<PAGE>
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
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
AQUARION COMPANY
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
AQUARION COMPANY
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:*
(4) Proposed maximum aggregate value of transaction:
- --------
*Set forth the amount on which the filing is calculated and state how it was
determined.
[_] 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.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF AQUARION APPEARS HERE]
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
April 26, 1994
To The Shareholders:
The Annual Meeting of Shareholders of AQUARION COMPANY (the "Company") will
be held at 9:30 a.m. on Tuesday, April 26, 1994, at its Easton Lake Reservoir
Water Treatment Plant, 35 Buck Hill Road, Easton, Connecticut for the purposes
set forth below. Tours of the Treatment Plant will be conducted for
shareholders and guests immediately following the Annual Meeting. Directions to
the Plant will be sent once we receive your proxy card.
1. To elect four directors to Class III of the Board of Directors.
2. To ratify the selection of Price Waterhouse as the Company's
independent public accountants for the coming year.
3. To approve a Stock Incentive Plan for officers and key
employees of the Company and its subsidiaries.
4. To approve a Directors' Deferred Compensation Plan.
5. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on March 8, 1994 will be
entitled to vote at the meeting.
By Order of the Board of Directors
LARRY L. BINGAMAN
Secretary
- --------------------------------------------------------------------------------
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING AND TOUR THE
TREATMENT PLANT. HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE
REQUEST THAT YOU SIGN AND DATE THE PROXY CARD AND PROMPTLY MAIL IT IN THE
ENCLOSED ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE MEETING
AND VOTE IN PERSON.
- --------------------------------------------------------------------------------
<PAGE>
AQUARION COMPANY
835 Main Street
Bridgeport, Connecticut 06601
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held April 26, 1994
The enclosed Proxy is solicited by the Board of Directors of the Company
for use at the Annual Meeting of Shareholders to be held on April 26, 1994, and
any adjournment thereof.
Holders of the Common Stock of the Company of record at the close of
business on March 8, 1994 are entitled to notice of and to vote at the meeting.
On the record date, there were 6,491,841 outstanding shares of Common Stock,
which is the only class of capital stock of the Company entitled to vote at the
meeting. Each shareholder is entitled to one vote for each share of Common
Stock held.
A proxy may be revoked by a shareholder at any time before it is voted by
mailing his or her revocation or a subsequent proxy to the Secretary of the
Company at the above address or by filing a written revocation at the meeting
with the Secretary of the Company. Each valid proxy will be voted at the
meeting, and such vote will be cast in accordance with the shareholder's
direction specified in the proxy.
The cost of soliciting proxies, which will be borne by the Company, is
estimated to total $5,500. In addition to solicitation by mail, directors,
officers and regular employees of the Company may solicit proxies personally or
by telephone. Banks, brokerage houses and other custodians, nominees or
fiduciaries who hold stock in their names will be requested to solicit proxies
from the persons owning such stock. Morrow & Co., 909 Third Avenue, New York,
New York 10022, has been retained by the Company to assist in such solicitation.
The Proxy Statement and Proxy are being mailed to shareholders beginning on
March 21, 1994.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees and Beneficial Ownership
The Board of Directors of the Company is divided into three classes. At
the Annual Meeting, four directors will be elected to Class III for a three-year
term. At the 1995 Annual Meeting of Shareholders, directors will be elected to
Class I for a three-year term and at the 1996 Annual Meeting of Shareholders,
directors will be elected to Class II for a three-year term. Information with
respect to the four nominees proposed for election to Class III and information
with respect to the seven other directors is set forth below. All nominees have
been nominated by the Board of Directors for election as directors. It is
intended that the proxies will be voted for the four nominees hereinafter named,
all of whom have indicated their willingness to serve if elected, unless
otherwise indicated on any proxy. All nominees are presently directors of the
Company. Directors are elected by plurality vote. Abstentions and broker non-
votes will not have the effect of votes in opposition to a director.
While it is not anticipated that any of the nominees will be unable to
serve as a director, if that should occur, the proxies will be voted for such
other person or persons as the present Board of Directors shall determine, or
the Board of Directors may reduce the number of directors to eliminate the
vacancy.
1
<PAGE>
Nominees for Election as Class III Directors to Serve Three-Year Terms Ending
at the 1997 Annual Meeting of Shareholders
<TABLE>
<CAPTION>
Director
Age Principal Occupation Since
---- -------------------- -----
<S> <C> <C> <C>
George W. Edwards, Jr. 54 President and Chief Executive 1988
Officer (since 1991) of Kansas
City Southern Railway Co.
Chairman (1987 to 1991),
President (1985 to 1987) and
Chief Executive Officer (1985 to
1991) of The United Illuminating
Company, an electric utility
company. Director of Hubbell
Incorporated, Kansas City
Southern Industries and El Paso
Electric Company.
Eugene D. Jones 69 Senior Vice President (since 1992
1981) of Greiner, Inc., a
consulting engineering firm
specializing in
transportation-related
facilities. Trustee of Northeast
Utilities and Clarkson University.
G. Jackson Ratcliffe 57 Chairman, President and Chief 1982
Executive Officer of Hubbell
Incorporated, a manufacturer of
electrical/electronic components
and systems. Director of
Praxair, Inc. and Olin
Corporation.
William S. Warner 69 Chairman and formerly President 1956
(1982 to 1988) and Chief
Executive Officer (1982 to 1989)
of the Company. Director of The
United Illuminating Company.
</TABLE>
2
<PAGE>
Class I Directors Whose Three-Year Terms End at the 1995 Annual Meeting of
Shareholders
<TABLE>
<CAPTION>
Director
Age Principal Occupation Since
--- -------------------- -----
<S> <C> <C> <C>
Geoffrey Etherington 65 President and Chairman of 1976
Etherington Industries, a group of
six privately held industrial
companies.
Norwick R.G. Goodspeed 71 Chairman (since 1988) of People's 1972
Mutual Holdings, a bank holding
company. Director of People's
Bank. Formerly Chairman of
People's Bank.
Jack E. McGregor 59 President (since 1988), Chief 1987
Executive Officer (since January
1990), Chief Operating Officer
(1988 to January 1990) and
Executive Vice President (1985 to
1988) of the Company. Director of
People's Bank and Physicians Health
Services, Inc. Director and Member
of Executive Committee, National
Association of Water Companies.
Trustee of Fairfield University and
Yale-New Haven Hospital.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Class II Directors Whose Three-Year Terms End at the 1996 Annual Meeting of
Shareholders
Director
Age Principal Occupation Since
--- -------------------- -----
<S> <C> <C> <C>
Janet D. Greenwood 50 Consultant, Heidrick and Struggles. 1988
President Emeritus and Professor
(since 1991) and formerly President
(1987 to 1991) of the University of
Bridgeport. Founding President of
the Long Island Sound Foundation.
Donald M. Halsted, Jr. 67 Self-employed businessman. Director 1975
of Bancroft Convertible Fund, Inc.
and Ellsworth Convertible Growth
and Income Fund, Inc.
Larry L. Pflieger 70 Private Investor. Formerly 1985
President, Vice President- Finance
and Treasurer of Warnaco, Inc., a
diversified apparel manufacturer.
John A. Urquhart 65 President, John A. Urquhart 1990
Associates, a management consultant
firm. Vice Chairman of Enron Corp.
Formerly Senior Vice President, GE
Industrial & Power Systems of the
General Electric Company. Director
of TECO Energy, Inc., Enron Corp.,
Hubbell Incorporated and The Weir
Group PLC.
</TABLE>
Stock Ownership of Beneficial Owners
The following table sets forth information as to all persons (including
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934) known to the Company to be the beneficial owner of more than five
percent of the Company's Common Stock as of December 31, 1993.
<TABLE>
<CAPTION>
Name and Address of Shares
Beneficial Owner Beneficially Owned Percent
---------------- ------------------ -------
<S> <C> <C>
J.P. Morgan & Co. Incorporated 380,200 5.8
60 Wall Street
New York, NY 10260
</TABLE>
Under Schedule 13G, J.P. Morgan & Co., Incorporated, has reported that it
has the sole power to dispose of the 380,200 shares and the sole power to vote
270,900 shares.
4
<PAGE>
Stock Ownership of Directors and Officers
The following table sets forth the number of shares of Common Stock of the
Company beneficially owned, directly or indirectly, by each director, by each of
the five most highly compensated executive officers, and by all directors and
executive officers as a group, as of March 8, 1994:
<TABLE>
<CAPTION>
Name of Individual or Shares Beneficially Owned Percent of
Number of Persons in Group Directly or Indirectly (1)(2) Class (3)
- -------------------------- ----------------------------- -----------
<S> <C> <C>
George W. Edwards.................. 500 *
Geoffrey Etherington............... 4,305 *
Norwick R. G. Goodspeed............ 741 *
Janet D. Greenwood................. 200 *
Donald M. Halsted, Jr. ............ 5,902 *
Eugene D. Jones.................... 224 *
Jack E. McGregor................... 98,747 1.5%
Larry L. Pflieger.................. 2,634 *
G. Jackson Ratcliffe............... 2,904 *
John A. Urquhart................... 500 *
William S. Warner.................. 19,812 *
Larry L. Bingaman.................. 27,734 *
Janet M. Hansen.................... 13,476 *
James S. McInerney................. 32,381 *
Richard K. Schmidt................. 12,703 *
Directors and Executive Officers
as a group........................ 222,763 3.4%
==============================================================================
</TABLE>
- --------------
5
<PAGE>
(1) Based on reports furnished by the directors and officers. The shares
include in some instances, shares held by the immediate families of
directors and officers or entities controlled by directors and officers,
the reporting of which is not to be construed as an admission of beneficial
ownership. The number of shares includes options to purchase shares that
may be acquired within 60 days through the exercise of stock options under
the Company's stock option plan as follows: Jack E. McGregor, 91,500
shares; James S. McInerney, 31,250 shares; Larry L. Bingaman, 27,250
shares, Janet M. Hansen, 11,250 shares; Richard K. Schmidt, 12,500 shares;
and directors and executive officers as a group, 173,750 shares. See
"Compensation of Directors and Executive Officers" below.
(2) Each of the directors and officers included in the foregoing table has sole
voting and investment power as to the shares of Common Stock beneficially
owned, directly or indirectly, by him or her, except for the following:
(i) as to which such powers are shared, 294 shares with respect to Mr.
Bingaman and 869 shares with respect to Mrs. Hansen; (ii) as to which such
powers are held by other people or entities, 645 shares with respect to Mr.
Goodspeed, 3,294 shares with respect to Mr. Halsted, 18,460 shares with
respect to Mr. Warner, 125 shares with respect to Mr. McInerney; and, (iii)
as to which there are restrictions as to the disposition of shares, 2,816
shares with respect to Mr. McGregor, 178 shares with respect to Mr.
Schmidt, 743 shares with respect to Mr. McInerney, 257 shares with respect
to Mrs. Hansen and 190 shares with respect to Mr. Bingaman.
(3) Asterisk denotes percentage of beneficial stock ownership less than one
percent of the outstanding Common Stock of the Company.
Board of Directors Meetings
Eight meetings of the Board of Directors were held during 1993. Average
attendance at Board and Committee meetings was approximately 95 percent.
Committees of the Board
The Board of Directors has four standing committees: an Audit Committee, a
Compensation Committee, an Environmental and Public Affairs Committee, and a
Finance Committee. All members of the Committees are nonemployee directors.
The Board does not have a standing Nominating Committee, as this function is
handled by the full Board. Shareholders desiring to recommend directors should
communicate with the Secretary of the Company.
Audit Committee
The membership of the Audit Committee consisted of Messrs. Halsted,
Etherington, Jones, Pflieger and Dr. Greenwood. The Committee met three times
during 1993, each time with representatives of Price Waterhouse, the Company's
accountants, present. The functions of the Audit Committee are to review the
scope of the annual audit, consider specific problems and questions that may
arise in the course of the audit, monitor the adequacy of internal bookkeeping,
accounting and auditing controls and report to the Board of Directors with
respect to these matters.
Compensation Committee
The membership of the Compensation Committee consisted of Messrs.
Goodspeed, Edwards, Halsted, Ratcliffe and Urquhart. The Committee met six
times in 1993. The functions of the Committee are to formulate executive
compensation policy of the Company, to consult with management with respect
thereto and to present recommendations relating thereto to the Board of
Directors and to administer the Company's incentive compensation plans.
6
<PAGE>
Environmental and Public Affairs Committee
The membership of the Environmental and Public Affairs Committee consisted
of Dr. Greenwood, and Messrs. Edwards, Goodspeed, Jones and Warner. The
Committee met twice in 1993. Formerly the Community and Government Relations
Committee, the Committee's responsibilities were expanded in 1993 to provide
oversight of the Company's policies, practices and procedures as to compliance
with environmental laws and regulations. Additional functions of the Committee
are to assist management in formulating plans and programs to develop and
enhance public understanding of the Company and to coordinate the attainment of
its business objectives with community needs and desires, to monitor compliance
by the Company and its personnel with laws and regulations relating to lobbying
and the political process, and to oversee the Company's environmental,
government and community relations programs.
Finance Committee
The membership of the Finance Committee consisted of Messrs. Ratcliffe,
Etherington, Pflieger, Urquhart and Warner. The Committee met four times during
1993. The functions of the Finance Committee are to administer the Trust Fund
of the Company's retirement plan, to review and monitor the financial planning
and financial structure of the Company and to render advice, counsel and
assistance to the corporate financial officers in the execution of their
responsibilities.
Compensation of Directors
Each director who is not an employee of the Company receives an annual
retainer of $10,000 plus $600 for each Board meeting and Committee meeting
attended. Committee chairmen are paid an additional annual retainer of $3,000.
Directors who are employed by the Company receive no additional compensation for
their services as directors of the Company. Pursuant to the deferred
compensation plan in effect at 1993 year-end, any outside director may defer
payment of his or her annual retainer and meeting fees. Interest is credited
quarterly on the deferred amounts (and on previously credited interest) equal to
the then prevailing prime rate. The deferred amounts plus interest will be paid
to such a director beginning with the calendar year following the termination of
his or her service as a director, in either a lump sum or in any number of equal
installments as the director elects. For federal income tax purposes the
amounts deferred plus interest are income only upon receipt by the director and
are deductible by the Company in the year of actual payment. The Company is
proposing for adoption by shareholders a new Directors' Deferred Compensation
Plan. See proposal 4.
The Company has a directors' retirement plan related to service as a
nonemployee director. After five years of such service, a director earns an
annual retirement benefit equal to 50 percent of the amount of the annual
retainer in effect upon cessation of such director's services on the Board. The
amount of the retirement benefit earned by a nonemployee director increases for
each year of service thereafter by an amount equal to ten percent of the annual
retainer in effect upon the cessation of such director's service on the Board
until the director has earned, after ten years of nonemployee Board service, an
annual retirement benefit equal to the full amount of the retainer in effect
upon his or her cessation of Board service. The Board may from time to time
adjust the amount of the annual benefit, and any such adjustment would be
applicable to all individuals then receiving retirement benefits under the plan.
An annual retirement benefit equal to the full amount of such retainer and
subject to Board adjustment is also payable in the event of death or permanent
and total disability after five years as a nonemployee director or upon
termination as a director in the event of a change in control of the Company.
The benefit is payable for the lifetime of the director and thereafter to the
director's designated beneficiary, to the extent that the director did not
receive retirement benefits for a period at least equal to his or her years of
credited service as a nonemployee director. Except for death, disability or a
change in control of the Company, retirement benefits under the plan do not
become payable until age 65 or the later cessation of Board service. Such
benefits are unfunded.
Directors are covered under the Company's group health insurance plans as a
supplement to such insurance as may be applicable to the directors from other
sources. In 1993, group health insurance benefits provided to Messrs.
Goodspeed, Halsted, Pflieger and Urquhart amounted to $714, $1,547, $358 and
$1,416 respectively.
7
<PAGE>
In connection with his retirement as the Company's Chief Executive Officer
on January 1, 1990, Mr. Warner entered into an agreement with the Company
whereby Mr. Warner renders consulting services to the Company. The agreement,
which will expire in 1996, provides for payments of up to $50,000 annually.
EXECUTIVE COMPENSATION
The following table shows annual and long-term compensation, for services
in all capacities to the Company and its subsidiaries for the years 1993, 1992,
and 1991, of those persons who were, for the fiscal year completed on December
31, 1993 (i) the Chief Executive Officer and (ii) the other four most highly
compensated executive officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------- -----------------------------------------
Awards
----------------------------- All
Restricted Securities Other
Stock Underlying Comp.
Year Salary Total Awards (1) Options/SARs (2)
($) Bonus ($) ($) (#) ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. E. McGregor............. 1993 247,881 46,876 15,624 20,000 16,584
President and Chief 1992 235,750 65,000 10,000 13,071
Executive Officer 1991 226,242 0 19,000
==================================================================================================
R. K. Schmidt (3).......... 1993 155,711 14,559 4,828 5,000 2,248
President and CEO,
Industrial and 1992 124,309 67,120 7,500 3,677
Environmental Analysts 1991
==================================================================================================
J. S. McInerney............ 1993 145,506 25,906 11,094 5,000 8,100
President and COO, 1992 135,979 34,500 7,500 6,546
Bridgeport Hydraulic
Company 1991 125,497 13,000 6,250
==================================================================================================
J. M. Hansen (4)........... 1993 121,194 19,379 6,971 5,000 6,722
Senior Vice President, 1992 104,900 28,188 2,250 4,974
CFO, and Treasurer 1991 87,258 5,630 2,000
==================================================================================================
L. L. Bingaman............. 1993 109,750 17,971 5,154 5,000 6,216
Vice President, 1992 106,500 25,888 7,500 4,793
Corporate Relations and
Secretary 1991 103,000 0 6,250
============================================================================================
</TABLE>
- --------------
8
<PAGE>
(1) In 1993, the named executive officers received shares of restricted stock
which vest upon the anniversary of the date of grant. The dollar value of these
awards, based on the closing price of the Company's Common Stock of $27.125 on
February 2, 1994, was: J. E. McGregor---576 shares ($15,624); R. K. Schmidt---
178 shares ($4,828); J. S. McInerney---409 shares ($11,094); J. M. Hansen---257
shares ($6,971); L.L. Bingaman---190 shares ($5,154). In addition to the
restricted stock granted in 1993, the number and dollar value of shares of
previously granted restricted stock held on December 31, 1993, based on a
closing price of the Company's Common Stock on December 31, 1993, of $28.50,
was: J.E. McGregor---2,240 shares ($63,840); J.S. McInerney---334 shares
($9,519). Restricted stock is Common Stock of the Company and dividends are
paid thereon at the same rate as on unrestricted shares.
(2) The amount shown in 1993 under this column for Mr. McGregor included the
Company's contributions of $14,080 to The Employee Savings and Investment Plan
(the "Savings Plan"), and the Company's payment of the annual premium of $2,504
on Company-owned life insurance. The amounts shown for other named officers
represent the Company's contribution in 1993 to the Savings Plan accounts for
such officers. Under a transition rule of the Securities and Exchange
Commission, information for 1991 is not required.
(3) Mr. Schmidt's employment with the Company commenced April 1, 1992.
(4) Mrs. Hansen became Vice President and Chief Financial Officer of the
Company on April 28, 1992, having served previously as Treasurer of the Company
and as Vice President, Chief Financial Officer and Treasurer of Bridgeport
Hydraulic Company.
9
<PAGE>
Stock Options
The following table sets forth information with respect to all options
granted to the named executive officers during 1993, including the potential
realizable value of each grant assuming that the market value of the Company's
Common Stock appreciates in value from the date of the grant to the expiration
of the option at annualized rates of (a) five percent and (b) ten percent, in
each case compounded annually over the term of the option. These assumed rates
of appreciation have been specified by the Securities and Exchange Commission
for illustrative purposes only and are not intended to predict future prices of
the Company's Common Stock, which will depend upon market conditions and the
Company's future performance and prospects. For example, the option granted to
Mr. McGregor in 1993 would produce the pre-tax gain of $314,447 and $796,871
shown in the table only if the market price of the Common Stock rises to about
$41 and $65 per share respectively before Mr. McGregor exercises the option.
Based on the number and market price of the shares outstanding at year-end
1993, the Company's market capitalization would be $184,458,897, and assuming a
five percent and ten percent annualized increase, produce a corresponding market
capitalization of $300,464,106 and $478,438,873, respectively.
Options/SARs Grants in Last Fiscal Year
<TABLE>
<CAPTION>
=================================================================================================================================
Potential Realizable
Value at Assumed
Individual Grants Annual Rates of
Stock Price
Number of Appreciation for
Securities % of Total Option Term
Underlying Options Exercise
Options/SARs Granted to or Base
Granted (1) Employees Price Expiration
Name (#) in FY 1993 ($/Sh) Date 5%($) 10%($)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
J. E. McGregor 20,000 30% 25.00 1/22/2003 314,447 796,871
R. K. Schmidt 5,000 8% 25.00 1/22/2003 78,612 199,218
J. S. McInerney 5,000 8% 25.00 1/22/2003 78,612 199,218
J. M. Hansen 5,000 8% 25.00 1/22/2003 78,612 199,218
L. L. Bingaman 5,000 8% 25.00 1/22/2003 78,612 199,218
=================================================================================================================================
</TABLE>
(1) The options granted become exercisable on the first anniversary of the
grant but may be exercised earlier if there is a change in control of the
Company as defined under "Employment Contracts and Termination and Change
in Control Arrangements" below. The Company has not granted SARs.
10
<PAGE>
The following table sets forth the aggregated 1993 year-end option/SAR values.
During 1993, no options were exercised by the named officers.
Aggregated 1993 Fiscal Year-End Options/SARs Values
<TABLE>
<CAPTION>
================================================================================================================================
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-The-Money
on Value Options/SARs at FY- Options/SARs at
Exercise Realized End (#) FY-Year End ($) (1)
Exercisable/
Name Unexercisable Exercisable/Unexercisable
=================================================================================================================================
<S> <C> <C> <C> <C>
J. E. McGregor --- --- 71,500/20,000 189,723/70,000
R. K. Schmidt --- --- 7,500/5,000 59,063/17,500
J. S. McInerney --- --- 26,250/5,000 76,564/17,500
J. M. Hansen --- --- 6,250/5,000 37,219/17,500
L. L. Bingaman --- --- 22,250/5,000 110,595/17,500
=================================================================================================================================
</TABLE>
(1) Market value of underlying securities at year-end, minus the exercise or
base price.
Retirement Program
- ------------------
Under the Company's qualified retirement plan (the "Pension Plan") and the
Supplemental Benefit Plan (the "Supplemental Plan") for certain key executives,
an eligible employee will receive a benefit at retirement that is based upon the
employee's number of years of credited service and average pensionable
compensation (salary in case of the Pension Plan and salary plus annual bonus in
case of the Supplemental Plan, in each case as set forth in the Summary
Compensation Table) during, in the case of the Pension Plan, the highest five
consecutive years of the employee's final ten years of service. The benefits
under the Supplemental Plan are not subject to the Internal Revenue Code
provisions that limit benefits under the Pension Plan. For a single employee,
the benefits are straight life annuity amounts and for a married employee the
benefits are 50 percent joint and survivor annuity amounts. As of December 31,
1993, the years of credited service are 9 years for Mr. McGregor; for Mr.
McInerney 23 years; Mrs. Hansen, 18 years; and Mr. Bingaman, 4 years. The
following table illustrates, for representative average annual pensionable
compensation and years of credited service the annual retirement benefit payable
to employees under the Plans upon retirement in 1994 at age 65, based on the
straight life annuity form of benefit.
11
<PAGE>
Pension Plan Table
<TABLE>
<CAPTION>
===============================================================================
Five-Year Average Years of Credited Service
Compensation Recognized
Under the Plan
<S> <C> <C> <C> <C> <C>
10 15 20 25 30
===============================================================================
$120,000 $19,742 $29,613 $ 39,484 $ 49,355 $ 59,226
- -------------------------------------------------------------------------------
$180,000 $30,742 $46,113 $ 61,484 $ 76,855 $ 92,226
- -------------------------------------------------------------------------------
$240,000 $41,742 $62,613 $ 83,484 $104,355 $125,226
- -------------------------------------------------------------------------------
$300,000 $52,742 $79,113 $105,484 $131,855 $158,226
- -------------------------------------------------------------------------------
$360,000 $63,742 $95,613 $127,484 $159,355 $191,226
===============================================================================
</TABLE>
Employment Contracts and Termination and Change-in-Control Arrangements
Messrs. McGregor, McInerney and Bingaman and Mrs. Hansen each have an
employment agreement with the Company. Mr. McGregor's agreement, which became
effective when he succeeded Mr. Warner as the Company's Chief Executive Officer
on January 1, 1990, has a primary term of three years and is extended monthly
for an additional month unless either the Company or Mr. McGregor elects
otherwise, in which case the agreement would expire at the end of the then
remaining primary term. The agreements with Messrs. McInerney and Bingaman and
Mrs. Hansen each have a primary term of two years and are extended monthly for
an additional month unless either the Company or the employee elects otherwise,
in which event the agreement would expire at the end of the then remaining
primary term. Each agreement provides for the payment of a minimum base salary
which is subject to increase by the Board in accordance with the Company's
customary compensation practice and for participation by the employee in the
Company's benefits plans and programs. The annual base salaries, effective
April 1, 1994, for Messrs. McGregor, McInerney and Bingaman and Mrs. Hansen are
$260,000, $155,000, $110,000 and $130,000, respectively. Mr. McGregor's
agreement also provides under certain circumstances for supplemental retirement
income in the annual amount of $33,200, funded by Company-owned life insurance,
upon his retirement at age 62. In the event of either a material lessening of
the employee's responsibilities during the term of the agreement, or assignment
or reassignment to another geographic area, or liquidation, dissolution,
consolidation, acquisition or merger of the Company (except by a successor
corporation of at least equal net worth which assumes the agreement) or a
reduction in compensation and benefits, the agreement may be terminated and
certain benefits would be provided to the employee. Such benefits would
essentially compensate the employee for the salary (subject, in Mr. McGregor's
case, to a limit of 2.9 times his annual salary, and as to Messrs. McInerney and
Bingaman and Mrs. Hansen, to a limit of 1.5 times each person's annual salary),
benefits, including the Company's share of contributions which would have been
made on behalf of the employee to the Company's Employee Savings and Investment
Plan (and the related Supplemental Benefit Plan) and pension rights he or she
would have had for the remainder of the primary term of the agreement.
Therefore, if any of the events listed above occur and result in a termination
toward the end of a non-renewed employment term, the value of such benefits
would be minimal, while such a termination earlier in the term of an agreement
would, subject to the application of the maximum limits specified above, result
in proportionately greater benefits. At present salary levels, the maximum
termination benefits relating to the salaries of Messrs. McGregor, McInerney and
Bingaman and Mrs. Hansen would be $754,000, $232,500, $165,000, and $195,000,
respectively. Coverage under the Company's health and welfare benefits plans
would be extended to these individuals for a period of 24 months after
termination under the circumstances described above.
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<PAGE>
Mr. Schmidt has an employment agreement with the Company's wholly owned
subsidiary, Industrial and Environmental Analysts, Inc. ("IEA") which has a
two-year term expiring March 31, 1994. The agreement provides for an annual
base salary and yearly salary reviews, pursuant to which an annual salary of
$161,250 as of April 1, 1994 has been established for Mr. Schmidt, and further
provides for his participation in all IEA benefit plans and for certain
performance-based incentives through 1994 which, in the event of sale or merger,
will be not less than $100,000. In the event that Mr. Schmidt's employment is
terminated prior to December 31, 1994, his incentive compensation will be
calculated on the basis of results to the date of termination. The agreement
further provides for a year's severance and benefits in the event of termination
by the Company without cause and with less than a year's notice. The Company is
preparing a new two-year employment agreement with Mr. Schmidt.
All stock options granted to the named executive officers become
exercisable on the first anniversary of the grant, unless there is a change
in control of the Company, in which event all options become immediately
exercisable. For this purpose, a change of control shall be deemed to have
occurred in the following circumstances unless the event in question has been
approved in advance by the continuing directors: the acquisition by any person
or group of 15 percent of the Company's outstanding shares; the purchase of
the Company's outstanding shares under a tender offer or exchange offer;
approval of the shareholders of a merger, consolidation, liquidation or
dissolution of the Company or the sale of its assets; less than two-thirds of
the Company's Board of Directors are continuing directors. Continuing
directors shall mean members of the Board on the date the plan in question
was adopted or who were recommended or elected to the Board by a majority of
continuing directors.Options remain exercisable after the cessation of
employment, to the extent exercisable at such cessation, for three months.
BOARD OF DIRECTORS COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
Executive Compensation Philosophy
The objectives of Aquarion's executive compensation program are to link
executive compensation with shareholder value, to attract and to retain
qualified executives, and to produce strong financial performance for the
benefit of our shareholders while providing a high level of customer service and
value for our customers. In order to meet these objectives, the compensation
program is designed to be competitive with the compensation programs provided by
other comparable businesses within which the competitiveness of compensation is
evaluated on a position-by-position basis. For the water utility business, most
of the water utility peer group displayed on the Edward D. Jones peer group
graph, and other utilities matched for comparable revenue size as maintained in
a database by our compensation consultants, provide the comparison group ("the
utility comparison group"). For Aquarion's non-utility businesses, the
compensation program is matched against businesses with comparable revenues and
lines of business as maintained in a database by our compensation consultants
("the non-utility comparison group").
Executive Compensation Program
Each year the Compensation Committee, which is comprised entirely of
outside directors, recommends to the Board of Directors compensation
arrangements for senior officers, including the review and approval of annual
salaries, salary grades and structure, annual and longer-term incentive plan
awards, standards of performance for new awards, payouts from past awards,
program participation and program design.
Aquarion's executive compensation program in 1993 consisted of three
components: salary, annual incentive compensation, and stock options.
13
<PAGE>
Salary ranges are set by periodic comparison to rates of pay for comparable
positions for named officers of the Company and to the "utility comparison
group" for corporate and utility positions or, for non-utility positions to
companies in the "non-utility comparison group." Individual salaries are
generally considered for adjustment annually, based on external salary levels,
individual performance and potential, and/or change in duties and
responsibilities. Based on salary data compiled by outside consultants, officer
salaries in the aggregate approximate the midpoint of salary ranges reported for
comparable positions.
Annual incentive compensation opportunities are targeted such that, at 1993
target performance levels, annual incentive awards for corporate and water
utility positions are at about the 50th percentile of companies within the
"utility comparison group," and for non-utility positions, at about the 50th
percentile of companies within the "non-utility comparison group." Annual
objectives are established, subject to Compensation Committee approval, for
corporate, operating company, and individual performance, with earnings per
share being the criterion for corporate performance and pre-tax profit being the
criterion for operating company performance. These factors are weighted
differently for various positions, depending upon the responsibilities of each
position. The Chief Executive Officer's target award is based entirely on
corporate performance, while other officers' targets are allocated among
corporate, operating company and individual objectives. Target bonus levels
also vary according to magnitude of responsibility, with incentive awards
constituting a potentially greater portion of the Chief Executive Officer's
total annual compensation than they do for other officers.
Award opportunities under the stock option plan are targeted at median
utility industry levels for the corporate and utility positions and at median
general industry levels for non-utility positions (which levels are reflected in
a database maintained by the Company's compensation consultants). The use of
stock options is intended to encourage stock ownership by management and to
further assure alignment of management compensation with shareholder return.
Option awards are determined each year based on median annualized expected
present value of long-term incentives, and are made independent of an
executive's balance of unexercised options.
In December 1993, the Internal Revenue Service (IRS) adopted a regulation,
applicable to publicly held corporations, which denies federal income tax
deductions for compensation in excess of $1 million paid in a taxable year to
any of its top five officers. The Company does not anticipate that any of its
executives will be subject to the $1 million deduction cap with respect to
executive compensation.
CEO and Senior Officer Compensation - 1993
Based on the advice of professional consultants independently employed
by the Committee and coupled with our individual business judgments, the
Compensation Committee reviewed and approved the level and form of compensation
for the Chief Executive Officer and, with the Chief Executive Officer's
assistance, for other named officers in 1993.
Aquarion achieved targeted earnings per share and net income objectives for
1993. Increased revenues and earnings from the Company's public water supply
segment, coupled with continued effective control of operating costs,
contributed to Aquarion's net income of $11 million, a 17 percent gain from
1992.
Mr. McGregor received a salary of $247,881 during 1993, which approximated
the median salary among Chief Executives within the utility comparison group.
The Committee recommended a 1993 annual incentive award of $62,500, 100 percent
of Mr. McGregor's target bonus level, because Aquarion achieved its earnings per
share objective for 1993. This award, recognizes Aquarion's achievements during
1993 and encourages continued improvement in total shareholder return through
partial payout in Company stock. Mr. McGregor also received a grant of 20,000
stock options in
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<PAGE>
1993, which are exercisable at a price above the market value of the stock at
the date of the grant. This grant is consistent with the Company's practice of
positioning stock option grants to the Chief Executive Officer at the median
long-term incentive award level for comparably salaried utility executives.
For the other four most highly compensated officers, annual incentive
awards recognized their performance on corporate, operating, and individual
goals in 1993 and averaged 80.7 percent of targeted bonus levels because IEA
fell short of its pre-tax profit goal, although the corporate EPS and other
operating company pre-tax goals were met or exceeded. Payment of the individual
objective component of the bonus is contingent on achievement of goals such as
improvement in customer service and achievement of operational efficiencies.
Option grant levels for this group in 1993 were consistent with the Company's
practice of positioning stock option grants at the median long-term incentive
award level for comparably salaried utility executives or, where applicable, at
the median general industry level for comparably salaried positions.
Compensation Committee
Norwick R. G. Goodspeed, Chairman
George W. Edwards, Jr.
Donald M. Halsted, Jr.
G. Jackson Ratcliffe
John A. Urquhart
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<PAGE>
Shareholder Return Presentation
The following performance graph compares the yearly percentage change in
the Company's cumulative total shareholder return on its Common Stock with the
cumulative total return on the S&P 500 Index and the Edward D. Jones Water
Utility Industry Return Comparison, which includes the Company, for the five
years commencing 1989 and ended 1993. While the Dow Jones Water Utilities Index
was used in 1993 for comparison purposes, the Company believes that the Edward
D. Jones Utility Industry peer group provides a broader array of companies that
are more similar to Aquarion's market capitalization. In addition, a majority of
the Company's peer group uses the Edward D. Jones Water Utility Industry index.
[GRAPH APPEARS HERE]
Five Year Cumulative Total Return -- S&P 500, Edward D. Jones
Water Utility Industry, and Aquarion
<TABLE>
<CAPTION>
Measurement Period Aquarion S&P 500 Edward D. Jones
- --------------------- -------- ------- ---------------
<S> <C> <C> <C>
Measurement Point -
12/31/88 100.0 100.0 100.0
12/31/89 90.9 131.6 107.6
12/31/90 82.9 127.5 99.4
12/31/91 102.7 166.3 138.4
12/31/92 111.9 178.9 151.4
12/31/93 135.7 197.0 173.7
</TABLE>
The Peer Group consists of American Water Works Co., Aquarion Company,
California Water Service Co., Connecticut Water Service Inc., Consumers Water
Co., E'Town Corp., GWC Corporation, IWC Resources Corp., Middlesex Water Co.,
Philadelphia Suburban Corp., SJW Corp., Southern California Water, Southwest
Water Co., and United Water Resources.
16
<PAGE>
For reference, shown below is the yearly percentage change in the Company's
cumulative total shareholder return on its Common Stock compared to the S&P 500
Index and the Dow Jones Water Utilities Index, which includes the Company.
[GRAPH APPEARS HERE]
Five Year Cumulative Total Return -- S&P 500, Dow Jones
Water Utilities, and Aquarion
<TABLE>
<CAPTION>
Measurement Period Aquarion S&P 500 Dow Jones
- --------------------- -------- ------- ---------
<S> <C> <C> <C>
Measurement Point -
12/31/88 100.0 100.0 100.0
12/31/89 90.8 131.6 104.7
12/31/90 83.1 127.5 93.4
12/31/91 98.5 166.3 142.3
12/31/92 111.8 178.9 152.6
12/31/93 135.5 197.0 171.8
</TABLE>
The Dow Jones Water Utilities Index consists of American Water Works Co.,
Aquarion Company, California Water Service Co., Consumers Water Co., and United
Water Resources.
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Price Waterhouse, 300
Atlantic Street, Stamford, Connecticut 06904 as its independent public
accountants for 1994. In accordance with a resolution of the Board of
Directors, this selection is being presented to shareholders for ratification at
the Annual Meeting.
If the foregoing proposal is not approved by the shareholders or if,
prior to the 1994 Annual Meeting, Price Waterhouse shall decline to act or
otherwise become incapable of acting, or if its employment shall be otherwise
discontinued by the Board of Directors, then the Board of Directors will appoint
other independent public accountants whose employment for any period subsequent
to the 1994 Annual Meeting will be subject to ratification by the shareholders
at that meeting.
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<PAGE>
The firm of Price Waterhouse has audited the financial statements of the
Company annually since 1931. The Company has been advised that representatives
of Price Waterhouse will be present at the meeting with the opportunity to make
a statement if they desire to do so and will be available to respond to
appropriate questions.
Adoption of proposal 2 will require the affirmative vote of a majority of
the Common Stock voting on the proposal, and abstentions and broker non-votes
will not have the effect of votes in opposition.
The Board of Directors recommends a Vote "FOR" ratification of the
selection of Price Waterhouse as independent public accountants.
PROPOSAL NO. 3
STOCK INCENTIVE PLAN
The Board of Directors has approved, and recommends to shareholders the
adoption of, the Aquarion Company Stock Incentive Plan (the "Incentive Plan"),
which is set forth as Exhibit A to this Proxy Statement. The Board believes
that the Incentive Plan will enable the Company to retain present key executives
and to attract new key executives. The Incentive Plan will be administered by
the Compensation Committee (the "Committee"). The existing Long-Term Incentive
Plan has insufficient shares to provide for future grants. If the Incentive
Plan is adopted by the shareholders at the Annual Meeting, it will be effective
as of April 26, 1994. The following description of the Incentive Plan is
qualified in its entirety by reference to Exhibit A.
Types of Awards Generally
The Incentive Plan provides for the grant of incentive stock options
qualified under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), non-qualified stock options, stock appreciation rights, restricted
stock and performance units (collectively, "Awards"), but no more than an
aggregate of 525,000 shares of Stock (the Common Stock of the Company, no par
value) (subject to adjustment in the event of stock splits or other changes in
the Stock as provided in Section 16 of the Incentive Plan) may be awarded under
the Incentive Plan or purchased upon the exercise of such options. In addition,
the number of shares of Stock which may be issued under options or stock
appreciation rights granted under the Incentive Plan to any one individual in
any fiscal year shall not exceed 100,000. Shares subject to options or stock
appreciation rights which are cancelled, forfeited or expire unexercised, or
shares subject to stock appreciation rights payable in Stock which are paid in
cash shall again become available for award under the Incentive Plan.
At the discretion of the Committee, payment of Awards (except for Awards of
restricted stock) may be in restricted or unrestricted shares of Stock, and
stock appreciation rights and performance units also may be paid in cash. No
Awards will be granted after April 25, 1999. Each Award will be evidenced by an
agreement incorporating its terms and conditions.
Options
Incentive stock options and stock appreciation rights under the Incentive
Plan must expire ten years or less after their grant; non-qualified stock
options will expire no later than ten years and one day after their grant. The
aggregate fair market value (as determined on the date of grant) for which any
key employee may be granted incentive stock options which are exercisable for
the first time in any plan year shall not exceed $100,000. Options and stock
appreciation rights granted under the Incentive Plan shall be exercisable as
determined by the Committee. The exercise price for options and
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<PAGE>
the base amount to determine the subsequent value of a stock appreciation right,
must be at least equal to the fair market value (but in no event less than the
par value) of the Stock on the date of grant. The exercise price for options
may be paid to the Company, at the discretion of the Committee, in cash or
shares of Stock or a combination thereof at the time of exercise unless the
Committee extends a loan to an employee for all or a portion of the option
price.
During the lifetime of an employee, an option or stock appreciation right
may be exercised only by him or her and, in the case of incentive stock options,
no later than three months after his or her termination of employment (twelve
months if due to death or disability). For all other options and stock
appreciation rights, the period of exercisability following a termination (to
the extent options or rights are exercisable at such time, unless provided
otherwise) shall be as follows: (i) if the termination occurs for any reason
other than death, retirement with consent of the Company or by reason of total
disability (as defined in the Plan), such option or right may be exercised on
the earlier of three months from the date of termination or the end of the
exercise period specified in the option or right; (ii) if the termination occurs
due to retirement with the consent of the Company, the installments of such
option or right shall continue to mature in the normal course as otherwise
provided in the option or right and shall be exercisable (by the participant or
his or her beneficiary, as the case may be) until the later of three years after
the date of such retirement or in the event that death occurs during such three-
year period, twelve months after death; (iii) if the termination occurs due to
total disability, the options or rights shall be exercisable until the later of
twelve months after the date of such retirement or in the event that death
occurs during such twelve-month period, twelve months after death; or (iv) if
the termination occurs due to death, any option or right shall be immediately
exercisable by the participant's estate or the person who acquires the option or
right by will or intestate succession until the earlier of one year from the
date of such death or the end of the exercise period specified in the option or
right. In no event may post-termination exercise be later than the expiration of
the exercise period for the option or stock appreciation right.
Performance Units
Performance units under the Incentive Plan are contingent rights to receive
future payments. The amount paid, which may be subject to a prescribed maximum,
will be based on actual performance over a period from two to five years
measured against performance objectives established in advance by the Committee
using such criteria as it deems appropriate, including, earnings per share and
return on equity. In the event an employee terminates employment during such a
performance period, the employee will not be entitled to any payment unless the
Committee, in its sole discretion provides otherwise. However, in the case of
retirement, permanent total disability, or death or in cases of special
circumstances, as determined by the Committee, the employee may be entitled to
an Award prorated for the portion of the performance period during which he was
employed by the Company.
Restricted Stock
Restricted stock awarded under the Incentive Plan or issued in connection
with another Award granted under the Plan shall be issued subject to a
restricted period set by the Committee during which time the shares may not be
sold, transferred, assigned or pledged. The Committee may provide for the lapse
of restrictions in installments where deemed appropriate. The recipient, as
owner of the awarded shares, shall have all other rights of a shareholder,
including the right to vote the shares and receive dividends and other
distributions during the restriction period. In the event an employee terminates
employment, all such shares still subject to restrictions will be forfeited by
the employee and reacquired by the Company unless the Committee, in its
discretion, determines otherwise. However, in the case of retirement, permanent
total disability or death, or in cases of special circumstances, as determined
by the Committee, all remaining restrictions are waived.
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<PAGE>
Unrestricted Stock
The Incentive Plan also permits the Committee, in its sole and absolute
discretion, to make Awards in the form of shares of Stock which are not
restricted in the hands of the participants who receive such Awards. Such
Awards may be made either in connection with any annual or longer term bonus
program sponsored by the Company or an affiliate or in any other circumstances
that the Committee deems appropriate.
Change of Control
The Committee, in its discretion, may provide under the terms of any Award
Agreement that upon the occurrence of a Change of Control (as defined below),
all outstanding options and stock appreciation rights which are not then
exercisable shall become immediately exercisable in full and all restricted
stock shall become immediately vested. Each option shall, to the extent
exercisable, have a limited right allowing the optionee to surrender that option
within the 30-day period following a Change of Control and to receive cash, in
lieu of exercising the option, in the amount by which the highest fair market
value (as defined in the Incentive Plan) of the number of shares of Stock
covered by the option during the 60 days preceding the date on which the Change
of Control occurs exceeds the option price for the shares covered by the option.
For purposes of the preceding paragraph, a Change of Control means any of
the following: (i) the acquisition by any person or group of beneficial
ownership of 15 percent or more of the Company's then outstanding voting
securities; (ii) commencement of a tender offer or exchange offer pursuant to
which shares of Stock are at any time purchased; (iii) the first day on which
less than two-thirds of the total membership of the Board of Directors of the
Company are continuing directors (members of the Board on the date the Incentive
Plan was adopted or who were recommended or elected to the Board by a majority
of the continuing directors); or (iv) approval by shareholders of the Company of
a merger, consolidation, liquidation or dissolution of the Company, or of the
sale of all or substantially all of the assets of the Company.
Plan Administration
If the Incentive Plan is adopted by the shareholders, the Committee, none
of whose members may receive any Award under the Plan, will administer the Plan,
including, but not limited to, the designation of those employees who shall
receive Awards, the number of shares to be covered by options, stock
appreciation rights and restricted stock awards, the exercise price and other
terms of options, the base amount to determine the subsequent value of a stock
appreciation right and other terms of stock appreciation rights, the number of
performance units to be granted and the performance objectives and amounts of
contingent payments for such units. The Committee also has the discretion to
grant supplemental cash payments or provide for loans in connection with the
grant of an Award. Further, the Committee may specify additional terms and
conditions which may be placed upon receiving an Award and the Committee's
decisions in the administration of the Plan shall be binding on all persons for
all purposes.
Federal Income Tax Consequences of Awards
The following describes the general federal income tax consequences of the
various Awards. An employee will not realize any income at the time an
incentive stock option is granted nor upon the exercise of an incentive stock
option. Upon the disposition of shares of Stock acquired by the exercise of an
incentive stock option more than (i) two years after the incentive stock option
is granted and (ii) one year after the transfer of shares of Stock upon the
exercise of such option, the employee's basis for determining the long-term
capital gain or loss realized upon such disposition will be the option price.
However, if the disposition occurs before these special holding requirements are
met (a "disqualifying
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<PAGE>
disposition"), the employee will recognize ordinary income upon such disposition
equal to the excess of the fair market value of the shares on the date either
the option was exercised or the shares were disposed of, whichever is less, over
the optionee's basis in the shares. The Company will receive no deduction with
respect to incentive stock options unless a disqualifying disposition occurs, in
which case the Company may deduct the amount included in an employee's income in
the applicable year.
An employee will not realize any income at the time a non-qualified stock
option or stock appreciation right is granted. Upon the employee's exercise of
a non-qualified stock option, the difference between the fair market value of
the Stock at the time of exercise and the option price will be ordinary income
to the employee and can be deducted at such time by the Company.
The amount of cash and the fair market value of the Stock received upon an
employee's exercise of a stock appreciation right or in payment of a performance
unit or otherwise, will be ordinary income to the employee at the time of
exercise or payment. However, any employee who receives restricted stock,
either as an Award or upon exercise of an option or a stock appreciation right
or in payment of a performance unit, will realize as ordinary income at the time
of the lapse of the restrictions an amount equal to the fair market value of the
Stock at the time of such lapse (less the option price for such shares if
purchased by exercising an option) unless an appropriate election pursuant to
Section 83(b) of the Code is made. In such case, the employee will recognize
ordinary income as if the Stock had not been restricted. Unrestricted Stock
will be ordinary income to the employee at the time it is granted. Tax
consequences similar to those described in the previous sentence would apply to
an Award subject to the restrictions of Section 16(b) of the Exchange Act. At
the time the employee realizes ordinary income, the Company will be entitled to
a deduction in the same amount as the ordinary income realized by the employee.
Amendment or Termination
If the Incentive Plan is adopted by the shareholders, the Board may at any
time, or from time to time, suspend or terminate the Incentive Plan in whole or
in part or amend it in such respects as the Board may deem appropriate, provided
that no such amendment shall be made, which would, without the approval of
shareholders: (i) materially modify the eligibility requirements for receiving
Awards; (ii) increase the total number of shares of Stock which may be issued
pursuant to Awards, except as provided for in accordance with Section 16 of the
Plan with respect to stock splits and other changes is capitalization; (iii)
reduce the minimum grant price of any Award except as provided for in accordance
with Section 16 of the Plan; (iv) extend the period during which Awards may be
granted; or (v) materially increase in any other way the benefits accruing to
participants.
Adoption of proposal 3 will require the affirmative vote of the holders of
a majority of the Common Stock present or represented at the meeting provided
that a majority of the outstanding shares of the Common Stock votes on the
proposal. Abstentions will have the effect of votes in opposition to proposal 3,
and broker non-votes will not have the effect of votes in opposition.
The Board of Directors recommends a vote "FOR" the adoption of the proposed
Incentive Plan.
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<PAGE>
PROPOSAL NO. 4
APPROVAL OF DIRECTORS' DEFERRED COMPENSATION PLAN
At the Annual Meeting of Shareholders, the shareholders will be asked to
approve the adoption of a Directors' Deferred Compensation Plan (the "Directors'
Deferred Compensation Plan"). The Directors' Deferred Compensation Plan was
approved by the unanimous vote of the Board of Directors at its meeting held on
February 22, 1994. Adoption of the Directors' Deferred Compensation Plan is
subject to shareholder approval.
Description of the Directors' Deferred Compensation Plan
The principal features of the Directors' Deferred Compensation Plan are
summarized below, but the following summary is qualified by reference to the
Directors' Deferred Compensation Plan itself, a copy of which is attached to
this Proxy Statement as Exhibit B. Unless otherwise defined herein, terms
defined in the Directors' Deferred Compensation Plan have the same meanings when
used herein.
Each member of the Board of Directors who is not an employee of the
Company or any of its subsidiaries (a "Director") may elect, on or before
December 31 of any year, to defer payment of all or a specified part of all fees
to be earned during the year following such election and succeeding years (until
the director ceases to be a director). A director may elect, on or prior to
the 30th day following approval of this Plan by the shareholders of Aquarion
to defer payment of all Fees earned in 1994 subsequent to such shareholder
approval. Any person who becomes a director during any year, and who was not a
director on the preceding December 31, or on the date of such shareholder
approval, may elect, before the director's term begins, to defer payment of
all or a specified part of such fees earned during the remainder of such year
and for succeeding years. Each director may elect to participate in the
Directors' Deferred Compensation Plan by delivering a letter to the Secretary
of the Company that specifies the portion of the fees to be deferred and the
allocation of such deferral between the director's Cash Account and Stock Unit
Account (a Stock Unit consists of one share of the Company's Common Stock).
Elections to defer or transfer fees into the Stock Unit Account will be
effective six months after the election is made. The Directors' Deferred
Compensation Plan also makes provision for deferral into the Stock Unit
Account of fees earned and deferred prior to the adoption of the Directors'
Deferred Compensation Plan and fees previously deferred into the Cash Account
under the Directors' Deferred Compensation Plan. As of February 22, 1994 there
were ten directors eligible to participate in the Directors' Deferred
Compensation Plan.
Plan Operation
The Company shall maintain separate memorandum accounts for the fees
deferred by each director. The Company shall credit to the Cash Account of each
director the deferred portion of any fees due the director as to which an
election to receive cash has been made. On the date such fees would otherwise be
paid, the Company shall credit the Stock Unit Account of each director with the
number of Stock Units which is equal to: the deferred portion of any fees due
the director as to which an election to receive the Company's Common Stock has
been made, divided by the closing price of the Company's Common Stock as
reported on the New York Stock Exchange Inc. Composite Tape on the date such
fees would otherwise have been paid.
On the first day of each quarter, the Company shall credit the Cash
Account of each director with interest calculated on the basis of the balance
in such account on the first day of each month of the preceding quarter at the
prime rate in effect as published in The Wall Street Journal on the first
-----------------------
business day of each such month.
The Company shall credit Stock Unit Accounts with the Stock Units equal
to any cash dividends (or the fair market value of dividends paid in property
other than dividends paid in Common Stock) payable on the number of shares of
Common Stock represented by the number of Stock Units in each director's Stock
Unit Account divided by the Stock Unit Value on the dividend payment date.
Dividends payable in Common Stock will be credited to each director's Stock Unit
Account in the form
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<PAGE>
of Stock Units. If adjustments are made to the outstanding shares of Common
Stock as a result of split-ups, recapitalizations, mergers, consolidations and
the like, an appropriate adjustment also will be made in the number of Stock
Units credited to the director's Stock Unit Account.
Distributions
Distributions shall begin with the first day of the year following the
director's retirement or separation from the Board. Amounts credited to a
director's Cash Account shall be paid in cash. Amounts credited to a director's
Stock Unit Account on or after January 1, 1995 shall be paid in the form of one
share of Common Stock for each Stock Unit, with a cash payment with any final
installment for any fractions of a Stock Unit remaining. Each director shall
have the right to designate a beneficiary who is to succeed to his right to
receive payments under the Directors' Deferred Compensation Plan in the event of
death. Such a designee shall receive payments in the same manner as the
director if he or she had lived.
Amendments
The Directors' Deferred Compensation Plan may be amended, suspended or
terminated in whole or in part from time to time by the Board except that no
amendment, suspension or termination shall apply to the payment to any director
of any amounts previously credited to a director's Cash Account or Stock Unit
Account.
Change of Control
In the event of a Change of Control, any Stock Unit credited to a
director's Stock Unit Account shall be immediately converted into a right to
receive cash and shall thereafter be treated in all respects as part of such
director's Cash Account. The amount added to the Cash Account pursuant to a
Change of Control shall be determined by converting each Stock Unit into the
right to receive an amount of cash equal to the closing price of one share of
Common Stock on the New York Stock Exchange, Inc. on such day, within 60 days
preceding the date on which the Change of Control occurs, on which the closing
price was the highest. "Change of Control" is defined as any of the following:
(i) continuing directors no longer constitute at least two-thirds of the
directors; (ii) any person or group of persons (as defined in Rule 13d-5 under
the Securities Exchange Act of 1934, as amended) together with its affiliates,
becomes the beneficial owner of 15 percent or more of the voting power of the
Company; (iii) the approval of the Company's shareholders of the merger or
consolidation of the Company with any other corporation, the sale of
substantially all the assets of the Company or the liquidation or dissolution of
the Company, unless, in the case of a merger or consolidation, the incumbent
directors in office immediately prior to such merger or consolidation will
constitute two-thirds of the directors of the surviving corporation of such
merger or consolidation and any parent of such corporation; or (iv) at least
two-thirds of the incumbent directors in office immediately prior to any other
action proposed to be taken by the Company's shareholders determine that such
proposed action, if taken, would constitute a change of control and such action
is taken.
Adoption of proposal 4 will require the affirmative vote of the holders of
a majority of the Common Stock present or represented at the meeting provided
that a majority of the outstanding shares of Common Stock votes on the proposal.
Abstentions will have the effect of votes in opposition to proposal 4, and
broker non-votes will not have the effect of votes in opposition.
The Board of Directors recommends a Vote "FOR" adoption of the proposed
Directors' Deferred Compensation Plan.
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ANNUAL REPORT
Beginning on March 21, 1994 the Company is mailing to its shareholders of
record copies of its Annual Report for the year ended December 31, 1993. Such
Report is not a part of the proxy materials.
The Company will furnish to any beneficial owner of its Common Stock upon
written request, without charge, a copy of the Company's Annual Report on Form
10-K for 1993 filed with the Securities and Exchange Commission. Requests
should be addressed to Corporate Communications, Aquarion Company, 835 Main
Street, Bridgeport, Connecticut 06601.
SHAREHOLDERS PROPOSALS FOR 1995 ANNUAL MEETING
Any proposal which a shareholder intends to present at the 1995 Annual
Meeting must be received at the Company's principal executive offices by
November 25, 1994 to be included in the proxy statement and form of proxy
relating to the meeting.
OTHER MATTERS
Other Business
Management knows of no other matters to be presented to the 1994 Annual
Meeting of Shareholders. If any additional matters should be properly
presented, it is the intention of the persons named in the proxy to vote with
respect to such matters in accordance with their best judgment.
By order of the Board of Directors
Larry L. Bingaman
Secretary
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EXHIBIT A
AQUARION COMPANY
STOCK INCENTIVE PLAN
Effective as of April 26, 1994
1. Purpose
The purpose of the Aquarion Company Stock Incentive Plan is to attract and
retain persons of ability as employees of Aquarion Company and its
subsidiaries, motivate and reward good performance, encourage such
employees to continue to exert their best efforts on behalf of the Company
and its subsidiaries and provide further opportunities for stock ownership
by such employees in order to increase their proprietary interest in
Aquarion Company by providing incentive awards to Key Employees (including
officers and directors who are also employees), whose responsibilities and
decisions directly affect the performance of the Company and its
subsidiaries. Such incentive awards may consist of Common Stock of
Aquarion Company, or at the discretion of the Committee, other shares of
stock of the Company convertible into such Common Stock, subject to such
restrictions as the Committee may determine or as provided herein,
performance units or stock appreciation rights payable in such stock or
cash, or incentive or non-qualified stock options to purchase such stock,
or any combination of the foregoing, as the Committee may determine.
2. Definitions
When used herein, the following terms shall have the following meanings:
"Award" means an award granted to any Key Employee in accordance with the
provisions of the Plan in the form of Options, Rights, Restricted Stock,
Stock or Performance Units, or any combination of the foregoing.
"Award Agreement" means the written agreement evidencing each Award granted
to a Key Employee under the Plan.
"Beneficiary" means the beneficiary or beneficiaries designated pursuant to
Section 11 to achieve the amount, if any, payable under the Plan upon the
death of a Key Employee.
"Board" means the Board of Directors of the Company.
"Change of Control" shall be deemed to have occurred in the following
circumstances unless the event in question has been approved in advance by
the continuing directors:
(a) The acquisition by any person (including a group, within the meaning of
Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934 but
excluding the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company) of beneficial ownership of
15 percent or more of the Company's then outstanding voting securities;
(b) Commencement of a tender offer or exchange offer, pursuant to which
shares of the Company's Stock are at any time purchased;
(c) The first day on which less than two-thirds of the total membership of
the Board of Directors of the Company are continuing directors; or
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(d) Approval by shareholders of the Company of a merger, consolidation,
liquidation or dissolution of the Company, or of the sale of all or
substantially all of the assets of the Company.
"Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.)
"Committee" means the Compensation Committee of the Board.
"Company" means Aquarion Company, and its successors and assigns.
"Continuing Director" means any director of the Company who either is a
member of the Board of Directors on February 22, 1994 or is recommended or
elected to the Company's Board of Directors by a majority of the continuing
directors.
"Fair Market Value" means, as of any date, the closing price for one share
of Stock on the New York Stock Exchange Composite Tape or, if no sales of
Stock have taken place on such date, the closing price on the most recent
date on which selling prices were quoted. If the Stock is not listed or
admitted to trading on the New York Stock Exchange, the fair market value
of the Stock shall be the closing price of one share of Stock on the
principal national securities exchange which the Stock is listed or
admitted to trading, or, if the Stock is not listed or admitted to trading
on any national securities exchange, the closing price of one share of
Stock as furnished by the National Association of Securities Dealers, Inc.
through the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or similar organization if NASDAQ is no longer reporting
that information. If the Stock is not quoted by any such organization, the
fair market value of the Stock shall be determined in good faith by the
Committee, or in the event of a Change of Control, the continuing
directors.
"Key Employee" means those employees (including any officer or director who
is also an employee) of any Participating Company who, in the judgment of
the Committee, are considered especially important to the future of the
Company.
"Option" means an option to purchase Stock, including Restricted Stock if
the Committee so determines, subject to the appropriate requirements under
Section 5 and awarded in accordance with the terms of the Plan and may be
an incentive stock option qualified under Section 422 of the Code or a non-
qualified stock option.
"Participating Company" means the Company or any subsidiary or other
affiliate of the Company; provided, however, for incentive stock options
only, "Participating Company" means the Company or any corporation which at
the time such option is granted under the Plan qualifies as a subsidiary of
the Company under the definition of "subsidiary corporation" contained in
Section 424(f) of the Code.
"Performance Unit" means a performance unit subject to the requirements of
Section 6 and awarded in accordance with the terms of the Plan.
"Plan" means Aquarion Company Stock Incentive Plan, as the same may be
amended, administered or interpreted from time to time.
"Restricted Stock" means Stock delivered under the Plan subject to the
requirements of Section 7 and such other restrictions as the Committee
deems appropriate or desirable.
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"Right" means a stock appreciation right subject to the appropriate
requirements under Section 5 and awarded in accordance with the terms of
the Plan.
"Stock" means the Common Stock (no par value) of the Company.
"Total Disability" means the complete and permanent inability of a Key
Employee to perform all his or her duties under the terms of his or her
employment with any Participating Company, as determined by the Committee
upon the basis of such evidence, including independent medical reports and
data, as the Committee deems appropriate or necessary.
3. Shares Subject to the Plan
The aggregate number of shares of Stock which may be awarded under the Plan
or subject to purchase by exercising an Option shall not exceed 525,000
shares. Such shares shall be made available either from authorized and
unissued shares or shares held by the Company in its treasury. The
Committee may, in its discretion, decide to award other shares issued by
the Company that are convertible into Stock or make such shares subject to
purchase by an Option, in which event the maximum number of shares of Stock
into which such stock may be converted shall be used in applying the
aggregate share limit under this Section 3 and all provisions of the Plan
relating to Stock shall apply with full force and effect with respect to
such convertible shares. Shares subject to Options or Rights which are
cancelled, forfeited or expire unexercised, or shares subject to Rights
payable in Stock which are paid in cash shall again become available for
award under the Plan.
4. Grant of Awards and Award Agreements
(a) Subject to the provisions of the Plan, the Committee shall (i)
determine and designate from time to time those Key Employees or groups of
Key Employees to whom Awards are to be granted; (ii) determine the form or
forms of Award to be granted to any Key Employee; (iii) determine the
amount or number of shares of Stock, including Restricted Stock if the
Committee so determines, subject to each Award; and (iv) determine the
terms and conditions of each Award.
(b) Each Award granted under the Plan shall be evidenced by a written
Award Agreement, in a form approved by the Committee. Such agreement shall
be subject to and incorporate the express terms and conditions, if any,
required under the Plan or as required by the Committee for the form of
Award granted and to such other terms and conditions as the Committee may
specify.
5. Stock Options and Stock Appreciation Rights
(a) With respect to Options and Rights, the Committee shall (i) authorize
the granting of incentive stock options (within the meaning of Section 422
of the Code), nonqualified stock options, Rights or a combination of
incentive stock options, nonqualified stock options and Rights; (ii)
determine the number of shares of Stock subject to each Option or the
number of shares of Stock that shall be used to determine the value of a
Right; (iii) determine whether such Stock shall be Restricted Stock; (iv)
determine the time or times when and the manner in which each Option shall
be exercisable and the duration of the exercise period; and (v) determine
whether or not all or part of each Option may be canceled by the exercise
of a Right; provided, however, that (A) no Option shall be granted after
the expiration of five years from the effective date of the Plan, (B) the
aggregate Fair Market Value (determined as of the date an incentive stock
option is granted) of the Stock, disregarding any restrictions in the case
of Restricted Stock, for which any Key Employee may be granted incentive
stock options which are exercisable for the first time by such Key Employee
in any calendar year under this Plan or any other plans of any
Participating Company in any calendar year shall not exceed $100,000
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(or such other limitation as may be required by Section 422(d) of the Code
or any successor provision thereto), and (C) the number of shares of Stock
which may be issued under Options or Rights granted under this Plan to any
one individual in any fiscal year shall not exceed 100,000.
(b) The exercise period for a non-qualified stock option shall be ten
years and one day from the date of grant, and the exercise period for an
incentive stock option or Right, including any extension which the
Committee may from time to time decide to grant, shall not exceed ten years
from the date of grant; provided, however, that in the case of an incentive
stock option granted to a Key Employee who at the time of grant owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company (a "Ten Percent Shareholder"), such period,
including extensions, shall not exceed five years from the date of grant
(to the extent such period is required under Section 422 of the Code for an
incentive stock option).
(c) The Option or Right price per share shall be determined by the
Committee at the time any Option is granted and shall be not less than (i)
the Fair Market Value, or (ii) in the case of an incentive stock option
granted to a Ten Percent Shareholder, 110 percent of the Fair Market Value
(to the extent such limitation is required under Section 422 of the Code
for an incentive stock option but in neither event less than the par value)
of one share of Stock, disregarding any restrictions in the case of
Restricted Stock, on the date the Option is granted, as determined by the
Committee.
(d) No part of any Option or Right may be exercised until the Key Employee
who has been granted the Award shall have remained in the employ of a
Participating Company for such period after the date on which the Option or
Right is granted as the Committee may specify, if any, and the Committee
may further require exercisability in installments.
(e) Subject to Section 10(c), except as otherwise provided in the Plan,
the purchase price of the shares as to which an Option shall be exercised
shall be paid to the Company at the time of exercise either in cash or in
such other consideration as the Committee deems appropriate, including
Stock already owned by the optionee having a total fair market value, as
determined by the Committee, equal to the purchase price or a combination
of cash and such other consideration having a total fair market value, as
so determined, equal to the purchase price.
(f) (i) If a Key Employee has been granted an incentive stock option, and
his or her employment terminates by reason of death while an employee
of a Participating Company or Total Disability, then any such
incentive stock options granted to such Key Employee may be exercised,
(in the case of death by his or her estate or the person who acquires
the incentive stock option by will or intestate succession and in the
case of Total Disability by the Key Employee), to the extent that the
incentive stock option was exercisable at the date of such
termination, at any time, or from time to time, within twelve months
after the date of the termination of his or her employment.
(ii) If the Key Employee's employment terminates for any other reason,
he or she may exercise his or her incentive stock options, to the
extent that the incentive stock option was exercisable at the date of
such termination, at any time, or from time to time, within three
months after the date of the termination of his or her employment.
(g) If a Key Employee has been granted an Option other than an incentive
stock option or a Right, and his or her employment with a Participating
Company terminates, he or she may exercise his or her Option or Right in
accordance with the following:
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(i) If the termination occurs for any reason (including, without
limitation, the sale of a subsidiary) other than death, retirement
with consent of the Company or by reason of Total Disability, such
Option or Right may be exercised, to the extent exercisable on the
date of such termination on the earlier of (a) the date which is three
months from the date of the Key Employee's termination of employment
(even if such Key Employee is subsequently reemployed) or (b) the end
of the exercise period specified in the Option or Right;
(ii) If the termination occurs due to the Key Employee's retirement
with the consent of the Company, the installments of such Key
Employee's Option or Right shall continue to mature in the normal
course as otherwise provided in the Option or Right and the Key
Employee (or in the event of his or her death after the date of
retirement, his or her estate or the person who acquires the Option or
Right by will or intestate succession) shall have the right to
exercise the Option or Right until the later of (a) three years after
the date of such retirement or (b) in the event that death occurs
during such three-year period, twelve months after the death of the
Key Employee, but in no event later than the end of the exercise
period specified in the Option or Right;
(iii) If the termination occurs due to a Key Employee's retirement due
to Total Disability, the Key Employee (or in the event of his or her
death after the date of retirement, his or her estate or the person
who acquires the Option or Right by will or intestate succession)
shall have the right to exercise the Option or Right, to the extent it
was exercisable on the date of such retirement due to Total
Disability, until the later of (a) twelve months after the date of
such retirement or (b) in the event that death occurs during such
twelve-month period, twelve months after the death of the Key
Employee, but in no event later than the end of the exercise period
specified in the Option or Right; or
(iv) If the termination occurs due to a Key Employee's death, any
Option or Right held by such Key Employee may thereafter be
immediately exercised, to the extent then exercisable by his or her
estate or the person who acquires the Option or Right by will or
intestate succession until the earlier of (a) one year from the date
of such death or (b) the end of the exercise period specified in the
Option or Right.
(h) No Option or Right granted under the Plan shall be transferable other
than by will or by the laws of descent and distribution. During the
lifetime of the optionee, an Option or Right shall be exercisable only by
him or her.
(i) With respect to an incentive stock option, the Committee shall specify
such terms and provisions as the Committee may determine to be necessary or
desirable in order to qualify such Option as an incentive stock option
within the meaning of Section 422 of the Code and shall take all necessary
steps to preserve such qualifications to the extent practicable.
(j) Upon exercise of a Right, the Key Employee shall be entitled, subject
to such terms and conditions the Committee may specify, to receive upon
exercise thereof all or a portion of the excess of (i) the Fair Market
Value of a specified number of shares of Stock, disregarding any
restrictions in the case of Restricted Stock, at the time of exercise, as
determined by the Committee, over (ii) a specified amount which shall not,
subject to Section 5 (k), be less than the Fair Market Value of such
specified number of shares of Stock, disregarding any restrictions in the
case of Restricted Stock, at the time the Right is granted. Upon exercise
of a Right, payment of such excess shall be made as the Committee shall
specify (A) in cash, (B) by the issuance or transfer of the Key Employee of
whole shares of Stock, including Restricted Stock, with a Fair Market
Value, disregarding any restrictions in the case of Restricted Stock, at
such time equal to any such excess, or (C) in a combination of cash and
shares of Stock with a combined fair market value at such time equal to any
such excess, all as determined by
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the Committee; provided, however, a fractional share of Stock shall be paid
in cash equal to the Fair Market Value of the fractional share of Stock,
disregarding any restrictions in the case of Restricted Stock, at such
time. If and to the extent a Right is payable in Stock and the full amount
of such value is not paid in Stock, then the shares of Stock representing
such portion of the value of the Right not paid in Stock shall again become
available for award under the Plan.
(k) If under the terms of an Award the exercise of a Right will result in
the cancellation of all or any portion of an unexercised Option, then the
Option price per share of Stock must be used as the specified price in
Section 5(j) to determine the value of the Right upon such exercise, and,
in the event of the exercise of such Right, the Company's obligation in
respect of such Option or such portion thereof will be discharged by
payment of the Right so exercised. In the event of such a cancellation,
the number of shares as to which such Option was canceled shall become
available for use under the Plan less the number of shares received by the
optionee upon such cancellation.
(l) No share of Stock acquired by an exercise of an incentive stock option
shall be transferable other than by will or by the laws of descent and
distribution within two years of the date such Option was granted or within
one year after the transfer of such share pursuant to such exercise.
6. Performance Units
(a) The Committee shall determine a performance period (the "Performance
Period") of not less than two nor more than five years and shall determine
the performance objectives for Awards of Performance Units. Performance
objectives may vary from Key Employee to Key Employee and between groups of
Key Employees and shall be based upon such performance criteria or
combination of factors as the Committee may deem appropriate. Performance
Periods may overlap and Key Employees may participate simultaneously with
respect to Performance Units for which different Performance Periods are
prescribed.
(b) At the beginning of a Performance Period, the Committee shall
determine for each Key Employee or group of Key Employees eligible for
Performance Units with respect to that Award period the range of dollar
values, if any, which may be fixed or may vary in accordance with criteria
specified by the Committee, which shall be paid to a Key Employee as an
Award if the relevant measure of Company performance for the Award period
is met.
(c) If during the course of a Performance Period there shall occur
significant events as determined by the Committee, including, but not
limited to, a reorganization of the Company or a Change of Control of the
Company, which the Committee expects to have a substantial effect on a
performance objective during such period, the Committee may revise such
objective.
(d) If a Key Employee terminates service with all Participating Companies
during a Performance Period because of death, Total Disability, retirement
at age 65, or if at an earlier age, with the consent of the Company, or
upon a significant event, as determined by the Committee, that Key Employee
shall be entitled to an Award of Performance Units at the end of the
Performance Period (i) based upon the performance objectives satisfied at
the end of such period and (ii) prorated for the portion of the Performance
Period during which the Key Employee was employed by any Participating
Company; provided, however, the Committee may provide for an earlier
payment in settlement of such Performance Units in such amount and under
such terms and conditions as the Committee deems appropriate or desirable
with the consent of the Key Employee. If a Key Employee terminates service
with all Participating
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Companies during a Performance Period for any other reason, then such Key
Employee shall not be entitled to any Award with respect to that
Performance Period, but the Committee, in its sole and absolute discretion
may provide otherwise.
(e) Each Performance Unit may be paid in whole shares of Stock, including
Restricted Stock (together with any cash representing fractional shares of
Stock), or cash, or a combination of Stock and cash either as a lump sum
payment or in annual installments, all as the Committee shall determine,
commencing as soon as practicable after the end of the relevant Performance
Period.
7. Restricted Stock
(a) Restricted Stock may be received by a Key Employee either as an Award
or as the result of an exercise of an Option or Right or as payment for a
Performance Unit. Restricted Stock shall be subject to a restriction
period (after which restrictions will lapse) which shall mean a period
commencing on the date the Award is granted or on the date of exercise of
the Option or Right and ending on such date as the Committee shall
determine (the "Restriction Period").
(b) Except as otherwise provided in this Section 7, no shares of
Restricted Stock received by a Key Employee shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period; provided, however, the Restriction Period for any Key
Employee shall be deemed to end and all restrictions on shares of
Restricted Stock shall lapse upon the Key Employee's death, Total
Disability or retirement after attaining age 65 (or an earlier age with the
consent of the Company, or upon a reorganization of the Company) or a
Change of Control or, some significant event, as determined by the
Committee.
(c) Unless the Committee, in its discretion determines otherwise, if a Key
Employee terminates employment with all Participating Companies for any
reason before the expiration of the Restriction Period (other than as
provided in Section 7(b)), all shares of Restricted Stock still subject to
restriction shall be forfeited by the Key Employee and shall be reacquired
by the Company, and, in the case of Restricted Stock purchased through the
exercise of an Option, the Company shall refund the purchase price paid on
the exercise of the Option.
(d) The Committee may require under such terms and conditions as it deems
appropriate or desirable that the certificates for Stock delivered under
the Plan may be held in custody by a bank or other institution, or that the
Company may itself hold such shares in custody until the Restriction Period
expires or until restrictions thereon otherwise lapse, and may require as a
condition of any receipt of Restricted Stock that the Key Employee shall
have delivered a stock power endorsed in blank relating to the Restricted
Stock.
(e) Nothing in this Section 7 shall preclude a Key Employee from
exchanging any shares of Restricted Stock subject to the restrictions
contained herein for any other shares of Stock that are similarly
restricted.
8. Unrestricted Stock
The Committee, in its sole and absolute discretion, may make Awards in the
form of shares of stock which are not restricted in the hands of the
participants who receive such Awards. Such Awards may be made either in
connection with any annual or longer term bonus program sponsored by the
Company or an affiliate or in any other circumstances that the Committee
deems appropriate.
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9. Certificates for Awards of Stock
(a) Subject to Section 7(d), each Key Employee entitled to receive Stock
under the Plan shall be issued a certificate for the shares of Stock. Such
certificate shall be registered in the name of the Key Employee, and shall
bear an appropriate legend reciting the terms, conditions and restrictions
applicable to such Award as described in Section 9(c) hereof.
(b) The Company shall not be required to issue or deliver any certificates
for shares of Stock prior to (i) the listing of such shares on any stock
exchange on which the Stock may then be listed and (ii) the completion of
any registration or qualification of such shares under any federal or state
law, or any ruling or regulation of any government body which the Company
shall, in its sole discretion, determine to be necessary or advisable.
(c) All certificates for shares of Stock delivered under the Plan also
shall be subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed and any applicable federal or state
securities laws, and the Committee may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions. The foregoing provisions of this Section 9(c) shall not be
effective if and to the extent that the shares of Stock delivered under the
Plan are covered by an effective and current registration statement under
the Securities Act of 1933, or if and so long as the Committee determines
that application of such provisions is no longer required or desirable. In
making such a determination, the Committee may rely upon an opinion of
counsel for the Company.
(d) Except for the restrictions on Restricted Stock under Section 7, each
Key Employee who receives an Award of Stock shall have all of the rights of
a shareholder with respect to such shares, including the right to vote the
shares and receive dividends and other distributions. No Key Employee
awarded an Option, a Right, a Performance Unit payable in Stock, including
Restricted Stock, or selected by the Committee to participate during a
Performance Period for a Performance Unit payable in Stock, including
Restricted Stock, shall have any right as a shareholder with respect to any
shares subject to his or her Option Right or Performance Unit prior to the
date of issuance to him or her of a certificate or certificates for such
shares.
10. Loans and Supplemental Cash Payments
(a) The Committee may provide for supplemental cash payments or loans to
Key Employees at such time and in such manner as the Committee may
determine in connection with Awards granted under the Plan.
(b) Supplemental cash payments shall be subject to such terms and
conditions as the Committee may specify; provided, however, in no event
shall the amount of such payment exceed (i) in the case of an Option, the
excess of the Fair Market Value of the shares of Stock, disregarding any
restrictions in the case of Restricted Stock, purchased through the Option
on the date of exercise over the option price, or (ii) in the case of an
Award of a Right, Performance Unit, or Restricted Stock, the value of the
shares of Stock and other consideration issued in payment of such Award.
(c) In the case of loans, any such loan shall be evidenced by a written
loan agreement or other instruments in such form and shall contain
such terms and conditions, including without limitation, provisions
for interest, payment schedules, collateral, forgiveness, events of
default or acceleration of such loans or parts thereof, as the
Committee shall specify; provided, however, that the interest rate set
by the Committee under such an arrangement shall be no lower than that
required to avoid the imputation of unstated interest under Section
483 of the Code.
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11. Beneficiary
(a) Each Key Employee shall file with the Committee a written designation
of one or more persons as the Beneficiary who shall be entitled to receive
the Award, if any, payable under the Plan upon his or her death. A Key
Employee may from time to time revoke or change his or her Beneficiary
designation without the consent of any prior Beneficiary by filing a new
designation with the Committee. The last such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Key Employee's death, and in no event shall it be
effective as of a date prior to such receipt.
(b) If no such Beneficiary designation is in effect at the time of a Key
Employee's death, or if no designated Beneficiary survives the Key Employee
or if such designation conflicts with law, the Key Employee's estate shall
be entitled to receive the Award, if any, payable under the Plan upon his
or her death. If the Committee is in doubt as to the right of any person
to receive such Award, the Company may retain such Award, without liability
for any interest thereon, until the Committee determines the rights
thereto, or the Company may pay such Award into any court of appropriate
jurisdiction and such payment shall be a complete discharge of the
liability of the Company therefor.
12. Effect of Change of Control
The Committee, in its discretion, may provide under the terms of any Award
Agreement, either at the time of grant or at any time thereafter, that upon
the occurrence of a Change of Control, all outstanding Options or Rights
which are not then exercisable shall become immediately exercisable in full
and all Restricted Stock shall become immediately vested. Each Option
shall, to the extent exercisable after giving effect to the prior sentence,
have a limited right of surrender allowing the optionee to surrender that
Option within the 30-day period following a Change of Control and to
receive cash, in lieu of exercising the Option, in the amount by which the
highest fair market value during the 60 days preceding the date on which
the Change of Control occurs of the number of shares of Stock covered by
the option exceeds the option price for the shares of Stock covered by the
Option.
13. Withholding Taxes
As a condition to exercise of any Option or Right, the vesting of
Restricted Stock or payment of a Performance Unit hereunder (collectively,
a "Realization Event"), the Company may, in its discretion, require a Key
Employee to pay to the Company at the time of exercise the amount that the
Company deems necessary to satisfy its obligation to withhold federal,
state or local income or other taxes (which for purposes of this Section 13
includes a Key Employee's FICA obligation) incurred by reason of the
Realization Event. Upon the occurrence of a Realization Event requiring
tax withholding, a Key Employee may make a written election to have shares
of Stock withheld by the Company from the shares otherwise to be received.
The number of shares so withheld shall have an aggregate Fair Market Value
on the date of exercise sufficient to satisfy the applicable withholding
taxes. The acceptance of any such election by a Key Employee shall be at
the sole discretion of the Committee. In addition, subject to acceptance
by the Committee, in its sole discretion, a Key Employee may make a written
election to deliver to the Company previously owned shares, in either case
to satisfy any additional federal, state or local income or other taxes
applicable to the Key Employee and the particular transaction, up to the
maximum marginal tax rates, whether in the case of a Realization Event in
which taxability is immediate or in which taxability is deferred. The
number of shares so withheld and/or delivered shall have an aggregate Fair
Market Value on the date withholding is required sufficient to satisfy the
applicable withholding taxes or to satisfy taxes up to maximum marginal tax
rate as and to the extent elected by a Key Employee. Withholding
provisions may
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<PAGE>
be instituted by the Company to the extent withholding is required in the
future on the disposition of shares of Stock acquired upon the exercise of
an incentive stock option.
14. Administration of the Plan
(a) The Plan shall be administered by the Committee, as appointed by the
Board and serving at the Board's pleasure. Each member of the Committee
shall be both a member of the Board and a "disinterested person" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934 or
successor rule or regulation and from and after the first meeting of
shareholders at which directors are to be elected that occurs after July 1,
1994, the Committee shall contain at least two "Outside Directors" as that
term is defined in Section 162(m) of the Code.
(b) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and, all decisions,
determinations or actions of the Committee made or taken pursuant to grants
of authority under the Plan shall be made or taken in the sole discretion
of the Committee and shall be final, conclusive and binding on all persons
for all purposes.
(c) The Committee's decisions and determinations under the Plan need not
be uniform and may be made selectively among Key Employees, whether or not
such Key Employees are similarly situated.
(d) The Committee may employ such legal counsel, including without
limitation independent legal counsel and counsel regularly employed by the
Company, consultants and agents as the Committee may deem appropriate for
the administration of the Plan and may rely upon any opinion received from
any such counsel or consultant and any computations received from any such
consultant or agent.
(e) All expenses incurred by the Committee in interpreting and
administering the Plan, including without limitation, meeting fees and
expenses and professional fees, shall be paid by the Company.
(f) No member or former member of the Committee or the Board shall be
liable for any action or determination made in good faith with respect to
the Plan or any Award granted under it. Each member or former member of
the Committee or the Board shall be indemnified and held harmless by the
Company against all cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Board) arising out of any act or omission to act in connection with the
Plan unless such cost or liability arises out of such member's or former
member's own fraud or bad faith. Such indemnification shall be in addition
to any rights of indemnification the members or former members may have as
directors or under the by-laws of the Company.
(g) All elections, designations, requests, notices, instructions and other
communications from a Key Employee, Beneficiary or other person to the
Committee, required or permitted under the Plan, shall be in such form as
is prescribed from time to time by the Committee and shall be mailed by
first class mail or delivered to such location as shall be specified by the
Committee.
15. Amendment or Discontinuance
(a) The Board may at any time, or from time to time, suspend or terminate
the Plan in whole or in part or amend it in such respects as the Board may
deem appropriate, provided, however, that no such amendment shall be made,
which would, without approval of the shareholders: (i) materially modify
the eligibility requirements for receiving Awards; (ii) increase the total
number of shares of Stock which may be issued pursuant to Awards, except as
is provided for in accordance with Section 16 of the Plan; (iii) reduce the
minimum grant price of any Award
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<PAGE>
except in accordance with Section 16 of the Plan; (iv) extend the period
during which Awards may be granted; or (v) materially increase in any other
way the benefits accruing to Key Employees.
(b) No amendment, suspension or termination of this Plan or any Award
shall, without the Key Employee's consent, alter or impair any of the
rights or obligations under any Award theretofore granted to a Key Employee
under the Plan.
(c) The Board may amend this Plan, subject to the limitations cited above,
in such manner as it deems necessary to permit the granting of Awards
meeting the requirements of future amendments to the Code or regulations
promulgated thereunder.
(d) If and to the extent the provisions of Rule 16b-3 (as in effect on the
date of adoption of the Plan by the Board) under the Exchange Act are
amended to permit the amendment of stock incentive plans without compliance
with the shareholder approval requirements presently set forth in Rule 16b-
3(b), then the restrictions on the ability of the Board to amend the Plan
set forth in Section 15(a) hereof shall terminate and the Board shall
thereafter be empowered to amend the Plan without regard to such
restrictions.
16. Adjustments in Event of Change in Stock
In the event of any recapitalization, reclassification, split-up or
consolidation of shares of Stock, merger or consolidation of the Company or
sale by the Company of all or a portion of its assets, or any other major
change in the Company's overall cost of equity or of capital or allowable
rate of return on Stock equity, as prescribed by the appropriate
governmental authority, or other event which could distort the
implementation of the Plan or the realization of its objectives, the
Company may make such adjustments in the Stock subject to Awards, including
Stock subject to purchase by an Option, or the terms, conditions or
restrictions on Stock or Awards as the Committee deems equitable.
17. Miscellaneous
(a) Nothing in this Plan or any Award granted hereunder shall confer upon
any employee any right to continue in the employ of any Participating
Company or interfere in any way with the right of any Participating Company
to terminate his or her employment at any time. No Award payable under the
Plan shall be deemed salary or compensation for the purpose of computing
benefits under any employee benefit plan or other arrangement of any
Participating Company for the benefit of its employees except as otherwise
required by law, unless the Committee shall determine otherwise. No Key
Employee shall have any claim to an Award until it is actually granted
under the Plan. To the extent that any person acquires a right to receive
payments from the Company under this Plan, such right shall be no greater
than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of the
Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such amounts
except as provided in Section 7(d) with respect to Restricted Stock.
(b) Absence on leave approved by a duly constituted officer of the Company
shall not be considered interruption or termination of employment for any
purposes of the Plan; provided, however, that, unless otherwise determined
by the Committee, no Award may be granted to an employee while he or she is
absent on leave.
(c) If the Committee shall find that any person to whom any Award, or
portion thereof, is payable under the Plan is unable to care for his or her
affairs because of illness or accident, or is a minor, then any payment due
him or her (unless a prior claim therefor has been made by a duly appointed
legal representative) may, if the Committee so directs the Company, be paid
A-11
<PAGE>
to his or her spouse, a child, a relative, an institution maintaining or
having custody of such person, or any other person deemed by the Committee
be a proper recipient on behalf of such person otherwise entitled to
payment. Any such payment shall be a complete discharge of the liability
of the Company therefor.
(d) The right of any Key Employee or other person to any Award payable
under the Plan may not be assigned, transferred, pledged or encumbered,
either voluntarily or by operation of law, except as provided in Section 11
with respect to the designation of a Beneficiary or as may otherwise be
required by law. If, by reason of any attempted assignment, transfer,
pledge, or encumbrance or any bankruptcy or other event happening at any
time, any amount payable under the Plan would be made subject to the debts
or liabilities of the Key Employee or his or her Beneficiary or would
otherwise devolve upon anyone else and not be enjoyed by the Key Employee
or his or her Beneficiary, then the Committee may determine such person's
interest in any such payment and direct that the same be held and applied
to or for the benefit of the Key Employee, his or her Beneficiary or any
other persons deemed to be the natural objects of his or her bounty, taking
into account the expressed wishes of the Key Employee (or, in the event of
his or her death, those of his or her Beneficiary) in such manner as the
Committee may deem proper.
(e) The Plan and the granting of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required.
(f) The terms of the Plan shall be binding upon the Company and its
successors and assigns.
(g) Captions preceding the sections hereof are inserted solely as a matter
of convenience in no way define or limit the scope or intent of any
provision hereof.
18. Effective Date, Term of Plan and Shareholder Approval
The effective date of the Plan shall be April 26, 1994, subject to approval
by a majority of the Company's shareholders at their 1994 Annual Meeting.
Notwithstanding anything in the Plan to the contrary, if the Plan shall
have been approved by the Board prior to such Annual Meeting, Key Employees
may be selected and Award criteria may be determined as provided herein
subject to such subsequent shareholder approval. No Awards shall be
granted under the Plan more than five years after the date the Plan is
adopted by the Company.
A-12
<PAGE>
EXHIBIT B
AQUARION COMPANY
DIRECTORS' DEFERRED COMPENSATION PLAN
ARTICLE I
DEFINITIONS
1.1 "Board" shall mean the Board of Directors of Aquarion Company.
1.2 "Director" shall mean a member of the Board of Directors of Aquarion
who is not an employee of Aquarion or any of its subsidiaries.
1.3 "Aquarion" shall mean Aquarion Company and any corporate successors.
1.4 "Plan" shall mean this Deferred Compensation Plan for directors as it
may be amended from time to time.
1.5 "Fees" shall mean amounts earned for serving as a member of the Board,
including any Committees of the Board.
1.6 "Year" shall mean calendar year.
1.7 "Cash Account" shall mean the account created by Aquarion pursuant to
Article III of this Plan in accordance with an election by a director
to receive deferred cash compensation under Article II hereof.
1.8 "Common Stock" shall mean the Common Stock of Aquarion.
1.9 "Stock Unit" shall mean one share of Aquarion Common Stock.
1.10 "Stock Unit Account" shall mean the account created by Aquarion
pursuant to Article III of this Plan in accordance with an election by
a director to receive deferred stock compensation under Article II
hereof.
1.11 "He", "Him" or "His" shall apply equally to male and female members of
the Board.
ARTICLE II
ELECTION TO DEFER
2.1 A director may elect, on or before December 31 of any Year, to defer
payment of all or a specified part of all Fees earned during the
Year following such election and succeeding Years (until the
director ceases to be a director). A director may elect, on or prior
to the 30th day following approval of this Plan by the shareholders
of Aquarion to defer payment of all Fees earned in 1994 subsequent
to such shareholder approval. Any person who shall become a director
during any Year, and who was not a director of Aquarion on the
preceding December 31, or on the date of such shareholder approval,
may elect, before the director's term begins, to defer payment
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<PAGE>
of all or a specified part of such Fees earned during the remainder
of such Year and for succeeding Years. A director may also elect to
transfer Fees into the Stock Unit Account from the Cash Account or
transfer Fees into the Stock Unit Account which Fees had been
deferred under the previous Aquarion Directors' Deferred
Compensation Plan. Any Fees deferred pursuant to this Paragraph
shall be paid to the director at the time(s) and in the manner
specified in Article IV hereof, in the form of cash or Aquarion
Common Stock, or any combination thereof, as designated by the
director.
2.2 The election to participate and manner of payment shall be designated
by submitting a letter to the Secretary of Aquarion.
2.3 The election shall continue from Year to Year unless the director
terminates it by written request delivered to the Secretary of
Aquarion prior to the commencement of the Year for which the
termination is first effective.
2.4 Credits to the Stock Unit Account resulting from an election to (i)
defer Fees into the Stock Unit Account, (ii) transfer Fees into the
Stock Unit Account from the Cash Account or (iii) transfer Fees into
the Stock Unit Account which fees had been deferred under previous
plans of Aquarion, shall, subject to Paragraph 2.1 in the case of
elections to defer, only commence or be made on the date which is
six months following the delivery of such election and the Stock
Unit Value (as defined in Paragraph 3.4) for purposes of such credit
shall be the Stock Unit Value on the date such credit is made. A
revocation of an election to defer Fees into the Stock Unit Account
or a transfer of Fees to the Cash Account from the Stock Unit
Account shall only be effective on the date which is six months
following the delivery of such revocation or election, and the Stock
Unit Value for purposes of calculating the amount transferred to the
Cash Account shall be the Stock Unit Value on the date of such
transfer.
ARTICLE III
DEFERRED COMPENSATION ACCOUNTS
3.1 Aquarion shall maintain separate memorandum accounts for the Fees
deferred by each director.
3.2 Aquarion shall credit, on the date Fees become payable, to the Cash
Account of each director the deferred portion of any Fees due the
director as to which an election to receive cash has been made. Fees
deferred in the form of cash (and interest thereon) shall be held in
the general funds of Aquarion.
3.3 On the first day of each quarter, Aquarion shall credit the Cash
Account of each director with interest calculated on the basis of the
balance in such account on the first day of each month of the
preceding quarter at the prime rate in effect as published in The Wall
--------
Street Journal on the first business day of each such month.
--------------
3.4 Aquarion shall credit, on the date Fees become payable, the Stock Unit
Account of each director with the number of Stock Units which is equal
to the deferred portion of any Fees due the director as to which an
election to receive Aquarion Common Stock has been made, divided by
the closing price of Aquarion's Common Stock as reported on the New
York Stock Exchange Inc. ("NYSE") - Composite Tape on the date such
Fees would otherwise have been paid (the "Stock Unit Value"). If the
closing price is not available from the NYSE for the Common Stock on
the date such Fees would otherwise have been paid, then the next
preceding practicable date for which such closing price is available
shall be used.
3.5 Aquarion shall credit the Stock Unit Account of each director who has
elected to receive deferred compensation in the form of Stock Units
with the number of Stock Units equal to any cash dividends (or the
fair market value of dividends paid in property other than dividends
payable in Common Stock) payable on the number of shares of Common
Stock represented by the number of Stock Units in each director's
Stock Unit Account divided by the Stock Unit Value on the dividend
payment date. Dividends payable in Common Stock will be credited to
each director's Stock Unit Account in the form of Stock Units. If
adjustments are made to the outstanding shares of Common Stock as a
result of split-ups, recapitalizations, mergers, consolidations and
the like, an appropriate adjustment also will be made in the number of
Stock Units credited to the director's Stock Unit Account.
3.6 Stock Units shall be computed to three decimal places.
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3.7 Stock Units shall not entitle any person to rights of a shareholder
with respect to such Stock Units unless and until shares of Common
Stock have been issued to such person in respect of such Stock Units
pursuant to Article IV hereof.
3.8 Aquarion shall not be required to acquire, reserve, segregate, or
otherwise set aside shares of its Common Stock for the payment of its
obligations under the Plan, but shall make available as and when
required a sufficient number of shares of its Common Stock to meet the
needs of the Plan.
3.9 Nothing contained herein shall be deemed to create a trust of any kind
or any fiduciary relationship. To the extent that any person acquires
a right to receive payments from Aquarion under the Plan, such right
shall be no greater than the right of any unsecured general creditor
of Aquarion.
3.10 Aquarion may enter into a trust agreement creating an irrevocable
grantor trust for the holding of cash and/or Stock Units credited to
the Cash Account and/or Stock Unit Accounts of each director under the
Plan. Any assets of such trust shall be subject to the claims of
creditors of Aquarion to the extent set forth in the trust.
3.11 In the event of a Change of Control, any Stock Unit credited to a
director's Stock Unit Account shall be immediately converted into a
right to receive cash and shall thereafter be treated in all respects
as part of such director's Cash Account. The amount added to the Cash
Account pursuant to the preceding sentence shall be determined by
converting each Stock Unit into the right to receive an amount of cash
equal to the closing price of one share of Common Stock on the NYSE on
such day, within the 60 days preceding the date on which the Change of
Control occurs, on which the closing price was the highest.
ARTICLE IV
PAYMENT OF DEFERRED COMPENSATION
4.1 Amounts contained in a director's Cash Account and/or Stock Unit
Account will be distributed as the director's election (made pursuant
to Paragraph 2.2 of Article II hereof) shall provide. Distributions
shall begin with the first day of the Year following the director's
retirement or separation from the Board. Amounts credited to a
director's Cash Account shall be paid in cash. Amounts credited to a
director's Stock Unit Account on or after January 1, 1995 shall be
paid in the form of one share of Common Stock for each Stock Unit. A
cash payment will be made with any final installment for any fractions
of a Stock Unit remaining in the director's Stock Unit Account. Such
fractional share will be valued at the Stock Unit Value on the date of
settlement. The Board shall not terminate this Plan solely to
accelerate the payment of any amounts previously credited to a
director's Cash Account or Stock Unit Account.
4.2 Each director shall have the right to designate a beneficiary who is
to succeed to his right to receive payments hereunder in the event of
death. Any designated beneficiary will receive payments in the same
manner as the director if he had lived. In case of a failure of
designation or the death of a designated beneficiary without a
designated successor, the balance of the amounts contained in the
director's Cash Account and/or Stock Unit Account shall be payable in
accordance with Section 4.1 to the director's
B-3
<PAGE>
or former director's estate in full on the first day of the Year
following the Year in which he dies. No designation of beneficiary or
change in beneficiary shall be valid unless in writing signed by the
director and filed with the Secretary of Aquarion. Any beneficiary
may be changed without the consent of any prior beneficiary.
ARTICLE V
ADMINISTRATION
5.1 The books and records to be maintained for the purpose of the Plan
shall be maintained by Aquarion at its expense. All expenses of
administering the Plan shall be paid by Aquarion.
5.2 Except to the extent required by law, the right of any director or any
beneficiary to any benefit or to any payment hereunder shall not be
subject in any manner to attachment or other legal process for the
debts of such director or beneficiary; and any such benefit or payment
shall not be subject to alienation, sale, transfer, assignment or
encumbrance.
5.3 No member of the Board and no officer or employee of Aquarion shall be
liable to any person for any action taken or omitted in connection
with the administration of the Plan unless attributable to his own
fraud or willful misconduct, and Aquarion shall not be liable to any
person for any such action unless attributable to fraud or willful
misconduct on the part of a director, officer or employee of Aquarion.
ARTICLE VI
AMENDMENT OF PLAN
6.1 The Plan may be amended, suspended or terminated in whole or in part
from time to time by the Board except that no amendment, suspension,
or termination shall apply to the payment to any director or
beneficiary of a deceased director of any amounts previously credited
to a director's Cash Account or Stock Unit Account.
6.2 Notice of every such amendment shall be given in writing to each
director and beneficiary of a deceased director.
6.3 Notwithstanding any other provision of the Plan to the contrary:
(i) any amounts credited to a director's Cash Account or Stock Unit
Account as of the date of a Change of Control may not be
reduced;
(ii) no amendment or action by the Board which adversely affects any
director under the Plan is valid and enforceable without the
prior written consent of such director; and
(iii) no termination of the Plan shall have the effect of reducing any
amounts credited to a director's Cash Account or Stock Unit
Account.
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<PAGE>
ARTICLE VII
CHANGE OF CONTROL
7.1 The provisions of Sections 3.11 hereof shall become effective
immediately upon the occurrence of a Change of Control (as defined in
Section 7.2(a) of this Article VII).
7.2 (a) "Change of Control" shall mean any one of the following:
(i) Continuing directors no longer constitute at least two-
thirds of the directors;
(ii) any person or group of persons (as defined in Rule 13d-5
under the Securities Exchange Act of 1934), together with
its affiliates, becomes the beneficial owner, directly or
indirectly, of 15 percent or more of the voting power of the
then outstanding securities of Aquarion entitled to vote for
the election of Aquarion's directors; provided that this
Article VII shall not apply with respect to any holding of
securities by any employee benefit plan (within the meaning
of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended) maintained by Aquarion or any
affiliate of Aquarion;
(iii)the approval by Aquarion's shareholders of the merger or
consolidation of Aquarion with any other corporation, the
sale of substantially all of the assets of Aquarion or the
liquidation or dissolution of Aquarion, unless, in the case
of a merger or consolidation, the incumbent directors in
office immediately prior to such merger or consolidation
will constitute at least two-thirds of the directors of the
surviving corporation of such merger or consolidation and
any parent (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934) of such corporation; or
(iv) at least two-thirds of the incumbent directors in office
immediately prior to any other action proposed to be taken
by Aquarion's shareholders determine that such proposed
action, if taken, would constitute a change of control of
Aquarion and such action is taken.
(b) "Continuing Director" shall mean any individual who is a member
of Aquarion's Board of Directors on February 22, 1994 or was
designated (before such person's initial election as a director)
as a continuing director by two-thirds of the then continuing
directors.
B-5
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[LOGO OF RECYCLED APPEARS HERE] Printed on recycled paper.
<PAGE>
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The Board of Directors recommends a vote FOR the Following Items:
I plan to attend
the meeting
[ ]
1. Election of NOMINEES: George W. Edwards, Jr., Eugene D. Jones,
Class III Directors G. Jackson Ratcliffe and William S. Warner.
(To withhold authority to vote for any individual
nominee write that nominee's name on space provided
below.)
FOR WITHHOLD
[ ] [ ] -----------------------------------------------------
2. Ratification of selection of Price
Waterhouse as independent
accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve a Stock Incentive Plan 4. To approve a Directors' Deferred
for officers and key employees of the Compensation Plan.
Company and its subsidiaries.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
Dated:________________________________________________________________, 1994
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Signature of shareholder
- ----------------------------------------------------------------------------
Signature (if held jointly)
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. Please mark, date and
sign and return promptly in the enclosed envelope, which requires no
postage if mailed in the U.S.A. When signing as attorney, executor, trustee
or guardian or in other representative capacities, please give full title as
such.
"PLEASE MARK INSIDE BLUE BOXES SO THAT DATA
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES"
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AQUARION COMPANY COMMON STOCK
Annual Meeting of Shareholders April 26, 1994 PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Norwick R.G. Goodspeed, Jack E. McGregor and William S. Warner, or any of
them, with power of substitution, are hereby appointed proxies of the
undersigned to vote all common stock of Aquarion Company owned by the
undersigned at the annual meeting of shareholders to be held in Easton,
Connecticut, on April 26, 1994 or any adjournment thereof, upon such business
as may properly come before the meeting, including the following items, as set
forth in the notice of meeting and proxy statement:
1. Election of Class III 3. To approve a Stock Incen-
Directors tive Plan for officers and key
employees of the Company
2. Ratification of selection of and its subsidiaries
independent accountants
4. To approve a Directors'
Deferred Compensation
Plan
The shares represented hereby will be voted in accordance with the directions
given by the shareholder. If not otherwise directed, the shares represented by
this proxy will be voted for the matters described on the reverse side.
(Continued and to be signed, on reverse side)
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