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. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AMERICAN WATER WORKS COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No Fee Required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
________________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________________
/ / Fee paid previously with preliminary materials:
________________________________________________________________________________
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
(1) Amount previously paid:
________________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
________________________________________________________________________________
(4) Date Filed:
________________________________________________________________________________
<PAGE>
[LOGO] AMERICAN WATER WORKS COMPANY, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 4, 2000
TO THE HOLDERS OF:
COMMON STOCK
CUMULATIVE PREFERRED STOCK, 5% SERIES
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of American
Water Works Company, Inc. will be held at The Mansion on Main Street, Kresson &
Evesham Roads, Voorhees, New Jersey, on Thursday, May 4, 2000, at 10:00 A.M.
EDST, for the following purposes:
1. To elect five directors to serve for a three-year term expiring in
2003;
2. To vote on the proposal to approve the 2000 Stock Award and
Incentive Plan;
3. To vote to ratify or reject the appointment of independent
accountants made by the Board of Directors to audit the books and accounts
of the Company at the close of the current fiscal year; and
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only holders of voting stock of record at the close of business on March 6,
2000 are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors,
W. TIMOTHY POHL, General Counsel and Secretary
Voorhees, New Jersey
March 27, 2000
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT!
USING THE INTERNET OR TELEPHONE, YOU CAN VOTE ANYTIME, 24 HOURS A DAY, UP
UNTIL 5:00 P.M. EDST ON WEDNESDAY, MAY 3, 2000. OR IF YOU PREFER, YOU CAN
RETURN THE ENCLOSED PAPER PROXY IN THE ENVELOPE PROVIDED (TO WHICH NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES). PLEASE DO NOT
RETURN THE ENCLOSED PAPER PROXY IF YOU ARE VOTING USING THE INTERNET OR
TELEPHONE.
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<PAGE>
AMERICAN WATER WORKS COMPANY, INC.
1025 LAUREL OAK ROAD
VOORHEES, NEW JERSEY 08043
856-346-8200
PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS
MAY 4, 2000
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of American Water Works Company, Inc.
(hereinafter called the "Company") to be used at the annual meeting of
shareholders of the Company on Thursday, May 4, 2000, and at any adjournment
thereof. Shares represented by properly executed proxies received by the Company
will be voted at the meeting. Where a choice is specified by the shareholder,
the proxy will be voted in accordance with such choice. If no choice is
specified, the proxy will be voted in accordance with the recommendations of the
Board of Directors. Any proxy may be revoked at any time insofar as it has not
been exercised. Shareholders may revoke proxies by written notice to the
Company, or by delivery of a proxy bearing a later date, or by personally
appearing at the meeting and casting a vote. Shareholders may also vote
electronically or telephonically by following the instructions on the enclosed
form of proxy. BankBoston, N.A., the Company's stock agent, is tabulating the
votes cast for the meeting and will count the last vote received from a
shareholder, whether by ballot, proxy, telephone or electronically through the
Internet. This Notice of Meeting and Proxy Statement and the enclosed form of
proxy are being mailed beginning March 27, 2000 to the holders of all voting
securities.
The presence in person or representation by proxy of shareholders entitled
to cast a majority of votes on a particular matter to be voted upon shall
constitute a quorum for the purpose of considering such matter. A proxy marked
"withheld" in the election of directors or "abstain" on any other matter to be
voted upon, will be considered to be represented at the meeting. A proxy marked
"withheld" in the election of directors will be considered as not being voted
and, therefore, will have no effect inasmuch as directors are elected by a
plurality of votes cast in the election. A proxy marked "abstain" on any other
matter to be voted upon at the meeting and broker non-votes will have the effect
of an "against" vote inasmuch as the affirmative vote of a majority of the votes
entitled to be cast on the matter is necessary for approval of the matter.
The close of business on March 6, 2000 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
annual meeting and any adjournment thereof. On the record date, there were
outstanding and entitled to vote 97,591,855 shares of Common Stock (one vote per
share) and 101,777 shares of Cumulative Preferred Stock, 5% Series (one-tenth of
a vote per share).
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. The members of each
class are elected to serve three-year terms with the terms of office of each
class ending in successive years. William O. Albertini, Rhoda W. Cobb, Ray J.
Groves, Ross A. Webber and Horace Wilkins, Jr. are the nominees for election to
the Board of Directors as directors to serve until the year 2003 annual meeting
or until their successors are elected and qualified. All of the nominees are
currently directors of the Company.
All of the nominees have indicated a willingness to serve if elected.
However, if any nominee becomes unable to serve before the election, the shares
represented by the proxy cards may be voted for a substitute nominee designated
by the Board of Directors, unless an instruction to the contrary is indicated on
the proxy card.
Shareholders are entitled to cumulative voting rights in the election of
directors. Each holder of Common Stock is entitled to one vote per share, and
each holder of Cumulative Preferred Stock, 5% Series, is entitled to one-tenth
of a vote per share. Each shareholder may cast as many votes as such
shareholder's number of shares shall entitle him or her to vote in the election
of directors multiplied by the number of directors to be elected, namely five,
and such shareholder may cast all of such votes for a single director or
distribute them among all of the directors to be voted for, or any two or more
of them. A shareholder wishing to exercise his or her cumulative voting rights
should give instructions on the enclosed form of proxy as to how such
shareholder's votes are to be cumulated.
Unless a shareholder specifically exercises his or her cumulative voting
rights, such shareholder's votes may be distributed among the nominees (other
than those from whom the shareholder withholds his or her vote) by the persons
named in the proxy to elect as many as possible of the nominees. Such persons
may vote cumulatively for such of the nominees (in some circumstances, less than
all) as they in their discretion determine if in their judgment such action is
necessary to elect as many of the nominees as possible.
The Board of Directors recommends that the shareholders vote "FOR" the
election of the five (5) nominees as Directors of the Company for a term to
expire in 2003.
Based on information as of March 6, 2000, the following describes the age,
position with the Company, principal occupation and business experience during
the past five years, and other directorships of each nominee and of each
director whose term of office continues after the annual meeting.
2
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS FOR A TERM EXPIRING IN 2003
[PICTURE] WILLIAM O. ALBERTINI, age 56, became a director
of the Company in 1990. He is a member of the
Audit, Compensation and Management Development
and Finance Committees. Prior to his
retirement, he was Executive Vice President and
Chief Financial Officer from August, 1997 to
April, 1999 of Bell Atlantic Global Wireless,
Inc., a provider of wireless communication
services, and Executive Vice President and
Chief Financial Officer from February, 1995 to
August, 1997 and Vice President and Chief
Financial Officer from February, 1991 to
February, 1995 of Bell Atlantic Corporation, a
provider of telecommunication services. Mr.
Albertini is a director of BlackRock Funds and
Triumph Group, Inc.
[PICTURE] RHODA W. COBB, age 60, became a director of the
Company in 1999. She also served as a director
of the Company from 1976 to 1993. She is a
member of the Audit and Finance Committees. She
is a homemaker and President of the Cobb
Foundation.
[PICTURE] RAY J. GROVES, age 64, became a director of the
Company in 1998. He is a member of the Audit
and Finance Committees. He has been Chairman of
Legg Mason Merchant Banking, Inc. since March,
1995. Mr. Groves is a director of Allegheny
Technologies Incorporated, Boston Scientific
Corporation, Dominion Resources, Inc.,
Electronic Data Systems Corporation, Marsh &
McLennan Companies, Inc. and Nabisco Group
Holdings, Inc.
[PICTURE] ROSS A. WEBBER, age 65, became a director of
the Company in 1986. He is a member of the
Executive and Audit Committees. He is Professor
of Management at The Wharton School at the
University of Pennsylvania and a private
consultant on general management development.
Mr. Webber is a director of Arcadis, N.V.
[PICTURE] HORACE WILKINS, JR., age 49, became a director
of the Company in 1996. He is a member of the
Compensation and Management Development and
Corporate Governance Committees. He has been
President-Special Markets since October, 1998
of SBC Telecommunications, Inc., a provider of
telecommunication services. He was Regional
President-South Texas from August, 1996 to
October, 1998 and was President-Missouri from
December, 1992 to August, 1996 of Southwestern
Bell Telephone Company, a provider of telephone
services. Mr. Wilkins is a director of Cullen
Frost National Bank.
3
<PAGE>
DIRECTORS WHOSE TERM WILL EXPIRE IN 2001
[PICTURE] HENRY G. HAGER, age 65, became a director of
the Company in 1986. He is a member of the
Executive and Corporate Governance Committees.
Prior to his retirement, he was President of
Insurance Federation of Pennsylvania, Inc. from
January, 1985 to December, 1999. He was a
partner in the law firm of Stradley, Ronon,
Stevens & Young from November, 1993 to
December, 1999. Mr. Hager is a director of
HealthAxis, Inc.
[PICTURE] FREDERICK S. KIRKPATRICK, age 55, became a
director of the Company in 1999. He is a member
of the Audit Committee. He is Vice Chairman and
Chief Executive Officer of MFO Management
Company, a private, family-owned financial
services company.
[PICTURE] GERALD C. SMITH, age 65, became a director of
the Company in 1998. Prior to his retirement,
he was Vice President of the Company from May,
1991 to December, 1999. In addition, he was
Senior Vice President-Operations from July,
1991 to February, 1999 of American Water Works
Service Company, Inc., the service subsidiary
of the Company. During his 47-year career, he
has held numerous positions with other
subsidiaries of the Company.
[PICTURE] ANTHONY P. TERRACCIANO, age 61, became a
director of the Company in 1997 and has been
Vice Chairman of the Board of Directors of the
Company since May, 1998. He is a member of the
Executive, Corporate Governance and Finance
Committees. Prior to his retirement, he was
President of First Union Corporation from
January, 1996 to January, 1998. Mr. Terracciano
was Chairman of the Board, President and Chief
Executive Officer of First Fidelity
Bancorporation from February, 1990 to January,
1996.
[PICTURE] MARILYN WARE, age 56, became a director of the
Company in 1982 and has been Chairman of the
Board of Directors of the Company since May,
1988. She is a member of the Executive, Audit,
Compensation and Management Development,
Corporate Governance and Finance Committees.
She also serves as Chief Executive Officer of
the Ware Family Offices. Ms. Ware is a director
of CIGNA Corporation and PPL Corporation.
4
<PAGE>
DIRECTORS WHOSE TERM WILL EXPIRE IN 2002
[PICTURE] J. JAMES BARR, age 58, became a director of the
Company in 1997. He is a member of the
Executive Committee. He has been President and
Chief Executive Officer of the Company since
March, 1998 and was Acting President and Chief
Executive Officer of the Company from November,
1997 to March, 1998. He was Vice President and
Treasurer of the Company prior thereto. In
addition, he has been Chairman of the Board of
Directors and President since March, 1998 of
American Water Works Service Company, Inc., the
service subsidiary of the Company. He was
Senior Vice President-Financial Services of
American Water Works Service Company, Inc.
prior thereto.
[PICTURE] ELIZABETH H. GEMMILL, age 54, became a director
of the Company in 1983. She is a member of the
Compensation and Management Development and
Corporate Governance Committees. She is the
Managing Trustee of the Warwick Foundation. She
was Vice President and Secretary of Tasty
Baking Company from February, 1988 to March,
1999. Ms. Gemmill is also a director of
Universal Display Corporation and Willow Grove
Bancorp.
[PICTURE] NANCY WARE WAINWRIGHT, age 63, became a
director of the Company in 1984. She is a
member of the Executive and Corporate
Governance Committees. She is Chairman and
Chief Executive Officer of the
Catlin-Wainwright Foundation.
[PICTURE] PAUL W. WARE, age 53, became a director of the
Company in 1990. He also served as a director
of the Company from 1982 to 1986. He is a
member of the Compensation and Management
Development and Finance Committees. Prior to
his retirement in August, 1998, Mr. Ware was
Chairman of Penn Fuel Gas, Inc., a gas
distribution company. Mr. Ware is a director of
The York Water Company.
[PICTURE] WILLIAM S. WHITE, age 62, became a director of
the Company in 1999. He is Chairman, President
and Chief Executive Officer of the Charles
Stewart Mott Foundation, a private charitable
foundation. He is also Chairman of U. S. Sugar
Corporation.
Marilyn Ware and Paul W. Ware are the daughter and son of Marian S. Ware,
who beneficially owns more than 5% of the Company's Common Stock. Rhoda W. Cobb
and Nancy Ware Wainwright are sisters and are cousins of Marilyn Ware and Paul
W. Ware.
5
<PAGE>
MEETINGS OF THE BOARD AND ITS COMMITTEES
Attendance at meetings of the Board of Directors and committees of the
Board by directors averaged 92% during 1999. All nominees attended 89% or more
of their scheduled meetings of the Board of Directors and committees of the
Board of which they were members. There were seven meetings of the Board of
Directors during 1999.
The Board of Directors has an Executive Committee, an Audit Committee, a
Compensation and Management Development Committee, a Corporate Governance
Committee and a Finance Committee. Membership of the committees as of the record
date of March 6, 2000 is listed at the beginning of the description of each
committee.
Members of the Executive Committee: Marilyn Ware (Chairman), J. James
Barr, Henry G. Hager, Anthony P. Terracciano, Nancy Ware Wainwright and Ross A.
Webber. The Executive Committee exercises all the powers of the Board of
Directors when the Board is not in session, except as otherwise provided by
Delaware law and the Company's by-laws. There were six meetings of the Board's
Executive Committee during 1999.
Members of the Audit Committee: Ray J. Groves (Chairman), William O.
Albertini, Rhoda W. Cobb, Frederick S. Kirkpatrick, Marilyn Ware and Ross A.
Webber. The Audit Committee recommends to the Board of Directors the independent
accountants to audit the books and accounts of the Company. The Audit Committee
met with the Company's independent accountants and the Company's officers three
times during 1999 to review the scope of the audit to be performed, approve the
fee to be paid for the audit and review the results of the audit of the
financial statements included in the Annual Report and the adequacy of internal
accounting controls and accounting practices.
Members of the Compensation and Management Development Committee: Horace
Wilkins, Jr. (Chairman), William O. Albertini, Elizabeth H. Gemmill, Marilyn
Ware and Paul W. Ware. The Compensation and Management Development Committee met
four times during 1999 to evaluate and report to the Board of Directors
concerning the Company's compensation practices and benefit programs and to
evaluate and set, subject to the concurrence of the Board of Directors, the
compensation to be paid to the President and Chief Executive Officer.
Members of the Corporate Governance Committee: Henry G. Hager (Chairman),
Elizabeth H. Gemmill, Anthony P. Terracciano, Marilyn Ware, Nancy Ware
Wainwright and Horace Wilkins, Jr. The Corporate Governance Committee recommends
to the Board of Directors the slate of director-nominees to stand for election
each year at the annual meeting of shareholders, and in the event of interim
vacancies, candidates to fill such vacancies on the Board of Directors. The
Corporate Governance Committee also evaluates and reports to the Board of
Directors on the effectiveness of the Board and its committee system and the
compensation and benefit program for directors. The Corporate Governance
Committee met six times during 1999.
The Corporate Governance Committee will consider nominees for the Board of
Directors suggested by shareholders. Such suggestions for the annual meeting of
shareholders in 2001 must be in writing and delivered to the General Counsel and
Secretary of the Company by December 29, 2000.
Members of the Finance Committee: William O. Albertini (Chairman), Rhoda
W. Cobb, Ray J. Groves, Anthony P. Terracciano, Marilyn Ware and Paul W. Ware.
The Finance Committee met eight times during 1999 to assist management and the
Board of Directors in
6
<PAGE>
evaluating matters such as acquisitions, divestitures, joint ventures and
partnerships, to advise management and make recommendations to the Board of
Directors relative to the various financial policies and programs of the
Company, and to review and monitor the funding, asset allocation and investment
performance of the Company's group benefit and retirement plan assets.
DIRECTOR REMUNERATION
The amounts paid to directors who are not associates of the Company or one
of its subsidiaries for their services as such and for their participation on
committees of the Board of Directors are as follows: (i) each director receives
a retainer of $30,000 per year plus a fee of $1,500 for each Board meeting
attended, (ii) each member of the Executive Committee receives an additional
retainer of $5,000 per year plus a fee of $1,000 for each Executive Committee
meeting attended and (iii) the Chairmen of the Audit Committee, Compensation and
Management Development Committee, Corporate Governance Committee and Finance
Committee each receive an additional retainer of $1,500 per year, and each
member of these committees receives a fee of $1,000 for each meeting attended.
The Chairman of the Board of Directors receives an additional annual retainer of
$150,000. Directors who are associates of the Company or one of its subsidiaries
do not receive retainers or attendance fees.
Subject to shareholder approval of the 2000 Stock Award and Incentive Plan
at this annual meeting, the Board of Directors has terminated the Retirement
Benefit Policy for Directors effective December 31, 1999. As a result, no
additional retirement benefits will accrue in respect of Board service after
December 31, 1999, and each non-associate member of the Board of Directors as of
such date could elect to (i) retain his or her current retirement benefit (i.e.,
$15,500 per year upon retirement from the Board of Directors for the number of
years equivalent to his or her Board service through December 31, 1999); or (ii)
convert the present value of his or her current retirement benefit into deferred
Company Common Stock shares at the December 31, 1999 closing price of $21.25 per
share, which shares will be paid (together with dividend equivalents) in a lump
sum in January following the year of retirement from the Board of Directors or,
at his or her prior election, in up to 10 annual installments commencing on such
date. The present value of retirement benefits that directors may elect to
convert into deferred Company Common Stock shares are respectively: Mr.
Albertini, $114,836; Mr. Barr, $0; Mrs. Cobb, $131,142; Ms. Gemmill, $165,392;
Mr. Groves, $18,732; Mr. Hager, $146,283; Mr. Kirkpatrick, $7,657; Mr. Smith,
$0; Mr. Terracciano, $33,785; Mrs. Wainwright, $157,211; Ms. Ware, $171,124; Mr.
Ware, $114,836; Mr. Webber, $146,283; Mr. White, $7,657; and Mr. Wilkins,
$51,297.
In lieu of future benefit accruals under the Retirement Benefit Policy for
Directors, the Board of Directors agreed to award each non-associate member of
the Board of Directors, subject to shareholder approval of the 2000 Stock Award
and Incentive Plan, an annual deferred Company Common Stock grant of 425 shares,
which shares will be paid (together with dividend equivalents) in a lump sum in
January following the year of retirement from the Board of Directors or, at his
or her prior election, in up to 10 annual installments commencing on such date.
The Board of Directors also terminated the Company's practice of providing
term life insurance for non-associate directors in exchange for 25 deferred
Company Common Stock shares.
7
<PAGE>
STOCK OWNERSHIP INFORMATION
The following table sets forth information as of March 6, 2000 with respect
to beneficial ownership of Common Stock of the Company by: (i) the nominees and
continuing directors, (ii) the five most highly compensated executive officers
and (iii) all nominees, continuing directors and executive officers of the
Company as a group. If a nominee, continuing director or executive officer owns
less than one percent of the Company's Common Stock, no percentage is shown
under the heading "Percent of Class." Information for the table was obtained
from the nominees, continuing directors and executive officers. For purposes of
the table, a person is a "beneficial owner" of the Company's Common Stock if
that person, directly or indirectly, has or shares with others (i) the power to
vote or direct the voting of the Common Stock or (ii) investment power with
respect to the Common Stock, which includes the power to dispose or direct the
disposition of the Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
-----------------------------
SOLE VOTING SHARED VOTING SHARES OWNED BY
NAME OF INDIVIDUAL OR OR INVESTMENT OR INVESTMENT SPOUSE AND MINOR PERCENT
NUMBER OF PERSONS IN GROUP POWER(1) POWER(2) CHILDREN(2) TOTAL OF CLASS
- ------------------------------------- ------------- ------------- ----------------- ---------- --------
<S> <C> <C> <C> <C> <C>
William O. Albertini................. 13,118 13,118 *
J. James Barr........................ 748,988 1,019 750,007 *
Rhoda W. Cobb........................ 6,000 390,000 3,000 399,000 *
Elizabeth H. Gemmill................. 34,613 2,109,282 2,143,895 2.2%
Ray J. Groves........................ 4,098 4,098 *
Henry G. Hager....................... 8,000 15,548 23,548 *
Frederick S. Kirkpatrick............. 8,000 4,769,720 4,777,720 4.9%
Gerald C. Smith...................... 40,468 69 40,537 *
Anthony P. Terracciano............... 64,000 64,000 *
Nancy Ware Wainwright................ 6,824 501,105 507,929 *
Marilyn Ware......................... 4,908,630 4,866,460 9,775,090 10.0%
Paul W. Ware......................... 29,400 811,376 840,776 *
Ross A. Webber....................... 3,401 3,401 *
William S. White..................... 10,000 7,750,795 7,760,795 8.0%
Horace Wilkins, Jr................... 1,803 1,803 *
Joseph F. Hartnett, Jr............... 9,168 9,168 *
W. Timothy Pohl...................... 23,175 23,175 *
Robert D. Sievers.................... 19,662 19,662 *
Ellen C. Wolf........................ 724 200 924 *
All nominees, continuing directors
and executive officers as a group
(19 persons)...................... 5,940,072 15,629,642 19,836 21,589,550 22.1%
</TABLE>
- ------------------
* Represents holdings of less than one percent.
(1) Does not include shares of the Company's Common Stock to be credited
during 2000 to the accounts of the executive officers pursuant to the
Company's Employees' Stock Ownership Plan and Savings Plan for
Employees.
- ------------------
See footnote (2) on page 9
8
<PAGE>
(2) Cobb Foundation, a charitable trust of which Rhoda W. Cobb is a trustee,
owns 390,000 shares of the Common Stock of the Company.
Catlin-Wainwright Foundation, a charitable trust of which Nancy Ware
Wainwright is a trustee, owns 501,105 shares of the Common Stock of the
Company. Oxford Foundation, Inc., a non-profit corporation of which
Marilyn Ware and Paul W. Ware are directors, owns 797,376 shares of the
Common Stock of the Company. Warwick Foundation, a charitable foundation
of which Elizabeth H. Gemmill is the Managing Trustee, owns 615,000
shares of the Common Stock and 200 shares of 5% Cumulative Preferred
Stock of the Company.
Frederick S. Kirkpatrick and William S. White are trustees of a trust
which owns 4,769,720 shares of the Common Stock of the Company, the
beneficiaries of which are relatives of Mr. White.
As the trustees or directors of these non-profit organizations and the
beneficial trust have voting and investment power, the shares of the
Company's Common Stock held by such non-profit organizations and the
beneficial trust are shown opposite the name of the nominee, continuing
director or executive officer, but such shares are reported only once in
the total for nominees, continuing directors and executive officers as a
group. The nominees, continuing directors and executive officers deny
beneficial ownership of such shares.
The nominees, continuing directors and executive officers also deny
beneficial ownership of shares owned by their spouses and minor
children.
None of the nominees, continuing directors or executive officers has any
material interest in any other stock of the Company or its subsidiaries.
Based upon information available to the Company as of March 6, 2000, the
following persons beneficially own more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
-----------------------------
SOLE VOTING SHARED VOTING
NAME AND ADDRESS OR INVESTMENT OR INVESTMENT PERCENT
OF BENEFICIAL OWNER POWER POWER OF CLASS
- -------------------------------------------------- ------------- ------------- --------
<S> <C> <C> <C>
Marian S. Ware.................................... 4,043,305 840,916 5.0%
2 East Main Street
Strasburg, PA 17579
The Bessemer Group, Incorporated.................. 7,049,404 6,100 7.2%
100 Woodbridge Center Drive
Woodbridge, NJ 07095
</TABLE>
Based upon filings with the Securities and Exchange Commission, as of March
6, 2000 there are no persons who own beneficially more than 5% of the
outstanding shares of the Company's Cumulative Preferred Stock, 5% Series.
9
<PAGE>
REPORT OF THE COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
Overview
The Compensation and Management Development Committee of the Board of
Directors (the "Committee") is comprised entirely of independent non-associate
directors. The Committee establishes the Company's compensation policy, subject
to the concurrence of the Board of Directors, and is responsible for
administering the compensation program for the Company's executives.
The Committee endeavors to ensure that the Company's executive compensation
program enables the Company to attract, retain, motivate and reward the talented
executives it needs. Consistent with this objective, it is the policy of the
Committee that the total compensation opportunity available to executives should
be competitive with the median remuneration received by those in positions of
similar responsibilities in other comparable companies, with the opportunity for
above median remuneration for superior performance. To this end, the Committee
retains independent compensation consultants to periodically study the Company's
compensation program for executives, collect and analyze competitive
compensation data, and make recommendations consistent with the Company's
compensation policy.
The Committee makes executive compensation decisions on the basis of total
remuneration, rather than on separate free-standing components. The Committee
has sought to create an integrated total remuneration program structured to
balance appropriately short- and long-term financial and strategic goals. A
significant amount of total pay for executives is comprised of at-risk pay to
align executive interests with shareholder interests and directly tie
compensation value to performance.
The compensation program for executives is comprised of base salary, an
annual incentive opportunity and a long-term incentive opportunity.
Base Salary
The President and Chief Executive Officer, with the concurrence of the
Committee, annually sets the salary within the designated salary band for each
executive other than himself based on the responsibilities and achievements of
each such executive.
The Committee, with the concurrence of the Board of Directors, sets a
salary within the designated salary band for the President and Chief Executive
Officer on the basis of merit. This evaluation of merit involves, among other
things, an analysis of (i) the Company's financial performance and (ii) the
performance of the President and Chief Executive Officer in maintaining the
Company as a leader in the water management industry and in expanding the
Company's water service operations consistent with the Company's commitment to
quality water service to customers of its utility subsidiaries.
Inasmuch as water service operations are the Company's principal business,
evaluating the Company's financial performance requires an understanding of (i)
the prevailing regulatory practice in each of the states in which the Company's
utility subsidiaries operate and (ii) the effect varying weather conditions have
on revenues and expenses. Consequently, the Committee has not adopted a
formulaic relationship between changes in the Company's financial performance
and changes in the level of base salary for the President and Chief
10
<PAGE>
Executive Officer. Similarly, because of the varied subjective considerations
involved, the Committee does not evaluate on a formulaic basis the performance
of the President and Chief Executive Officer in maintaining the Company as a
leader in the water management industry or in expanding the Company's water
service operations.
Annual Incentive Compensation
The Company maintains an annual incentive program to provide an opportunity
for executives and other key associates of the Company and its subsidiaries to
earn an annual cash incentive award for achieving financial and operational
goals, including an important emphasis on customer service for executives
employed by the Company's utility subsidiaries. The financial goals for 1999
were based on achieving the utility operating income and return on equity
authorized by the various state utility regulators for the Company's utility
subsidiaries. Customer service goals were premised on delivering at all times
high quality water at adequate pressures to water service customers and
responding promptly to customer service and billing inquiries. Other operational
goals are based on an evaluation of each participant's individual performance.
The exact amount of an award depends on the performance of the Company and of
the participant. Annual incentive awards made to executives for 1999 are shown
in the Summary Compensation Table of this Proxy Statement.
In connection with the adoption of the 2000 Stock Award and Incentive Plan
(Proposal 2 of this Proxy Statement), the Committee has decided to modify some
of the performance measures that will be used to calculate annual incentive
awards for 2000. Financial goals generally will be based on the achievement of
"economic profit," which the Committee believes is linked more directly to the
creation of shareholder value. "Economic profit" is determined by subtracting a
charge for capital (debt and equity) from net operating profit after tax.
Operational goals will continue to apply, and adjustments may be made based on
an evaluation of individual performance.
Long-Term Incentive Compensation
At their 1994 annual meeting, shareholders of the Company adopted the
Long-Term Performance-Based Incentive Plan for executives and other key
associates of the Company and its subsidiaries. The exact amount of an award is
a function of the Company attaining its Earnings Per Share Growth and Total
Return to Stockholders Performance Cycle Goals and the individual performance of
the participant. Awards to executives under the plan, if any, are generally paid
as follows: 75% in restricted shares of Common Stock and 25% in cash. Awards
made to executives under the Long-Term Performance-Based Incentive Plan for the
performance cycle that began January 1, 1997 and concluded December 31, 1999 are
shown in the Summary Compensation Table of this Proxy Statement.
Commencing in 2000, the Committee has decided to introduce stock options as
a component of the Company's long-term incentive compensation program, subject
to shareholder approval of the 2000 Stock Award and Incentive Plan. A
competitive level of long-term incentive value will be delivered through a
balanced mixture of stock options and performance cycle awards similar to the
awards currently provided under the Long-Term Performance-Based Incentive Plan.
Stock options will have a fair market value exercise price when granted and will
result in a reward for participants only in the event of Common Stock
appreciation. The Committee believes that stock options will enhance the
Company's ability to compete for executive talent in the marketplace and will
further align the interests of executives with shareholders.
11
<PAGE>
Internal Revenue Code
Section 162(m) of the Internal Revenue Code (the "Code") provides that
compensation paid to certain executives in excess of $1 million will not be
deductible for purposes of corporate income tax unless it is performance-based
compensation and is paid pursuant to a plan meeting certain requirements of the
Code. The Committee intends to continue reliance on performance-based
compensation programs. Such programs will be intended to fulfill future
corporate business objectives. The Committee currently anticipates that, to the
extent practicable and in the Company's best interest, such programs will be
designed to satisfy the requirements of Section 162(m) with respect to the
deductibility of compensation paid. The Committee recognizes, however, that
there may be business considerations that dictate that compensation be paid that
is not deductible under Section 162(m).
AS SUBMITTED BY THE MEMBERS OF THE COMPENSATION
AND MANAGEMENT DEVELOPMENT COMMITTEE:
William O. Albertini Paul W. Ware
Elizabeth H. Gemmill Horace Wilkins, Jr.
Marilyn Ware
Dated: January 6, 2000
12
<PAGE>
PERFORMANCE GRAPH
The following graph compares the changes over the last five years in the
value of $100 invested in (i) the Company's Common Stock, (ii) the Standard &
Poor's 500 Stock Index ("S&P 500 Index"), (iii) the Standard & Poor's Utilities
Stock Index ("S&P Utilities Index" or "New Peer Group") and (iv) the Dow Jones
Water Utilities Index ("Dow Jones Water Index" or "Old Peer Group").
The year-end values of each investment are based on share price
appreciation and the reinvestment of all dividends. The calculations exclude
trading commissions and taxes. Total shareholder returns from each investment,
whether measured in dollars or percent, can be calculated from the year-end
investment values shown beneath the graph.
The business of providing reliable water service continues to undergo
significant transition. As the regulatory environment changes, new opportunities
are being created for qualified business enterprises to expand their involvement
in water resources management. The Company has enhanced its strategy for growth
to encompass a broadening of the scope and geographic diversity of its
investments. Its continued efforts to acquire water and wastewater systems
represent one part of this growth strategy.
In order to reflect the broadening competitive market and the Company's
growth strategy, the New Peer Group is being presented. The recent proliferation
of mergers and acquisition activity in the water utility industry has also
impacted the relevance and viability of maintaining the Old Peer Group. For
comparative purposes, both peer groups are presented.
The New Peer Group comprises those companies included in the S&P Utilities
Index. This index of 40 utility companies was designed to measure the
performance of the utility sector of the S&P 500 Index. The S&P Utilities Index
includes companies with geographic diversity and reflects both regulated
business activities and diversification in non-regulated areas. The New Peer
Group will be used in the future.
The Old Peer Group comprises the five companies included in the Dow Jones
Water Index. In addition to the Company, the members of this peer group are:
California Water Service Group, Philadelphia Suburban Corporation, United Water
Resources Incorporated and Aquarion Company. The Old Peer Group will not be used
in the future.
FIVE-YEAR CUMULATIVE TOTAL RETURNS
VALUE OF $100 INVESTED ON DECEMBER 31, 1994
[GRAPHIC]
In the printed version of the document, a line graph
appears which depicts the following plot points:
<TABLE>
<CAPTION>
DEC-94 DEC-95 DEC-96 DEC-97 DEC-98 DEC-99
<S> <C> <C> <C> <C> <C> <C>
American
Water Works $100 $150 $158 $226 $287 $186
S&P 500 $100 $138 $169 $226 $290 $351
S&P Utilities $100 $142 $146 $183 $210 $191
DJ Water Utils $100 $129 $154 $212 $270 $233
</TABLE>
13
<PAGE>
MANAGEMENT REMUNERATION
The following table sets forth the annual compensation paid to each of the
Company's six most highly compensated executive officers for services to the
Company and its subsidiaries in all capacities for each of the last three
calendar years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS PAYOUTS
--------- -------
ANNUAL COMPENSATION RESTRICTED
NAME OF EXECUTIVE OFFICER ------------------------------------- STOCK LTIP ALL OTHER
AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1) PAYOUTS COMPENSATION(2)
- ----------------------------------------- --------- ------------ ------------ --------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
J. James Barr(3)......................... 1999 $489,492 $146,529 $ 77,862 $25,192 $ 6,481
President and Chief 1998 402,917 144,897 126,382 24,012 6,109
Executive Officer of the 1997 294,333 58,167 194,022 26,775 5,465
Company
Gerald C. Smith(4)....................... 1999 375,000 79,747 42,500 13,748 8,008
Vice President of the 1998 291,833 55,924 126,382 24,012 7,338
Company 1997 279,333 58,167 194,022 26,775 6,605
Ellen C. Wolf(5)......................... 1999 321,008 46,518 12,491 4,038 500
Vice President and Chief 1998 0 0 0 0 0
Financial Officer of the 1997 0 0 0 0 0
Company
W. Timothy Pohl.......................... 1999 196,875 37,734 26,613 8,606 7,988
General Counsel and 1998 188,792 30,839 39,208 7,452 7,338
Secretary of the Company 1997 183,600 32,772 100,345 13,847 6,725
Joseph F. Hartnett, Jr................... 1999 185,833 31,185 14,506 4,694 8,041
Treasurer of the Company 1998 180,000 30,839 32,422 6,160 7,413
1997 166,900 29,792 44,239 18,315 6,721
Robert D. Sievers........................ 1999 161,667 31,185 10,899 3,527 7,473
Comptroller of the Company 1998 150,000 30,839 32,422 6,160 6,754
1997 134,667 22,384 82,955 11,447 6,080
</TABLE>
- ------------------
(1) Dollar values of restricted shares of Common Stock awards are based
on market price at the time of grant. The aggregate number of
restricted stock held and their value as of December 31, 1999 for the
executives were as follows: Mr. Barr -- 16,927 shares / $359,699; Mr.
Smith -- 16,927 shares / $359,699; Ms. Wolf -- 0 shares / $0; Mr.
Pohl -- 7,852 shares / $166,855; Mr. Hartnett -- 2,624 shares /
$55,760; and Mr. Sievers -- 6,492 shares / $137,955. Dividends are
paid on the restricted shares of Common Stock at the same time and
rate as dividends are paid to holders of unrestricted shares of
Common Stock.
- ------------------
See footnotes (2), (3), (4) and (5) on page 15
14
<PAGE>
(2) Dollar values of the shares of the Company's Common Stock purchased
with Company contributions and credited to the account of the named
executive officer under the Employees' Stock Ownership Plan and
Savings Plan for Employees.
(3) On November 6, 1997, J. James Barr was elected as a director and
appointed Acting President and Chief Executive Officer of the
Company. Coincident with his appointment, Mr. Barr was awarded 11,000
Common Stock units of the Company payable on November 6, 2000 based
on the per share closing price of the Company's Common Stock on that
date, subject to certain conditions. This compensation award was
filed with the Securities and Exchange Commission as an exhibit to
the Company's Annual Report on Form 10-K for 1997. The foregoing
description is qualified in its entirety by reference to such
exhibit.
(4) Gerald C. Smith retired as an associate of the Company effective
January 1, 2000.
(5) Ellen C. Wolf joined the Company in May, 1999. Her salary for 1999
includes a $150,000 signing bonus.
The Company has maintained since 1976 an Employees' Stock Ownership Plan
(the "ESOP") which has been amended from time to time, primarily to reflect
changes in federal tax law. Substantially all associates of the Company and its
subsidiaries who are not included in a bargaining unit may participate in the
ESOP beginning on January 1 following his or her date of hire. The Company also
maintains a Savings Plan for Employees. The Savings Plan was established in
1993. Substantially all associates of the Company and its subsidiaries who have
completed six months of service may participate in the Savings Plan. As of March
6, 2000, the ESOP and Savings Plan together held 3.3% of the Company's Common
Stock.
15
<PAGE>
PENSION PLAN
The following table shows the approximate annual retirement benefits which
will be payable under the Company's Pension Plan, Supplemental Executive
Retirement Plan and Supplemental Retirement Plan at the normal retirement age of
65 (assuming continuation of the plans) for specified years of service and
levels of average remuneration.
<TABLE>
<CAPTION>
FINAL YEARS OF SERVICE
AVERAGE -------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000 $ 45,874 $ 61,166 $ 76,457 $ 81,707 $ 86,957 $ 92,207
200,000 62,374 83,166 103,957 110,957 117,957 124,957
250,000 78,874 105,166 131,457 140,207 148,957 157,707
300,000 95,374 127,166 158,957 169,457 179,957 190,457
350,000 111,874 149,166 186,457 198,707 210,957 223,207
400,000 128,374 171,166 213,957 227,957 241,957 255,957
450,000 144,874 193,166 241,457 257,207 272,957 288,707
500,000 161,374 215,166 268,957 286,457 303,957 321,457
550,000 177,874 237,166 296,457 315,707 334,957 354,207
600,000 194,374 259,166 323,957 344,957 365,957 386,957
650,000 210,874 281,166 351,457 374,207 396,957 419,707
</TABLE>
The Company and its subsidiaries have a defined benefit, non-contributory
Pension Plan which covers substantially all associates, including the executive
officers listed in the Summary Compensation Table on page 14. Annual amounts
which are contributed to the plan and charged to expense during the year are
computed on an aggregate actuarial basis and cannot be individually allocated.
The remuneration covered under the plan includes salaries and annual cash
bonuses paid to plan participants. Directors who are not also associates do not
participate in the plan. Benefits under the plan are calculated as a percentage
of the highest average remuneration during those 60 consecutive months of
employment of the final 120 months of employment that yield the highest average.
That percentage depends on the associate's total number of years of service.
Benefits are not subject to reduction for Social Security or other benefits, but
are restricted under federal tax law to a maximum of $135,000 per year. As of
March 6, 2000, Mr. Barr, Ms. Wolf, Mr. Pohl, Mr. Hartnett and Mr. Sievers have
been credited with 38, 0, 15, 7 and 23 years of service, respectively, under the
plan.
In 1985, the Company established a Supplemental Executive Retirement Plan
under which it has agreed to provide additional retirement benefits to certain
associates of the Company and its subsidiaries, designated from time to time by
the Board of Directors. Mr. Barr, Ms. Wolf, Mr. Pohl, Mr. Hartnett and Mr.
Sievers have been so designated. Benefits under the Supplemental Executive
Retirement Plan are intended to (i) provide the additional retirement benefits
that would be payable under the Company's Pension Plan if federal tax law did
not restrict such benefits as described in the preceding paragraph, (ii) compute
the benefits payable on the basis of the highest average remuneration during 36
consecutive months rather than 60 consecutive months of employment and (iii)
provide additional years of service to those covered associates hired in
mid-career.
In 1989, recognizing that the federal tax law restrictions on benefits
payable under the Pension Plan had begun to affect associates who were not
eligible for the Supplemental Executive Retirement Plan, the Company adopted the
Supplemental Retirement Plan (the "SRP"). The SRP is designed to provide
benefits to certain key associates designated by the Board of Directors, equal
to those that would be provided under the Pension Plan's benefit formula if it
were unaffected by the federal tax law restrictions on benefits. Benefits
payable under the SRP are reduced by any benefit payable to the same individual
under the Supplemental Executive Retirement Plan.
16
<PAGE>
PROPOSAL NO. 2
APPROVAL OF THE 2000 STOCK AWARD AND INCENTIVE PLAN
GENERAL
As discussed above in the "Report of the Compensation and Management
Development Committee of the Board of Directors on Executive Compensation," the
Company has tied a substantial part of the compensation of executives and key
associates to annual and long-term Company performance, including through the
grant of performance-based restricted stock awards. The Board of Directors has
determined that it is in the best interests of the Company to adopt the 2000
Stock Award and Incentive Plan (the "2000 Plan"), with the approval of
shareholders, to enhance the ability of the Company to link pay to performance,
including through the use of stock options.
The Board of Directors and the Compensation and Management Development
Committee (the "Committee") believe that attracting and retaining executives and
other key associates of high quality has been and will continue to be essential
to the Company's growth and success. To this end, a comprehensive compensation
program which includes different types of incentives for motivating associates
and rewards for outstanding service can contribute to the Company's future
success. In particular, the Company intends to use stock options and stock-
related awards as an important element of compensation for executives and other
associates. Such awards enable them to acquire or increase their proprietary
interest in the Company, thereby promoting a closer identity of interests
between them and the Company's shareholders. In addition, annual incentive
awards and other performance-based awards will provide incentives for achieving
specific performance objectives. The Board of Directors and the Committee,
therefore, view the 2000 Plan as a key part of the Company's compensation
program.
The 2000 Plan would replace the Company's current Long-Term
Performance-Based Incentive Plan (the "Current Plan"), which has been in effect
since 1994. Under the Current Plan, cash-denominated awards have been granted
conditioned upon performance as measured by earnings per share growth and total
shareholder return over a three-year performance cycle. If earned, awards to
executives under the Current Plan are generally paid out 75% in the form of
restricted stock and 25% in cash. Additional restricted stock is credited to
executives based on dividends that would have been paid on the restricted stock
had it been granted at the beginning of the performance period. The 2000 Plan
would allow the Company to continue to grant performance-based awards similar to
those under the Current Plan, but would also authorize a broad range of other
awards, including options, restricted and deferred stock, performance awards,
stock appreciation rights ("SARs") and other types of awards based on the
Company's Common Stock (collectively, "Awards").
REASONS FOR SHAREHOLDER APPROVAL
The Board of Directors and the Committee seek shareholder approval of the
2000 Plan in order to satisfy certain legal requirements and to provide tax
advantages to the Company and participants. Approval of the 2000 Plan will meet
a requirement of the New York Stock Exchange.
In addition, the Board of Directors and the Committee seek to preserve the
Company's ability to claim tax deductions for compensation, to the greatest
extent practicable. Therefore, the Company is seeking shareholder approval of
the material terms of performance awards to
17
<PAGE>
named executives under the 2000 Plan, in order to meet a key requirement for
such awards to qualify as "performance-based" compensation under Section 162(m)
of the Internal Revenue Code (the "Code"). Section 162(m) limits the deductions
a publicly-held company can claim for compensation in excess of $1 million paid
to certain executive officers (generally, the officers who are "named executive
officers" in the summary compensation table in the Company's Proxy Statement).
"Performance-based" compensation is not counted against the $1 million
deductibility cap. If the 2000 Plan is approved by shareholders, performance
awards intended by the Committee to qualify as "performance-based" compensation
will be payable only upon achievement of pre-established performance goals,
subject to any additional requirements and terms as the Committee may establish.
Such performance awards can be used to place strong emphasis on the building of
value for all shareholders. For purposes of Code Section 162(m), approval of the
2000 Plan will be deemed also to include approval of the eligibility of
executive officers and other eligible persons to participate, the per-person
limitations described below under the caption "Shares Available and Award
Limitations," and the general business criteria upon which performance
objectives for performance awards are based, described below under the caption
"Performance-Based Awards." Because shareholder approval of general business
criteria, without specific targeted levels of performance, qualifies performance
awards for a period of approximately five years, shareholder approval of such
business criteria will meet the requirements under Section 162(m) until 2005.
Shareholder approval of the performance goal inherent in stock options and SARs
(increases in the market price of shares) is not subject to a time limit under
Section 162(m).
Shareholder approval will also allow the Committee to designate options as
"incentive stock options," if it chooses, to provide tax advantages to
participants. These advantages are explained below.
DESCRIPTION OF THE 2000 PLAN
The following is a brief description of the material features of the 2000
Plan. This description is qualified in its entirety by reference to the full
text of the Plan, a copy of which is attached to this Proxy Statement as
Appendix A.
Shares Available and Award Limitations. Under the 2000 Plan, the number
of shares of Common Stock reserved and available for awards will be 4,000,000
plus the number of shares that remain available for issuance under the Current
Plan after all awards thereunder have been settled. As discussed below, this
number is subject to adjustment in the event of stock splits, stock dividends,
and other extraordinary events. A total of 276,551 shares remain available under
the Current Plan, of which an indeterminate number, estimated to be
approximately 56,100 shares, may be used to settle awards for performance cycles
which began in 1998 and 1999. Assuming that this estimated number of shares is
used to settle outstanding awards under the Current Plan, the total number of
shares available under the 2000 Plan would be 4,220,451 shares, or 4.3% of the
shares outstanding on March 6, 2000. Other than the Current Plan and the
proposed 2000 Plan, the Company has no plan in effect under which options and
stock-based awards may be granted. If shareholders approve the 2000 Plan, the
total of the available shares under all plans would be 4,276,551 shares, or 4.4%
of the shares outstanding on March 6, 2000.
Shares subject to forfeited or expired Awards or to Awards settled in cash
or otherwise terminated without issuance of shares to the participant, and
shares withheld by or surrendered to the Company to satisfy withholding tax
obligations or in payment of the exercise price of an
18
<PAGE>
Award, will be deemed to be available for new Awards under the 2000 Plan. These
same share counting rules will apply to awards under the Current Plan, for
purposes of determining which shares will become available under the 2000 Plan.
Under the 2000 Plan, shares subject to an Award granted in substitution for an
award of a company or business acquired by the Company or a subsidiary will not
count against the number of shares reserved and available. Shares delivered
under the 2000 Plan may be either newly issued or treasury shares. On March 6,
2000, the last reported sale price of the Company's Common Stock on the
composite tape for New York Stock Exchange-listed securities was $19.1875 per
share.
In addition, the 2000 Plan includes a limitation on the amount of Awards
that may be granted to any one participant in a given year in order to qualify
Awards as "performance-based" compensation not subject to the limitation on
deductibility under Section 162(m) of the Code. Under this annual per-person
limitation, no participant may in any year be granted share-denominated Awards
under the 2000 Plan relating to more than his or her "Annual Limit" for each
type of Award. The Annual Limit equals 1,000,000 shares plus the amount of the
Participant's unused Annual Limit relating to the same type of Award as of the
close of the previous year, subject to adjustment for splits and other
extraordinary corporate events. For purposes of this limitation, options, SARs,
restricted stock, deferred stock, and other stock-based awards are separate
types of awards subject to a separate limitation. In the case of Awards not
relating to shares in a way in which the share limitation can apply, no
Participant may be granted Awards authorizing the earning during any year of an
amount that exceeds the Participant's Annual Limit, which for this purpose
equals $2 million plus the amount of the Participant's unused cash Annual Limit
as of the close of the previous year. The Annual Limit for non-share-based
Awards is separate from the Annual Limit for each type of share-based Award.
Adjustments to the number and kind of shares subject to the share
limitations and specified in the Annual Limits are authorized in the event of a
large, special or non-recurring dividend or distribution, recapitalization,
stock split, stock dividend, reorganization, business combination, or other
similar corporate transaction or event affecting the Common Stock. The Committee
is also authorized to adjust performance conditions and other terms of Awards in
response to these kinds of events or to changes in applicable laws, regulations,
or accounting principles, except that adjustments to awards intended to qualify
as "performance-based" generally must conform to requirements under Section
162(m).
Eligibility. Executive officers and other associates of the Company and
its subsidiaries, and non-associate directors, consultants and others who
provide substantial services to the Company and its subsidiaries, are eligible
to be granted Awards under the 2000 Plan. In addition, any person who has been
offered employment by the Company or a subsidiary may be granted Awards, but
such prospective associate may not receive any payment or exercise any right
relating to the Award until he or she has commenced employment. At present,
approximately 192 persons would be eligible for Awards under the 2000 Plan.
Administration. The 2000 Plan is administered by the Committee, except
that the Board of Directors may appoint any other committee to administer the
Plan and may itself act to administer the Plan. The Board of Directors must
perform the functions of the Committee for purposes of granting Awards to
non-associate directors. (References to the "Committee" below mean the committee
or the full Board of Directors exercising authority with respect to a given
Award.) Subject to the terms and conditions of the 2000 Plan, the Committee is
authorized to select participants, determine the type and number of Awards to be
granted and the number of shares to which Awards will relate or the amount of a
performance award,
19
<PAGE>
specify times at which Awards will be exercisable or settled, including
performance conditions that may be required as a condition thereof, set other
terms and conditions of such Awards, prescribe forms of Award agreements,
interpret and specify rules and regulations relating to the Plan, and make all
other determinations which may be necessary or advisable for the administration
of the Plan. Nothing in the 2000 Plan precludes the Committee from authorizing
payment of other compensation, including bonuses based upon performance, to
officers and associates, including the executive officers. The 2000 Plan
provides that Committee members shall not be personally liable, and shall be
fully indemnified, in connection with any action, determination, or
interpretation taken or made in good faith under the Plan.
Stock Options and SARs. The Committee is authorized to grant stock
options, including both incentive stock options ("ISOs"), which can result in
potentially favorable tax treatment to the participant, and non-qualified stock
options, and SARs entitling the participant to receive the excess of the fair
market value of a share on the date of exercise or other specified date over the
grant price of the SAR. The exercise price of an option and the grant price of a
SAR is determined by the Committee, but generally may not be less than the fair
market value of the shares on the date of grant (except as described below). The
maximum term of each option or SAR, the times at which each option or SAR will
be exercisable, and provisions requiring forfeiture of unexercised options at or
following termination of employment or upon the occurrence of other events,
generally are fixed by the Committee, subject to a restriction that no ISO, or
SAR in tandem therewith, may have a term exceeding ten years. Options may be
exercised by payment of the exercise price in cash, shares or other property
(possibly including notes or obligations to make payment on a deferred basis, or
through broker-assisted cashless exercise procedures) or by surrender of other
outstanding awards having a fair market value equal to the exercise price.
Methods of exercise and settlement and other terms of SARs will be determined by
the Committee. SARs granted under the 2000 Plan may include "limited SARs"
exercisable for a stated period of time following a "change in control" of the
Company, as discussed below.
Restricted and Deferred Stock. The Committee is authorized to make Awards
of restricted stock and deferred stock. Prior to the end of the restricted
period, shares received as restricted stock may not be sold or disposed of by
participants, and may be forfeited in the event of termination of employment.
The restricted period generally is established by the Committee. An Award of
restricted stock entitles the participant to all of the rights of a shareholder
of the Company, including the right to vote the shares and the right to receive
any dividends thereon, unless otherwise determined by the Committee. Deferred
stock gives participants the right to receive shares at the end of a specified
deferral period, subject to forfeiture of the Award in the event of termination
of employment under certain circumstances prior to the end of a specified
restricted period (which need not be the same as the deferral period). Prior to
settlement, deferred stock Awards carry no voting or dividend rights or other
rights associated with stock ownership, but dividend equivalents may be paid on
such deferred stock.
Other Stock-Based Awards, Bonus Shares, and Awards in lieu of Cash
Obligations. The 2000 Plan authorizes the Committee to grant Awards that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares. The Committee will determine the terms
and conditions of such Awards, including the consideration to be paid to
exercise Awards in the nature of purchase rights, the periods during which
Awards will be outstanding, and any forfeiture conditions and restrictions on
Awards. In addition, the Committee is authorized to grant shares as a bonus free
of restrictions, or to
20
<PAGE>
grant shares or other Awards in lieu of the Company's obligations under other
plans or compensatory arrangements, subject to such terms as the Committee may
specify. The number of shares granted to an executive officer or non-associate
director in place of salary, fees or other cash compensation must be reasonable,
as determined by the Committee.
Performance-Based Awards. The Committee may require satisfaction of pre-
established performance goals, consisting of one or more business criteria and a
targeted performance level with respect to such criteria, as a condition of
Awards being granted or becoming exercisable or settleable under the 2000 Plan,
or as a condition to accelerating the timing of such events. If so determined by
the Committee, in order to avoid the limitations on deductibility under Section
162(m) of the Code, the business criteria used by the Committee in establishing
performance goals applicable to performance Awards to named executives will be
selected from among the following: (1) growth in revenues or assets; (2)
earnings from operations, earnings before or after taxes, earnings before or
after interest, depreciation, amortization, or extraordinary or special items;
(3) net income or net income per common share (basic or diluted); (4) return on
assets, return on investment, return on capital, or return on equity; (5) cash
flow, free cash flow, cash flow return on investment, or net cash provided by
operations; (6) interest expense after taxes; (7) economic profit; (8) operating
margin or gross margin; (9) stock price or total shareholder return; and (10)
strategic business criteria, consisting of one or more objectives based on
meeting specified water quality standards, environmental or safety standards,
market penetration, geographic business expansion goals, cost targets, cost of
power, customer satisfaction, associate satisfaction, management of employment
practices and associate benefits, supervision of litigation and information
technology, and goals relating to acquisitions or divestitures of subsidiaries,
affiliates or joint ventures. The Committee may specify that any such criteria
will be measured before or after extraordinary or non-recurring items, before or
after service fees, or before or after payments of Awards under the 2000 Plan.
The Committee may set the levels of performance required in connection with
performance Awards as fixed amounts, goals relative to performance in prior
periods, as goals compared to the performance of one or more comparable
companies or an index covering multiple companies, or in any other way the
Committee may determine.
Annual Incentive Awards. The Committee is authorized to grant annual
incentive awards, settleable in cash or in shares upon achievement of
pre-established performance objectives achieved during a specified period of up
to one year. The performance objectives will be one or more of the performance
objectives available for other performance awards under the 2000 Plan, as
described in the preceding paragraph. As discussed above, annual incentive
awards granted to named executives may be intended as "performance-based
compensation" not subject to the limitation on deductibility under Code Section
162(m). The Committee generally must establish the performance objectives, the
corresponding amounts payable (subject to per-person limits), other terms of
settlement, and all other terms of such awards not later than 90 days after the
beginning of the fiscal year.
Other Terms of Awards. Awards may be settled in cash, shares, other
Awards or other property, in the discretion of the Committee. The Committee may
require or permit participants to defer the settlement of all or part of an
Award in accordance with such terms and conditions as the Committee may
establish, including payment or crediting of interest or dividend equivalents on
any deferred amounts. The Committee is authorized to place cash, shares or other
property in trusts or make other arrangements to provide for payment of the
Company's obligations under the 2000 Plan. The Committee may condition Awards on
the payment of taxes such as by withholding a portion of the shares or other
property to be distributed (or receiving previously acquired shares or other
property surrendered by the
21
<PAGE>
participant) in order to satisfy tax obligations. Awards granted under the 2000
Plan generally may not be pledged or otherwise encumbered and are not
transferable except by will or by the laws of descent and distribution, or to a
designated beneficiary upon the participant's death, except that the Committee
may permit transfers in individual cases, including for estate planning
purposes.
Awards under the 2000 Plan are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Committee may, however, grant Awards in substitution for, exchange for or as a
buyout of other Awards under the 2000 Plan, awards under other Company plans, or
other rights to payment from the Company, and may exchange or buyout outstanding
Awards for cash or other property. The Committee also may grant Awards in
addition to and in tandem with other Awards, awards, or rights as well. In
granting a new Award, the Committee may determine that the in-the-money value of
any surrendered Award or award may be applied to reduce the exercise price of
any option, grant price of any SAR, or purchase price of any other Award.
Vesting, Forfeitures, and Acceleration Thereof. The Committee may, in its
discretion, determine the vesting schedule of options and other Awards, the
circumstances that will result in forfeiture of the Awards, the post-termination
exercise periods of options and similar Awards, and the events that will result
in acceleration of the ability to exercise and the lapse of restrictions, or the
expiration of any deferral period, on any Award. In addition, the 2000 Plan
provides that, in the event of a Change in Control of the Company, outstanding
Awards will immediately vest and be fully exercisable, any restrictions,
deferral of settlement and forfeiture conditions of such Awards will lapse, and
goals relating to performance-based awards will be deemed met or exceeded to the
extent specified in the performance-award documents. A Change in Control means
generally (i) any person or group (other than certain members of the Ware
family) becomes a beneficial owner of 35% or more of the voting power of the
Company's voting securities, (ii) a change in the Board's membership such that
the current members, or those elected or nominated by vote of two-thirds of the
current members and successors elected or nominated by them, cease to represent
a majority of the Board in any period of less than two years, (iii) certain
mergers or consolidations substantially reducing the percentage of voting power
held by shareholders prior to such transactions, (iv) shareholder approval of a
sale or liquidation of all or substantially all of the assets of the Company,
and (v) an event that would trigger rights under the Rights Agreement relating
to the Common Stock.
Amendment and Termination of the 2000 Plan. The Board of Directors may
amend, alter, suspend, discontinue, or terminate the 2000 Plan or the
Committee's authority to grant awards thereunder without shareholder approval
unless shareholder approval is required by law, regulation, or stock exchange
rule. The Board of Directors may, in its discretion, submit other amendments to
shareholders for approval. Under these provisions, shareholder approval will not
necessarily be required for amendments which might increase the cost of the 2000
Plan or broaden eligibility. Unless earlier terminated, the 2000 Plan will
terminate at such time that no shares reserved under the Plan remain available
and the Company has no further rights or obligations with respect to any
outstanding Award.
Awards Subject to Shareholder Approval of the 2000 Plan. Certain Awards
have been authorized under the 2000 Plan which are subject to shareholder
approval of the Plan. Specifically, long-term, cash-denominated Awards have been
granted conditioned upon performance as measured by earnings per share growth
and total shareholder return over a three-year performance cycle beginning
January 1, 2000. The terms of these awards are
22
<PAGE>
similar to past awards under the Current Plan. If earned, the Committee expects
that these 2000 Plan Awards will be paid out 75% in the form of restricted stock
and 25% in cash. Additional restricted stock will be credited to executives
based on the amount of dividends that would have been paid on the restricted
stock had it been granted at the beginning of the three-year performance cycle,
assuming such amounts had been reinvested in additional shares of restricted
stock at the dividend payment date ("Dividend Equivalents"). In addition, the
annual incentive award to the Company's Chief Executive Officer for the 2000
performance year has been granted under the 2000 Plan. Finally, in connection
with the termination of the Retirement Benefit Policy for Directors, all
non-associate directors may elect to convert the present value of their
retirement benefit into an aggregate 59,245 shares of deferred stock pursuant to
the 2000 Plan, and each non-associate director will receive an annual grant of
425 shares of deferred stock pursuant to the 2000 Plan. The following table sets
forth information regarding these initial 2000 Plan Awards:
NEW PLAN BENEFITS
2000 STOCK AWARD AND INCENTIVE PLAN
<TABLE>
<CAPTION>
DOLLAR VALUE ($) OF
AWARD THAT MAY BE EARNED
NAME AND POSITION AT TARGET*
- ----------------------------------------------------------------------- -----------------------------
<S> <C>
J. James Barr.......................................................... $ 167,700 (annual)
President and Chief Executive Officer.................................. $ 167,700 (long-term)
Ellen C. Wolf.......................................................... $ 76,060 (annual)
Vice President and Chief Financial Officer............................. $ 57,045 (long-term)
W. Timothy Pohl........................................................ $ 40,455 (annual)
General Counsel and Secretary.......................................... $ 33,713 (long-term)
Joseph F. Hartnett, Jr................................................. $ 29,745 (annual)
Treasurer.............................................................. $ 24,788 (long-term)
Robert D. Sievers...................................................... $ 29,745 (annual)
Comptroller............................................................ $ 24,788 (long-term)
All Non-Executive Officer Associates as a Group........................ $2,707,920 (annual)
$ 478,598 (long-term)
All Non-Executive Directors as a Group (14 in number).................. $ 126,438**
</TABLE>
- ------------------
* Excludes Dividend Equivalents on long-term Awards, the potential amount of
which cannot be determined at this time.
** Estimated value of initial annual grant of deferred stock.
Because future Awards under the 2000 Plan will be granted in the discretion
of the Committee, the type, number, recipients, and other terms of such Awards
cannot be determined at this time. Information regarding the Company's recent
practices with respect to annual, long-term, and stock-based compensation under
other plans is presented in the "Summary Compensation Table" above, and in
footnote to the Company's financial statements for the year ended December 31,
1999 in the Annual Report which accompanies this Proxy Statement. In the event
shareholders do not approve this proposal, the Awards shown in the table above
will be canceled, and no other Awards will be granted under the 2000 Plan.
23
<PAGE>
FEDERAL INCOME TAX IMPLICATIONS OF THE 2000 PLAN
The following is a brief description of the federal income tax consequences
generally arising with respect to Awards that may be granted under the 2000
Plan. The grant of an option (including a stock-based award in the nature of a
purchase right) or a SAR will create no federal income tax consequences for the
participant or the Company. A participant will not have taxable income upon
exercising an option which is an ISO (except that the alternative minimum tax
may apply). Upon exercising an option which is not an ISO, the participant must
generally recognize ordinary income equal to the difference between the exercise
price and the fair market value of the freely transferable and nonforfeitable
shares acquired on the date of exercise. Upon exercising a SAR, the participant
must generally recognize ordinary income equal to the cash received.
Upon a disposition of shares acquired upon exercise of an ISO before the
end of the applicable ISO holding periods, the participant must generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option generally will result in short- or long-term capital gain
or loss measured by the difference between the sale price and the participant's
tax "basis" in such shares (generally, the tax "basis" is the exercise price
plus any amount previously recognized as ordinary income in connection with the
exercise of the option).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with
options and SARs. The Company generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant. Accordingly,
the Company will not be entitled to any tax deduction with respect to an ISO if
the participant holds the shares for the applicable ISO holding periods prior to
disposition of the shares.
With respect to other Awards granted under the 2000 Plan that result in a
transfer to the participant of cash or shares or other property that is either
not restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property actually received.
Except as discussed below, the Company generally will be entitled to a deduction
for the same amount. With respect to Awards involving shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received at the earliest
time the shares or other property become transferable or not subject to a
substantial risk of forfeiture. Except as discussed below, the Company generally
will be entitled to a deduction in an amount equal to the ordinary income
recognized by the participant. A participant may elect to be taxed at the time
of receipt of shares (e.g., restricted stock) or other property rather than upon
lapse of restrictions on transferability or the substantial risk of forfeiture,
but if the participant subsequently forfeits such shares or property, he or she
would not be entitled to any tax deduction, including as a capital loss, for the
value of the shares or property on which he or she previously paid tax.
24
<PAGE>
As discussed above, compensation that qualifies as "performance-based"
compensation is excluded from the $1 million deductibility cap of Code Section
162(m), and, therefore, remains fully deductible by the Company that pays it.
Under the 2000 Plan, options granted with an exercise price or grant price at
least equal to 100% of fair market value of the underlying shares at the date of
grant will be, and Awards which are conditioned upon achievement of performance
goals may be, intended to qualify as such "performance-based" compensation. A
number of requirements must be met, however, in order for particular
compensation to so qualify. Accordingly, there can be no assurance that such
compensation under the 2000 Plan will be fully deductible under all
circumstances. In addition, other Awards under the 2000 Plan generally will not
so qualify, so that compensation paid to certain executives in connection with
such Awards may, to the extent it and other compensation subject to Section
162(m)'s deductibility cap exceed $1 million in a given year, be subject to the
limitation of Section 162(m).
The foregoing provides only a general description of the application of
federal income tax laws to certain types of Awards under the 2000 Plan. This
discussion is intended for the information of shareholders considering how to
vote at the annual meeting and not as tax guidance to participants in the 2000
Plan, as the consequences may vary with the types of awards made, the identity
of the recipients and the method of payment or settlement. Different tax rules
may apply, including in the case of variations in transactions that are
permitted under the 2000 Plan (such as payment of the exercise price of an
option by surrender of previously acquired shares). The summary does not address
the effects of other federal taxes (including possible "golden parachute" excise
taxes) or taxes imposed under state, local, or foreign tax laws.
The Board of Directors recommends that the shareholders vote "FOR" approval
of the 2000 Stock Award and Incentive Plan.
PROPOSAL NO. 3
RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to ratification by shareholders, the Board of Directors, acting
upon the recommendation of the Audit Committee, has appointed
PricewaterhouseCoopers LLP as independent accountants to audit the books and
accounts of the Company at the close of the current fiscal year.
PricewaterhouseCoopers LLP acted as independent accountants for the Company for
the fiscal year ending December 31, 1999. In the event the appointment of
PricewaterhouseCoopers LLP is ratified, it is expected that
PricewaterhouseCoopers LLP will also audit the books and accounts of certain
subsidiaries of the Company at the close of their current fiscal years. A
representative of PricewaterhouseCoopers LLP, whose report on the Company's
financial statements appears in the 1999 Annual Report, will be present at the
annual meeting and will have the opportunity to make a statement, if the
representative desires to do so, and to respond to appropriate questions from
shareholders.
The Board of Directors recommends that the shareholders vote "FOR" the
ratification of PricewaterhouseCoopers LLP as independent accountants.
25
<PAGE>
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the meeting. However, if any other matters properly come before the
meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy in accordance with their judgment on such matters.
SOLICITATION OF PROXIES
The Company will bear the cost of solicitation of proxies. Proxies may be
solicited by mail, telephone, telegram, facsimile, or in person. The Company may
pay banks, brokers or other nominees who hold stock in their names for their
expenses in sending soliciting material to their principals. Corporate Investor
Communications, Inc. has been retained to assist in the solicitation of proxies
at a fee of $5,500, plus reasonable out-of-pocket expenses.
SHAREHOLDER PROPOSALS
Any shareholder who desires to submit a proposal to be considered for
inclusion in the Company's Proxy Statement and form of proxy relating to its
annual meeting of shareholders in 2001 must submit such proposal in writing to
the Company by November 27, 2000. Such proposals should be directed to the
General Counsel and Secretary of the Company.
FORM 10-K REPORT
Upon the written request of any person who on the record date was a record
owner of stock of the Company, or who represents in good faith that he or she
was on such date a beneficial owner of such stock, the Company will send to such
person, without charge, a copy of its Annual Report on Form 10-K for 1999,
including financial statements and schedules, as filed with the Securities and
Exchange Commission. Requests for this report should be directed to: W. Timothy
Pohl, General Counsel and Secretary, American Water Works Company, Inc., 1025
Laurel Oak Road, P. O. Box 1770, Voorhees, New Jersey 08043.
By Order of the Board of Directors,
W. TIMOTHY POHL, General Counsel and Secretary
Dated: March 27, 2000
26
<PAGE>
APPENDIX A
AMERICAN WATER WORKS COMPANY, INC.
- --------------------------------------------------------------------------------
2000 STOCK AWARD AND INCENTIVE PLAN
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN WATER WORKS COMPANY, INC.
- --------------------------------------------------------------------------------
2000 STOCK AWARD AND INCENTIVE PLAN
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Purpose.................................................................... A-1
2. Definitions................................................................ A-1
3. Administration............................................................. A-3
4. Stock Subject to Plan...................................................... A-4
5. Eligibility; Per-Person Award Limitations.................................. A-4
6. Specific Terms of Awards................................................... A-5
7. Performance Awards, Including Annual Incentive Awards...................... A-9
8. Director Retirement Benefits and Stock Compensation........................ A-12
9. Certain Provisions Applicable to Awards.................................... A-13
10. Change in Control.......................................................... A-14
11. Additional Award Forfeiture Provisions..................................... A-16
12. General Provisions......................................................... A-18
</TABLE>
A-i
<PAGE>
AMERICAN WATER WORKS COMPANY, INC.
2000 STOCK AWARD AND INCENTIVE PLAN
1. PURPOSE. The purpose of this 2000 Stock Award and Incentive Plan (the
"Plan") is to aid American Water Works Company, Inc., a Delaware corporation
(the "Company"), in attracting, retaining, motivating and rewarding associates,
non-associate directors, and other persons who provide substantial services to
the Company or its subsidiaries or affiliates, to provide for equitable and
competitive compensation opportunities, to recognize individual contributions
and reward achievement of Company goals, and promote the creation of long-term
value for shareholders by closely aligning the interests of Participants with
those of shareholders. The Plan authorizes stock-based and cash-based incentives
for Participants.
2. DEFINITIONS. In addition to the terms defined in Section 1 above and
elsewhere in the Plan, the following capitalized terms used in the Plan have the
respective meanings set forth in this Section:
(a) "Annual Incentive Award" means a type of Performance Award granted to a
Participant under Section 7(c) representing a conditional right to receive cash,
Stock or other Awards or payments, as determined by the Committee, based on
performance in a performance period of one fiscal year or a portion thereof.
(b) "Award" means any Option, SAR, Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of another award, Dividend Equivalent, Other
Stock-Based Award, Performance Award or Annual Incentive Award, together with
any related right or interest, granted to a Participant under the Plan.
(c) "Beneficiary" means the legal representatives of the Participant's
estate entitled by will or the laws of descent and distribution to receive the
benefits under a Participant's Award upon a Participant's death, provided that,
if and to the extent authorized by the Committee, a Participant may be permitted
to designate a Beneficiary, in which case the "Beneficiary" instead will be the
person, persons, trust or trusts (if any are then surviving) which have been
designated by the Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Participant's Award upon such Participant's death. Unless otherwise determined
by the Committee, any designation of a Beneficiary other than a Participant's
spouse shall be subject to the written consent of such spouse.
(d) "Board" means the Company's Board of Directors.
(e) "Change in Control" and related terms have the meanings specified in
Section 10.
(f) "Code" means the Internal Revenue Code of 1986, as amended. References
to any provision of the Code or regulation (including a proposed regulation)
thereunder shall include any successor provisions and regulations.
(g) "Committee" means a committee of two or more directors designated by
the Board to administer the Plan; provided, however, that, directors appointed
or serving as members of a Board committee designated as the Committee shall not
be associates of the Company or any subsidiary or affiliate. In appointing
members of the Committee, the Board will consider whether a member is or will be
a Qualified Member, but such members are not required to be Qualified Members at
the time of appointment or during their term of service on the Committee. The
full Board may perform any function of the Committee hereunder, in which case
the term "Committee" shall refer to the Board.
A-1
<PAGE>
(h) "Covered Employee" means an Eligible Person who is a Covered Employee
as specified in Section 12(j).
(i) "Deferred Stock" means a right, granted to a Participant under Section
6(e), to receive Stock or other Awards or a combination thereof at the end of a
specified deferral period.
(j) "Dividend Equivalent" means a right, granted to a Participant under
Section 6(g), to receive cash, Stock, other Awards or other property equal in
value to all or a specified portion of the dividends paid with respect to a
specified number of shares of Stock.
(k) "Effective Date" means the effective date specified in Section 12(q).
(l) "Eligible Person" has the meaning specified in Section 5.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to any provision of the Exchange Act or rule (including a proposed
rule) thereunder shall include any successor provisions and rules.
(n) "Fair Market Value" means the fair market value of Stock, Awards or
other property as determined by the Committee or under procedures established by
the Committee. Unless otherwise determined by the Committee, the Fair Market
Value of Stock shall be the average of the high and low sales prices per share
of Stock reported on a consolidated basis for securities listed on the principal
stock exchange or market on which Stock is traded on the day as of which such
value is being determined or, if there is no sale on that day, then on the last
previous day on which a sale was reported.
(o) "Incentive Stock Option" or "ISO" means any Option designated as an
incentive stock option within the meaning of Code Section 422 or any successor
provision thereto and qualifying thereunder.
(p) "Option" means a right, granted to a Participant under Section 6(b), to
purchase Stock or other Awards at a specified price during specified time
periods.
(q) "Other Stock-Based Awards" means Awards granted to a Participant under
Section 6(h).
(r) "Participant" means a person who has been granted an Award under the
Plan which remains outstanding, including a person who is no longer an Eligible
Person.
(s) "Performance Award" means a right, granted to a Participant under
Sections 6(i) and 7, to receive Awards or payments based upon performance
criteria specified by the Committee.
(t) "Preexisting Plan" means the Company's Long-Term Performance-Based
Incentive Plan.
(u) "Qualified Member" means a member of the Committee who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an "outside
director" within the meaning of Regulation 1.162-27 under Code Section 162(m).
(v) "Restricted Stock" means Stock granted to a Participant under Section
6(d) which is subject to certain restrictions and to a risk of forfeiture.
(w) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to Participants, promulgated by the Securities and Exchange
Commission under Section 16 of the Exchange Act.
A-2
<PAGE>
(x) "Stock" means the Company's Common Stock, par value $1.25 per share,
and any other equity securities of the Company that may be substituted or
resubstituted for Stock pursuant to Section 12(c).
(y) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c).
3. ADMINISTRATION.
(a) Authority of the Committee. The Plan shall be administered by the
Committee, which shall have full and final authority, in each case subject to
and consistent with the provisions of the Plan, to select Eligible Persons to
become Participants; to grant Awards; to determine the type and number of
Awards, the dates on which Awards may be exercised and on which the risk of
forfeiture or deferral period relating to Awards shall lapse or terminate, the
acceleration of any such dates, the expiration date of any Award, whether, to
what extent, and under what circumstances an Award may be settled, or the
exercise price of an Award may be paid, in cash, Stock, other Awards, or other
property, and other terms and conditions of, and all other matters relating to,
Awards; to prescribe documents evidencing or setting terms of Awards (such Award
documents need not be identical for each Participant), amendments thereto, and
rules and regulations for the administration of the Plan and amendments thereto;
to construe and interpret the Plan and Award documents and correct defects,
supply omissions or reconcile inconsistencies therein; and to make all other
decisions and determinations as the Committee may deem necessary or advisable
for the administration of the Plan. Decisions of the Committee with respect to
the administration and interpretation of the Plan shall be final, conclusive,
and binding upon all persons interested in the Plan, including Participants,
Beneficiaries, transferees under Section 12(b) and other persons claiming rights
from or through a Participant, and shareholders. The foregoing notwithstanding,
the Board shall perform the functions of the Committee for purposes of granting
Awards under the Plan to non-associate directors (authority with respect to
other aspects of non-associate director awards is not exclusive to the Board,
however).
(b) Manner of Exercise of Committee Authority. At any time that a member
of the Committee is not a Qualified Member, (i) any action of the Committee
relating to an Award intended by the Committee to qualify as "performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder may be taken by a subcommittee, designated by the Committee or the
Board, composed solely of two or more Qualified Members, and (ii) any action
relating to an Award granted or to be granted to a Participant who is then
subject to Section 16 of the Exchange Act in respect of the Company may be taken
either by such a subcommittee or by the Committee but with each such member who
is not a Qualified Member abstaining or recusing himself or herself from such
action, provided that, upon such abstention or recusal, the Committee remains
composed of two or more Qualified Members. Such action, authorized by such a
subcommittee or by the Committee upon the abstention or recusal of such
non-Qualified Member(s), shall be the action of the Committee for purposes of
the Plan. The express grant of any specific power to the Committee, and the
taking of any action by the Committee, shall not be construed as limiting any
power or authority of the Committee. The Committee may delegate to officers or
managers of the Company or any subsidiary or affiliate, or committees thereof,
the authority, subject to such terms as the Committee shall determine, to
perform such functions, including administrative functions, as the Committee may
determine, to the extent that such delegation will not result in the loss of an
exemption under Rule 16b-3(d) for Awards granted to Participants subject to
Section 16 of the Exchange Act in respect of the Company and will not
A-3
<PAGE>
cause Awards intended to qualify as "performance-based compensation" under Code
Section 162(m) to fail to so qualify.
(c) Limitation of Liability. The Committee and each member thereof, and
any person acting pursuant to authority delegated by the Committee, shall be
entitled, in good faith, to rely or act upon any report or other information
furnished by any executive officer, other officer or associate of the Company or
a subsidiary or affiliate, the Company's independent auditors, consultants or
any other agents assisting in the administration of the Plan. Members of the
Committee, any person acting pursuant to authority delegated by the Committee,
and any officer or associate of the Company or a subsidiary or affiliate acting
at the direction or on behalf of the Committee or a delegatee shall not be
personally liable for any action or determination taken or made in good faith
with respect to the Plan, and shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action or
determination.
4. STOCK SUBJECT TO PLAN.
(a) Overall Number of Shares Available for Delivery. Subject to
adjustment as provided in Section 12(c), the total number of shares of Stock
reserved and available for delivery in connection with Awards under the Plan
shall be (i) four million, plus (ii) the number of shares that remain available
for issuance under the Preexisting Plan after all awards thereunder have been
settled, plus (iii) the number of shares subject to awards under the Preexisting
Plan that become available in accordance with Section 4(b) after the Effective
Date; provided, however, that the total number of shares with respect to which
ISOs may be granted shall not exceed the number specified under clause (i)
above. Any shares of Stock delivered under the Plan shall consist of authorized
and unissued shares or treasury shares.
(b) Share Counting Rules. The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting (as, for
example, in the case of tandem or substitute awards) and make adjustments if the
number of shares of Stock actually delivered differs from the number of shares
previously counted in connection with an Award. Shares subject to an Award or an
award under the Preexisting Plan that is canceled, expired, forfeited, settled
in cash or otherwise terminated without a delivery of shares to the Participant
will again be available for Awards, and shares withheld in payment of the
exercise price or taxes relating to an Award or Preexisting Plan award and
shares equal to the number surrendered in payment of any exercise price or taxes
relating to an Award or Preexisting Plan award shall be deemed to constitute
shares not delivered to the Participant and shall be deemed to again be
available for Awards under the Plan. In addition, in the case of any Award
granted in substitution for an award of a company or business acquired by the
Company or a subsidiary or affiliate, shares issued or issuable in connection
with such substitute Award shall not be counted against the number of shares
reserved under the Plan, but shall be available under the Plan by virtue of the
Company's assumption of the plan or arrangement of the acquired company or
business. This Section 4(b) shall apply to the number of shares reserved and
available for ISOs only to the extent consistent with applicable regulations
relating to ISOs under the Code.
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS. Awards may be granted under
the Plan only to Eligible Persons. For purposes of the Plan, an "Eligible
Person" means an associate of the Company or any subsidiary or affiliate,
including any executive officer, a non-associate director of the Company, a
consultant or other person who provides substantial services to the Company or a
subsidiary or affiliate, and any person who has been offered employment by the
Company or a subsidiary or affiliate, provided that such prospective associate
may not receive
A-4
<PAGE>
any payment or exercise any right relating to an Award until such person has
commenced employment with the Company or a subsidiary or affiliate. An associate
on leave of absence may be considered as still in the employ of the Company or a
subsidiary or affiliate for purposes of eligibility for participation in the
Plan. For purposes of the Plan, a joint venture in which the Company or a
subsidiary has a substantial direct or indirect equity investment shall be
deemed an affiliate, if so determined by the Committee. In each calendar year
during any part of which the Plan is in effect, an Eligible Person may be
granted Awards intended to qualify as "performance-based compensation" under
Code Section 162(m) under each of Section 6(b), 6(c), 6(d), 6(e), 6(f), 6(g) or
6(h) relating to up to his or her Annual Limit (such Annual Limit to apply
separately to the type of Award authorized under each specified subsection,
except that the limitation applies to Dividend Equivalents under Section 6(g)
only if such Dividend Equivalents are granted separately from and not as a
feature of another Award). A Participant's Annual Limit, in any calendar year
during any part of which the Participant is then eligible under the Plan, shall
equal one million shares plus the amount of the Participant's unused Annual
Limit relating to the same type of Award as of the close of the previous year,
subject to adjustment as provided in Section 12(c). In the case of an Award
which is not valued in a way in which the limitation set forth in the preceding
sentence would operate as an effective limitation satisfying Treasury Regulation
1.162-27(e)(4) (including a Performance Award under Section 7 not related to an
Award specified in Section 6), an Eligible Person may not be granted Awards
authorizing the earning during any calendar year of an amount that exceeds the
Participant's Annual Limit, which for this purpose shall equal $2 million plus
the amount of the Participant's unused cash Annual Limit as of the close of the
previous year (this limitation is separate and not affected by the number of
Awards granted during such calendar year subject to the limitation in the
preceding sentence). For this purpose, (i) "earning" means satisfying
performance conditions so that an amount becomes payable, without regard to
whether it is to be paid currently or on a deferred basis or continues to be
subject to any service requirement or other non-performance condition, and (ii)
a Participant's Annual Limit is used to the extent an amount or number of shares
may be potentially earned or paid under an Award, regardless of whether such
amount or shares are in fact earned or paid.
6. SPECIFIC TERMS OF AWARDS.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 12(e)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms requiring forfeiture
of Awards in the event of termination of employment or service by the
Participant and terms permitting a Participant to make elections relating to his
or her Award. The Committee shall retain full power and discretion with respect
to any term or condition of an Award that is not mandatory under the Plan. The
Committee shall require the payment of lawful consideration for an Award to the
extent necessary to satisfy the requirements of the Delaware General Corporation
Law, and may otherwise require payment of consideration for an Award except as
limited by the Plan.
(b) Options. The Committee is authorized to grant Options to Eligible
Persons on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock purchasable
under an Option (including both ISOs and non-qualified Options) shall be
determined by the Committee, provided that such exercise price shall be not
less than the Fair Market Value of a share of Stock on the date of grant of
such Option, subject to Sections 6(f) and 9(a).
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(ii) Option Term; Time and Method of Exercise. The Committee shall
determine the term of each Option, provided that in no event shall the term
of any ISO or SAR in tandem therewith exceed a period of ten years from the
date of grant. The Committee shall determine the time or times at which or
the circumstances under which an Option may be exercised in whole or in
part (including based on achievement of performance goals and/or future
service requirements), the methods by which such exercise price may be paid
or deemed to be paid and the form of such payment (subject to Section
12(k)), including, without limitation, cash, Stock, other Awards or awards
granted under other plans of the Company or any subsidiary or affiliate, or
other property (including notes and other contractual obligations of
Participants to make payment on a deferred basis, such as through "cashless
exercise" arrangements, to the extent permitted by applicable law), and the
methods by or forms in which Stock will be delivered or deemed to be
delivered in satisfaction of Options to Participants (including deferred
delivery of shares representing the Option "profit," at the election of the
Participant or as mandated by the Committee, with such deferred shares
subject to any vesting, forfeiture or other terms as the Committee may
specify).
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Code Section 422, including but not
limited to, the requirement that no ISO shall be granted more than ten
years after the Effective Date.
(c) Stock Appreciation Rights. The Committee is authorized to grant SARs
to Eligible Persons on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of (A)
the Fair Market Value of one share of Stock on the date of exercise (or, in
the case of a "Limited SAR," the Fair Market Value determined by reference
to the Change in Control Price, as defined under Section 10(d) hereof) over
(B) the grant price of the SAR as determined by the Committee.
(ii) Other Terms. The Committee shall determine at the date of grant
or thereafter the time or times at which and the circumstances under which
an SAR may be exercised in whole or in part (including based on achievement
of performance goals and/or future service requirements), the method of
exercise, method of settlement, form of consideration payable in
settlement, method by or forms in which Stock will be delivered or deemed
to be delivered to Participants, and whether or not an SAR shall be free-
standing or in tandem or combination with any other Award. Limited SARs
that may only be exercised in connection with a Change in Control or other
event as specified by the Committee may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may determine.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Eligible Persons on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions,
if any, as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances
(including based on achievement of performance goals and/or future service
requirements), in such installments or otherwise and under such other
circumstances as the Committee may determine at the date of grant or
thereafter. Except to the extent restricted under the terms of the Plan and
any Award document relating to
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the Restricted Stock, a Participant granted Restricted Stock shall have all
of the rights of a shareholder, including the right to vote the Restricted
Stock and the right to receive dividends thereon (subject to any mandatory
reinvestment or other requirement imposed by the Committee).
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service during the applicable restriction
period, Restricted Stock that is at that time subject to restrictions shall
be forfeited and reacquired by the Company; provided that the Committee may
provide, by rule or regulation or in any Award document, or may determine
in any individual case, that restrictions or forfeiture conditions relating
to Restricted Stock will lapse in whole or in part, including in the event
of terminations resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Company retain physical
possession of the certificates, and that the Participant deliver a stock
power to the Company, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award of
Restricted Stock, the Committee may require that any dividends paid on a
share of Restricted Stock shall be either (A) paid with respect to such
Restricted Stock at the dividend payment date in cash, in kind, or in a
number of shares of unrestricted Stock having a Fair Market Value equal to
the amount of such dividends, or (B) automatically reinvested in additional
Restricted Stock or held in kind, which shall be subject to the same terms
as applied to the original Restricted Stock to which it relates, or (C)
deferred as to payment, either as a cash deferral or with the amount or
value thereof automatically deemed reinvested in shares of Deferred Stock,
other Awards or other investment vehicles, subject to such terms as the
Committee shall determine or permit a Participant to elect. Unless
otherwise determined by the Committee, Stock distributed in connection with
a Stock split or Stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such Stock or
other property has been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock
to Eligible Persons, which are rights to receive Stock, other Awards, or a
combination thereof at the end of a specified deferral period, subject to the
following terms and conditions:
(i) Award and Restrictions. Issuance of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock
by the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions,
if any, as the Committee may impose, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times (including
based on achievement of performance goals and/or future service
requirements), separately or in combination, in installments or otherwise,
and under such other circumstances as the Committee may determine at the
date of grant or thereafter. Deferred Stock may be satisfied by delivery of
Stock, other Awards, or a combination thereof (subject to Section 12(k)),
as determined by the Committee at the date of grant or thereafter.
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(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service during the applicable deferral
period or portion thereof to which forfeiture conditions apply (as provided
in the Award document evidencing the Deferred Stock), all Deferred Stock
that is at that time subject to such forfeiture conditions shall be
forfeited; provided that the Committee may provide, by rule or regulation
or in any Award document, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock will lapse
in whole or in part, including in the event of terminations resulting from
specified causes.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee, Dividend Equivalents on the specified number of shares of Stock
covered by an Award of Deferred Stock shall be either (A) paid with respect
to such Deferred Stock at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of such
dividends, or (B) deferred with respect to such Deferred Stock, either as a
cash deferral or with the amount or value thereof automatically deemed
reinvested in additional Deferred Stock, other Awards or other investment
vehicles having a Fair Market Value equal to the amount of such dividends,
as the Committee shall determine or permit a Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of obligations of the Company or a subsidiary or affiliate to pay cash or
deliver other property under the Plan or under other plans or compensatory
arrangements, subject to such terms as shall be determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to Eligible Persons, which are rights to receive cash, Stock, other
Awards, or other property equivalent to all or a portion of the dividends paid
with respect to a specified number of shares of Stock. Dividend Equivalents may
be awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards, or other investment vehicles, and subject to restrictions on
transferability, risks of forfeiture and such other terms as the Committee may
specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Eligible Persons such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock or factors that may influence
the value of Stock, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Stock, purchase
rights for Stock, Awards with value and payment contingent upon performance of
the Company or business units thereof or any other factors designated by the
Committee, and Awards valued by reference to the book value of Stock or the
value of securities of or the performance of specified subsidiaries or
affiliates or other business units. The Committee shall determine the terms and
conditions of such Awards. Stock delivered pursuant to an Award in the nature of
a purchase right granted under this Section 6(h) shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Stock, other Awards, notes, or other
property, as the Committee shall determine. Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 6(h).
(i) Performance Awards. Performance Awards, denominated in cash or in
Stock or other Awards, may be granted by the Committee in accordance with
Section 7.
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7. PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS.
(a) Performance Awards Generally. The Committee is authorized to grant
Performance Awards on the terms and conditions specified in this Section 7.
Performance Awards may be denominated as a cash amount, number of shares of
Stock, or specified number of other Awards (or a combination) which may be
earned upon achievement or satisfaction of performance conditions specified by
the Committee. In addition, the Committee may specify that any other Award shall
constitute a Performance Award by conditioning the right of a Participant to
exercise the Award or have it settled, and the timing thereof, upon achievement
or satisfaction of such performance conditions as may be specified by the
Committee. The Committee may use such business criteria and other measures of
performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the amounts
payable under any Award subject to performance conditions, except as limited
under Sections 7(b) and 7(c) in the case of a Performance Award intended to
qualify as "performance-based compensation" under Code Section 162(m).
(b) Performance Awards Granted to Covered Employees. If the Committee
determines that a Performance Award to be granted to an Eligible Person who is
designated by the Committee as likely to be a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Performance Award shall be contingent upon
achievement of a pre-established performance goal and other terms set forth in
this Section 7(b).
(i) Performance Goal Generally. The performance goal for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section 7(b).
The performance goal shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder (including
Regulation 1.162-27 and successor regulations thereto), including the
requirement that the level or levels of performance targeted by the
Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such
Performance Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise and/or
settlement of such Performance Awards. Performance goals may differ for
Performance Awards granted to any one Participant or to different
Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries or affiliates or other business units of the Company shall be
used by the Committee in establishing performance goals for such
Performance Awards: (1) growth in revenues or assets; (2) earnings from
operations, earnings before or after taxes, earnings before or after
interest, depreciation, amortization, or extraordinary or special items;
(3) net income or net income per common share (basic or diluted); (4)
return on assets, return on investment, return on capital, or return on
equity; (5) cash flow, free cash flow, cash flow return on investment, or
net cash provided by operations; (6) interest expense after taxes; (7)
economic profit; (8) operating margin or gross margin; (9) stock price or
total stockholder return; and (10) strategic business criteria, consisting
of one or more objectives based on meeting specified water quality
standards, environmental or safety standards, market penetration,
geographic business expansion goals, cost targets, cost of power, customer
satisfaction, associate satisfaction, management of employment
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practices and associate benefits, supervision of litigation and information
technology, and goals relating to acquisitions or divestitures of
subsidiaries, affiliates or joint ventures. The targeted level or levels of
performance with respect to such business criteria may be established at
such levels and in such terms as the Committee may determine, in its
discretion, including in absolute terms, as a goal relative to performance
in prior periods, or as a goal compared to the performance of one or more
comparable companies or an index covering multiple companies.
(iii) Performance Period; Timing for Establishing Performance
Goals. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of up to one year or
more than one year, as specified by the Committee. A performance goal shall
be established not later than the earlier of (A) 90 days after the
beginning of any performance period applicable to such Performance Award or
(B) the time 25% of such performance period has elapsed.
(iv) Performance Award Pool. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes of
measuring performance of the Company in connection with Performance Awards.
The amount of such Performance Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 7(b)(ii) during the given
performance period, as specified by the Committee in accordance with
Section 7(b)(iv). The Committee may specify the amount of the Performance
Award pool as a percentage of any of such business criteria, a percentage
thereof in excess of a threshold amount, or as another amount which need
not bear a strictly mathematical relationship to such business criteria.
(v) Settlement of Performance Awards; Other Terms. Settlement of such
Performance Awards shall be in cash, Stock, other Awards or other property,
in the discretion of the Committee. The Committee may, in its discretion,
increase or reduce the amount of a settlement otherwise to be made in
connection with such Performance Awards, but may not exercise discretion to
increase any such amount payable to a Covered Employee in respect of a
Performance Award subject to this Section 7(b). Any settlement which
changes the form of payment from that originally specified shall be
implemented in a manner such that the Performance Award and other related
Awards do not, solely for that reason, fail to qualify as
"performance-based compensation" for purposes of Code Section 162(m). The
Committee shall specify the circumstances in which such Performance Awards
shall be paid or forfeited in the event of termination of employment by the
Participant or other event (including a Change in Control) prior to the end
of a performance period or settlement of such Performance Awards.
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(c) Annual Incentive Awards Granted to Designated Covered Employees. The
Committee may grant an Annual Incentive Award to an Eligible Person who is
designated by the Committee as likely to be a Covered Employee. Such Annual
Incentive Award will be intended to qualify as "performance-based compensation"
for purposes of Code Section 162(m), and, therefore, its grant, exercise and/or
settlement shall be contingent upon achievement of pre-established performance
goals and other terms set forth in this Section 7(c).
(i) Grant of Annual Incentive Awards. Not later than the earlier of
90 days after the beginning of any performance period applicable to such
Annual Incentive Award or the time 25% of such performance period has
elapsed, the Committee shall determine the Covered Employees who will
potentially receive Annual Incentive Awards, and the amount(s) potentially
payable thereunder, for that performance period. The amount(s) potentially
payable shall be based upon the achievement of a performance goal or goals
based on one or more of the business criteria set forth in Section 7(b)(ii)
in the given performance period, as specified by the Committee. The
Committee may designate an annual incentive award pool as the means by
which Annual Incentive Awards will be measured, provided that the portion
of such pool potentially payable to the Covered Employee shall be
pre-established. In all cases, the maximum Annual Incentive Award of any
Participant shall be subject to the limitation set forth in Section 5.
(ii) Payout of Annual Incentive Awards. After the end of each
performance period, the Committee shall determine the amount, if any, of
the Annual Incentive Award for that performance period payable to each
Participant. The Committee may, in its discretion, determine that the
amount payable to any Participant as a final Annual Incentive Award shall
be reduced from the amount of his or her potential Annual Incentive Award,
including a determination to make no final Award whatsoever, but may not
exercise discretion to increase any such amount. The Committee shall
specify the circumstances in which an Annual Incentive Award shall be paid
or forfeited in the event of termination of employment by the Participant
or other event (including a Change in Control) prior to the end of a
performance period or settlement of such Annual Incentive Award.
(d) Written Determinations. Determinations by the Committee as to the
establishment of performance goals, the amount potentially payable in respect of
Performance Awards and Annual Incentive Awards, the level of actual achievement
of the specified performance goals relating to Performance Awards and Annual
Incentive Awards, and the amount of any final Performance Award and Annual
Incentive Award shall be recorded in writing in the case of Performance Awards
intended to qualify under Section 162(m). Specifically, the Committee shall
certify in writing, in a manner conforming to applicable regulations under
Section 162(m), prior to settlement of each such Award granted to a Covered
Employee, that the performance objective relating to the Performance Award and
other material terms of the Award upon which settlement of the Award was
conditioned have been satisfied.
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8. DIRECTOR RETIREMENT BENEFITS AND STOCK COMPENSATION.
(a) Conversion of Retirement Benefit Policy for Directors. In connection
with the termination of the Retirement Benefit Policy for Directors effective
December 31, 1999, each non-associate director of the Company as of such date
was given the right to convert the present value of his or her retirement
benefit into Deferred Stock based on the closing price of Stock on December 31,
1999, subject to approval of the Plan by the shareholders of the Company.
Deferred Stock awarded pursuant to this Section 8(a) shall be immediately
vested, shall carry Dividend Equivalents that are deferred and reinvested in
additional Deferred Stock in accordance with Section 6(e)(iii)(B), and shall be
settled in Stock on the first business day in January following the year of the
director's retirement from the Board or, at his or her prior election, in up to
ten installments commencing as of the first business day in January following
the year of the director's retirement from the Board.
(b) Annual Grant of Deferred Stock. Effective as of the end of each
annual meeting of shareholders of the Company commencing with the 2000 annual
meeting and thereafter, each person who is an Eligible Director shall be granted
an award of 425 shares of Deferred Stock in respect of the preceding Award Year
except that if the Eligible Director was not a director of the Company for all
of such Award Year, the size of the award shall be pro rated based on the number
of months in such Award Year during which such Eligible Director was a director
of the Company. If an Eligible Director retires, resigns, dies or otherwise
ceases to be a director of the Company prior to the end of the annual meeting of
shareholders of the Company, there shall be granted, effective as of the first
day of the month after such person's termination of service as a director of the
Company, an award of 35 shares of Stock for each month during the Award Year
such person was a director. For purposes of this Section 8(b), a part of a month
shall be treated as a month and the term "Award Year" shall mean the period from
the first day of the month after an annual meeting of shareholders of the
Company to the beginning of the next annual meeting of shareholders of the
Company. Also, the term "Eligible Director" shall mean a director of the Company
who at the relevant time is not, and solely for purposes of Section 8(b) has not
been within the one year period immediately preceding such time, an associate of
the Company or its subsidiaries. Deferred Stock awarded pursuant to this Section
8(b) shall be immediately vested, shall carry Dividend Equivalents that are
deferred and reinvested in additional Deferred Stock in accordance with Section
6(e)(iii)(B), and shall be settled in Stock on the first business day in January
following the year of the director's retirement from the Board or, at his or her
prior election, in up to ten installments commencing as of the first business
day in January following the year of the director's retirement from the Board.
(c) Election to Receive Deferred Stock in Lieu of Cash Compensation. Each
non-associate director may elect, in accordance with rules established by the
Board and uniformly applied, to receive in Deferred Stock any part of such
director's compensation (including retainers, fees for chair positions and
meeting attendance fees) otherwise payable in cash. The number of shares of
Deferred Stock awarded in lieu of such cash shall be determined by dividing the
Fair Market Value of Stock on the date the cash is otherwise payable into the
cash amount elected to be received in Deferred Stock. Deferred Stock awarded
pursuant to this Section 8(c) shall be immediately vested, shall carry Dividend
Equivalents that are deferred and reinvested in additional Deferred Stock in
accordance with Section 6(e)(iii)(B), and shall be settled in Stock on the first
business day in January following the year of the director's retirement from the
Board or, at his or her prior election, in up to ten installments commencing as
of the first business day in January following the year of the director's
retirement from the Board.
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9. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
subsidiary or affiliate, or any business entity to be acquired by the Company or
a subsidiary or affiliate, or any other right of a Participant to receive
payment from the Company or any subsidiary or affiliate. Awards granted in
addition to or in tandem with other Awards or awards may be granted either as of
the same time as or a different time from the grant of such other Awards or
awards. Subject to Section 12(k), the Committee may determine that, in granting
a new Award, the in-the-money value of any surrendered Award or award may be
applied to reduce the exercise price of any Option, grant price of any SAR, or
purchase price of any other Award.
(b) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee, subject to the express limitations set forth
in Section 6(b)(ii).
(c) Form and Timing of Payment under Awards; Deferrals. Subject to the
terms of the Plan (including Section 12(k)) and any applicable Award document,
payments to be made by the Company or a subsidiary or affiliate upon the
exercise of an Option or other Award or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single payment
or transfer, in installments, or on a deferred basis. The settlement of any
Award may be accelerated, and cash paid in lieu of Stock in connection with such
settlement, in the discretion of the Committee or upon occurrence of one or more
specified events (subject to Section 12(k)). Installment or deferred payments
may be required by the Committee (subject to Section 12(e)) or permitted at the
election of the Participant on terms and conditions established by the
Committee. Payments may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.
(d) Exemptions from Section 16(b) Liability. With respect to a
Participant who is then subject to the reporting requirements of Section 16(a)
of the Exchange Act in respect of the Company, the Committee shall implement
transactions under the Plan and administer the Plan in a manner that will ensure
that each transaction with respect to such a Participant is exempt from
liability under Rule 16b-3 or otherwise not subject to liability under Section
16(b), except that this provision shall not limit sales by such a Participant,
and such a Participant may engage in other non-exempt transactions under the
Plan. The Committee may authorize the Company to repurchase any Award or shares
of Stock deliverable or delivered in connection with any Award (subject to
Section 12(k)) in order to avoid a Participant who is subject to Section 16 of
the Exchange Act incurring liability under Section 16(b). Unless otherwise
specified by the Participant, equity securities or derivative securities
acquired under the Plan which are disposed of by a Participant shall be deemed
to be disposed of in the order acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes due in
connection with any Award. Subject to such limitations, the Committee shall have
full authority to decide
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whether to make a loan or loans hereunder and to determine the amount, terms,
and provisions of any such loan or loans, including the interest rate, if any,
to be charged in respect of any such loan or loans, whether the loan or loans
are to be with or without recourse against the borrower, the terms on which the
loan is to be repaid and conditions, if any, under which the loan or loans may
be forgiven.
10. CHANGE IN CONTROL.
(a) Effect of "Change in Control" on Non-Performance Based Awards. In the
event of a "Change in Control," the following provisions shall apply to
non-performance based Awards, including Awards as to which performance
conditions previously have been satisfied or are deemed satisfied under Section
10(b), unless otherwise provided by the Committee in the Award document:
(i) All deferral of settlement, forfeiture conditions and other
restrictions applicable to Awards granted under the Plan shall lapse and
such Awards shall be fully payable as of the time of the Change in Control
without regard to deferral and vesting conditions, except to the extent of
any waiver by the Participant or other express election to defer beyond a
Change in Control and subject to applicable restrictions set forth in
Section 12(a);
(ii) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested as of the
time of the Change in Control and shall remain exercisable and vested for
the balance of the stated term of such Award without regard to any
termination of employment or service by the Participant other than a
termination for "cause" (as defined in any employment or severance
agreement between the Company or a subsidiary or affiliate and the
Participant then in effect or, if none, as defined by the Committee and in
effect at the time of the Change in Control), subject only to applicable
restrictions set forth in Section 12(a); and
(iii) The Committee may, in its discretion, determine to extend to any
Participant who holds an Option the right to elect, during the 60-day
period immediately following the Change in Control, in lieu of acquiring
the shares of Stock covered by such Option, to receive in cash the excess
of the Change in Control Price over the exercise price of such Option,
multiplied by the number of shares of Stock covered by such Option, and to
extend to any Participant who holds other types of Awards denominated in
shares the right to elect, during the 60-day period immediately following
the Change in Control, in lieu of receiving the shares of Stock covered by
such Award, to receive in cash the Change in Control Price multiplied by
the number of shares of Stock covered by such Award.
(b) Effect of "Change in Control" on Performance-Based Awards. In the
event of a "Change in Control," with respect to an outstanding Award subject to
achievement of performance goals and conditions, such performance goals and
conditions will be deemed to be met if and to the extent so provided by the
Committee in the Award document governing such Award or other agreement with the
Participant.
(c) Definition of "Change in Control." A "Change in Control" shall be
deemed to have occurred if, after the Effective Date, there shall have occurred
any of the following:
(i) any Person (other than the Company, any Ware Family Member, any
trustee or other fiduciary holding securities under any employee benefit
plan of the Company, or any company owned, directly or indirectly, by the
shareholders of the Company immediately prior to the occurrence with
respect to which the evaluation is being made in
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substantially the same proportions as their ownership of the Common Stock
of the Company) becomes the Beneficial Owner (except that a Person shall be
deemed to be the Beneficial Owner of all shares that any such Person has
the right to acquire pursuant to any agreement or arrangement or upon
exercise of conversion rights, warrants or options or otherwise, without
regard to the 60-day period referred to in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company or any
Significant Subsidiary (as defined below), representing 35% of the combined
voting power of the Company's or such subsidiary's then outstanding
securities;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (i), (iii), or
(iv) of this paragraph) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors
at the beginning of the two-year period or whose election or nomination for
election was previously so approved but excluding for this purpose any such
new director whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of
an individual, corporation, partnership, group, associate or other entity
or Person other than the Board, cease for any reason to constitute at least
a majority of the Board;
(iii) the consummation of a merger or consolidation of the Company or
any subsidiary owning directly or indirectly all or substantially all of
the consolidated assets of the Company (a "Significant Subsidiary") with
any other entity, other than a merger or consolidation which would result
in the voting securities of the Company or a Significant Subsidiary
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving or resulting entity) more than 50% of the combined voting power
of the surviving or resulting entity outstanding immediately after such
merger or consolidation;
(iv) the shareholders of the Company approve a plan or agreement for
the sale or disposition of all or substantially all of the consolidated
assets of the Company (other than such a sale or disposition immediately
after which such assets will be owned directly or indirectly by the
Company's shareholders in substantially the same proportions as their
ownership of the Company's Common Stock immediately prior to such sale or
disposition) in which case the Board shall determine the effective date of
the Change in Control resulting therefrom; or
(v) any "Triggering Event" occurs for purposes of the Rights Agreement
by and between American Water Works Company, Inc. and BankBoston, N.A.,
dated as of February 18, 1999, as amended from time to time.
For purposes of this definition:
(A) The term "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 under the Exchange Act (including any successor
to such Rule).
(B) The term "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including "group" as defined in Section 13(d)
thereof.
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(C) The term "Ware Family Member" shall mean any of the following
(either individually or in combination): Marian S. Ware, Marilyn
Ware, Paul W. Ware, Nancy Ware Wainwright, Rhoda W. Cobb, Rhoda C.
Ware, John H. Ware, IV, Carol Ware Gates and their respective
spouses, siblings, descendants, or controlled legal entities.
(d) Definition of "Change in Control Price." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the amount of cash and
fair market value of property that is the highest price per share paid
(including extraordinary dividends) in any transaction triggering the Change in
Control or any liquidation of shares following a sale of substantially all
assets of the Company, or (ii) the highest Fair Market Value per share at any
time during the 60-day period preceding and 60-day period following the Change
in Control.
11. ADDITIONAL AWARD FORFEITURE PROVISIONS.
(a) Forfeiture of Options and Other Awards and Gains Realized Upon Prior
Option Exercises or Award Settlements. Unless otherwise determined by the
Committee, each Award granted hereunder shall be subject to the following
additional forfeiture conditions to which the Participant, by accepting an Award
hereunder, agrees. If any of the events specified in Section 11(b)(i), (ii), or
(iii) occurs (a "Forfeiture Event"), all of the following forfeitures will
result:
(i) The unexercised portion of the Option, whether or not vested, and
any other Award not then settled (except for an Award that has not been
settled solely due to an elective deferral by the Participant and otherwise
is not forfeitable in the event of any termination of service of the
Participant) will be immediately forfeited and canceled upon the occurrence
of the Forfeiture Event; and
(ii) The Participant will be obligated to repay to the Company, in
cash, within five business days after demand is made therefor by the
Company, the total amount of Award Gain (as defined herein) realized by the
Participant upon each exercise of an Option or settlement of an Award
(regardless of any elective deferral) that occurred on or after (A) the
date that is six months prior to the occurrence of the Forfeiture Event, if
the Forfeiture Event occurred while the Participant was employed by the
Company or a subsidiary or affiliate, or (B) the date that is six months
prior to the date the Participant's employment by the Company or a
subsidiary or affiliate terminated, if the Forfeiture Event occurred after
the Participant ceased to be so employed. For purposes of this Section, the
term "Award Gain" shall mean (i) in respect of a given Option exercise, the
product of (X) the Fair Market Value per share of Stock at the date of such
exercise (without regard to any subsequent change in the market price of
shares) minus the exercise price times (Y) the number of shares as to which
the Option was exercised at that date, and (ii) in respect of any other
settlement of an Award granted to the Participant, the Fair Market Value of
the cash or Stock paid or payable to Participant (regardless of any
elective deferral) less any cash or the Fair Market Value of any Stock or
property (other than an Award or award which would have itself then been
forfeitable hereunder and excluding any payment of tax withholding) paid by
the Participant to the Company as a condition of or in connection with such
settlement.
(b) Events Triggering Forfeiture. The forfeitures specified in Section
11(a) will be triggered upon the occurrence of any one of the following
Forfeiture Events at any time during the Participant's employment by the Company
or a subsidiary or affiliate or during the one-year period following termination
of such employment:
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(i) The Participant, acting alone or with others, directly or
indirectly, prior to a Change in Control, (A) engages, either as employee,
employer, consultant, advisor, or director, or as an owner, investor,
partner, or shareholder unless the Participant's interest is insubstantial,
in any business in an area or region in which the Company conducts business
at the date the event occurs, which is directly in competition with a
business then conducted by the Company or a subsidiary or affiliate; (B)
induces any customer or supplier of the Company or a subsidiary or
affiliate with which the Company or a subsidiary or affiliate has a
business relationship to curtail, cancel, not renew, or not continue his or
her or its business with the Company or any subsidiary or affiliate; or (C)
induces, or attempts to influence, any employee of or service provider to
the Company or a subsidiary or affiliate to terminate such employment or
service. The Committee shall, in its discretion, determine which lines of
business the Company conducts on any particular date and which third
parties may reasonably be deemed to be in competition with the Company. For
purposes of this Section 11(b)(i), a Participant's interest as a
shareholder is insubstantial if it represents beneficial ownership of less
than five percent of the outstanding class of stock, and a Participant's
interest as an owner, investor, or partner is insubstantial if it
represents ownership, as determined by the Committee in its discretion, of
less than five percent of the outstanding equity of the entity;
(ii) The Participant discloses, uses, sells, or otherwise transfers,
except in the course of employment with or other service to the Company or
any subsidiary or affiliate, any confidential or proprietary information of
the Company or any subsidiary or affiliate, including but not limited to,
information regarding the Company's current and potential customers,
organization, associates, finances, and methods of operations and
investments, so long as such information has not otherwise been disclosed
to the public or is not otherwise in the public domain, except as required
by law or pursuant to legal process, or the Participant makes statements or
representations, or otherwise communicates, directly or indirectly, in
writing, orally, or otherwise, or takes any other action which may,
directly or indirectly, disparage or be damaging to the Company or any of
its subsidiaries or affiliates or their respective officers, directors,
associates, advisors, businesses or reputations, except as required by law
or pursuant to legal process; or
(iii) The Participant fails to cooperate with the Company or any
subsidiary or affiliate by making himself or herself available to testify
on behalf of the Company or such subsidiary or affiliate in any action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative, or otherwise fails to assist the Company or any subsidiary
or affiliate in any such action, suit, or proceeding by providing
information and meeting and consulting with members of management of, other
representatives of, or counsel to, the Company or such subsidiary or
affiliate, as reasonably requested.
(c) Agreement Does Not Prohibit Competition or Other Participant
Activities. Although the conditions set forth in this Section 11 shall be deemed
to be incorporated into an Award, a Participant is not thereby prohibited from
engaging in any activity, including but not limited to, competition with the
Company and its subsidiaries and affiliates. Rather, the non-occurrence of the
Forfeiture Events set forth in Section 11(b) is a condition to the Participant's
right to realize and retain value from his or her compensatory Options and
Awards, and the consequence under the Plan if the Participant engages in an
activity giving rise to any such Forfeiture Event are the forfeitures specified
herein. The Company and the Participant shall not be precluded by this provision
or otherwise from entering into other agreements concerning the subject matter
of Section 11(a) and 11(b).
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(d) Committee Discretion. The Committee may, in its discretion, waive in
whole or in part the Company's right to forfeiture under this Section, but no
such waiver shall be effective unless evidenced by a writing signed by a duly
authorized officer of the Company. In addition, the Committee may impose
additional conditions on Awards, by inclusion of appropriate provisions in the
document evidencing or governing any such Award.
12. GENERAL PROVISIONS.
(a) Compliance with Legal and Other Requirements. The Company may, to the
extent deemed necessary or advisable by the Committee, postpone the issuance or
delivery of Stock or payment of other benefits under any Award until completion
of such registration or qualification of such Stock or other required action
under any federal or state law, rule or regulation, listing or other required
action with respect to any stock exchange or automated quotation system upon
which the Stock or other securities of the Company are listed or quoted, or
compliance with any other obligation of the Company, as the Committee may
consider appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be subject to such
other conditions as it may consider appropriate in connection with the issuance
or delivery of Stock or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other obligations. The
foregoing notwithstanding, in connection with a Change in Control, the Company
shall take or cause to be taken no action, and shall undertake or permit to
arise no legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits under
any Award or the imposition of any other conditions on such issuance, delivery
or payment, to the extent that such postponement or other condition would
represent a greater burden on a Participant than existed on the 90th day
preceding the Change in Control.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of such
Participant to any party (other than the Company or a subsidiary or affiliate
thereof), or assigned or transferred by such Participant otherwise than by will
or the laws of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or his
or her guardian or legal representative, except that Awards and other rights
(other than ISOs and SARs in tandem therewith) may be transferred to one or more
transferees during the lifetime of the Participant, and may be exercised by such
transferees in accordance with the terms of such Award, but only if and to the
extent such transfers are permitted by the Committee, subject to any terms and
conditions which the Committee may impose thereon (including limitations the
Committee may deem appropriate in order that offers and sales under the Plan
will meet applicable requirements of registration forms under the Securities Act
of 1933 specified by the Securities and Exchange Commission). A Beneficiary,
transferee, or other person claiming any rights under the Plan from or through
any Participant shall be subject to all terms and conditions of the Plan and any
Award document applicable to such Participant, except as otherwise determined by
the Committee, and to any additional terms and conditions deemed necessary or
appropriate by the Committee.
(c) Adjustments. In the event that any large, special and non-recurring
dividend or other distribution (whether in the form of cash or property other
than Stock), recapitalization, forward or reverse split, Stock dividend,
reorganization, merger, consolidation, spin-off, combination, repurchase, share
exchange, liquidation, dissolution or other similar corporate transaction or
event affects the Stock such that an adjustment is determined by the Committee
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to be appropriate under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and kind of shares of
Stock which may be delivered in connection with Awards granted thereafter, (ii)
the number and kind of shares of Stock by which annual per-person Award
limitations are measured under Section 5, (iii) the number and kind of shares of
Stock subject to or deliverable in respect of outstanding Awards and (iv) the
exercise price, grant price or purchase price relating to any Award or, if
deemed appropriate, the Committee may make provision for a payment of cash or
property to the holder of an outstanding Option (subject to Section 12(k)). In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including Performance
Awards and performance goals and any hypothetical funding pool relating thereto)
in recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding sentence, as well as acquisitions and
dispositions of businesses and assets) affecting the Company, any subsidiary or
affiliate or other business unit, or the financial statements of the Company or
any subsidiary or affiliate, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee's assessment of the business strategy of
the Company, any subsidiary or affiliate or business unit thereof, performance
of comparable organizations, economic and business conditions, personal
performance of a Participant, and any other circumstances deemed relevant;
provided that no such adjustment shall be authorized or made if and to the
extent that the existence of such authority (i) would cause Options, SARs, or
Performance Awards granted under Section 7 to Participants designated by the
Committee as Covered Employees and intended to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder to otherwise
fail to qualify as "performance-based compensation" under Code Section 162(m)
and regulations thereunder, or (ii) would cause the Committee to be deemed to
have authority to change the targets, within the meaning of Treasury Regulation
1.162-27(e)(4)(vi), under the performance goals relating to Options or SARs
granted to Covered Employees and intended to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder.
(d) Tax Provisions.
(i) Withholding. The Company and any subsidiary or affiliate is
authorized to withhold from any Award granted, any payment relating to an
Award under the Plan, including from a distribution of Stock, or any
payroll or other payment to a Participant, amounts of withholding and other
taxes due or potentially payable in connection with any transaction
involving an Award, and to take such other action as the Committee may deem
advisable to enable the Company and Participants to satisfy obligations for
the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock
or other property and to make cash payments in respect thereof in
satisfaction of a Participant's withholding obligations, either on a
mandatory or elective basis in the discretion of the Committee. Other
provisions of the Plan notwithstanding, only the minimum amount of Stock
deliverable in connection with an Award necessary to satisfy statutory
withholding requirements will be withheld.
(ii) Requirement of Notification of Code Section 83(b) Election. If
any Participant shall make an election under Section 83(b) of the Code (to
include in gross income in the year of transfer the amounts specified in
Code Section 83(b)) or under a similar provision of the laws of a
jurisdiction outside the United States, such Participant shall notify the
Company of such election within ten days of filing notice of the election
with the Internal Revenue Service or other governmental authority, in
addition to any filing and
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notification required pursuant to regulations issued under Code Section
83(b) or other applicable provision.
(iii) Requirement of Notification Upon Disqualifying Disposition Under
Code Section 421(b). If any Participant shall make any disposition of
shares of Stock delivered pursuant to the exercise of an Incentive Stock
Option under the circumstances described in Code Section 421(b) (relating
to certain disqualifying dispositions), such Participant shall notify the
Company of such disposition within ten days thereof.
(e) Changes to the Plan. The Board may amend, suspend or terminate the
Plan or the Committee's authority to grant Awards under the Plan without the
consent of shareholders or Participants; provided, however, that any amendment
to the Plan shall be submitted to the Company's shareholders for approval not
later than the earliest annual meeting for which the record date is after the
date of such Board action if such shareholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other amendments
to the Plan to shareholders for approval; and provided further, that, without
the consent of an affected Participant, no such Board action may materially and
adversely affect the rights of such Participant under any outstanding Award.
(f) Right of Setoff. The Company or any subsidiary or affiliate may, to
the extent permitted by applicable law, deduct from and set off against any
amounts the Company or a subsidiary or affiliate may owe to the Participant from
time to time, including amounts payable in connection with any Award, owed as
wages, fringe benefits, or other compensation owed to the Participant, such
amounts as may be owed by the Participant to the Company, including but not
limited to, amounts owed under Section 11(a), although the Participant shall
remain liable for any part of the Participant's payment obligation not satisfied
through such deduction and setoff. By accepting any Award granted hereunder, the
Participant agrees to any deduction or setoff under this Section 12(f).
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant or obligation to deliver
Stock pursuant to an Award, nothing contained in the Plan or any Award shall
give any such Participant any rights that are greater than those of a general
creditor of the Company; provided that the Committee may authorize the creation
of trusts and deposit therein cash, Stock, other Awards or other property, or
make other arrangements to meet the Company's obligations under the Plan. Such
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan unless the Committee otherwise determines with the consent of each
affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for approval shall
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements, apart from the
Plan, as it may deem desirable, including incentive arrangements and awards
which do not qualify under Code Section 162(m), and such other arrangements may
be either applicable generally or only in specific cases.
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an Award
with respect to which a Participant paid cash consideration, the Participant
shall be repaid the amount of such cash consideration. No fractional shares of
Stock shall be issued or delivered pursuant to the Plan or any Award. The
Committee shall determine whether cash, other Awards or other property
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shall be issued or paid in lieu of such fractional shares or whether such
fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the Company
that Options and SARs granted to Covered Employees and other Awards designated
as Awards to Covered Employees subject to Section 7 shall constitute qualified
"performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder, unless otherwise determined by the Committee at the time
of allocation of an Award. Accordingly, the terms of Sections 7(b), (c), and
(d), including the definitions of Covered Employee and other terms used therein,
shall be interpreted in a manner consistent with Code Section 162(m) and
regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term
Covered Employee as used herein shall mean only a person designated by the
Committee as likely to be a Covered Employee with respect to a specified fiscal
year. If any provision of the Plan or any Award document relating to a
Performance Award that is designated as intended to comply with Code Section
162(m) does not comply or is inconsistent with the requirements of Code Section
162(m) or regulations thereunder, such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements, and no
provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the applicable performance
objectives.
(k) Certain Limitations Relating to Accounting Treatment of Awards. Other
provisions of the Plan notwithstanding, the Committee's authority under the Plan
(including under Sections 9(c), 9(d), 12(c) and 12(d)) is limited to the extent
necessary to ensure that any Option or other Award of a type that the Committee
has intended to be subject to fixed accounting with a measurement date at the
date of grant or the date performance conditions are satisfied under APB 25
shall not become subject to "variable" accounting solely due to the existence of
such authority, unless the Committee specifically determines that the Award
shall remain outstanding despite such "variable" accounting. In addition, other
provisions of the Plan notwithstanding, if any right under this Plan would cause
a transaction to be ineligible for pooling-of-interests accounting that would,
but for the right hereunder, be eligible for such accounting treatment, such
right shall be automatically adjusted so that pooling-of-interests accounting
shall be available, including by substituting Stock or cash having a Fair Market
Value equal to any cash or Stock otherwise payable in respect of any right to
cash which would cause the transaction to be ineligible for pooling-of-interests
accounting.
(l) Governing Law. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan and any Award document shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable provisions of federal
law.
(m) Awards to Participants Outside the United States. The Committee may
modify the terms of any Award under the Plan made to or held by a Participant
who is then resident or primarily employed outside of the United States in any
manner deemed by the Committee to be necessary or appropriate in order that such
Award shall conform to laws, regulations, and customs of the country in which
the Participant is then resident or primarily employed, or so that the value and
other benefits of the Award to the Participant, as affected by foreign tax laws
and other restrictions applicable as a result of the Participant's residence or
employment abroad, shall be comparable to the value of such an Award to a
Participant who is resident or primarily employed in the United States. An Award
may be modified under this Section 12(m)
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in a manner that is inconsistent with the express terms of the Plan, so long as
such modifications will not contravene any applicable law or regulation or
result in actual liability under Section 16(b) of the Exchange Act for the
Participant whose Award is modified.
(n) Limitation on Rights Conferred under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person or
Participant the right to continue as an Eligible Person or Participant or in the
employ or service of the Company or a subsidiary or affiliate, (ii) interfering
in any way with the right of the Company or a subsidiary or affiliate to
terminate any Eligible Person's or Participant's employment or service at any
time, (iii) giving an Eligible Person or Participant any claim to be granted any
Award under the Plan or to be treated uniformly with other Participants and
associates, or (iv) conferring on a Participant any of the rights of a
shareholder of the Company unless and until the Participant is duly issued or
transferred shares of Stock in accordance with the terms of an Award or an
Option is duly exercised. Except as expressly provided in the Plan and an Award
document, neither the Plan nor any Award document shall confer on any person
other than the Company and the Participant any rights or remedies thereunder.
(o) Severability; Entire Agreement. If any of the provisions of this Plan
or any Award document is finally held to be invalid, illegal or unenforceable
(whether in whole or in part), such provision shall be deemed modified to the
extent, but only to the extent, of such invalidity, illegality or
unenforceability, and the remaining provisions shall not be affected thereby;
provided, that, if any of such provisions is finally held to be invalid,
illegal, or unenforceable because it exceeds the maximum scope determined to be
acceptable to permit such provision to be enforceable, such provision shall be
deemed to be modified to the minimum extent necessary to modify such scope in
order to make such provision enforceable hereunder. The Plan and any Award
documents contain the entire agreement of the parties with respect to the
subject matter thereof and supersede all prior agreements, promises, covenants,
arrangements, communications, representations and warranties between them,
whether written or oral with respect to the subject matter thereof.
(p) Awards Under Preexisting Plan. Upon approval of the Plan by
shareholders of the Company as required under Section 12(q) hereof, no further
awards shall be granted under the Preexisting Plan.
(q) Plan Effective Date and Termination. The Plan shall become effective
if, and at such time as, the shareholders of the Company have approved it by the
affirmative votes of the holders of a majority of the voting securities of the
Company entitled to vote on the subject matter at a duly held meeting of
shareholders. Unless earlier terminated by action of the Board, the Plan will
remain in effect until such time as no Stock remains available for delivery
under the Plan and the Company has no further rights or obligations under the
Plan with respect to outstanding Awards under the Plan.
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1210-PS-00
<PAGE>
DIRECTIONS TO THE 2000 AMERICAN WATER WORKS COMPANY, INC. ANNUAL
MEETING TO BE HELD AT THE MANSION ON MAIN STREET
FROM PHILADELPHIA/CENTER CITY: 30 minutes. Take Ben Franklin Bridge to
Route 70 East. Follow Route 70 East to Route 73 South. Follow 73 South to
Evesham Road. Turn right on Evesham Road. Follow 1-1/2 miles, turn left into
Main Street Complex. Entrance is on left.
FROM PHILADELPHIA INTERNATIONAL AIRPORT: 40 minutes. Take Walt Whitman
Bridge to 42 South to 295 North. Follow to Exit 32 (Haddonfield, Voorhees,
Gibbsboro). Turn right on Route 561. Follow 2 miles to Evesham Road. Turn
left onto Evesham Road (Mobil Station on left). Follow 2 miles, turn right
into Main Street Complex. Entrance is on left.
FROM NORTHEAST PHILADELPHIA: 30 minutes. Take Tacony Palmyra Bridge to
Route 73 South. Follow 73 South to Evesham Road. Turn right on Evesham Road.
Follow 1-1/2 miles, turn left into Main Street Complex. Entrance is on left.
FROM NORTHERN NEW JERSEY/NEW YORK AREA: 1 hour and 15 minutes. Take New
Jersey Turnpike South to Exit 4. Follow to Route 73 South. Follow 73 South
to Evesham Road. Turn right on Evesham Road. Follow 1-1/2 miles, turn left
into Main Street Complex. Entrance is on left.
FROM DELAWARE/BALTIMORE AREA: 60 minutes. Delaware Memorial Bridge to 295
North. Follow to Exit 32 (Haddonfield, Voorhees, Gibbsboro). Turn right on
Route 561. Follow 2 miles to Evesham Road. Turn left onto Evesham Road
(Mobil Station on left). Follow 2 miles, turn right into Main Street Complex.
Entrance is on left.
FROM ATLANTIC CITY: 50 minutes. Take Atlantic City Expressway to Route 73
North Exit (Tacony Palmyra Bridge). Proceed on Route 73 North, around Berlin
Circle, go 2 miles. Turn left on Kresson Road. Follow to second light,
Evesham Road. Turn left on Evesham Road and left into Main Street Complex.
Entrance is on left.
DETACH HERE
- --------------------------------------------------------------------------
PROXY
AMERICAN WATER WORKS COMPANY, INC.
P
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
R FOR THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 4, 2000
O
The undersigned, hereby revoking any contrary proxy previously
X given, hereby appoints J. James Barr and Marilyn Ware, and each of
them, attorneys and proxies, with full power of substitution and
Y revocation, to vote all of the shares of the undersigned in
American Water Works Company, Inc. (the "Company") entitled to
vote at the annual meeting of shareholders of the Company on
May 4, 2000, and at any adjournment thereof, as indicated on the
reverse side and in accordance with the judgment of said attorneys
and proxies on any other business which may come before the
meeting or any such adjournment. Except as otherwise indicated on
the reverse side, the undersigned authorizes the proxies appointed
hereby to vote cumulatively for such of the nominees (in some
circumstances, less than all) as such proxies in their discretion
determine if in their judgment such action is necessary to elect
as many of the nominees as possible.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, WITH THE DISCRETIONARY
AUTHORITY DESCRIBED ABOVE.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
<PAGE>
[LOGO] AMERICAN WATER WORKS
COMPANY, INC.
c/o EquiServe, P. O. Box 9398,
Boston, MA 02205-9398
Vote by Telephone Vote by Internet
It is fast, convenient, and It is fast, convenient, and your
immediate! Call Toll-Free on vote is immediately confirmed and
a Touch-Tone Telephone posted.
1-877-PRX-VOTE (1-877-779-8683).
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement and Proxy Card. Statement and Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/awk
For shareholders residing outside
the United States, call 1-201- 3. Enter your 14-digit Control
536-8073 on a touch-tone telephone Number located on your Proxy
for a collect call. Card above your name.
3. Enter your 14-digit Control 4. Follow the instructions
Number located on your Proxy provided.
Card above your name.
4. Follow the recorded instructions.
Your vote in important! Your vote is important!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/awk
anytime!
Do not return your Proxy Card if you are voting by Telephone or Internet
Please note that all votes cast via the Telephone or Internet must be cast
prior to 5:00 p.m. EDST, May 3, 2000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
DETACH HERE
- ---------------------------------------------------------------------------
[X] Please mark
votes as in
this example.
1. Election of Directors:
(01) William O. Albertini, (02) Rhoda W. Cobb,(03) Ray J. Groves,
(04) Ross A. Webber, (05) Horace Wilkins, Jr.
FOR WITHHELD
ALL [ ] FROM ALL [ ]
NOMINEES NOMINEES
[ ]___________________________________________________________________
Withhold vote from the nominees or cumulate vote as
indicated on the above line.
2. Approval of the 2000 Stock Award and Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, upon other matters as may properly come
before the meeting.
The Board of Directors recommends a vote "FOR" each proposal.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE TO LEFT
Please return your signed proxy at once in the enclosed
envelope, which requires no postage if mailed in the
United States, even though you expect to attend the
meeting in person.
Please date and sign below. If a joint account, each
owner should sign. When signing in a representative
capacity, please give title. Please sign here exactly as
name is printed hereon.
Signature:_______________Date:______ Signature:_______________Date:______
