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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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
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.
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 XX,XXX,XXX 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.
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(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,
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) the expansion of the class of directors to be elected at the
2004 Annual Meeting by one; (ii) the 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) a 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
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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 both nominees 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.
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 Board
Radnor, PA Philadelphia and Southern New Jersey, The PNC Financial Services
Director since 1997 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.
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William P. Hankowsky Mr. Hankowsky has been Chairman, President and Chief Executive
Philadelphia, PA Officer of Liberty Property Trust, a fully integrated real estate
Nominee for Director 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 Philadelphia Board of Trade, the
Academy of Music of Philadelphia and Kimmel Regional Performing Arts
Center. Age: 52.
John E. Menario Mr. Menario retired as Assistant to the President of Banknorth
Director since 1999 Group, Inc., a position he held since 1996. He served as Senior
Portland, ME 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 Chief Executive
Villanova, PA Officer of Independence Blue Cross, the Delaware Valley region's
Director since 1993 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.
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Mary C. Carroll Ms. Carroll is a consultant, and an advisor to nonprofit
Bryn Mawr, PA corporations, businesses and government agencies and is a well-
Director since 1981 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 BetzDearborn,
Doylestown, PA Inc. Foundation, having served in that capacity since 1995. From
Director since 1984 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 Development at
Philadelphia, PA Exelon Corporation. From 1986 to 2003 was a partner in the law
Director since 1995 firm of Reed Smith LLP in Philadelphia. Mr. Glanton is a director
of The GEO Group, Inc. Age: 57.
Nicholas DeBenedictis Mr. DeBenedictis has served as Chief Executive Officer of the
Ardmore, PA Company since July 1992 and Chairman of the Board since May 1993.
Director since 1992 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.
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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 40).
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;
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
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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 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.
9
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 pages 25 and 26.
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 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.
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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
------------------- --------------------------- ---------------
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
Pension Committee Corporate Governance 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 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.
12
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.
13
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 of the Board of Directors unanimously
recommends a vote FOR approval of the 2004 Equity Compensation Plan.
14
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.
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.
15
Grants in Connection with Corporate Transactions and Otherwise. The
2004 Equity Compensation Plan, permits the Committee to make Grants under this
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 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
16
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 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
$1.0 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; (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
17
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. 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.
18
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 $1,000,000 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.
19
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.
20
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 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.
21
Non-Employee Directors Grants. Restricted Share 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 $1,000,000 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 Company's existing Amended and Restated 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
22
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 the table captioned "Option Grants in Last Fiscal Year" on page
33 and for information with respect to grants to the Company's non-employee
directors, see page 37.
New Plan Benefits. As of March 15, 2004, no awards have been granted
under the proposed 2004 Equity Compensation Plan, the approval of which forms
this Proposal No. 3. Since the possible awards proposed under the Plan provide
various discretionary criteria from which the Committee may choose to determine
awards, it is not possible to determine the awards that will be received by
eligible individuals.
Securities Authorized for Issuance under Equity Compensation Plans
EQUITY COMPENSATION PLAN INFORMATION
------------------------- ------------------------------ ---------------------------- -------------------------------
Number of securities
remaining available for
future issuance under
Number of Securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan Category (a) (b) (c)
------------------------- ------------------------------ ---------------------------- -------------------------------
Equity compensation
plans approved by
security holders 2,993,421 $13.31 4,984,151
------------------------- ------------------------------ ---------------------------- -------------------------------
Equity compensation
plans not approved by
security holders 0 0 0
------------------------- ------------------------------ ---------------------------- -------------------------------
Total 2,993,421 $13.31 4,984,151
------------------------- ------------------------------ ---------------------------- -------------------------------
23
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.
24
(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.
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.
25
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
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:
[_] Provides compensation levels that are competitive with those
provided by companies with which the Company may compete for
executive talent.
[_] Motivates key senior executives to achieve strategic business
initiatives and rewards them for their achievement.
[_] 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.
26
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 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.
27
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, 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.
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.
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. For 2003, $447,949 of
compensation would not be deductible under Section 162(m). While Aqua America's
executive compensation program is structured to be sensitive to the
deductibility of compensation for federal income tax purposes, the program is
principally designed to motivate senior executives to achieve the Company's
goals. Therefore, the Company has determined that it is appropriate for the
Chief Executive Officer's compensation to be at a level that a portion is not
deductible for federal income tax purposes.
Respectfully submitted,
John F. McCaughan
G. Fred DiBona, Jr.
Alan R. Hirsig
29
The foregoing report of the Executive Compensation and Employee
Benefits Committee shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act of 1933 or Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table shows compensation paid by the
Company for services rendered during the years 2003, 2002 and 2001 for the
Company's Chief Executive Officer and the other four most highly compensated
executive officers of the Company.
Long Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------------
Other Securities All Other
Annual Restricted Underlying LTIP Compen-
Name and Compen- Stock Options/ Payouts sation
Principal Position Year Salary($)(1) Bonus($)(2) sation($)(3) Award(s)($)(4) SAR's(#)(5) ($) ($)(6)
-----------------------------------------------------------------------------------------------------------------------------------
Nicholas 2003 350,358 312,851 6,000 203,125 68,749 138,473
DeBenedictis 2002 334,500 294,060 5,500 347,820 68,749 143,603
CEO 2001 321,554 287,625 5,250 78,125 162,308
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 23,438 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 15,625 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 15,625 26,744
Environ. Affairs
Richard D Hugus 2003 164,081 50,462 4,922 12,499 26,798
President - Southern
Operations (7)
30
(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.
(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 $16.86per 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 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.
31
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 CUMMULATIVE 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.
32
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
----------------------------------------------------------------------------------------
Number of Percent of Total
Securities Options/SARs Exercise
Underlying Granted to or Base Grant Date
Options/SARs 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 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.
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.
33
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired on Value Options/SARs at Options/SARs at
Name Exercise (#) Realized ($) Fiscal Year-End (#) Fiscal Year-End ($)(1)
---- ------------ ------------ ------------------------------------------------------------------------
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).
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.
34
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
During Five Estimated Annual Pension Based on Service of
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
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
35
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.
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.
36
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.
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 and internal control reviews.
37
(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 regularly scheduled meetings.
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 independent director.
38
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;
(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.
39
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.
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
40
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 appropriate funding, as determined by the
Committee, for payment of compensation to the independent
auditors.
41
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.
42
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 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.
43
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.
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.
44
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.
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:
45
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.
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.
46
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.
47
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.
(New language is shown in bold and underline.)
48
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.
49
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 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:
50
(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).
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(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 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.
52
(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 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.
53
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a grantee may not sell, assign,
transfer, pledge, or otherwise dispose of the shares of Common
Stock to which such Restriction Period applies except to a
Successor Grantee (as defined in Section 10 of the Plan). Each
certificate for a share issued or transferred under a restricted
stock grant shall contain a legend giving appropriate notice of
the restrictions in the Grant. The grantee shall be entitled to
have the legend removed from the stock certificate or
certificates covering any of the shares subject to restrictions
when all restrictions on such shares have lapsed.
(e) Lapse of Restrictions. All restrictions imposed under the
restricted stock grant shall lapse upon the expiration of the
applicable Restriction Period; provided, however, that upon 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.
54
(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; (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 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).
55
(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 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.
56
(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.
(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.
57
(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 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.
58
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.
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.
59
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.
60
(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.
61
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 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.
62
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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4959-PS-04