CONSUMERS WATER COMPANY
Three Canal Plaza
Portland, Maine 04101
April 1, 1998
Dear Shareholder:
On behalf of the Board of Directors and the management of Consumers
Water Company, it is a pleasure to invite you to the 1998 Annual Meeting of
our Company. This year's meeting is being held at 11:00 a.m., May 6, 1998,
at the Portland Museum of Art, 7 Congress Square, Portland, Maine.
Refreshments will be served both before and after the meeting, at
which time you will be able to meet with Company management and board
<PAGE> 2
members as well as with other shareholders. We look forward to seeing you
at the Annual Meeting to hear any questions, comments or suggestions you
might have about the Company.
It is important that your shares be represented at the meeting.
Please sign, date and return the enclosed proxy card as soon as possible.
Your continuing interest in Consumers is appreciated.
Sincerely,
/s/ PETER L. HAYNES
PETER L. HAYNES
President
CONSUMERS WATER COMPANY
Three Canal Plaza
Portland, Maine 04101
NOTICE OF ANNUAL MEETING
Notice is hereby given that the Annual Meeting of the shareholders of
Consumers Water Company will be held at the Portland Museum of Art, 7
Congress Square, Portland, Maine, on Wednesday, May 6, 1998, at 11:00 a.m.
local time for the following purposes:
1. To hear the report of Management on the condition of the Company;
2. To elect Directors for the ensuing year; and
3. To consider and act upon any matters incidental to the foregoing
and to transact such other business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on March 20,
1998, as the record date and time for the determination of the shareholders
entitled to notice of, and to vote at, the Annual Meeting.
If you do not expect to be present at the meeting and wish your shares
to be voted, please indicate your voting instructions on the enclosed proxy
card and date, sign and return it promptly in the envelope provided.
A copy of the Annual Report for the fiscal year ended December 31,
1997, is enclosed herewith.
By Order of the Board of Directors
BRIAN R. MULLANY
Clerk
Portland, Maine
April 1, 1998
<PAGE> 3
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN YOUR PROXY CARD SO
THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER
THAT THE PRESENCE OF A QUORUM MAY BE ASSURED. THE PROMPT RETURN OF YOUR
SIGNED PROXY CARD, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, MAY AID THE
COMPANY IN REDUCING THE EXPENSE OF ADDITIONAL PROXY SOLICITATION. THE
GIVING OF YOUR PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE
EVENT YOU ATTEND THE MEETING.
CONSUMERS WATER COMPANY
Three Canal Plaza
Portland, Maine 04101
PROXY STATEMENT
This proxy statement and the accompanying form of proxy are planned to
be mailed to shareholders on or about April 1, 1998.
This proxy statement is furnished in connection with the solicitation
by the Board of Directors of the Company of proxies to be voted at the
Annual Meeting of Shareholders on Wednesday, May 6, 1998.
Only the holders of common shares, par value $1.00 per share, and the
holders of Cumulative Preferred Stock, Series A, par value $100.00 per
share, of record at the close of business on March 20, 1998, are entitled to
notice of, and to vote at, the Annual Meeting. On that date the number of
outstanding common shares entitled to vote was 9,033,830 and the number of
outstanding shares of Cumulative Preferred Stock, Series A, entitled to vote
was 10,438. Each share of each class is entitled to one vote. The
shareholders of both classes will vote together as one class on all
proposals to be presented at the Annual Meeting.
NOMINEES FOR ELECTION AS DIRECTORS
Under the Company's Articles of Incorporation and bylaws, the number
of Directors may be fixed at no less than five and no more than 17 and each
serves until the next Annual Meeting of Shareholders and until a successor
is elected and qualified. Pursuant to the bylaws of the Company, the Board
of Directors has established the number of Directors to be elected at eight
(8). The shareholders or the Board may, by subsequent resolution, increase
the number of Directors, within the above limits, and elect additional
Directors. It is intended to vote the proxies in favor of the election of
the nominees listed below to serve until the next Annual Meeting and until
their successors are elected and qualified. William B. Russell, who has been
a director since 1970, has requested that he not be renominated as a
Director, and he has not been nominated for election to the Board at the
Annual Meeting. The following table sets forth the name and age of each of
the Board's nominees for Director, the periods during which each nominee has
served as a Director, a brief description of the principal occupation and
business experience during the last five years of each nominee, all
directorships of publicly-held companies presently held by each nominee, and
certain other information. No nominee has any family relationship with any
other nominee.
<PAGE> 4
<TABLE>
<CAPTION>
Name of Nominee Age Information About Nominee
- ------------------------------------------------------------------------------------------------------
<S> <C> <S>
Michel Avenas 42 President of Anjou International Company, a subsidiary of, and
holding company for certain of the U.S. investments of, Compagnie
Generale des Eaux ("CGE"). Assistant to the Chairman of CGE, a
French conglomerate which provides various municipal services such
as water and wastewater treatment, from 1991 to 1997. See "Common
Stock Ownership of Certain Beneficial Owners and Managers" for a
description of the terms of the agreement pursuant to which Mr.
Avenas has been nominated. Mr. Avenas has been a director since 1997.
Peter L. Haynes 58 President and Chief Executive Officer of the Company since 1992. Mr.
Haynes has been a Director since 1992.
Jack S. Ketchum 67 Self-employed Financial Consultant. Mr. Ketchum has been a Director
since 1978.
John E. Menario 62 Special Assistant to the President of Peoples Heritage Financial
Group, Inc., a multi-bank holding company since 1996. Senior
Executive Vice President and Chief Operating Officer of Peoples
Heritage Financial Group, Inc., from 1990 to 1996. Mr. Menario has
been a Director since 1980.
Jane E. Newman 52 Acting Dean of the Whittemore School of Business, University of New
Hampshire, since January, 1997. Formerly, Executive Vice President
of Exeter Trust Company, a bank, from 1996 to 1997, and President of
Coastal Broadcasting Corporation, owner of WZEA Radio, Hampton,
New Hampshire, from 1991 to 1995. Ms. Newman is also a director of
Perini Corp. and Public Service Company of New Hampshire, and has
been a Director of the Company since 1993.
John E. Palmer, Jr. 61 Chairman of the Board of Down-East Concepts, Inc., a manufacturer
and wholesaler of stationery and handcrafted gifts. Mr. Palmer has
been a Director since 1978.
John H. Schiavi 57 President of Schiavi Enterprises, a holding company for entities
involved in the ownership and operation of nursing homes and the
ownership of real estate. Mr. Schiavi has been a Director since 1983.
Robert O. Viets 54 President and Chief Executive Officer of Cilcorp Inc., a holding
company for energy services businesses. In addition to being a director
of Cilcorp Inc., Mr. Viets is also a director of RLI Corp. and Central
Illinois Light Company. Mr. Viets has been a director since 1997.
</TABLE>
In addition to an Executive Committee, the Board of Directors has
established an Audit Committee, a Corporate Governance Committee and a
Retirement Committee. The Executive Committee, whose current members are
Directors Haynes (Chair), Menario, Avenas and Palmer is authorized to
exercise all of the powers of the Board of Directors, to the extent that
such powers may be delegated legally, when the Board of Directors is not in
session. During 1997, there were ten meetings of the Board of Directors, no
<PAGE> 5
meetings of the Executive Committee, two meetings of the Audit Committee,
four meetings of the Corporate Governance Committee and two meetings of the
Retirement Committee.
The Audit Committee reviews with the auditors the scope and results of
the audit, Company and subsidiary financial statements and internal
accounting and control procedures and recommends to the full Board the
engagement or discharge of independent auditors. Current members of the
Audit Committee are Directors Newman (Chair), Ketchum and Avenas. The
Corporate Governance Committee, which currently consists of Directors Palmer
(Chair), Schiavi, Viets and Russell, makes recommendations to the Board of
Directors with respect to officer and key employee compensation, reviews the
performance of the Board of Directors and administers the Company's various
employee compensation plans. The Corporate Governance Committee also serves
as a nominating committee and, as such, will consider recommendations from
shareholders. Recommendations should be submitted in writing to the
Secretary of the Company. The Retirement Committee makes recommendations to
the full Board with respect to retirement plans and also administers the
Company's Retirement Plan, the Employee 401(k) Savings Plan and Trust and
the Supplemental Executive Retirement Plan. The Retirement Committee's
current members are Directors Russell (Chair), Newman and Schiavi.
Management does not know of any nominee who will be unable to serve,
but, if any nominee should be unable to serve, the proxies may be voted with
discretionary authority for a substitute or substitutes designated by the
Board.
COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Persons known to be the beneficial owners of more than 5% of the
Company's common shares as of April 1, 1998 are as follows:
<TABLE>
<CAPTION>
Amount of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
-----------------------------------------------------------
<S> <C> <C>
Compagnie Generale des Eaux 2,023,344 shares 22.4%
52 Rue D'Anjou
75384 Paris, France
</TABLE>
The amount listed in the above table is based upon statements on
Schedule 13-D and Forms 4 and 5 filed with the Securities and Exchange
Commission (the "Commission") by Compagnie Generale des Eaux ("CGE") and
includes 8,935 shares which CGE has an option to acquire at the market price
and 60,000 shares held by a subsidiary of CGE. The remaining shares listed
as being owned by CGE are held by it directly. As the result of an agreement
entered into in connection with the 1986 acquisition of common shares from
certain of the Company's shareholders by a subsidiary of CGE, the Company
obtained certain rights of first refusal with respect to shares now held by
CGE, and, in return, granted certain rights to CGE to register shares of the
Company which it acquired or might acquire in the future for public resale,
<PAGE> 6
as well as the right to nominate a person to serve on the Company's Board of
Directors, commencing with the 1987 Annual Meeting of Shareholders. The
right to nominate a person to serve on the Board is subject to certain
limitations. Michel Avenas, an officer of a subsidiary of CGE, has been
nominated for election as a Director of the Company pursuant to the
Agreement with CGE.
The following table sets forth the beneficial ownership of the
Company's common shares by the Directors, nominees and executive officers of
the Company named in the Summary Compensation Table below, determined in
accordance with applicable regulations of the Commission. The number of
shares reflected may include shares held in the name of a spouse, minor
child or certain other relatives sharing the same home as the Director or
officer, or held by the Director, officer or spouse of the Director or
officer, as a trustee or as a custodian for minor children, as to all of
which beneficial ownership is disclaimed by the respective Directors and
officers except as otherwise noted below, as well as shares held in the
Company's various employee plans and shares which officers currently have
the right to acquire through the exercise of options. Mr. Haynes currently
has the right to acquire 11,750 common shares, Mr. Schumann currently has
the right to acquire 2,250 shares, Mr. Isacke currently has the right to
acquire 8,250 shares, Mr. Noran currently has the right to acquire 2,750
shares, Mr. Snellen currently has the right to acquire 2,750 shares, and all
Directors and executive officers as a group currently have the right to
acquire 36,500 shares pursuant to the exercise of options. In accordance
with applicable regulations of the Commission, such shares have been
included in the amounts listed below.
<TABLE>
<CAPTION>
Amount of
Beneficial Percent
Name Ownership of Class
-------------------------------------------------------------------
<S> <C> <C>
Directors and Nominees
Michel Avenas(1) 100 Less than 1%
Peter L. Haynes 41,786 Less than 1%
Jack S. Ketchum 5,267 Less than 1%
John E. Menario 2,506 Less than 1%
Jane E. Newman 778 Less than 1%
John E. Palmer, Jr. 4,953 Less than 1%
William B. Russell(2) 3,567 Less than 1%
John H. Schiavi 18,651 Less than 1%
Robert O. Viets 2,000 Less than 1%
Other Named Executive Officers
Paul D. Schumann(3) 13,096 Less than 1%
John F. Isacke 20,840 Less than 1%
Paul F. Noran 9,896 Less than 1%
Jerry D. Snellen 3,748 Less than 1%
All Directors and Executive Officers 131,409 1.4%
<PAGE> 7
- --------------------
<F1> Mr. Avenas is an officer of a subsidiary of CGE. CGE holds 2,023,344
common shares of the Company. See above.
<F2> Pursuant to his request, Mr. Russell will not stand for re-election at
the 1998 Annual meeting.
<F3> Mr. Schumann also beneficially owns 250 common shares of Consumers New
Jersey Water Company, a subsidiary of the Company, and 10 common
shares of Consumers Maine Water Company, a subsidiary of the Company,
which in each case represents less than 1% of the issued and
outstanding common shares of such companies.
</TABLE>
OTHER EXECUTIVE OFFICERS
In addition to Mr. Haynes, the other executive officers of the
Company, their names, ages, positions with the Company, terms of office and
the periods during which they have served, are set forth in the following
table:
<TABLE>
<CAPTION>
Positions and Offices Term of Served as
Name Age With the Company Office Officer Since
- -------------------------------------------------------------------------------------------
<S> <C> <S> <C> <C>
Paul D. Schumann 47 Senior Vice President--Operations One Year 1987
John F. Isacke 44 Senior Vice President--Chief One Year 1978
Financial Officer and Treasurer
Paul F. Noran 54 Vice President-Engineering One Year 1979
Brian R. Mullany 52 Vice President and Secretary One Year 1978
Jerry D. Snellen 58 Vice President-Information Services One Year 1987
</TABLE>
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation.
The following table shows, for fiscal years ending December 31, 1995,
1996 and 1997, the cash compensation paid by the Company and its
subsidiaries, as well as certain other compensation paid or accrued for
those years, to each of the five most highly compensated executive officers
of the Company whose 1997 total annual salary and bonuses exceeded $100,000
(the "Named Executive Officers"), as calculated pursuant to rules
promulgated by the Commission, in all capacities in which they served:
SUMMARY COMPENSATION TABLE
<PAGE> 8
<TABLE>
<CAPTION>
Annual
Compensation Long Term Compensation
-------------------------------------------------------
Awards Payouts
Other ----------------------
Annual Securities All Other
Compen- Underlying LTIP Compen-
Name and Principal Salary Bonus sation Options/ Payouts sation
Position Year ($) ($)(1) ($)(2) SARs (#) ($) ($)(3)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter L. Haynes, President 1997 236,191 30,000 3,110 0 0 1,040
1996 228,885 0 0 5,000 0 1,040
1995 213,423 45,300 0 5,000 0 1,040
Paul D. Schumann, Senior 1997 156,772 17,240 1,120 0 0 1,040
Vice President-Operations 1996 152,923 0 0 3,000 0 1,040
1995 143,846 16,275 0 3,000 0 1,040
John F. Isacke, Senior Vice 1997 153,178 17,240 1,120 0 0 1,040
President-Chief Financial 1996 150,385 0 0 3,000 0 1,040
Officer 1995 143,154 16,275 0 3,000 0 1,040
Paul F. Noran, Vice President- 1997 118,500 7,400 720 0 0 1,040
Engineering 1996 115,923 0 0 1,000 0 1,040
1995 113,077 6,975 0 1,000 0 1,040
Jerry D. Snellen, Vice President- 1997 109,815 7,400 720 0 0 1,040
Information Services 1996 105,569 0 0 1,000 0 1,040
1995 99,323 6,975 0 1,000 0 1,040
- --------------------
<F1> Bonuses were awarded under the Company's 1993 Incentive Compensation
Plan, under which bonuses may be awarded to any of the regular, full-
time employees of the Company or its subsidiaries.
<F2> Includes dividend equivalent amounts paid on units awarded under
Company's Senior Management Long-Term Incentive Plan.
<F3> For all officers, includes a $1,040 matching contribution in each year
under the Company's 401(k) Employees Savings Plan and Trust. Under
this Plan, participants may elect to have their employer contribute a
portion of their compensation to the Plan instead of having such
amounts paid as salary. The Company makes matching contributions,
determined in accordance with a specific formula and subject to
certain limits, on behalf of all employees who participate in the
Plan.
</TABLE>
Options Exercises and Holdings.
The following table sets forth information with respect to the
exercise of options by the Named Executive Officers during the last fiscal
year and unexercised options held by such officers as of the end of the
fiscal year. The Company has not granted SARs to any executive officer.
<PAGE> 9
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-the-
Options/SARs at Money Options/
FY-End(#) SARs at FY-End($)
---------------------------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter L. Haynes 2,000 2,000 14,150/1,250 37,075/3,125
Paul D. Schumann 0 0 9,850/750 23,425/1,875
John F. Isacke 0 0 9,850/750 23,425/1,875
Paul F. Noran 0 0 3,750/250 9,625/625
Jerry D. Snellen 0 0 3,750/250 9,625/625
</TABLE>
Long Term Incentive Plan.
The following table sets forth information with respect to awards made
in the last fiscal year under the Company's Senior Management Long Term
Incentive Plan ("LTIP").
LONG TERM INCENTIVE PLAN-AWARDS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
Number of Performance or Estimated Future Payouts Under
Shares, Other Period Non-Stock Price-Based Plans
Units or Until --------------------------------------------
Other Maturation or Threshold Target Maximum
Name Rights(#)(2) Payout (# of Units) (# of Units) (# of Units)
- --------------------------------------------------------------------------------------------------
<S> <C> <S> <C> <C> <C>
Peter L. Haynes 3,437 Three years 0 3,437 4,640
Paul D. Schumann 1,237 Three years 0 1,237 1,670
John F. Isacke 1,237 Three years 0 1,237 1,670
Paul F. Noran 797 Three years 0 797 1,076
Jerry D. Snellen 797 Three years 0 797 1,076
- --------------------
<F1> The LTIP provides awards contingent upon the attainment of performance
objectives set by the Corporate Governance Committee for the three-
year period ending December 31, 1999. The measure of performance for
these awards are the Total Return to shareholders of Consumers Water
Company compared to the Total Return achieved by the companies in the
Water Utility Index, with no award made unless Consumers' Total Return
is at least equal to the average Total Return of the Index. Awards are
denominated in shares of Consumers' Common Stock and dividend
<PAGE> 10
equivalents are paid during the performance period. At the end of the
period, awards are paid in common shares, partly in common shares and
partly in cash or all in cash equal to the then current value of that
number of shares.
<F2> A unit is based on one share of Common Stock.
</TABLE>
Pension Plans.
The following table shows the estimated annual pension benefit payable
to covered participants at normal retirement age under the Company's pension
plans, based on covered compensation and years of service with the Company
and its subsidiaries:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
5 Year Average 15 20 25 30 35
Annual Earnings Years Years Years Years Years
-------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$100,000 $22,500 $30,000 $ 37,500 $ 45,000 $ 52,500
$125,000 $28,125 $37,500 $ 46,875 $ 56,250 $ 65,625
$150,000 $33,750 $45,000 $ 56,200 $ 67,500 $ 78,750
$175,000 $39,375 $52,500 $ 65,625 $ 78,750 $ 91,875
$200,000 $45,000 $60,000 $ 75,000 $ 90,000 $105,000
$225,000 $50,625 $67,500 $ 84,395 $101,250 $118,125
$250,000 $56,250 $75,000 $ 93,750 $112,500 $131,250
$275,000 $61,875 $82,500 $103,125 $123,750 $144,375
</TABLE>
The Company's qualified defined benefit pension plan (the "Pension
Plan") provides that upon reaching the normal retirement age of 65, a
covered employee's pension is to be the equivalent of a single life annuity
in an amount equal to the sum of 1.5% of the employee's average compensation
over the five consecutive years of service which will produce the highest
average, multiplied by the lesser of the employee's years of service or 35.
The benefits listed in the Pension Plan Table above are not subject to any
deduction for social security or other offset amounts. Compensation for
purposes of the Pension Plan is equal to a covered employee's annual salary
as of January 1, in any year. Under the Internal Revenue Code, effective
January 1, 1994, the maximum annual compensation that may be considered in
determining benefits under the Pension Plan is limited to $150,000 to be
indexed for inflation, after 1993. On February 7, 1996, the Board of
Directors adopted the Consumers Water Company Supplemental Executive
Retirement Plan (the "SERP"). The SERP is designed to replace the pension
benefits lost by certain executive officers of the Company as a result of
the 1994 reduction in the maximum annual compensation which may be
considered in determining qualified pension benefits. The retirement benefit
provided under the SERP is equal to the benefit which would have been paid
to a participant under the Pension Plan but for the compensation limit, less
the benefit the participant is entitled to receive under the Pension Plan.
Covered compensation for the Named Executive Officers for 1997 was: Mr.
Haynes: $232,000; Mr. Schumann: $155,000; Mr. Isacke: $152,000; Mr. Noran:
$117,500 and Mr. Snellen: $109,000. The estimated years of service for each
<PAGE> 11
named executive is as follows: Mr. Haynes: six years; Mr. Schumann: 26
years; Mr. Isacke: 20 years; Mr. Noran: 19 years and Mr. Snellen: 17 years.
Agreements with Officers and Directors.
The Company has an insurance policy which, among other things,
provides indemnification to each Director and officer of the Company from
and against any liabilities incurred in connection with registration
statements under the Securities Act of 1933, as amended. The Company paid
all of the $320,169 three-year premium for 1997 through 2000. In addition,
the Company has purchased a $100,000 accidental death and dismemberment
insurance policy covering Directors and certain employees, payable to a
beneficiary of the insured's choice. The Company paid all of the $600
aggregate annual premiums on such policies for 1997.
The Company has entered into indemnification agreements with each of
its Directors and executive officers. The form and execution of the
indemnification agreements were approved by shareholders at the Company's
1989 Annual Meeting. Each indemnification agreement requires the Company to
indemnify the Director or executive officer who is a party thereto to the
fullest extent permitted by applicable Maine law and requires the advance to
an indemnified Director or executive officer of litigation expenses upon
receipt of a written affirmation of the Director or officer's good faith
belief that the Director or officer's conduct was not knowingly fraudulent,
deliberately dishonest or willful misconduct. By the terms of each
indemnification agreement, its benefits are not available with respect to
matters giving rise to a claim against the indemnified Director or executive
officer (a) if the Director or executive officer has (i) violated Section
16(b) of the Securities Exchange Act of 1934 or analogous provision of law,
(ii) received remuneration or other payment in violation of law, or (iii)
engaged in conduct finally adjudged to be knowingly fraudulent, deliberately
dishonest or intentional misconduct, or (b) if a final court decision
determines that such indemnification is not lawful.
On March 6, 1996, the Board of Directors of the Company adopted the
Consumers Water Company Executive Severance Plan (the "Severance Plan"). The
Severance Plan is intended to allow senior management of the Company to
represent shareholder interests fairly without concern for their own tenure
as officers of the Company. It provides benefits to members of senior
management of the Company in the event that their employment with the
Company is terminated under certain circumstances following a "change in
control." Under the Severance Plan, a "change in control" is deemed to have
occurred upon (1) an entity, person or group becoming entitled to exercise
more than 30 percent of the outstanding voting power of all capital stock of
the Company entitled to vote; (2) a merger or consolidation of the Company,
as a result of which the holders of the outstanding voting shares of the
Company immediately prior to such merger hold less than 50 percent of the
voting power of the surviving or resulting corporation; (3) the transfer of
a substantial portion of the Company's property other than to an entity of
which the Company owns at least 50 percent of the voting power; or (4) the
election to the Board of Directors of the Company of candidates who were not
recommended for election by the Board of Directors in office immediately
prior to the election, if such candidates constitute a majority of those
elected in that particular election.
Employees covered by the Severance Plan are the Chief Executive
Officer ("CEO"), President and each Vice President of the Company.
<PAGE> 12
If at any time within 24 months after a change in control the
employment of a covered employee is terminated other than for good cause, or
is terminated by the employee for good reason, the covered employee, if the
CEO, President or a Senior Vice President, will receive a severance benefit
of three years' salary, while other Vice Presidents will receive a severance
benefit of two times their annual salary. Good cause will be deemed to exist
only if the employee has engaged in acts or omissions constituting
dishonesty, intentional breach of fiduciary obligation or intentional
wrongdoing which results in substantial harm to the business or property of
the Company or is convicted of a criminal violation involving fraud or
dishonesty. "Good reason" will be deemed to exist if, without the employee's
express written consent; the employee is assigned duties materially
inconsistent with the employee's present duties, responsibilities and
status; there is a reduction in the employee's rate of base salary or bonus;
or the Company changes by 100 miles or more the principal location at which
the employee is required to perform services.
In addition to the payment of this salary benefit, covered employees
are to continue to be covered under any welfare plan of the Company for a
period of 24 months, and each covered employee shall be deemed to continue
to be employed by the Company for 24 months following termination after a
change in control for the purpose of any pension plan.
The Severance Plan prohibits covered employees from soliciting for
employment any employee of the Company and requires employees to maintain
the confidentiality of business information of the Company. A breach of
these obligations will result in the employee forfeiting benefits under the
Severance Plan.
If any portion of the payments to a covered employee under the
Severance Plan would constitute a "parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"),
then the amount of such payments will be reduced to the extent necessary so
that no portion thereof will be subject to the excise tax imposed by Section
4999 of the Code.
BOARD COMPENSATION COMMITTEE REPORT
In accordance with rules established by the Securities and Exchange
Commission, the Corporate Governance Committee, which also serves as a
compensation committee (the "Committee"), at the direction of the Board of
Directors, has prepared the following report for inclusion in the Proxy
Statement:
The Committee of the Board of Directors is composed entirely of
directors who are not officers of the Company. The Committee is responsible
for setting and administering the policies that govern annual compensation
of executive officers of the Company, and the Company's short term and long
term incentive compensation plans. The Company's compensation plans are
designed to attract and retain key executives critical to the long term
success of the Company.
The Committee annually evaluates the Company's corporate performance
compared with its Business Plan and its compensation levels compared with
its industry group, which is made up of companies in the Water Utility Index
described below. In addition, in evaluating the Company's overall
performance, the Committee looks to the attainment of goals, both financial
<PAGE> 13
and non-financial, that were set prior to the start of the year. Other
factors, discussed below, are also used in determining the compensation of
the Named Executive Officers.
Annual compensation of the Named Executive Officers, as well as other
senior executives, consists of a base salary, annual incentive compensation
awarded under the Company's 1993 Incentive Compensation Plan and long term
incentive compensation in the form of performance units granted under the
Company's 1996 Long Term Incentive Plan.
Base Compensation. The salary ranges for each position, or group of
positions, are based on a market survey of similar positions within the
industry, conducted by an outside consultant. The base compensation for each
Named Executive Officer is set within the range for the position of that
officer, as indicated by the survey. The salary of an officer is determined
within that range based on the officer's performance and experience. The
base compensation for the Named Executive Officers ranges from the lower
third of the salary range to the maximum of the range based on the
individual's performance and length of service within the range.
The Chief Executive Officer recommends salary adjustments to the
Committee for officers of the Company other than himself based on an annual
review. The annual review considers the decision-making responsibilities of
each position and the experience, skills and performance of each officer
during the period being reviewed. To help quantify these measures, the
Committee has, from time to time, enlisted the assistance of a compensation
consultant. After review, the Committee recommends final salary changes to
the Board of Directors, which makes the final salary decisions.
Incentive Compensation Program. Consumers Water Company established
the 1993 Incentive Compensation Plan to reward certain employees of the
Company for achieving annual objectives in both financial and other
measures. The Plan was designed with the assistance of a compensation
consultant and is based on two or three factors, depending on whether the
participant works for the Corporate entity or a subsidiary business unit.
Corporate officers target incentives are based 60% on the attainment of
corporate net income targets, exclusive of gains on the sales of properties,
and 40% on the achievement of team goals. Income targets under the plan are
based, among other criteria, upon a targeted return on equity and an
expected Net Income for the entire organization. Awards for the subsidiary
presidents are based 20% on Consumers' corporate income targets, 40% on the
subsidiary business unit's net income target and 40% on Consumers' corporate
team goals. The team goals, for both the Corporate unit and the subsidiary
units, are primarily based on the continued implementation of a quality
management system, the achievement of certain cost containment goals, the
realignment of corporate and subsidiary roles and the achievement of system
growth goals.
A performance threshold for each measure ensures that incentive
compensation is not paid for substandard accomplishments. In addition, each
measure also has a cap to limit the potential compensation expense under the
Incentive Compensation Plan. Payments are based on the midpoint of an
individual's salary range so that incentive compensation is not paid for the
attainment of longevity.
Long Term Incentive Compensation. At the 1996 Annual Meeting,
shareholders of the Company approved the adoption of the Company's Senior
<PAGE> 14
Management Long Term Incentive Plan, (the "LTIP"). The LTIP is intended to
provide a long term incentive to executive officers of the Company through
the granting of performance "units" to senior managers of the Company and of
its affiliates.
The Committee has the discretion to select the senior managers who may
receive grants of units, to determine the amounts of such units, and to
establish the performance period and applicable performance criteria with
the respect to the awards. At the conclusion of the performance period, the
Committee will determine the percentage of units granted that will be
distributed, if any, based on the degree to which the specified financial
and other performance objectives are met. During the year in which units are
granted and thereafter until distribution, cash payments are to be made to
participants in an amount equal to the dividends paid on a number of shares
equal to the number of units granted. These dividend equivalents are paid on
a current basis and do not depend on the distribution that actually occurs
at the end of the performance period. Distribution of units determined
earned based on the performance criteria will be made in the form of a
number of common shares equal to the number of those units, cash equal to
the then current value of that number of shares, or partly in shares and
partly in cash, as determined by the Committee.
Awards made in 1997 (which are listed above in the table captioned
"Long Term Incentive Plan - Awards in Last Fiscal Year") were for the three-
year period ending December 31, 1999 and are based on the extent to which
the total return to the Company's shareholders exceeds the average weighted
total return for shareholders of the companies in the Water Utility Index
during the performance period. No incentive compensation will be paid upon
awards made under the LTIP in 1997 unless the total return to the Company's
shareholders at least equals the average total return to shareholders of the
companies in the Water Utility Index.
Chief Executive Compensation. Each year the Committee meets with the
Chief Executive Officer to evaluate his performance, using input from the
full Board, and reports on that evaluation to the independent outside
directors. As a result of the introduction of the LTIP during 1997, the
Committee determined to institute a salary structure freeze for the senior
officers to offset the dividend equivalents attributable to the LTIP's
Performance Units. The base salary of Peter L. Hayes was thus retained at
$232,000 by a vote of the Board, as recommended by the Committee. During
1997, Mr. Haynes was awarded 3,437 Performance Units under the LTIP. The
level of this award was determined by multiplying the midpoint of the
industry salary range for Mr. Haynes' position by 45% and valuing each unit
at the year-end closing price for a share of the Company's Common Stock.
In February of 1998 the Committee recommended and in February the
Board voted to pay Mr. Haynes a bonus of $30,000 under the Company's 1993
Incentive Compensation Plan. The bonus awarded to Mr. Haynes, which amounted
to 13% of his base salary, was based on the attainment of good operating
results by the Company's water utility subsidiaries, offset by the financial
impact of the discontinuance of Consumers Applied Technologies, Inc., and
satisfactory performance on team goals.
Compensation Deduction Limit. Under the Revenue Reconciliation Act of
1993, publicly-held companies are limited to a maximum deduction for income
tax purposes of $1 million per year for "applicable employee remuneration"
paid to each "covered employee." Covered employees for the Company are those
<PAGE> 15
listed in the "Summary Compensation Table" above and "applicable employee
remuneration" includes salary and bonus. Applicable employee remuneration
also includes any gain recognized by an employee who, prior to the holding
period to receive favorable income tax treatment, sells or otherwise
disposes of Company stock acquired pursuant to the exercise of an option
granted under the 1993 Incentive Stock Option Plan. Options have not been
granted under the 1993 Incentive Stock Option Plan since 1997 and no further
options may be granted thereunder.
As noted above, bonuses payable under the Company's 1993 Incentive
Compensation Plan are capped to limit the potential compensation expense to
the Company under the Plan. The LTIP limits the maximum number of shares
which can be awarded to any one employee under the Plan to 5,000 per annum.
Even though the ultimate value of outstanding options held by covered
employees cannot be calculated as it is dependent on future changes in the
price of the Company's common shares, given the number of options held by
such persons and the limits on the amount of bonuses and LTIP awards payable
to employees, and given the expected level of base compensation for covered
employees, it is extremely unlikely that the $1 million per covered employee
maximum deduction would be exceeded in the foreseeable future. In the event
that the $1 million per covered employee maximum deduction were exceeded,
the Company would not receive a tax deduction for federal income tax
purposes for the amount of applicable employee remuneration which exceeded
that amount.
John E. Palmer, Jr. William B. Russell
Chairman, Governance Committee Member, Governance Committee
John H. Schiavi Robert O. Viets
Member, Governance Committee Member Governance Committee
Performance Graph
The following is a line graph presentation comparing cumulative, five-
year returns (assuming the reinvestment of dividends) on an indexed basis of
the Company's common shares with the S&P 500 Stock Index and an index of
investor-owned water utility companies published by Edward D. Jones & Co.,
L.P.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG COMPANY, S&P 500 AND EDWARD D. JONES & CO., L.P.
INVESTOR-OWNED WATER UTILITY INDEX
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1992 1993 1994 1995 1996 1997
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumers $100 $103 $112 $126 $132 $158
Water Utility Index* 100 114 106 134 161 220
<PAGE> 16
S&P 500 100 110 112 153 189 252
- --------------------
<F*> The companies included in the Edward D. Jones & Co., L.P. investor-
owned water utility index are: American Water Works, Inc., Aquarion
Company, California Water Service Company, Connecticut Water Service,
Inc., Consumers Water Company, Dominguez Services Corporation,
Elizabethtown Corporation, Middlesex Water Company, Philadelphia
Suburban Water Company, SJW Corporation, Southern California Water
Company, Southwest Water Company and United Water Resources.
</TABLE>
Director Compensation
Each Director is paid a retainer of $10,000 per annum. The Chairman of
the Board receives an additional $5,000 per year retainer for serving as
such. In addition, each Director receives $500 per meeting for each meeting
of the Board of Directors attended, and $500 for each committee meeting
attended unless such meeting is on the same day as a Board meeting, in which
case Directors are paid $300 for attending. Committee chairmen receive an
additional $250 per meeting, or $150 per meeting if the meeting occurs on
the day there is a Board meeting. Directors who are employed by the Company
or a subsidiary are not paid an annual retainer or meeting fees. All non-
employee Directors receive travel expenses for attending Board meetings and
committee meetings.
The Board of Directors has established two Deferred Compensation Plans
for Directors. One Deferred Compensation Plan allows the deferral of all or
a specified portion of a Director's annual retainer and meeting fees with
interest to be paid thereon at a rate equal to the annual rate of return on
the Company's common equity. Amounts deferred under this plan may be paid
only upon a date fixed in advance of any deferral, or after a Director
ceases to serve as such or as an employee of the Company. The second plan
allows the deferral of all or a specified portion of a Director's retainer
and fees with interest to be paid thereon at a fixed rate based upon an
announced bond index rate. The rate applicable under this plan averaged
approximately 9.14% for 1997. Amounts deferred under the second plan are to
be paid when a Director ceases to serve as such. Under certain
circumstances, the committee appointed by the Board to administer this plan
may provide for earlier payments upon the request of a Director. Generally,
payments of the amounts deferred under the second plan will be made in equal
monthly installments over a period of ten years, unless the Committee
appointed to administer the Deferred Compensation Plans, upon the request of
a Director, provides for payments over a shorter period of time or in a lump
sum. Each of the Deferred Compensation Plans is unfunded, with the rights of
Directors who participate being no greater than those of unsecured
creditors. Elections under each of the Deferred Compensation Plans must be
made before the end of any year and will be effective for the following
year.
SECTION 16(a) OWNERSHIP REPORTING DELINQUENCIES
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors and persons who own more than 10% of a
registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Commission. Such officers,
Directors and shareholders are required by Commission regulations to furnish
the Company with copies of all such reports that they file.
<PAGE> 17
Based solely on a review of copies of reports filed with the
Commission since December 31, 1996, and of written representations by
certain officers and Directors, all persons subject to the reporting
requirements of Section 16(a) filed the required reports on a timely basis,
except that Mr. Isacke filed one Form 4 nine days late to report a
transaction by his children.
REQUIRED VOTE FOR MATTERS TO BE ACTED UPON AT ANNUAL MEETING
With respect to the election of Directors, both the bylaws of the
Company and Maine law provide that those candidates receiving the greatest
number of votes cast at a meeting of shareholders, duly called and at which
a quorum is present, shall be deemed elected. Unless otherwise provided in
the bylaws, under Maine law, a majority of the shares entitled to vote
thereat shall constitute a quorum at a meeting of shareholders. The bylaws
of the Company provide that at any meeting of the shareholders, a majority
of the shares entitled to vote, issued and outstanding, represented by
shareholders of record in person or by proxy, constitutes a quorum. Provided
a quorum is present at the meeting, those eight nominees for Director
receiving the greatest number of votes will be elected, regardless of
whether they receive a majority of the votes cast. Abstentions and broker
non-votes will be treated as not voting for the election of Directors and
will have no effect in determining the Directors receiving the most
affirmative votes.
As to matters other than the election of Directors that may be brought
before the Annual Meeting, Maine law provides that any corporate action to
be taken at a shareholders' meeting at which a quorum is present shall be
authorized by a majority of the votes cast by the holders of shares entitled
to vote on the subject matter, except to the extent that a greater vote is
required by law or by the Company's articles or bylaws. The bylaws of the
Company provide that the affirmative vote of the holders of a majority of
the shares represented at a meeting of shareholders (provided a quorum is
present) shall decide any question brought before the shareholders. As to
any matter other than the election of Directors, abstentions and broker non-
votes will be treated as not voting for such matter and will have the same
effect as a vote against the matter brought before the shareholders at the
Annual Meeting.
APPOINTMENT OF AUDITORS
The Board of Directors has appointed Arthur Andersen LLP as
independent public accountant to audit the accounts of the Company for the
fiscal year ending December 31, 1998. Arthur Andersen LLP, which began
auditing the accounts of the Company in 1976, audited the accounts of the
Company for the fiscal year ended December 31, 1997. A representative of
Arthur Andersen LLP is expected to be available at the Annual Meeting to
respond to appropriate questions and to make a statement on behalf of Arthur
Andersen LLP if he or she so desires.
OTHER BUSINESS
Management is not aware of any matters to be presented for action at
the meeting other than those specified in the Notice of Annual Meeting and
the presentation of the annual report of the financial condition of the
Company. No action constituting approval or disapproval of any of the
matters referred to in that report is contemplated. However, if any other
<PAGE> 18
matters legally come before the meeting, the persons named in the enclosed
form of proxy intend to exercise the discretionary power conferred by the
proxy and to vote the proxy in accordance with their judgment on such
matters.
EXPENSES OF SOLICITATION
The cost of the solicitation of proxies for the Annual Meeting will be
paid by the Company. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting material to beneficial
owners of shares held of record by them and will be reimbursed for their
expenses. In addition to solicitation by mail, in a limited number of
instances, regular employees of the Company may solicit proxies in person or
by telegraph or telephone. Such persons will receive no additional
compensation for such services.
PROMPT RETURN OF PROXY CARD REQUESTED
Shareholders are requested to indicate voting instructions on the
enclosed proxy card, and to date, sign and return it promptly in the
accompanying envelope. No postage is required if mailed in the United
States. The proxy is revocable until exercised; accordingly, shareholders
who are present at the meeting may withdraw their proxies and vote, if they
so desire, in person.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented to next year's Annual
Meeting of Shareholders, scheduled for May 5, 1999, must be received by the
Company by December 2, 1998 for inclusion in the Company's proxy material
relating to that meeting.
By Order of the Board of Directors
Brian R. Mullany
Clerk
April 1, 1998
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K, including the financial statements and the
schedules thereto, is available without charge to any shareholder upon
written request to Brian R. Mullany, Secretary, Consumers Water Company,
P.O. Box 599, Portland, Maine 04112-0599. Copies of the exhibits to the
report, which are voluminous, will be furnished upon the payment of a
reasonable fee to offset the cost of reproduction and mailing.
CONSUMERS WATER COMPANY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Proxy for Annual Meeting of Shareholders, May 6, 1998
The undersigned, hereby revoking any proxy heretofore given, hereby
appoints John E. Menario, Jack S. Ketchum and John E. Palmer, Jr., and each
of them severally, proxies of the undersigned, with full power of
substitution, to vote as indicated below all common shares and shares of
<PAGE> 19
Cumulative Preferred Stock, Series A of Consumers Water Company which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of the Shareholders of the Company to be held at Portland, Maine, on
May 6, 1998, and any adjournments thereof.
The Board of Directors recommends a vote FOR Proposal 1.
1. Election of Directors.
Nominees: Michel Avenas, Peter L. Haynes, Jack S. Ketchum, John E.
Menario, Jane E. Newman, John E. Palmer, Jr., John H. Schiavi and
Robert O. Viets
[ ] FOR all the nominees [ ] AGAINST all the nominees
listed above listed above
[ ] FOR election of Directors, except vote withheld from the
following nominees:
________________________________________
Discretionary authority is hereby conferred upon the proxies with
respect to such other matters as may legally come before the meeting. If no
instruction is specified, the shares represented by this proxy will be voted
FOR the election of Directors.
Please check if you plan to attend
the meeting [ ].
Dated: __________________, 1998
______________________________________
______________________________________
Signature(s)
Please sign proxy exactly as name
appears. Joint owners should each
sign personally. Trustees and other
fiduciaries should so indicate when
signing and where more than one name
appears, a majority must sign.
<PAGE> 20
