2003 by one year based on the Company's performance against the 2003
measurement criteria established by the Committee for this purpose at its
March 3, 2003 meeting. The measurement criteria involve targets for earnings
per share, dividends, total return to shareholders over a five-year period and
customer growth.
Pursuant to the 2004 Equity Compensation Plan, approved by the Executive
Committee on behalf of the Board of Directors and subject to approval of the
2004 Equity Compensation Plan by the shareholders as set forth in Proposal No.
3 in the Company's Proxy Statement, the Committee may make grants of
restricted stock, the vesting of which is subject to the achievement of
specified performance criteria established by the Committee at the time of the
grant. Under the terms of the 2004 Equity Compensation Plan, on March 19,
2004, the Committee awarded the following restricted stock grants, subject to
approval of the 2004 Equity Compensation Plan by the shareholders at the 2004
Annual Meeting: (a) 10,000 shares to Mr. DeBenedictis with a one year
Restricted Period; and (b) 6,000 shares to Mr. DeBenedictis, 5,500 shares to
Mr. Stahl, 4,000 shares to Mr. Smeltzer and 1,000 shares to Mr. Riegler, in
each case with a three-year Restricted Period, with one-third of each such
grant subject to release to the grantee each year on the anniversary of the
date of grant. Release of the restricted stock grants awarded by the Committee
on March 19, 2004 are subject to the Company's achievement of performance
criteria established by the Committee.
29
Section 162(m) of the Internal Revenue Code generally precludes the
deduction for federal income tax purposes of more than $1 million in
compensation (including long-term incentives) paid to the Chief Executive
Officer and the other officers named in the Summary Compensation Table in any
one year, subject to certain specified exceptions. While Aqua America's
executive compensation program is structured to be sensitive to the
deductibility of compensation for federal income tax purposes, the program is
principally designed to motivate senior executives to achieve the Company's
goals. Therefore, the Company has determined that it is appropriate for the
Chief Executive Officer's compensation to be at a level that a portion is not
deductible for federal income tax purposes.
Respectfully submitted,
John F. McCaughan
G. Fred DiBona, Jr.
Alan R. Hirsig
The foregoing report of the Executive Compensation and Employee Benefits
Committee shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing
under the Securities Act of 1933 or Securities Exchange Act of 1934, except to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
30
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table shows compensation paid by the
Company for services rendered during the years 2003, 2002 and 2001 for the
Company's Chief Executive Officer and the other four most highly compensated
executive officers of the Company.
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------------------ ------------------------ -------
Securities
Other Restricted Under- All Other
Annual Stock lying LTIP Compen-
Name and Compen- Award(s) Options/ Payouts sation
Principal Position Year Salary($)(1) Bonus($)(2) sation($)(3) ($)(4) SAR's(#)(5) ($) ($)(6)
-------------------------- ---- ------------ ----------- ------------ ---------- ----------- ------- ---------
Nicholas DeBenedictis ..... 2003 350,358 312,851 6,000 203,125 68,749 138,473
CEO 2002 334,500 294,060 5,500 347,820 68,749 143,603
2001 321,554 287,625 5,250 78,123 162,308
Roy H. Stahl .............. 2003 207,512 87,342 6,000 22,499 38,574
Exec. V.P. & 2002 200,521 82,852 5,500 42,160 22,499 31,047
General Counsel 2001 193,546 79,596 5,250 23,436 28,354
David P. Smeltzer ......... 2003 178,265 70,559 5,348 15,624 28,616
Sr. V.P.-Finance 2002 164,054 65,995 4,922 42,160 15,624 23,045
& CFO 2001 156,067 56,962 4,681 15,623 20,035
Richard R. Riegler ........ 2003 183,385 51,140 5,400 12,499 27,636
Sr. V.P.-- 2002 177,837 50,944 5,500 21,080 12,499 26,116
Engineering & 2001 171,658 51,154 5,148 15,623 26,744
Environ. Affairs
Richard D Hugus ........... 2003 164,081 50,462 4,922 12,499 26,798
President - Southern
Operations (7)
---------------
(1) Salary deferred at the discretion of the executive and contributed to the
Company's Thrift Plan or Executive Deferral Plan is included in this
column.
(2) Includes cash bonuses for services rendered during the specified year,
regardless of when paid.
(3) Company matching contributions under the Company's Thrift Plan and
Executive Deferral Plan are included in this column.
31
(4) Mr. DeBenedictis was awarded grants of the following shares of restricted
stock under the Company's 1994 Equity Compensation Plan at the following
fair market value of the shares based on the closing price on the New
York Stock Exchange on the date indicated: 20,625 shares on June 17, 2002
at $16.86 and 12,500 shares on March 3, 2003 at $16.25. Of the restricted
shares granted on June 17, 2002, 8,125 shares were released to Mr.
DeBenedictis on March 17, 2003 and 12,500 shares were released to Mr.
DeBenedictis on June 17, 2003. The restricted shares granted on March 3,
2003 were released to Mr. DeBenedictis on March 3, 2004. He is entitled
to receive the dividends on the restricted shares pending their release.
At year-end 2003, the value of the 12,500 shares still subject to
restrictions was $276,250 based on the closing price for the stock on
December 31, 2003 of $22.10.
On June 17, 2002 the following executives were awarded grants of
restricted stock under the Company's 1994 Equity Compensation Plan: Mr.
Stahl 2,500 shares; Mr. Smeltzer 2,500 shares and Mr. Riegler 1,250
shares. The fair market value of the shares awarded on June 17, 2002 was
$16.86 per share based on the closing price on the New York Stock
Exchange on that date. These restricted stock grants were released on
March 17, 2003 and the grantees were entitled to receive the dividends on
the restricted shares pending their release.
(5) Restricted stock and option award numbers for 2001, 2002 and 2003 have
been restated to reflect the December 2001 and December 2003 5-for-4
stock splits in the form of stock distributions.
(6) Includes: (a) for 2002 and 2001, the dollar value, on a term loan
approach, of the benefit of the whole-life portion of the premiums for a
split dollar life insurance policy on Mr. DeBenedictis maintained by the
Company, projected on an actuarial basis; (b) for 2002 and 2001, Company
payments on behalf of Mr. DeBenedictis to cover the premium attributable
to the term life insurance portion of the split dollar life insurance
policy; (c) the amounts accrued for the named executives' accounts in
2003 in connection with the dividend equivalent awards made from 1999
through 2003 (Messrs. DeBenedictis $135,000, Stahl $37,563, Smeltzer
$28,063, Riegler $26,000, and Hugus $26,000); (d) the value of group term
life insurance maintained by the Company on the named executives (Messrs.
DeBenedictis $3,362, Stahl $1,008, Smeltzer $553, Riegler $1,636 and
Hugus $790); and (e) above-market interest earned in 2003 on amounts
deferred under the Company's Executive Deferral Plan (DeBenedictis $111,
Stahl $3 and Hugus $8). The Company will be reimbursed for the amount of
the premiums paid under the split dollar program for Mr. DeBenedictis
upon his death or repaid such premiums by Mr. DeBenedictis if he leaves
the Company.
(7) Mr. Hugus was elected by the Board of Directors as Regional President -
Aqua America Southern Operations on August 5, 2003.
32
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the last five years with the average
cumulative total return of a peer group of companies and the cumulative total
return on the S&P 500 over the same period, assuming a $100 investment on
December 31, 1998 and the reinvestment of all dividends. The Dow Jones Utility
Index consists of the following companies: American Electric Power Company;
Consolidated Edison, Inc.; NiSource Inc.; Exelon Corporation; TXU Corporation;
Edison International; Public Service Enterprise Group Incorporated; Dominion
Resources, Inc.; Williams Companies, Inc.; Duke Energy Corporation; PG&E
Corporation; AES Corporation; The Southern Company, FirstEnergy Corp.; and
CenterPoint Energy, Inc.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG AQUA AMERICA, S&P 500 AND DOW JONES UTILITY INDEX
2003
--------------------- ------------------------- ------------------------
WTR Dow Jones Utilities S&P 500 Composite
1998 100.00 1998 100.00 1998 100.00
1999 72.18 1999 93.98 1999 121.00
2000 110.42 2000 141.68 2000 109.99
2001 130.21 2001 104.46 2001 96.90
2002 118.48 2002 80.04 2002 75.49
2003 162.32 2003 103.56 2003 97.13
--------------------- ------------------------- ------------------------
The foregoing comparative stock performance graph shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
33
STOCK OPTION GRANTS IN 2003
The following table sets forth information concerning individual grants of
stock options under the Company's 1994 Equity Compensation Plan during 2003 to
each executive officer identified in the Summary Compensation Table who
received options during the period.
OPTION GRANTS IN LAST FISCAL YEAR
Grant Date
Individual Grants Value
--------------------------------------------------------- -------------
Percent of
Number of Total
Securities Options/SAR's Exercise
Underlying Granted to or Base Grant Date
Options/SAR's Employees Price Expiration Present
Name Granted (#)(1) in Fiscal Year ($/Sh)(2) Date Value ($) (3)
---- -------------- -------------- --------- ---------- -------------
N. DeBenedictis......................... 68,749 11.20% 18.34 5/15/2013 321,058
R. Stahl................................ 22,499 3.67% 18.34 5/15/2013 105,070
D. Smeltzer............................. 15,624 2.55% 18.34 5/15/2013 72,964
R. Riegler.............................. 12,499 2.04% 18.34 5/15/2013 58,370
R. Hugus................................ 12,499 2.04% 16.65 3/3/2013 58,370
---------------
(1) The options listed in this column are intended to be qualified stock
options granted at an exercise price equal to the fair market value of
the Company's common stock on the date of grant under the Company's 1994
Equity Compensation Plan. Grants become exercisable in installments of
one-third per year commencing on the first anniversary of the grant date.
An equal number of dividend equivalents, with a four-year accumulation
period, were awarded to the named individuals under the 1994 Equity
Compensation Plan. The accrued value of the dividend equivalent awards
for 1999 through 2003 is shown on the Summary Compensation Table.
(2) The exercise price for options granted is equal to the mean of the high
and low sale prices of the Company's common stock on the New York Stock
Exchange composite tape on the date the option is granted. The option
exercise price has been adjusted to reflect the impact of the December 1,
2003 5-for-4 stock split.
(3) The values in this column were determined using Black-Scholes Option
Pricing Model. The actual value of stock options, if any, that may be
realized will depend on the difference between the exercise price and the
market price on the date of exercise. The estimated values under the
Black-Scholes model are based on assumptions as to such variables as
interest rates, stock price volatility and dividend yield. The key
assumptions used in the Black-Scholes model valuation of the stock
options are (i) an assumed dividend yield of 2.6%, (ii) a risk free rate
of return of 3.7%, (iii) volatility of 32.4%, (iv) an exercise date of
5.6 years from the date of grant, and (v) no reduction in values to
reflect non-transferability or other restrictions on the options. These
assumptions are not a forecast of future dividend yield, stock
performance or volatility.
34
Stock Option Exercises in 2003 and Value of Options at Year-End 2003
The following table sets forth information concerning the number of stock
options exercised under the Company's 1994 Equity Compensation Plan during
2003 by each executive officer listed below and the number and value of
unexercised options as of December 31, 2003, indicating in each case the
number and value of those options that were exercisable and unexercisable as
of that date.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SAR's at Options/SAR's at
Shares Fiscal Year-End (#) Fiscal Year-End ($)(1)
Acquired Value --------------------------- ---------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- -------------- ----------- ----------- ------------- ----------- -------------
DeBenedictis ........................ 10,645 118,053 322,203 140,623 3,506,567 1,530,414
Stahl ............................... -- -- 116,860 45,312 1,210,412 469,333
Smeltzer ............................ 35,154 376,421 31,243 31,250 227,911 227,963
Hugus ............................... -- -- 30,203 26,041 235,940 203,427
Riegler ............................. 25,310 169,289 32,371 26,042 243,074 195,549
---------------
(1) Based on the average of the high and low price on the New York Stock
Exchange - Composite Transactions of the Company's Common Stock on
December 31, 2003 ($22.21).
35
CERTAIN COMPENSATION PLANS
Retirement Plan
The Retirement Plan for Employees of the Company and certain of its
subsidiaries (the "Retirement Plan") is a defined benefit pension plan. In
general, the Retirement Plan applies to employees hired prior to certain dates
in 2003 and the participants are eligible for normal pension benefits upon
retirement at age 65 and are eligible for early retirement benefits upon
retirement at age 55 with ten years of credited service. Under the terms of
the Retirement Plan, a Company participant becomes fully vested in his or her
accrued pension benefit after five years of credited service. Benefits payable
to employees under the Retirement Plan are based upon "final average
compensation", which is defined as the average cash compensation through the
five highest consecutive years of the last ten full years preceding
retirement.
The Employee Retirement Income Security Act of 1974, as amended, ("ERISA")
imposes maximum limitations on the annual amount of pension benefits that may
be paid under, and the amount of compensation that may be taken into account
in calculating benefits under, a qualified, funded defined benefit pension
plan such as the Retirement Plan. The Retirement Plan complies with these
ERISA limitations. Effective December 1, 1989, the Board of Directors adopted
an Excess Benefits Plan for Salaried Employees of the Company (the "Excess
Plan"). The Excess Plan is a nonqualified pension benefit plan that is
intended to provide an additional pension benefit to Company participants in
the Retirement Plan and their beneficiaries whose benefits under the
Retirement Plan are adversely affected by these ERISA limitations. In
addition, deferred compensation is excluded from the Retirement Plan
Compensation, but is included in the calculation of the Excess Benefits Plan.
The benefit under the Excess Plan is equal to the difference between (i) the
amount of the benefit the Company participant would have been entitled to
under the Retirement Plan absent such ERISA limitations and including deferred
compensation, and (ii) the amount of the benefit actually payable under the
Retirement Plan.
The following tabulation shows the estimated annual pension payable pursuant
to the Retirement Plan and the Excess Plan to Company employees, including
employees who are directors or officers of the Company, upon retirement after
selected periods of service. This table is provided for illustrative purposes
only and does not reflect pension benefits presently due under the Retirement
Plan or Excess Plan.
PENSION PLAN TABLE
Average Salary Estimated Annual Pension Based on Service of
During Five Years ------------------------------------------------------
Preceding Retirement 15 Years 20 Years 25 Years 30 Years 35 Years
-------------------- -------- -------- -------- -------- --------
$100,000 $ 24,300 32,500 40,600 43,100 45,600
125,000 31,100 41,500 51,800 54,900 58,100
150,000 37,800 50,500 63,100 66,800 70,600
175,000 44,600 59,500 74,300 78,700 83,100
200,000 51,300 68,500 85,600 90,600 95,600
225,000 58,100 77,500 96,800 102,400 108,100
250,000 64,800 86,500 108,100 114,300 120,600
300,000 78,300 104,500 130,600 138,100 145,600
350,000 91,800 122,500 153,100 161,800 170,600
400,000 105,300 140,500 175,600 185,600 195,600
450,000 118,800 158,500 198,100 209,300 220,600
500,000 132,300 176,500 220,600 233,100 245,600
36
The Company's contributions to the Retirement Plan are computed on the basis
of straight life annuities. The following executive officers listed in the
Summary Compensation Table have the indicated number of completed years of
service under the Retirement Plan, and would, upon retirement at age 65 on
March 31, 2004, be entitled to a pension based on the remuneration level
listed in the following table:
Completed
Covered Years of
Name Remuneration Credited Service
---- ------------ ----------------
Nicholas DeBenedictis ....................... $688,672 12
Roy H. Stahl ................................ $280,020 22
Richard R. Riegler .......................... $242,222 34
David P. Smeltzer ........................... $224,608 17
Richard D. Hugus ............................ $219,052 15
A Supplemental Executive Retirement Plan or SERP has been established for
Mr. DeBenedictis. This Plan, which is nonqualified and unfunded, was approved
by the Board of Directors in 1992 and is intended to provide Mr. DeBenedictis
with a total retirement benefit, in combination with the Retirement Plan and
Excess Plan, that is commensurate with the retirement benefits for the chief
executive officers of other companies. Under the terms of the SERP, Mr.
DeBenedictis will be eligible to receive a benefit at normal retirement equal
to the difference between (i) the benefit to which he would otherwise be
entitled under the Retirement Plan assuming he had 25 years of service and
absent the ERISA limitations referred to above, and (ii) the benefit payable
to him under the Retirement Plan and the Excess Plan. Under the terms of Mr.
DeBenedictis' SERP, if his employment is terminated for any reason prior to
age 65, he is entitled to receive a supplemental retirement benefit equal to
the difference between (i) the benefit to which he would otherwise be entitled
under the Retirement Plan assuming he was credited with two years of service
for each of his first seven years of credited service and (ii) the benefit
payable to him under the Retirement Plan and the Excess Plan. If Mr.
DeBenedictis retires from the Company at age 65, the SERP is projected to
provide an annual benefit of $111,501.
CODE OF ETHICS
The Company maintains a Code of Ethical Business Conduct for its directors,
officers and employees, including the Company's Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer as required under Section
406(a) of the Sarbanes-Oxley Act of 2002. The Code covers a number of
important subjects, including: conflicts of interest; corporate opportunities;
fair dealing; confidentiality; protection and proper use of Company assets;
compliance with laws, rules and regulations (including insider trading laws);
and encouraging the reporting of illegal or unethical behavior. Copies of the
Company's Code of Ethical Business Conduct can be obtained free of charge from
the Corporate Governance portion of the Investor Relations section of the
Company's website - www.aquaamerica.com or by contacting the Company at the
address appearing on the first page of this Proxy Statement, attention
Investor Relations Department. The Company intends to post amendments to or
waivers from the Code of Ethical Business Conduct (to the extent applicable to
the Company's executive officers, senior financial officers or directors) on
its web site.
37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employment Contracts and Termination of Employment and Change of Control
Arrangements
Under the terms of Mr. DeBenedictis' employment arrangement, if his
employment is terminated by the Company for any reason other than his
disability, death or for cause, he will be entitled to receive a severance
payment equal to twelve months of his base compensation paid in twelve equal
monthly installments without offset. In the event that the employment of any
of the executive officers named in the Summary Compensation Table set forth
above is terminated, actually or constructively, within two years following a
change of control of the Company, the executive officers will be entitled to
certain payments and benefits under agreements with the Company. Under the
terms of these agreements, the Chief Executive Officer will be entitled to
three times his average annual compensation and the other executive officers
will be entitled to two times their average annual compensation, plus certain
benefits for a period of three years for the Chief Executive Officer and two
years for the other executive officers. The agreement with the Chief Executive
Officer also provides for reimbursement to him for the tax effects of certain
payments and the transfer to him of a split dollar life insurance policy
maintained by the Company on his life. Under the terms of the 1994 Equity
Compensation Plan approved by the shareholders, outstanding stock options will
become immediately exercisable, accrued dividend equivalents will become
immediately payable and the restrictions on restricted stock grants will
immediately lapse upon certain change of control events.
Compensation of Directors
Directors who are full-time employees of the Company do not receive a
retainer or fees for service on the Board of Directors or Committees of the
Board. Members of the Board of Directors who are not full-time employees of
the Company or any of its subsidiaries ("Non-employee Directors") receive an
annual retainer fee of $12,000, plus an annual grant of 1,093 shares of the
Company's Common Stock. Directors also receive a fee of $1,500 for attendance
at each meeting of the Board of Directors of the Company and $1,000 for
attendance at each Committee meeting. In addition, each Committee Chairman who
is a Non-employee Director receives an annual retainer fee of $2,500. All
directors are reimbursed for reasonable expenses incurred in connection with
attendance at Board or Committee meetings. Directors are eligible to defer
part or all of their fees under the Company's Director Deferral Plan. Amounts
deferred accrue interest at the prime interest rate plus 1.0% or may be deemed
invested in the Company's Common Stock at a 5% discount. Amounts deferred are
not funded. In 2003, Mr. Glanton deferred $30,500 of his fees and accrued
earnings of $21,273 on his accumulated deferred fees.
38
INDEPENDENT ACCOUNTANTS
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting of Shareholders, will have the opportunity to make a
statement at the meeting if they desire to do so, and will be available to
respond to appropriate questions.
Services and Fees
The following table presents the fees for professional audit services billed
by PricewaterhouseCoopers LLP (PwC) for the audit of the Company's annual
consolidated financial statements for the years ended December 31, 2002 and
2003, and fees billed for other services rendered to the Company by PwC for
each of such years:
Fiscal
-------------------
2003 2002
-------- --------
Audit Fees (1) .......................................... $592,100 $461,350
Audit-Related Fees (2) .................................. 70,050 50,400
Tax Fees (3) ............................................ 20,500 59,864
All Other Fees (4) ...................................... 0 0
-------- --------
Total ................................................... $682,650 $571,614
======== ========
---------------
(1) Represents fees for any professional services provided in connection with
the audit and review of the Company's annual financial statements and
services for comfort letters, consents and assistance with and review of
documents filed with the Commission.
(2) Represents fees for any professional services in connection with the
audits of the Company's employee benefit plans, accounting consultations
and internal control reviews.
(3) Represents fees for any professional services in connection with the
review of the Company's federal and state tax returns and advisory
services for other tax compliance, tax planning and tax advice.
(4) Represents fees for any other professional services not detailed above.
Under the Sarbanes-Oxley Act of 2002 ("Sarbane-Oxley"), the Audit Committee
is responsible for the appointment, compensation and oversight of the work of
the independent auditor. As a result, the Audit Committee is required to
pre-approve the audit and non-audit services performed by the independent
auditor in order to assure that such services do not impair the auditor's
independence from the Company. To implement these provisions of Sarbanes-Oxley,
the SEC has issued rules regarding the Audit Committee's administration of the
engagement of the independent auditor and has specified the types of services
that an independent auditor may not provide to its audit client.
Effective November 2002, the Audit Committee established a procedure to
comply with their charter to pre-approve all auditing and non-auditing fees
proposed to be provided by the Company's independent auditor prior to engaging
the auditor for that purpose. Consideration and approval of such services
occurs at the Audit Committee's meetings.
39
SHAREHOLDER COMMUNICATIONS AND PROPOSALS FOR 2005 ANNUAL MEETING
Consideration of certain matters is required at the Annual Meeting of
Shareholders, such as the election of directors. In addition, pursuant to
applicable regulations of the Securities and Exchange Commission, shareholders
may present resolutions, which are proper subjects for inclusion in the proxy
statement and for consideration at the Annual Meeting, by submitting their
proposals to the Company on a timely basis. In order to be included for the
2005 Annual Meeting, resolutions must be received by December 13, 2004.
The Company receives many shareholder suggestions which are not in the form
of resolutions. All are given careful consideration. We welcome and encourage
your comments and suggestions. Your correspondence should be addressed as
follows:
Roy H. Stahl
Secretary
Aqua America, Inc.
762 W. Lancaster Avenue
Bryn Mawr, PA 19010
In addition, shareholders may communicate directly with the independent
directors or the presiding independent director by writing to the address set
forth below. The Company will review all such correspondence and provide any
comments along with the full text of the shareholder's communication to the
independent directors or the presiding independent director.
The Independent Directors or Presiding Independent Director
Aqua America, Inc.
c/o Secretary
762 W. Lancaster Avenue
Bryn Mawr, PA 19010
REQUIREMENTS FOR ADVANCE NOTIFICATION OF NOMINATION
Nominations for election of directors may be made at the Annual Meeting by
any shareholder entitled to vote for the election of directors, provided that
written notice (the "Notice") of the shareholder's intent to nominate a
director at the meeting is filed with the Secretary of the Company prior to
the Annual Meeting in accordance with provisions of the Company's Amended and
Restated Articles of Incorporation and Bylaws.
Section 4.13 of the Company's Bylaws requires the Notice to be received by
the Secretary of the Company not less than 14 days nor more than 50 days prior
to any meeting of the shareholders called for the election of directors, with
certain exceptions. These notice requirements do not apply to nominations for
which proxies are solicited under applicable regulations of the SEC. The
Notice must contain or be accompanied by the following information:
(1) the name and residence of the shareholder who intends to make the
nomination;
40
(2) a representation that the shareholder is a holder of record of voting
stock and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the Notice;
(3) such information regarding each nominee as would have been required
to be included in a proxy statement filed pursuant to the SEC's proxy rules
had each nominee been nominated, or intended to be nominated, by the
management or the Board of Directors of the Company;
(4) a description of all arrangements or understandings among the
shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; and
(5) the consent of each nominee to serve as a director of the Company if
so elected.
Pursuant to the above requirements, appropriate Notices in respect of
nominations for directors must be received by the Secretary of the Company no
later than May 6, 2004.
ADDITIONAL INFORMATION
The Company will provide without charge, upon written request, a copy of the
Company's Annual Report on Form 10-K for 2003, Corporate Governance
Guidelines, Committee Charters and Code of Ethical Business Conduct. Please
direct your requests to Investor Relations Department, Aqua America, Inc., 762
W. Lancaster Avenue, Bryn Mawr, PA 19010.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Act") requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities (a 10% Shareholder), to
file reports of ownership and changes in ownership with the SEC. Officers,
directors and 10% Shareholders are required by the SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or a
written representation from certain reporting persons that no Form 5's were
required for those persons, the Company believes that, during the period
January 1, 2003 through December 31, 2003, it has complied with filing
requirements applicable to its officers and directors with the exception of
inadvertently filing five late Form 4's with respect to granting of options to
Mr. DeBenedictis, Mr. Stahl, Mr. Smeltzer, and Mr. Riegler and granting of
restricted stock to Mr. DeBenedictis.
41
OTHER MATTERS
The Board of Directors is not aware of any other matters which may come
before the meeting. However, if any further business should properly come
before the meeting, the persons named in the enclosed proxy will vote upon
such business in accordance with their judgment.
By Order of the Board of Directors,
ROY H. STAHL
Secretary
April 9, 2004
42
APPENDIX A
AQUA AMERICA, INC.
AUDIT COMMITTEE CHARTER
Committee Purpose:
To assist the Board of Directors in fulfilling its oversight
responsibilities with respect to the integrity of the Corporation's financial
reporting process and financial statements and systems of internal controls
regarding finance, accounting, regulatory and legal compliance. To monitor the
independence, qualifications and performance of the Corporation's independent
auditors and internal audit function. To provide an avenue of communication
among the independent auditors, management, the internal audit function, and
the Board of Directors. To prepare the Securities and Exchange Commission
required report to be included in the Corporation's annual proxy statement.
The Committee has the authority to conduct any investigation appropriate to
fulfilling its responsibilities, and it has direct access to the independent
auditors as well as anyone in the Corporation. The Committee has the ability
to retain, at the Corporation's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
Although the Committee has the powers and responsibilities set forth in this
Charter, the role of the Committee is oversight. The members of the Committee
are not full-time employees of the Corporation and may or may not be
accountants or auditors by profession or experts in the fields of accounting
or auditing and, in any event, do not serve in such capacity. Consequently, it
is not the duty of the Committee to conduct audits, to independently verify
management's representations, or to determine that the Corporation's financial
statements are complete and accurate, prepared in accordance with generally
accepted accounting principles ("GAAP"), or fairly present the financial
condition, results of operations, and cash flows of the Corporation in
accordance with GAAP. These are the responsibilities of management. The
independent auditors are responsible for planning and carrying out proper
audits and reviews of the Company's financial statements. The Committee's
considerations and discussions with management and the independent auditors do
not assure that the Corporation's financial statements are presented in
accordance with GAAP, that the audit of the Corporation's financial statements
has been carried out in accordance with the standards of the Public Company
Accounting Oversight Board, or that the Corporation's independent auditors are
in fact "independent."
Committee Duties and Responsibilities:
Independent Auditors
1. Be solely responsible for the selection, evaluation and, when
appropriate, replacement of the Corporation's independent auditors.
The independent auditors shall report directly to the Committee.
2. Review and pre-approve the proposed scope of the independent
auditors' annual audit, including estimated audit fees as presented
by the independent auditors. The Corporation shall provide for
A-1
appropriate funding, as determined by the Committee, for payment of
compensation to the independent auditors.
3. Review and pre-approve any lawfully permitted, non-audit work by the
independent auditors as presented by management in accordance with
appropriate policies and procedures established by the Committee,
provided that the actual extent of any such pre-approved non-audit
services are reported to the full Committee at its next scheduled
meeting.
4. Disclose all pre-approved, non-audit work in the Corporation's
periodic reports.
5. Prior to the initiation of the audit, meet with the independent
auditors to discuss the planning and staffing of the audit,
including the impact of applicable rotation requirements and other
independence rules on the staffing.
Financial Management
1. Review and discuss with management and the independent auditors the
Corporation's annual audited financial statements and quarterly
financial statements prior to the submission of these financial
statements to the public, including the auditors' opinions,
management letters and the Corporation's disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
2. Recommend to the Board of Directors whether the audited financial
statements should be included in the Corporation's Form 10-K.
3. Review and discuss with management and independent auditors any
significant issues regarding critical accounting principles,
practices and judgments used.
4. Review and discuss with management the Corporation's earnings press
releases, as well as financial information and earnings guidance
provided to analysts and rating agencies.
5. Review any alternative treatment of financial information within
GAAP that the independent auditors have presented and discussed with
management, the ramifications of the use of such alternatives and
the treatment preferred by the independent auditors.
6. Quarterly, in consultation with the management, the independent
auditors, and the internal auditors, consider the integrity of the
Corporation's financial reporting processes and controls.
7. Quarterly, in consultation with the management, the independent
auditors, and the internal auditors, discuss the Corporation's
policies and guidelines regarding risk assessment and risk
management as well as the Company's significant financial risk
exposures and the steps management has taken to monitor, control and
report such exposures.
8. Obtain from and discuss with management and the independent auditors
any significant changes to the Corporation's accounting principles
and any items required to be communicated by the independent
A-2
auditors to the Committee under auditing standards (i.e., Statement
on Auditing Standards No. 61 and Independent Standards Board
Standard No. 1).
9. Prepare the Securities and Exchange Commission required report to be
included in the Corporation's annual proxy statement.
10. Oversee the Corporation's disclosure controls and procedures,
including applicable internal control over financial reporting, and
internal control over financial reporting relating to the
authorization of transactions and the safeguarding of assets, and,
where applicable, oversee the changes in internal controls intended
to address any significant deficiencies in the design or operation
of internal control over financial reporting or material weaknesses
therein and any fraud involving management or other employees that
are reported to the Committee. In addition, the Committee shall
review and discuss the annual internal control report of management
and the independent auditors' report on, and attestation of,
management's evaluation of internal control over financial
reporting, when those reports are required by Securities and
Exchange Commission rules.
Audit Committee
1. Review and evaluate the qualifications, performance and independence
of the Corporation's independent auditors on an annual basis and
present its conclusions with respect to the independent auditors to
the Board of Directors. Such evaluation shall include the review and
evaluation of the audit engagement team, including the lead partner.
In making its review, the Committee shall take into account the
opinions of management.
2. On an annual basis, obtain and review the independent auditors'
report on the Corporation's internal quality-control procedures and
any material issues raised by the most recent internal quality-
control review, peer review, or governmental or professional
investigation within the last five years, and steps taken to address
any such issues.
3. Review significant findings or any audit problems or difficulties
prepared and presented by the independent auditors or the internal
auditors together with management's responses.
4. Review the independent auditors' disclosure of all the relationships
of the independent auditors with the Corporation and discuss any
such relationships that may impact the objectivity and independence
of the independent auditors.
5. Review the Corporation's policies relating to compliance with laws
and regulations, ethics, conflicts of interest and the investigation
of misconduct or fraud.
6. Arrange for periodic reports from management and the independent
auditors assessing the impact of significant regulatory changes, of
accounting or reporting developments proposed by the Financial
Accounting Standards Board or the Securities and Exchange
Commission, or of any other significant financial matters that may
affect the Corporation.
A-3
7. Obtain from management a notification of issues and responses
whenever a second opinion is sought from an independent auditor.
8. Review current and pending litigation or regulatory proceedings in
which the Corporation is a party bearing on corporate governance or
that may have a material financial impact on the Corporation as
presented by the Corporation's General Counsel.
9. Obtain from management and review all cases of material employee
conflict of interest, misconduct or fraud.
10. Direct special investigations into significant matters brought to
the Committee's attention within the scope of its duties and obtain
advice, as needed from outside legal, accounting and other advisors
when required.
11. Review and reassess this Committee Charter as necessary, but no less
frequently than annually and propose to the Corporate Governance
Committee of the Board of Directors any recommended changes.
12. File the Committee Charter every three years in accordance with
Securities and Exchange Commission regulations.
13. Be responsible for the resolution of disputes between management and
the outside auditors.
14. Establish procedures for the receipt and treatment of complaints
regarding accounting, internal accounting controls, or auditing
matters and for the confidential, anonymous submission by employees
of the Corporation of concerns regarding questionable accounting,
auditing or other financial matters.
15. Evaluate the recommendations of the independent auditors and the
internal auditors with the Board of Directors.
16. Review the adequacy of internal controls and the accuracy of
financial statements with the independent auditors and the internal
auditors outside the presence of management.
17. Periodically review the integrity of the financial reporting process
with the independent auditors, the internal auditors and management,
and consider and implement, if appropriate, any changes to auditing
practices and accounting principles suggested by the independent
auditors, management or the internal auditors.
18. Periodically, meet separately with each of the Corporation's
management, the internal auditors and the independent auditors to
discuss any significant issues or difficulties encountered during
the course of the annual audit.
19. Perform an annual performance evaluation of the Committee.
20. Set clear hiring policies for employees or former employees of the
independent auditors.
21. Maintain free and open communication with the Board of Directors,
management, the internal auditors and the independent auditors.
A-4
22. Perform any other activities consistent with this Committee Charter,
the Corporation's Articles of Incorporation, the Corporation's
Bylaws, and governing law, as the Committee or the Board of
Directors may deem necessary or appropriate.
Internal Audit Function
1. Oversee the activities, organizational structure, and qualifications
of the persons performing the internal audit function.
2. Approve the hiring and termination of, and annual performance
against the internal audit plan for, the director of the internal
audit function.
3. Review and approve internal audit plans, progress reports, completed
reports and management's responses to the internal auditors.
4. Discuss with the personnel performing the internal audit function
any changes to, and the implementation of, the internal audit plan
and discuss the results of the internal audits.
Committee Member Qualification:
Committee members shall meet the requirements of the New York Stock Exchange
and the rules and regulations of the Securities and Exchange Commission. The
Committee shall be comprised of three or more directors as determined by the
Board of Directors, each of whom shall be independent, non-management
directors. A director shall qualify as independent if the Board of Directors
has affirmatively determined that the member is independent, consistent with
the independence criteria set forth in the Corporation's Corporate Governance
Guidelines. In addition, members of the Committee must also satisfy the
following additional requirements in order to be independent:
1. No Committee member or immediate family member of such Committee
member may be an affiliated person of the Corporation or any of its
subsidiaries, as that term is defined by the Securities and Exchange
Commission; and
2. No Committee member shall accept, directly or indirectly, any
consulting, advisory, or other compensatory fees from the
Corporation or any of its subsidiaries, except for fees for services
as a director and a member of the Committee and any other Board of
Directors' committee.
All members of the Committee must be financially literate or become
financially literate within a reasonable time after appointment to the
Committee. The Chairperson of the Committee must have accounting or financial
management experience. If a member serves on the audit committees of more than
three companies, the Board of Directors must determine that this does not
impair his or her effectiveness, and disclose such determination in the
Corporation's annual proxy statement filed with the Securities and Exchange
Commission. At least one member of the Committee shall be an "audit committee
financial expert," as that term is defined by the Securities and Exchange
Commission.
A-5
Committee Member Appointment and Removal:
Committee members, nominated by the Corporation's Corporate Governance
Committee, will be appointed annually by the Board of Directors. Committee
members may be removed from membership on the Committee by the Board of
Directors at any time, with or without cause.
Committee Structure and Operations:
Each year the Board of Directors, upon the nomination of the Corporate
Governance Committee, will appoint a Committee Chairperson for the Committee.
If a Committee Chairperson is not designated or present, the members of the
Committee may designate a Chairperson by majority vote of the Committee
membership.
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. The Committee Chairperson shall prepare and/or approve
and circulate an agenda in advance of each meeting, including meetings with
external and/or internal auditors. The Committee should conduct separate
private meetings in executive session at least annually with each of
management, the director of the internal auditing department, the independent
auditors, and as a committee to discuss any matters that the Committee or any
one of these groups believes should be discussed.
The Committee may delegate authority to one or more members of the Committee
where appropriate, but no such delegation shall be permitted if the authority
is required by a law, regulation, or listing standard to be exercised by the
Committee as a whole.
The Corporation shall provide appropriate funding, as determined by the
Committee, for the Committee to retain any advisors employed by the Committee
and to provide for ordinary administrative expenses of the Committee that are
necessary or appropriate in carrying out of its duties, in each case without
requiring the Committee to seek Board of Director approval.
Committee Reporting to the Board:
The Committee shall cause minutes and attendance records to be kept of each
of its meetings, which will be reviewed and approved by the Chairperson of the
Committee. Copies of the minutes of each meeting of the Committee will be
provided to the Board of Directors, and the Chairperson or his or her designee
will report on each meeting of the Committee to the Board of Directors at the
next meeting of the Board of Directors following the meeting of the Committee
Such reports shall include, among other things, the review of any issues that
arise respecting the quality and integrity of the Corporation's public
reporting, the Corporation's compliance with legal and regulatory
requirements, the performance and independence of the Corporation's
independent auditors, the performance of the Corporation's internal audit
function, and the effectiveness of the Corporation's disclosure controls and
procedures.
A-6
APPENDIX B
AMENDMENT
to the
AQUA AMERICA, INC ARTICLES OF INCORPORATION
The Articles of Incorporation of Aqua America, Inc. are to be amended as
follows:
1. Paragraph 4.01 of Article IV is amended in its entirety to
read:
The aggregate number of shares which the Corporation shall have
authority to issue is 301,770,819 shares, divided into
300,000,000 shares of Common Stock, par value $.50 per share,
and 1,770,819 shares of Series Preferred Stock, par value $1.00
per share. The Board of Directors shall have the full authority
permitted by law to fix by resolution full, limited, multiple
or fractional, or no voting rights, and such designations,
preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights, and other special or
relative rights of any class or any series of any class that
may be desired.
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APPENDIX C
AQUA AMERICA, INC
2004 EQUITY COMPENSATION PLAN
1. Purpose
The purpose of this plan (the "Plan") is to provide an incentive, in the
form of a proprietary interest in Aqua America, Inc. (the "Corporation"), to
officers, other key employees and Non-employee Directors, as defined below, of
the Corporation and its subsidiaries and key consultants who are in a position
to contribute materially to the successful operation of the business of the
Corporation, to increase their interest in the Corporation's welfare, and to
provide a means through which the Corporation can attract and retain officers,
other key employees and Non-employee Directors and key consultants of
significant abilities. The Plan is a successor plan to the Corporation's
existing Amended and Restated 1994 Equity Compensation Plan (the "1994 Plan.")
2. Administration
This Plan shall be administered by a Committee (the "Committee") of the
Board of Directors of the Corporation. The Committee shall consist of three or
more of those members of the Board of Directors, each of whom may be an
"outside director" as defined under section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), and related Treasury regulations and
each of whom shall also be a "non-employee director" as defined under Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). However, the Board of Directors may ratify or approve any grants made
by the Committee if the Committee deems it appropriate in a particular
circumstance.
From time to time the Committee may make grants, subject to the terms of the
Plan, with respect to such number of shares of Common Stock of the Corporation
as the Committee, acting in its sole discretion, may determine. All references
to the Committee hereunder shall also mean the Board of Directors to the
extent that the Board of Directors is acting pursuant to its authority to
ratify or approve grants under the Plan. Non-employee Directors, as defined
below, may only receive stock grants pursuant to the provisions of Section
7(f).
Subject to the provisions of the Plan, the Committee shall be authorized to
interpret the Plan and the grants made under the Plan, to establish, amend and
rescind any rules and regulations relating to the Plan, to determine the terms
and provisions of the agreement related to grants described in Section 9
hereof, and to make all other determinations, including factual
determinations, necessary or advisable for the administration of the Plan. The
Committee may correct any defect, supply any omission and reconcile any
inconsistency in the Plan or in any option or grant in the manner and to the
extent it shall be deemed desirable to carry it into effect. The
determinations of the Committee in the administration of the Plan, as
described herein, shall be final and conclusive. The Committee may adopt such
rules and regulations as it deems necessary for governing its affairs. All
powers of the Committee shall be executed in its sole discretion, in the best
interest of the Corporation, not as a fiduciary, and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals. An Agreement, as defined below, shall be executed by each grantee
and shall constitute that grantee's acknowledgement and acceptance of the
terms of the Plan and the Committee's authority and discretion.
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3. Grants
Pursuant to the terms of the Plan, the Committee shall have the authority to
grant stock options to officers and other key employees and key consultants
and restricted stock and dividend equivalents to officers and other key
employees; provided, however, that Non-employee Directors, as defined below,
may receive stock grants in accordance with Section 7(f) (hereinafter
collectively referred to as the "Grants"). All Grants shall be subject to the
terms and conditions set forth herein and to those other terms and conditions
consistent with this Plan as the Committee deems appropriate and as are
specified in writing by the Committee in the agreement described in Section 9
of the Plan (the "Agreement"). Grants under a particular Section of the Plan
need not be uniform as among the grantees and Grants under two or more
Sections of the Plan may be combined in one instrument.
4. Shares Subject to the Plan
Subject to adjustment as provided in Section 15, the maximum aggregate
number of shares of the Common Stock of the Corporation that may be issued or
transferred under the Plan shall be 3,675,000 shares; provided, however, that
no more than 50% of these shares shall be available for issuance as restricted
stock. The maximum number of shares of Common Stock that may be subject to
Grants made under the Plan to any individual during any calendar year shall be
150,000 shares. Shares deliverable under the Plan may be authorized and
unissued shares or treasury shares, as the Committee may from time to time
determine. Shares of Common Stock related to the unexercised or undistributed
portion of any terminated, expired or forfeited Grant also may be made
available for distribution in connection with future Grants under the Plan.
Additionally, if and to the extent options granted under the 1994 Plan
terminate or expire without being exercised, or if any shares of restricted
stock are forfeited, or shares of Common Stock otherwise issuable under the
1994 Plan are withheld by the Corporation in satisfaction of withholding taxes
incurred in connection with the exercise of a stock option or vesting of a
restricted stock award, the shares subject to such awards may be made
available for distribution in connection with future Grants under the Plan.
5. Eligibility
Only officers, key employees, members of the Board of Directors who are not
employed in any capacity by the Corporation (hereinafter referred to as
"Non-employee Directors") and key consultants of the Corporation and its
subsidiaries shall be eligible for Grants under the Plan; provided, however,
that Grants to Non-employee Directors shall be made only in accordance with
Section 7(f). The term "subsidiaries" shall mean any corporation in an
unbroken chain of corporations beginning with the Corporation, if at the time
of the Grant, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
6. Granting of Options
The Committee may, from time to time, grant stock options to eligible
officers and other key employees and shall designate options at the time of
grant as either "incentive stock options" intended to qualify as such under
section 422 of the Internal Revenue Code of 1986, as from time to time amended
or any successor statute of similar purpose (the "Code"), or "nonqualified
stock options", which options are not intended to so qualify. The
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Committee may, from time to time, grant nonqualified stock options to key
consultants. Except as hereinafter provided, options granted pursuant to the
Plan shall be subject to the following terms and conditions:
(a) Price. The purchase price per share of stock deliverable upon the
issuance of shares pursuant to the exercise of each option shall be
not less than 100% of the fair market value of the Corporation's
Common Stock on the date the option is granted. The fair market
value shall be the mean of the high and low sale prices of the
Corporation's Common Stock on the New York Stock Exchange --
Composite Transactions or other recognized market source, as
determined by the Committee, on the date the option is granted, or
if there is no sale on such date, then the mean of such high and low
sale prices on the last previous day on which a sale is reported. In
any event, in case of the grant of an incentive stock option, the
fair market value shall be determined in a manner consistent with
section 422 of the Code.
Shares may be purchased only by delivering a notice of exercise to the
Committee with payment of the purchase price therefore to be paid in full
prior to the issuance of the shares. Such notice may instruct the Corporation
to deliver shares of Common Stock due upon the exercise of the option to any
registered broker or dealer in lieu of delivery to the grantee. Such
instructions must designate the account into which the shares are to be
deposited. The grantee may tender this notice of exercise, which has been
properly executed by the grantee, and the aforementioned delivery instructions
to any broker or dealer. With the consent of the Committee, payment of the
purchase price may be made, in whole or in part, through the surrender of
shares of the Common Stock of the Corporation (including without limitation
shares of Common Stock acquired pursuant to the option then being exercised)
at the fair market value of such shares determined as of the last trading day
prior to the date on which the option is exercised, in the same manner set
forth in the above paragraph.
(b) Terms of Options. The term during which each incentive stock option
may be exercised shall be determined by the Committee, but in no
event shall an incentive stock option be exercisable in whole or in
part more than 10 years from the date it is granted and in no event
shall a nonqualified stock option be exercisable in whole or in part
more than 10 years and one day from the date it is granted. All
rights to purchase pursuant to an option shall, unless sooner
terminated, expire at the date designated by the Committee.
The Committee shall determine the date on which each option shall become
exercisable and may provide that an option shall become exercisable in
installments. The shares comprising each installment may be purchased in whole
or in part at any time after such installment becomes exercisable. The
Committee may, in its sole discretion, accelerate the time at which any option
may be exercised in whole or in part. Notwithstanding any determinations by
the Committee regarding the exercise period of any option, all outstanding
options shall become immediately exercisable upon a Change of Control of the
Corporation (as defined herein).
(c) Termination of Employment. Upon the termination of a grantee's
employment for any reason (except as a result of retirement,
disability or death), the options held by such grantee shall
terminate. Notwithstanding the fact that, in all cases, a grantee's
employment shall be deemed to have terminated upon the sale of a
"subsidiary" of the Corporation (an entity in which the Corporation
has at least a
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50% ownership of the entity's total voting power) that employs such
grantee, the Committee, in its sole discretion, may extend the
period during which any option held by such a grantee may be
exercised after such sale to the earliest of (i) a date which is not
more than three years from the date of the sale of the subsidiary,
(ii) the date of the grantee's termination of employment with the
subsidiary (or successor employer) following such sale for reasons
other than retirement, disability or death, (iii) the date which is
one year from the date of the grantee's termination of employment
with the subsidiary on account of the grantee's total disability (as
defined in section 22(e)(3) of the Code), or three months from the
date of such termination if on account of death, retirement or a
disability other than a total disability, or (iv) the expiration of
the original term of the option as established at the time of grant.
The Committee, in its sole discretion, may similarly extend the
period of exercise of any option held by a grantee employed by the
Corporation whose employment with the Corporation is terminated in
connection with the sale of a subsidiary of the Corporation. To the
extent that any option is not otherwise exercisable as of the date
on which the grantee ceases to be employed by the subsidiary or the
Corporation, as applicable, such unexercisable portion of the option
shall terminate as of such date.
Upon termination of a grantee's employment as a result of retirement,
disability or death, the period during which the options may be exercised
shall not exceed: (i) one year from the date of such termination of employment
in the case of death; (ii) two years from the date of such termination in the
case of permanent and total disability (within the meaning of section 22(e)(3)
of the Code) or retirement; and (iii) three months from the date of such
termination of employment in the case of other disability; provided, however,
that in no event shall the period extend beyond the expiration of the option
term. To the extent that any option is not otherwise exercisable as of the
date on which the grantee ceases to be employed by the Corporation or any
subsidiary, as applicable, such unexercisable portion of the option shall
terminate as of such date.
Subject to the foregoing, in the event of death, such options may be
exercised by a grantee's legal representative or beneficiary, but only to the
extent that an option has become exercisable as of the date of death.
Notwithstanding the foregoing, the Committee, in its sole discretion, may
determine that any portion of an option that has not become exercisable as of
the date of the grantee's death, termination of employment on account of
permanent and total disability (within the meaning of section 22(e)(3) of the
Code) or other termination of employment may also be exercised by a grantee,
or in the case of death, a grantee's legal representative or beneficiary.
Transfer from the Corporation to a subsidiary, from a subsidiary to the
Corporation, or from one subsidiary to another, shall not be deemed to be a
termination of employment. All references in this Section 6(c) to the
termination of a grantee's employment shall include the termination of a
consultant's relationship with the Corporation or any subsidiary.
(d) Limits on Incentive Stock Options. Each Grant of an incentive stock
option shall provide that it (i) is not transferable by the grantee
otherwise than by will or the laws of descent and distribution and
(ii) is exercisable, during the grantee's lifetime, only by the
grantee and that the aggregate fair market value of the Common Stock
on the date of the Grant with respect to which incentive stock
options are exercisable for the first time by a grantee during any
calendar year under the Plan and under any other
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stock option plan of the Corporation shall not exceed the limitation
set forth in section 422(d) of the Code.
An incentive stock option shall not be granted to any grantee who, at the
time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Corporation or subsidiary
of the Corporation, unless the exercise price of the incentive stock option is
no less than 110% of the fair market value per share on the date of grant and
the term of the incentive stock option is not more than five years. Unless a
grantee could otherwise transfer Common Stock issued pursuant to an incentive
stock option granted hereunder without incurring liability under section 16(b)
of the Exchange Act, at least six months must elapse from the date of
acquisition of an incentive stock option to the date of disposition of the
Common Stock issued upon exercise of such option.
7. Restricted Stock Grants
The Committee may issue or transfer shares of Common Stock of the
Corporation to an eligible officer or other key employee. The following
provisions are applicable to restricted stock grants:
(a) General Requirements. Shares of Common Stock of the Corporation
issued pursuant to restricted stock grants may be issued for
consideration or for no consideration. Subject to any other
restrictions by the Committee as provided pursuant to Section 7(e)
and 7(g), restrictions on the transfer of shares of Common Stock set
forth in Section 7(c) shall lapse on such date or dates as the
Committee may approve until the restrictions have lapsed on 100% of
the shares; provided, however, that upon a Change of Control of the
Corporation, all restrictions on the transfer of the shares which
have not, prior to such date, been forfeited shall immediately
lapse. The period of years during which the restricted stock grant
will remain subject to restrictions will be designated in the
Agreement (the "Restriction Period"). Prior to the lapse of the
Restriction Period the shares of Common Stock granted to any grantee
shall be held by the Corporation, subject to the provisions of
Section 15 with respect to voting and dividends.
(b) Number of Shares. The Committee may grant to each grantee a number
of shares of Common Stock of the Corporation determined in its sole
discretion.
(c) Requirement of Employment. If the grantee's employment terminates
during the Restriction Period, the restricted stock grant terminates
as to all shares covered by the Grant as to which restrictions on
transfer have not lapsed, and those shares of Common Stock must be
immediately returned to the Corporation. The Committee may, however,
provide for complete or partial exceptions to this requirement as it
deems equitable.
(d) Restrictions on Transfer and Legend on Stock Certificate. During the
Restriction Period, a grantee may not sell, assign, transfer,
pledge, or otherwise dispose of the shares of Common Stock to which
such Restriction Period applies except to a Successor Grantee (as
defined in Section 10 of the Plan). Each certificate for a share
issued or transferred under a restricted stock grant shall contain a
legend giving appropriate notice of the restrictions in the Grant.
The grantee shall be entitled to have the
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legend removed from the stock certificate or certificates covering
any of the shares subject to restrictions when all restrictions on
such shares have lapsed.
(e) Lapse of Restrictions. All restrictions imposed under the restricted
stock grant shall lapse upon the expiration of the applicable
Restriction Period; provided, however, that upon the death of the
grantee or a Change of Control of the Corporation, all restrictions
on the transfer of shares which have not, prior to such date, been
forfeited shall immediately lapse. In addition, the Committee may
determine as to any or all restricted stock grants, that all the
restrictions shall lapse, without regard to any Restriction Period,
under such circumstances as it deems equitable.
(f) Stock grants to Non-employee Directors. As of the first day of the
month following the Corporation's annual meeting of shareholders,
each Non-employee Director shall receive a grant of 1,093 shares of
Common Stock. Such shares shall not be sold for 6 months following
the date of grant. No other restrictions shall apply to such shares.
Notwithstanding any other provision of the Plan, this Section 7(f)
may not be amended more than once every 12 months, except for
amendments necessary to conform the Plan to changes of the
provisions of, or the regulations relating to, the Code.
(g) (1) Restricted Stock Awards Subject to Performance Goals. From time
to time the Committee may issues shares of Common Stock of the
Corporation pursuant to restricted stock grants, which, in addition
to the terms and restrictions of Sections 7(a)-(f) above, will be
subject to certain pre-established performance goals. In setting the
performance goals for grants designated as "qualified
performance-based compensation" pursuant to this Section 7, the
Committee may establish that the Restriction Period of such
restricted stock grants will lapse only upon the achievement of
certain pre-established corporate performance goals that shall be
objectively determinable. The performance goals may be based on one
or more of the following criteria: (1) total return to shareholders;
(2) dividends; (3) earnings per share; (4) customer growth; (5) cost
reduction goals; (6) the achievement of specified operational goals,
including water quality and the reliability of water supply; (7)
measures of customer satisfaction; (8) net income (before or after
taxes) or operating income, before or after non-recurring items; (9)
earnings before interest, taxes, depreciation and amortization or
operating income before depreciation and amortization; (10) revenue
targets; (11) return on assets, capital or investment; (12) cash
flow; (13) budget comparisons; (14) implementation or completion of
projects or processes strategic or critical to the Company's
business operations; and (15) any combination of, or a specified
increase in, any of the foregoing. In addition, such performance
goals may be based upon the attainment of specified levels of the
Corporation's performance under one or more of the measures
described above relative to the performance of other entities and
may also be based on the performance of any of the Corporation's
business units or divisions or any parent or subsidiary. Performance
goals may be based upon the attainment of specified levels of the
Company's performance under one or more of the measures described
above during a specified time period, which may differ from the
Restriction Period. Performance goals may include a minimum
threshold level of performance below which no award will be earned,
levels of performance at which specified portions of an award will
be earned and a maximum level of performance at which an award will
be fully earned. These performance goals shall
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satisfy the requirements for "qualified performance-based
compensation," including the requirement that the achievement of the
goals be substantially uncertain at the time they are established
and that the performance goals be established in such a way that a
third party with knowledge of the relevant facts could determine
whether and to what extent the performance goals have been met. The
Committee shall not have discretion to increase the amount of
compensation that is payable upon achievement of the designated
performance goals, but the Committee may reduce the amount of
compensation that is payable upon achievement of the designated
performance goals.
(2) Timing of Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the
commencement of the period during which the specified performance
goals are to be measured or during a period ending no later than the
earlier of (i) 90 days after the beginning of the period during
which the specified performance goals are to be measured or (ii) the
date on which 25% of the period during which the specified
performance goals are to be measured has been completed, or such
other date as may be required or permitted under applicable
regulations under Code section 162(m).
(3) Announcement of Results. The Committee shall certify and announce
the results for the Restriction Period to all grantees after the
Company announces the Company's financial results for the
Restriction Period. If and to the extent that the Committee does not
certify that the performance goals have been met, the applicable
grants for the Restriction Period shall be forfeited or shall not be
paid, as applicable.
(4) Death, Disability or Other Circumstances. The Committee may provide
that grants shall be payable or restrictions shall lapse, in whole
or in part, in the event of the grantee's death or disability during
the Restriction Period, a Change of Control or under other
circumstances consistent with the Treasury regulations and rulings
under Code section 162(m).
8. Dividend Equivalents
The Committee may grant dividend equivalents to eligible officers and other
key employees either alone or in conjunction with all or part of any option
granted under the Plan. A dividend equivalent shall be equal to the dividend
payable on a share of Common Stock of the Corporation. The amount of dividend
equivalents for any grantee (the "Dividend Equivalent Amount") is determined
by multiplying the number of dividend equivalents subject to the Grant by the
per-share cash dividend, or the per-share fair market value (as determined by
the Committee) of any dividend in other than cash, paid by the Corporation on
each record date for the payment of a dividend during the period described in
Section 8(a).
(a) Amount of Dividend Equivalent Credited. The Corporation shall credit
to an account for each grantee maintained by the Corporation in its
books and records on each record date, from the date of grant until
the earlier of the date of (i) the end of the applicable
accumulation period designated by the Committee at the time of
grant, (ii) the date of the termination of employment for any reason
(including retirement), other than total disability (as defined in
section 22(e)(3) of the Code) or death of the grantee, or as
otherwise determined by the Committee, in its sole discretion, at
the time of a grantee's termination of employment or (iii) the end
of a period of four years from the date of grant, that portion
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of the Dividend Equivalent Amount for each such grantee attributable
to each record date. The Corporation shall maintain in its books and
records separate accounts which identify each Grantee's Dividend
Equivalent Amount. Except as set forth in Section 8(e) below, no
interest shall be credited to any such account.
(b) Payment of Credited Dividend Equivalents. The Committee, at the time
of grant, shall designate the percentage of each grantee's Dividend
Equivalent Amount that shall be paid to the grantee at the end of an
applicable performance period (the "Performance Period"), generally
being four years from the date of grant (the Committee, in its sole
discretion, shall retain the right to designate a longer or shorter
Performance Period at the time of grant); provided, however, that
such Performance Period shall be:
(i) Reduced by one year for each calendar year during the applicable
Performance Period ending after the date of grant in which the
measurable performance criteria established by the Committee at
the time of grant for the applicable Performance Period exceeds
the targets for such criteria established by the Committee at
the time of grant.
(ii) Increased by one year for each calendar year during the
applicable Performance Period ending after the date of grant in
which the measurable performance criteria established by the
Committee at the time of grant for the applicable Performance
Period is less than the targets for such criteria established by
the Committee at the time of grant.
(iii) In no event shall the Performance Period be reduced to less than
two years or increased to more than eight years from the date of
grant.
(iv) In the event that the Performance Period is shorter than the
period described in Section 8(a), a grantee shall receive the
payment of the amount credited to his account at the end of the
applicable Performance Period and any portion of the Dividend
Equivalent Amount not yet so credited to his account shall be
paid on the Corporation's normal dividend payment dates until
the grantee's Dividend Equivalent Amount for the period
described in Section 8(a) is fully paid to the grantee.
(c) Timing of Payment of Dividend Equivalents. Except as otherwise
determined by the Committee in the event of a grantee's termination
from employment prior to the end of the applicable Performance
Period, no payments of the Dividend Equivalent Amount shall be made
until the end of the applicable Performance Period and no payments
shall be made to any grantee whose employment by the Corporation or
a subsidiary terminates prior to the end of the applicable
Performance Period for any reason other than retirement under the
Corporation's or a subsidiary's retirement plan, death or total
disability (as defined in section 22(e)(3) of the Code). Subject to
Section 8(b)(iv), as soon as practicable after the end of such
Performance Period, unless a grantee shall have made an election
under Section 8(f) to defer receipt of any portion of such amount, a
grantee shall receive 100% of the Dividend Equivalent Amount payable
to him. Notwithstanding the foregoing, upon a Change of Control of
the Corporation, any Dividend Equivalent Amount or portion thereof,
which has not, prior to such date, been paid to the grantee or
forfeited shall immediately become payable to the grantee without
regard to whether the applicable Performance Period has ended.
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(d) Form of Payment. The Committee shall have the sole discretion to
determine whether the Corporation's obligation in respect of the
payment of a Dividend Equivalent Amount shall be paid solely in
credits to be applied toward payment of the option price under then
exercisable options, solely in cash or partly in such credits and
partly in cash.
(e) Interest on Dividend Equivalents. From a date which is 45 days after
the end of the applicable Performance Period until the date that the
Dividend Equivalent Amount payable to the grantee is paid to such
grantee, the account maintained by the Corporation in its books and
records with respect to such dividend equivalents shall be credited
with interest at a market rate determined by the Committee.
(f) Deferral of Dividend Equivalents. A grantee shall have the right to
defer receipt of any Dividend Equivalent Amount payments if he shall
elect to do so on or prior to December 31 of the year preceding the
beginning of the last full year of the applicable Performance Period
(or such other time as the Committee shall determine is appropriate
to make such deferral effective under the applicable requirements of
federal tax laws). The terms and conditions of any such deferral
(including the period of time thereof and any earnings on the
deferral) shall be subject to approval by the Committee and all
deferrals shall be made on a form provided a grantee for this
purpose.
9. Agreement with Grantees
Each grantee who receives a Grant under the Plan shall enter into an
agreement with the Corporation which shall contain such provisions, consistent
with the provisions of the Plan, as may be established from time to time by
the Committee and shall constitute that grantee's acknowledgement and
acceptance of the terms of the Plan and the Committee's authority and
discretion.
10. Transferability of Grants
(a) Nontransferability of Grants. Only a grantee or his or her
authorized legal representative may exercise rights under a Grant.
Such persons may not transfer those rights except by will or by the
laws of descent and distribution or, with respect to Grants other
then incentive stock options, if permitted in any specific case by
the Committee in their sole discretion, pursuant to a domestic
relations order as defined under the Code or Title I of ERISA or the
rules thereunder. When a grantee dies, the personal representative
or other person entitled to succeed to the rights of the grantee
("Successor Grantee") may exercise such rights. A Successor Grantee
must furnish proof satisfactory to the Corporation of his or her
right to receive the Grant under the grantee's will or under the
applicable laws of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide, in the Agreement, that a
grantee may transfer nonqualified stock options to family members,
one or more trusts for the benefit of family members, or one or more
partnerships of which family members are the only partners,
according to such terms as the Committee may determine; provided
that the grantee receives no consideration for the transfer of an
option and the transferred option shall continue
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to be subject to the same terms and conditions as were applicable to
the option immediately before the transfer.
11. Funding of the Plan
This Plan shall be unfunded. The Corporation shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. Subject to Section
8(e), in no event shall interest be paid or accrued on any Grant, including
unpaid installments of Grants.
12. Rights of Grantees
Nothing in this Plan shall entitle any grantee or other person to any claim
or right to receive a Grant under this Plan or to any of the rights and
privileges of, a shareholder of the Corporation in respect of any shares
related to any Grant or purchasable upon the exercise of any option, in whole
or in part, unless and until certificates for such shares have been issued.
Notwithstanding the foregoing, a grantee who receives a grant of restricted
stock shall have all rights of a shareholder, except as set forth in Section
7(d), during the Restriction Period, including the right to vote and receive
dividends. Neither this Plan nor any action taken hereunder shall be construed
as giving any grantee any rights to be retained in the employ of the
Corporation, to be retained as a consultant by the Corporation or to be
retained as a Non-employee Director by the Corporation.
13. Withholding of Taxes
The Corporation shall have the right to deduct from all Grants paid in cash
any federal, state or local taxes required by law to be withheld with respect
to such cash awards. The grantee or other person receiving such shares shall
be required to pay to the Corporation the amount of any such taxes which the
Corporation is required to withhold with respect to such Grants. With respect
to Grants of restricted stock or nonqualified stock options, the Corporation
shall have the right to require that the grantee make such provision, or
furnish the Corporation such authorization as may be necessary or desirable so
that the Corporation may satisfy its obligation, under applicable income tax
laws, to withhold for income or other taxes due upon or incident to such
restricted stock or the exercise of such nonqualified stock options.
The Committee may adopt such rules, forms and procedures as it considers
necessary or desirable to implement such withholding procedures, which rules,
forms and procedures shall be binding upon all grantees, and which shall be
applied uniformly to all grantees similarly situated.
14. Listing and Registration
Each Grant shall be subject to the requirement that, if at any time the
Committee shall determine in its discretion that the listing, registration or
qualification of the Grant or the shares subject to the Grant upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, such Grant or the issue or purchase of
shares thereunder, no such Grant may be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
C-10
15. Adjustment of and Changes in Common Stock of the Corporation.
In the event of a reorganization, recapitalization, change of shares, stock
split, spin-off, stock dividend, reclassification, subdivision or combination
of shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Corporation, the Committee may make such
adjustment as it deems appropriate in the number and kind of shares authorized
by the Plan, in the number and kind of shares covered by Grants made under the
Plan, in the purchase prices of outstanding options or the terms and
conditions applicable to dividend equivalents. Any adjustment determined by
the Committee shall be final, binding and conclusive.
16. Change of Control of the Corporation
As used herein, the following defined terms shall have the meanings
described in this Section:
(a) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(b) A Person shall be deemed the "Beneficial Owner" of any securities:
(i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for payment, purchase or exchange; (ii) that such Person or any of
such Person's Affiliates or Associates, directly or indirectly, has
the right to vote or dispose of or has "beneficial ownership" of (as
determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), including without limitation
pursuant to any agreement, arrangement or understanding, whether or
not in writing; provided, however, that a Person shall not be deemed
the "Beneficial Owner" of any security under this clause (ii) as a
result of an oral or written agreement, arrangement or understanding
to vote such security if such agreement, arrangement or
understanding (A) arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable provisions of the General
Rules and Regulations under the Exchange Act, and (B) is not then
reportable by such Person on Schedule 13D under the Exchange Act (or
any comparable or successor report); or (iii) that are beneficially
owned, directly or indirectly, by any other Person (or any Affiliate
or Associate thereof) with which such Person (or any of such
Person's Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to clause (ii) above) or disposing of any
voting securities of the Corporation; provided, however, that
nothing in this subsection (b) shall cause a Person engaged in
business as an underwriter of securities to be the "Beneficial
Owner" of any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until
the expiration of forty days after the date of such acquisition.
C-11
(c) "Change of Control" shall mean:
(i) any Person (including any individual, firm, corporation,
partnership or other entity except the Corporation, any
subsidiary of the Corporation, any employee benefit plan of the
Corporation or of any subsidiary, or any Person or entity
organized, appointed or established by the Corporation for or
pursuant to the terms of any such employee benefit plan),
together with all Affiliates and Associates of such Person,
shall become the Beneficial Owner in the aggregate of 20% or
more of the Common Stock of the Corporation then outstanding;
(ii) during any twenty-four month period, individuals who at the
beginning of such period constitute the Board cease for any
reason to constitute a majority thereof, unless the election, or
the nomination for election by the Corporation's shareholders,
of at least seventy-five percent of the directors who were not
directors at the beginning of such period was approved by a vote
of at least seventy-five percent of the directors in office at
the time of such election or nomination who were directors at
the beginning of such period; or
(iii) there occurs a sale of 50% or more of the aggregate assets or
earning power of the Corporation and its subsidiaries, or its
liquidation is approved by a majority of its shareholders or the
Corporation is merged into or is merged with an unrelated entity
such that following the merger the shareholders of the
Corporation no longer own more than 50% of the resultant entity.
Notwithstanding anything in this subsection (c) to the contrary, a Change of
Control shall not be deemed to have taken place under clause (c)(i) above if
(i) such Person becomes the beneficial owner in the aggregate of 20% or more
of the Common Stock of the Corporation then outstanding as a result, in the
determination of a majority of those members of the Board of Directors of the
Corporation in office prior to the acquisition, of an inadvertent acquisition
by such Person if such Person, as soon as practicable, divests itself of a
sufficient amount of its Common Stock so that it no longer owns 20% or more of
the Common Stock then outstanding, or (ii) such Person becomes the beneficial
owner in the aggregate of 20% or more of the common stock of Corporation
outstanding as a result of an acquisition of common stock by the Corporation
which, by reducing the number of common stock outstanding, increases the
proportionate number of shares of common stock beneficially owned by such
Person to 20% or more of the shares of common stock then outstanding;
provided, however that if a Person shall become the beneficial owner of 20% or
more of the shares of common stock then outstanding by reason of common stock
purchased by the Corporation and shall, after such share purchases by the
Corporation become the beneficial owner of any additional shares of common
stock, then the exemption set forth in this clause shall be inapplicable.
17. Amendment and Termination
(a) The Plan may be amended by the Board of Directors of the Corporation
as it shall deem advisable to ensure such qualification and conform
to any change in the law or regulations applicable thereto,
including such new regulations as may be enacted pertaining to the
tax treatment of incentive stock options to be granted under this
Plan, or in any other respect that the Board may deem to be in the
best interest of the Corporation; provided, however, that the Board
may not amend the Plan, without the
C-12
authorization and approval of the shareholders of this Corporation,
if such approval is required by section 422 of the Code or section
162(m) of the Code.
The Board of Directors shall not amend the Plan if the amendment
would cause the Plan or the Grant or exercise of an incentive stock
option under the Plan to fail to comply with the requirements of
section 422 of the Code including, without limitation, a reduction
of the option price set forth in Section 6(a) or an extension of the
period during which an incentive stock option may be exercised as
set forth in Section 6(b).
(b) The Board of Directors of the Corporation may, in its discretion,
terminate, or fix a date for the termination of, the Plan. Unless
previously terminated, the Plan shall terminate on March 17, 2014
and no Grants shall be made under the Plan after such date.
(c) A termination or amendment of the Plan that occurs after a Grant is
made shall not result in the termination or amendment of the Grant
unless the grantee consents or unless the Committee acts under
Section 18. The termination of the Plan shall not impair the power
and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be
terminated or amended under this Section 17 or may be amended by
agreement of the Corporation and the grantee consistent with the
Plan.
18. Compliance with Law
The Plan, the exercise of Grants and the obligations of the Corporation to
issue or transfer shares of Common Stock under Grants shall be subject to all
applicable laws, including any applicable federal or Pennsylvania state law,
and to approvals by a governmental or regulatory agency as may be required.
With respect to persons subject to Section 16 of the Exchange Act, it is the
intent of the Corporation that the Plan and all transactions under the Plan
comply with all applicable conditions of Rule 16b-3 or its successors under
the Exchange Act. In addition, it is the intent of the Corporation that the
Plan and applicable Grants of stock options under the Plan comply with the
applicable provisions of sections 162(m) and 422 of the Code. The Committee
may revoke any Grant if it is contrary to law or modify a Grant to bring it
into compliance with any valid and mandatory government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payments
to grantees. The Committee may, in its sole discretion, agree to limit its
authority under this Section.
19. Effective Date of the Plan
The Plan shall be effective on March 18, 2004, but subject to the approval
of the Corporation's stockholders at the May 20, 2004 meeting of the
Corporation's stockholders or any resumption thereof.
C-13
4959-PS-04
AQUA
America(SM)
C/O EQUISERVE TRUST COMPANY N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
RECEIVE FUTURE AQUA AMERICA, INC. PROXY MATERIALS VIA THE INTERNET! Consider receiving future Aqua America, Inc. Annual
Report and Proxy materials (as well as all other Company communications) in electronic form rather than in printed form. While
voting via the Internet, at www.eproxyvote.com/wtr, click the button `Electronically' and provide your e-mail address to give
your consent and thereby save Aqua America the future costs of producing, distributing and mailing these materials. Accessing
Aqua America's Annual Report and Proxy materials via the Internet may result in charges to you from your Internet service
provider and/or telephone companies. If you do not consent to access Aqua America's Annual Report and Proxy materials via the
Internet, you will continue to receive them in the mail.
+--------------------------------------+
| |
| |
+--------------------------------------+
Your vote is important. Please vote immediately.
+------------------------------------------+ +------------------------------------------+
| Vote-by-Internet [GRAPHIC] | | Vote-by-Telephone [GRAPHIC] |
| | | |
+------------------------------------------+ OR +------------------------------------------+
| Log on to the Internet and go to | | Call toll-free |
| http://www.eproxyvote.com/wtr | | 1-877-PRX-VOTE (1-877-779-8683) |
+------------------------------------------+ +------------------------------------------+
If you vote over the Internet or by telephone, please do not mail your card.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
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X Please mark votes as | 4959
in this example. |
+--
The Board of Directors recommends that you vote FOR all nominees for Director and FOR Proposals 2 and 3.
1.Election of Directors. FOR AGAINST ABSTAIN
2. Approval of an amendment to Aqua America, Inc.'s +--+ +--+ +--+
Nominees: Articles of Incorporation increasing the authorized | | | | | |
shares of Aqua America, Inc.'s Common Stock, par +--+ +--+ +--+
(01) Richard L. Smoot, value $.50 per share, from 100,000,000 shares to
(02) William P. Hankowsky and 300,000,000 shares.
(03) John E. Menario
3. To approve the 2004 Equity Compensation Plan. +--+ +--+ +--+
FOR +--+ +--+ WITHHELD | | | | | |
ALL | | | | FROM ALL +--+ +--+ +--+
NOMINEES +--+ +--+ NOMINEES
+--+ 4. In their discretion, the proxies are authorized to
| | vote upon such other business as may properly come
+--+ ---------------------------------------- before the meeting.
For all nominees except as written above +--+
| |
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT +--+
THIS PROXY MUST BE SIGNED EXACTLY AS NAME APPEARS HEREIN.
Executors, Administrators, Trustees, etc. should give full title as such.
If the signer is a corporation, please sign full corporate name by duly
authorized officer.
Signature: _______________________________ Date: _____________ Signature: ________________________________ Date: _____________
Dear Shareholder:
Enclosed are materials relating to Aqua America, Inc.'s 2004 Annual Meeting of Shareholders. The Notice of the Meeting and
Proxy Statement describe the formal business to be transacted at the meeting.
Your vote is important to us. Please complete, sign and return the attached proxy card in the accompanying postage-paid
envelope, vote electronically through the Internet, or vote by phone by following the instructions set out on the proxy card,
whether or not you expect to attend the meeting.
Nicholas DeBenedictis
Chairman & President
DETACH HERE
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PROXY
AQUA AMERICA, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AQUA AMERICA, INC.
Proxy for Annual Meeting of Shareholders, May 20, 2004
The undersigned hereby appoints David P. Smeltzer, Roy H. Stahl and Mark J. Kropilak, or a majority of them or any one of them
acting singly in the absence of the others, with full power of substitution, the proxy or proxies of the undersigned, to attend
the Annual Meeting of Shareholders of Aqua America, Inc., to be held at the Springfield Country Club, 400 West Sproul Road,
Springfield, PA 19064, at 10:00 a.m., on Thursday, May 20, 2004 and any adjournments thereof, and, with all powers the
undersigned would possess, if present, to vote all shares of Common Stock of the undersigned in Aqua America, Inc. including any
shares held in the Dividend Reinvestment Plan of Aqua America, Inc. as designated on the reverse side.
The proxy when properly executed will be voted in the manner directed herein by the undersigned. If the proxy is signed, but no
vote is specified, this proxy will be voted: FOR the nominees listed in Item 1 on the reverse side, FOR Proposals 2 and 3 and in
accordance with the proxies' best judgment upon other matters properly coming before the meeting and any adjournments thereof.
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PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE, OR VOTE ELECTRONICALLY
THROUGH THE INTERNET OR BY TELEPHONE BY FOLLOWING THE INSTRUCTIONS SET OUT ON THE PROXY CARD.
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SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE -----------
SIDE SEE REVERSE
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