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[LOGO] AQUARION
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
APRIL 22, 1997
To The Shareholders:
The Annual Meeting of Shareholders of Aquarion Company (the "Company")
will be held at 9:30 a.m., on Tuesday, April 22, 1997, in the Multi-purpose room
(Second Floor), People's Bank, Bridgeport Center, 850 Main Street, Bridgeport,
Connecticut, for the purposes set forth below.
1. To elect three 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 amend the Company's Stock Incentive Plan to increase the total
shares of Common Stock available for awards.
4. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on March 4, 1997, will
be entitled to vote at the meeting.
By Order of the Board of Directors
LARRY L. BINGAMAN
Secretary
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ALL SHAREHOLDERS ARE CORDIALLY INVITED TO THE MEETING. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, HOWEVER, PLEASE 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. IF YOU PLAN TO ATTEND, PLEASE
CHECK THE BOX PROVIDED ON YOUR PROXY CARD.
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AQUARION COMPANY
835 MAIN STREET
BRIDGEPORT, CONNECTICUT 06604
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 1997
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 22,
1997, and any adjournment thereof.
Holders of the Common Stock of the Company of record at the close of
business on March 4, 1997, are entitled to notice of and to vote at the meeting.
On the record date, there were 7,046,382 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 $6,500. 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. D.F. King & Co., Inc., 77 Water Street, New
York, New York 10005, has been retained by the Company to assist in
such solicitation.
The Proxy Statement and Proxy are being mailed to shareholders
beginning on March 20, 1997.
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, three directors will be elected to Class III for a three-
year term. At the 1998 Annual Meeting of Shareholders, directors will be
elected to Class I for a three-year term and at the 1999 Annual Meeting of
Shareholders, directors will be elected to Class II for a three-year term.
Information with respect to the three nominees proposed for election to Class
III and information with respect to the six 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 three 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. In an effort to divide the Class of directors as
equally as possible, Mr. Schmidt will resign as a Class I director effective
April 22, 1997, and is a nominee for election to Class III at this year's Annual
Meeting. In accordance with the retirement policy of the Board, Mr. Eugene D.
Jones, a director since 1992, and Mr. William S. Warner, a director since 1956,
are not candidates for re-election this year. Each nominee has held the
principal occupation shown for the past five years unless otherwise indicated.
Directors are elected by plurality vote. Abstentions and broker non-votes will
not have the effect of votes in opposition to a director.
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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 and the number of Class
III directors to eliminate the vacancy.
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION AS CLASS III DIRECTORS TO SERVE THREE-YEAR TERMS ENDING
AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS
DIRECTOR
AGE PRINCIPAL OCCUPATION SINCE
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<S> <C> <C> <C>
GEORGE W. EDWARDS, JR. 57 Chairman of the Board (since October 1996) of 1988
the Company. Chairman of the Board of El
Paso Electric Company (since February 1996).
Retired President and Chief Executive Officer
(1991-May 1995) of Kansas City Southern
Railway Co. Director of Hubbell Incorporated.
G. JACKSON RATCLIFFE 61 Chairman, President and Chief Executive 1982
Officer of Hubbell Incorporated, a manufacturer
of electrical/electronic components and
systems. Director of Praxair, Inc., and Olin
Corporation.
RICHARD K. SCHMIDT 52 President and Chief Executive Officer (since 1995
October 1995) and formerly Senior Vice
President (1993-1995) of the Company.
President (1992-1995) and Chief Executive
Officer (since 1992) of Industrial and Environ-
mental Analysts, Inc., a subsidiary of the
Company. Formerly President and Chief
Operating Officer of Mechanical Technology,
Inc. (1984-1992).
</TABLE>
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<TABLE>
<CAPTION>
CLASS I DIRECTORS WHOSE THREE-YEAR TERMS END AT THE 1998 ANNUAL MEETING OF
SHAREHOLDERS
AGE PRINCIPAL OCCUPATION SINCE
--- -------------------- -----
<S> <C> <C> <C>
GEOFFREY ETHERINGTON 68 Chairman and President of Etherington 1976
Industries, a group of six privately held industrial
companies.
EDGAR G. HOTARD 53 Director (since 1992) and President of Praxair, 1995
Inc., an industrial gases supplier and supplier of
metal and ceramic coatings and powders.
Director of Iwatani Industrial Gases, Inc.,
Osaka, Japan and Dexter Corporation.
JACK E. MCGREGOR 62 Chairman of the Board (1995-October 1996), 1987
President and Chief Executive Officer
(1990-October 1995) of the Company. Partner,
Bridgeport Waterfront Investors, LLC, and
Of Counsel, Cohen & Wolf, P.C. (since October
1995). Director of Bay State Gas Company and
People's Bank.
<CAPTION>
CLASS II DIRECTORS WHOSE THREE-YEAR TERMS END AT THE 1999 ANNUAL MEETING OF
SHAREHOLDERS
DIRECTOR
AGE PRINCIPAL OCCUPATION SINCE
--- -------------------- -----
<S> <C> <C> <C>
JANET D. GREENWOOD 53 Partner, Heidrick and Struggles (since 1994); 1988
consultant 1992 to 1994. President Emeritus
(since 1991) of the University of Bridgeport.
Founding President of the Long Island Sound
Foundation.
DONALD M. HALSTED, JR. 70 Independent businessman. Director of Bancroft 1975
Convertible Fund, Inc., and Ellsworth
Convertible Growth and Income Fund, Inc.
JOHN A. URQUHART 68 President, John A. Urquhart Associates, a 1990
management consulting firm (since 1991). Vice
Chairman of Enron Corp. (since 1991). Director
of TECO Energy, Inc., Enron Corp., Hubbell
Incorporated and The Weir Group PLC.
</TABLE>
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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 four most highly compensated executive officers, and by all
directors and executive officers as a group, as of February 28, 1997:
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NAME OF INDIVIDUAL OR SHARES BENEFICIALLY OWNED PERCENT OF
NUMBER OF PERSONS IN GROUP DIRECTLY OR INDIRECTLY (1)(2)(3) CLASS (4)
- -------------------------- -------------------------------- -----------
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George W. Edwards, Jr. 1,500.00 *
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Geoffrey Etherington 5,861.55 *
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Janet D. Greenwood 200.00 *
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Donald M. Halsted, Jr. 5,902.00 *
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Edgar G. Hotard 512.73 *
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Eugene D. Jones 391.54 *
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Jack E. McGregor 161,141.53 2.2
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G. Jackson Ratcliffe 4,085.31 *
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Richard K. Schmidt 48,604.63 *
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John A. Urquhart 500.00 *
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William S. Warner 19,812.00 0
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Larry L. Bingaman 39,233.38 *
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Janet M. Hansen 31,939.55 *
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James S. McInerney 57,641.06 *
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Directors and Officers as a group 377,325.28 5.1
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(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, 152,500
shares; Richard K. Schmidt, 47,166 shares; Larry L. Bingaman, 38,248
shares; Janet M. Hansen, 28,583 shares; James S. McInerney, 55,917 shares;
and, directors and executive officers as a group, 322,414 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, 985.38 shares with respect to Mr.
Bingaman, 1,073.25 shares with respect to Mrs. Hansen, and 101.26 shares
with respect to Mr. Schmidt; (ii) as to which such powers are held by other
people or entities, 546.98 shares with respect to Mr. Etherington, 2,760.81
shares with respect to Mr. McGregor, 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, 334 shares with
respect to Mr. McInerney.
(3) Does not include share units, each representing one share of Common Stock
credited to and held under the Company's deferred compensation program for
directors who are not employees of the Company, as discussed below under
"Compensation of Directors." As of February 28, 1997, the following stock
units have been credited under the deferred compensation program: Mr.
Etherington, 20,585.98 units; Dr. Greenwood, 251.55 units; Mr. Hotard,
251.55 units; Mr. McGregor, 22.16 units; Mr. Ratcliffe, 251.55 units; and,
Mr. Urquhart, 251.55 units.
(4) Asterisk denotes percentage of beneficial stock ownership less than one
percent of the outstanding Common Stock of the Company.
BOARD OF DIRECTORS MEETINGS
The Board of Directors held seven meetings during 1996. No director
attended fewer than 75 percent of the Board meetings and meetings of those
committees of which he or she was a member during 1996.
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 non-employee 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. Hotard,
Etherington, Halsted and Dr. Greenwood. The Committee met three times during
1996, each time with representatives of Price Waterhouse, the Company's public
accountants, present. The functions of the Audit Committee are to recommend the
selection of auditors to the Company's Board of Directors; 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 accounting and auditing controls;
and, report to the Board of Directors with respect to these matters.
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COMPENSATION COMMITTEE
The membership of the Compensation Committee consisted of Messrs.
Ratcliffe, Edwards, Halsted, Jones and Urquhart. The Committee met three times
in 1996. 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; to
administer the Company's incentive compensation plans; to formulate Company
management succession plans; and, to advise the Board of Directors on such
matters as the composition of the Board of Directors and its Committees.
ENVIRONMENTAL AND PUBLIC AFFAIRS COMMITTEE
The membership of the Environmental and Public Affairs Committee consisted
of Dr. Greenwood, and Messrs. Edwards, Hotard, Jones, McGregor and Warner. The
Committee met twice in 1996. The functions of the Committee are to oversee the
Company's policies, practices and procedures as to compliance with environmental
laws and regulations; to assist management in formulating plans and programs to
develop and enhance public understanding of the Company; 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 community relations
programs.
FINANCE COMMITTEE
The membership of the Finance Committee consisted of Messrs. Urquhart,
Etherington, McGregor, Ratcliffe and Warner. The Committee met two times during
1996. The functions of the Finance Committee are to administer the Trust Fund
of the Company's retirement plans; to review and monitor the financial planning
and financial structure of the Company; and, to render advice, counsel and
assistance to the corporate financial officer in the execution of her
responsibilities.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company receives an annual
retainer of $15,000 plus $750 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 a deferred compensation
plan any outside director may defer payment of his or her annual retainer and
meeting fees in cash or stock units. Interest equivalents on payments deferred
in the form of cash accrued quarterly (and on previously credited interest) at
the then prevailing prime rate. Dividend equivalents are paid on the stock
units and are converted into additional stock units. 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. Amounts
credited to a director's stock unit account shall be paid in the form of one
share of Common Stock for each stock unit.
The Company has a directors' retirement plan related to service as a
non-employee 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 (the "Annual Retainer"). Annual Retainer fees shall not be considered
to the extent that they exceed $10,000. The amount of the retirement benefit
earned by a non-employee 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 non-employee Board service, an annual retirement benefit
equal to the full amount of the Annual Retainer not to exceed $10,000. 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 not to exceed $10,000,
subject to Board adjustment, is also payable in the event of death or permanent
and total disability after five years as a non-employee director or upon
termination as a director
6
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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 non-
employee 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 other than Mr. Edwards whose primary coverage, effective February 1,
1997, is the Company's group health insurance plans. In 1996, group health
insurance benefits provided to Dr. Greenwood and Messrs. Edwards, Halsted,
Jones, Pflieger and Urquhart amounted to $176, $15, $202, $247, $135 and $250,
respectively.
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 rendered consulting services to the Company. The agreement,
which expired in 1996, provided for payments of up to $50,000 annually.
In connection with his retirement as the Company's Chief Executive Officer
on October 1, 1995, Mr. McGregor entered into an agreement with the Company
whereby Mr. McGregor served as the Company's Chairman and rendered consulting
services to the Company. The agreement, which expired effective October 1, 1996,
provided for a payment of $175,000.
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EXECUTIVE COMPENSATION
The following table presents the compensation provided by the Company
to its Chief Executive Officer and the Company's three most highly compensated
executive officers for services rendered to the Company in 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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LONG-TERM
COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------------------------------------------
RESTRICTED ALL
OTHER STOCK SECURITIES OTHER
ANNUAL AWARDS UNDERLYING COMP.
SALARY BONUS COMP. (1) OPTIONS/SARS (2)
YEAR ($) ($) ($) ($) (#) ($)
=============================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
1996 215,000 77,400 40,000 10,539
R. K. Schmidt (3) ---------------------------------------------------------------------
1995 196,516 19,200 121,058 50,000 7,039
President and Chief ---------------------------------------------------------------------
Executive Officer 1994 165,537 77,390 22,000 4,620
=============================================================================================
1996 175,000 44,100 20,000 10,215
J. S. McInerney (4) ---------------------------------------------------------------------
1995 163,000 52,000 20,000 9,161
President and CEO, ---------------------------------------------------------------------
BHC Company 1994 153,252 31,233 22,000 8,062
=============================================================================================
1996 150,000 40,500 20,000 8,555
J. M. Hansen (5) ---------------------------------------------------------------------
1995 137,500 40,100 20,000 7,802
Executive Vice ---------------------------------------------------------------------
President, 1994 128,502 30,000 13,000 6,655
CFO and Treasurer
=============================================================================================
1996 117,000 21,240 5,000 6,179
L. L. Bingaman ---------------------------------------------------------------------
Vice President, 1995 113,000 20,300 5,000 6,323
Corporate Relations ---------------------------------------------------------------------
and Secretary 1994 112,432 23,165 11,000 5,755
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</TABLE>
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(1) The number and dollar value of shares of previously granted restricted
stock held on December 31, 1996, based on a closing price of the Company's
Common Stock on December 31, 1996, was: J. S. McInerney--334 shares
($9,310).
(2) The amounts shown for named officers represent the Company's contribution
to The Employee Savings and Investment Plan accounts for such officers.
(3) Mr. Schmidt became President and Chief Executive Officer of the Company on
October 1, 1995, having served previously as President and Chief Executive
Officer of Industrial and Environmental Analysts, Inc. ("IEA"). Mr.
Schmidt continues to be Chief Executive Officer of IEA. The amount shown
under Other Annual Compensation for 1995 represents Mr. Schmidt's
relocation allowances, including reimbursement for taxes.
(4) Mr. McInerney became Chief Executive Officer of BHC Company (formerly
"Bridgeport Hydraulic Company") on April 25, 1995, and President of BHC
Company on April 23, 1991, having served previously as Chief Operating
Officer and Executive Vice President.
(5) Mrs. Hansen became Executive Vice President on October 1, 1995, and Chief
Financial Officer of the Company on April 28, 1992, having served
previously as Senior Vice President, Chief Financial Officer and Treasurer
of the Company.
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STOCK OPTIONS
The following table sets forth information with respect to all options
granted to the named executive officers during 1996.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
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INDIVIDUAL GRANTS
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<S> <C> <C> <C> <C> <C>
NUMBER % OF
OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES OR BASE PRESENT
GRANTED IN FY PRICE EXPIRATION VALUE
NAME (#) 1996 ($/SH) DATE ($) (1)
==================================================================================
R. K. Schmidt (2) 40,000 24% $25.25 12/4/06 $108,840
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J. S. McInerney (2) 20,000 12% $25.25 12/4/06 $ 54,420
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J. M. Hansen (2) 20,000 12% $25.25 12/4/06 $ 54,420
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L. L. Bingaman (2) 5,000 3% $25.25 12/4/06 $ 13,605
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</TABLE>
(1) The Black-Scholes option pricing model was used to estimate the options'
grant date present value. Assumptions for options granted are as follows:
17.62% volatility; risk free rate of return of 5.91% based on six-year
U.S. Treasury securities; dividend yield of 6.42%, and an estimated period
to exercise of 6 years.
(2) One-third of the stock options granted to the named executive become
exercisable on each of the first three anniversaries of the grant date,
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 Stock
Appreciation Rights.
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The following table sets forth the aggregated 1996 year-end options
values. During 1996, no options were exercised by the named officers.
AGGREGATED 1996 FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
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SHARES
ACQUIRED NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
EXERCISE REALIZED OPTIONS AT FY-END (#) FY-YEAR END ($) (1)
------------------------------------------------------------------------
EXERCISABLE/
NAME UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. K. Schmidt -- -- 43,832/80,668 199,828/286,170
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J. S. McInerney --- -- 52,583/40,667 157,697/137,832
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J. M. Hansen --- -- 26,583/37,667 108,434/126,627
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L. L. Bingaman -- -- 36,248/12,000 141,758/39,419
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</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,
1996, the years of credited service are 5 years for Mr. Schmidt; for Mr.
McInerney 26 years; Mrs. Hansen, 21 years; and Mr. Bingaman, 7 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 1997 at age 65 based on the
straight life annuity form of benefit.
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PENSION PLAN TABLE
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FIVE-YEAR AVERAGE YEARS OF CREDITED SERVICE
COMPENSATION RECOGNIZED --------------------------------------------------
UNDER THE PLAN 10 15 20 25 30
- ----------------------------------------------------------------------------
$120,000 $19,500 $29,250 $ 39,000 $ 48,750 $ 58,500
- ----------------------------------------------------------------------------
$180,000 $30,500 $45,750 $ 61,000 $ 76,250 $ 91,500
- ----------------------------------------------------------------------------
$240,000 $41,500 $62,250 $ 83,000 $103,750 $124,500
- ----------------------------------------------------------------------------
$300,000 $52,500 $78,750 $105,000 $131,250 $157,500
- ----------------------------------------------------------------------------
$360,000 $63,500 $95,250 $127,000 $158,750 $190,500
- ----------------------------------------------------------------------------
EMPLOYMENT CONTRACTS, TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS
Messrs. Schmidt, McInerney, Bingaman and Mrs. Hansen each have an
employment agreement with the Company. Mr. Schmidt's agreement, which became
effective when he succeeded Mr. McGregor as the Company's Chief Executive
Officer on October 1, 1995, has a term of three years. The agreements with
Messrs. McInerney, Bingaman and Mrs. Hansen each have a 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 two-year 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 benefit plans and programs. The annual base salaries,
effective April 1, 1997, for Messrs. Schmidt, McInerney and Mrs. Hansen are
$240,000, $185,000 and $160,000, respectively. The annual base salary for Mr.
Bingaman effective October 1, 1997, is $125,000.
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. Schmidt's case, to a limit of 2
times his annual salary, and as to Messrs. McInerney, 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 previously specified, result in
proportionately greater benefits. At salary levels effective April 1, 1997, the
maximum termination benefits relating to the salaries of Messrs. Schmidt,
McInerney, Bingaman and Mrs. Hansen would be $480,000, $277,500, $177,000 and
$240,000, respectively. Coverage under the Company's health and welfare benefit
plans would be extended to these individuals for a period of 24 months after
termination under the circumstances previously described.
Unvested options would become exercisable in the event of a change in
control of the Company. For this purpose, a change in 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: (i) the acquisition by any
person or group of 15 percent of the Company's outstanding shares; (ii) the
purchase of the Company's outstanding shares under a tender offer or exchange
offer; (iii) less than two-thirds of the Company's Board
12
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of Directors are continuing directors; (iv) approval of the shareholders of a
merger, consolidation, liquidation or dissolution of the Company or the sale of
its assets. 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.
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 creation of customer and 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
service and value for our customers. In order to meet these objectives, the
compensation program is designed to be competitive with compensation programs
provided by comparable businesses. For the water utility business, the
comparison group consists of water and other utilities (the "utility comparison
group") with comparable revenues as maintained in various databases, including
the companies in the Edward Jones water utility group displayed on the
performance graph. For the non-utility businesses, the comparison group consists
of companies with comparable revenues and lines of business as maintained in
various other databases (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 officers, including the salary structure and salary grade
assignments, individual salaries, annual and long-term incentive plan awards,
performance standards for new awards, payouts from past awards, and the overall
design of the executive compensation program.
Aquarion's executive compensation program in 1996 consisted of three
components: salary, annual incentive compensation and stock options.
The primary comparison for CEO compensation is a select group of 13
investor-owned water utilities to which Aquarion compares its business
performance. Since Aquarion is one of the largest companies in this group, the
total compensation target is set in the third quartile.
Salary ranges are set by periodic comparison to rates of pay for comparable
positions within the utility industry for corporate and utility positions and
the non-utility industries for non-utility positions. Individual salaries are
generally considered for adjustment based on external salary levels, individual
performance and potential, and/or changes in duties and responsibilities. Based
on salary data compiled by outside consultants, officer salaries approximate the
median of the salaries reported for comparable positions.
Annual incentive compensation opportunities are targeted such that at
targeted performance levels, salary plus annual incentive awards for corporate
and water utility positions will be at or near the 50th percentile of companies
within the utility industry, and for non-utility positions, at or near the 50th
percentile within non-utility industries. Annual objectives are established,
subject to Compensation Committee approval, for corporate, operating company and
individual performance. Customer service performance is a criterion for every
executive with earnings per share being the criterion for corporate performance
and pre-tax profit being the criterion for operating company performance. The
Chief Executive Officer's targeted award is based on corporate performance and
customer service, while other officers' targets are allocated among corporate,
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operating company and individual objectives and customer service as appropriate.
Targeted award levels also vary according to magnitude of responsibility, with
incentive compensation constituting a potentially greater portion of the Chief
Executive Officer's total annual compensation than it does for other officers.
Aquarion's 1996 net income was below target due to a year-end charge to
earnings related to the anticipated sale of the Company's environmental testing
laboratory business, IEA. However, for the year, net income from Aquarion's
continuing operations was $13.8 million, or $2.00 per share, versus $13.3
million, or $1.95 per share, in 1995. Since the charge to earnings was a
nonrecurring item, and the Committee believed that important performance
criteria for the CEO and other named executives were the improved results from
continuing operations and the attainment of customer service goals, a
performance bonus was granted to the named executive officers.
Award opportunities under the stock option plan are targeted between 50th
and 75th percentile utility industry levels for the corporate and utility
positions and at the 50th percentile of general industry levels for non-utility
positions (which levels are reflected in databases 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's
compensation with shareholder return. Option awards are determined each year
based on the 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 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 named executive officers. The Company does not anticipate that any of
its executives will exceed this limit on deductible compensation.
CEO COMPENSATION - 1996
Based on the advice of professional consultants independently employed by
the Committee and coupled with its members' individual business judgments, the
Compensation Committee reviewed and approved the level and form of compensation
for the Chief Executive Officer in 1996.
Mr. Schmidt received a salary of $215,000, effective October 1, 1995, as
the new Chief Executive Officer of Aquarion, which was positioned within the
first quartile among chief executives within the utility comparison group. The
Committee recommended a 1996 annual incentive award of $77,400, based on
performance factors described above. This positions his total cash in the third
quartile. Mr. Schmidt also received a stock option grant in 1996 of 40,000
options. The grant is exercisable at a price equal to the market price of the
stock on the date of grant.
Compensation Committee
G. Jackson Ratcliffe, Chairman
George W. Edwards, Jr.
Eugene D. Jones
Donald M. Halsted, Jr.
John A. Urquhart
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 Jones Water Utility
Industry Return Comparison, which includes the Company, for the five years
commencing 1992 and ended 1996. The Edward Jones Utility Industry peer group
provides a broad
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array of companies that are similar to Aquarion's market capitalization. A
majority of the Company's peer group uses the Edward Jones Water Utility
Industry Return Comparison.
FIVE YEAR CUMULATIVE TOTAL RETURN - S&P 500, EDWARD JONES
WATER UTILITY INDUSTRY, AND AQUARION
[GRAPH APPEARS HERE]
E.D. JONES AQUARION S&P 500
---------- -------- -------
12/91 100.0 100.0 100.0
12/92 110.7 109.0 107.6
12/93 126.2 132.1 118.4
12/94 117.6 118.9 120.1
12/95 147.9 135.3 165.1
12/96 180.8 157.8 202.9
The Peer Group consists of American Water Works Company, Inc., Aquarion
Company, California Water Service Company, Connecticut Water Service, Inc.,
Consumers Water Company, Dominguez Services Corp., E'Town Corp., IWC Resources
Corporation, Middlesex Water Company, Philadelphia Suburban Corporation, SJW
Corp., Southern California Water Company, Southwest Water Company 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 1997. In accordance with a resolution of the Board of Directors,
this selection is being presented to shareholders for ratification at the Annual
Meeting.
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.
If the appointment of Price Waterhouse is not approved by the shareholders,
or Price Waterhouse ceases to act as the Company's independent accountants, or
the Board of Directors removes Price Waterhouse as the Company's independent
accountants, the Board will appoint other independent accountants. The
engagement of new accountants for periods following the 1998 Annual Meeting will
be subject to ratification by the shareholders at that meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
SELECTION OF PRICE WATERHOUSE AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
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PROPOSAL NO. 3
AMENDMENT OF STOCK INCENTIVE PLAN
DISCUSSION OF PROPOSED AMENDMENT
The aggregate number of shares of Common Stock of the Company authorized
for use under the incentive plan is 525,000 shares of stock. The Committee has
awarded stock options to selected key employees charged with the responsibility
of developing and implementing strategy for the Company's long-term growth and
profitability and there remains for grant under the plan 72,501 shares of stock.
The Board believes that these individuals should have meaningful incentives for
the accomplishment of strategic objectives and that the financial prospects
offered through such incentives should be closely tied to the success enjoyed by
the Company's shareholders. Therefore, to foster an identity of interest between
key employees and shareholders the continued use of stock options, which entail
a greater number of shares than originally authorized, is contemplated both for
present senior executives and for individuals who may become key employees in
the future prior to the expiration of the incentive plan. The shares remaining
for use under the incentive plan would be insufficient to maintain the current
level of stock option grants for the balance of the incentive plan's term.
In order to provide for sufficient flexibility in offering stock-based
incentives which will accomplish the purposes of the incentive plan, the Board
believes that it would be advisable and appropriate to increase the total number
of shares authorized for use under the incentive plan to 825,000 shares, an
increase of 300,000 shares from the level presently authorized. The Board has
therefore approved and recommends to shareholders adoption of an amendment to
Section 3 of the incentive plan which section as amended would read in its
entirety as follows:
"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 825,000 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."
The only change in Section 3, as it would be amended by the foregoing, is
to increase the aggregate number of shares of Common Stock which may be awarded
under the Plan to 825,000 shares.
Adoption of proposal 3 will require the affirmative vote of the holders of
a majority of the Common Stock voting on the proposal, provided that a majority
of the outstanding shares of the Common Stock votes on the proposal. Abstentions
and broker non-votes will not have an effect on the results.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE PROPOSED
AMENDMENT TO THE STOCK INCENTIVE PLAN.
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OTHER TRANSACTIONS
In connection with Mr. Schmidt's relocation to Connecticut, the Company
made a loan to Mr. Schmidt on December 12, 1995, in the amount of $151,000 for
the purpose of purchasing a residence in the Connecticut area. The loan, which
was repaid on March 22, 1996, was interest free.
ANNUAL REPORT
Beginning on March 20, 1997, the Company is mailing to its shareholders of
record copies of its Annual Report for the year ended December 31, 1996. 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 1996 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. REQUESTS
SHOULD BE ADDRESSED TO CORPORATE COMMUNICATIONS, AQUARION COMPANY, 835 MAIN
STREET, BRIDGEPORT, CONNECTICUT 06604.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal that a shareholder intends to present at the 1998 Annual
Meeting must be received at the Company's principal executive offices by
November 19, 1997, 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 1997 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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[LOGO] PRINTED ON RECYCLED PAPER.
<PAGE>
AQUARION COMPANY COMMON STOCK PROXY
ANNUAL MEETING OF SHAREHOLDERS - APRIL 22, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Donald M. Halsted, Jr., Jack E. McGregor and Janet D. Greenwood, 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 the
Multi-Purpose Room (Second Floor), People's Bank, Bridgeport Center, 850 Main
Street, Bridgeport, Connecticut, on April 22, 1997, 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 Directors
2. Ratification of selection of independent public accountants
3. Amendment of the Company's Stock Incentive Plan to increase the total shares
of Common Stock available for awards.
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 Proposals 1, 2 and 3.
(Continued and to be signed, on reverse side)
- FOLD AND DETACH HERE -
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1,2 AND 3:
Please mark
your votes as [X]
indicated in
this example
1. Election of Class III Directors
NOMINEES: George W. Edwards, Jr., G. Jackson Ratcliff and Richard K. Schmidt
FOR WITHHOLD (To withhold authority to vote for any individual nominee,
write that nominee's name on space provided below.)
--------------------------------------------------
2. Ratification of selection of Price Waterhouse as independent public
accountants.
FOR AGAINST ABSTAIN
3. Amendment of the Company's Stock Incentive Plan to increase the total shares
of Common Stock available for awards.
FOR AGAINST ABSTAIN
I plan to attend the meeting. [_]
Dated:______________________________, 1997
__________________________________________
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, 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.
- FOLD AND DETACH HERE -
AQUARION COMPANY
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, APRIL 22, 1997
9:30 A.M.
People's Bank
850 Main Street
Multi-Purpose Room-2nd Floor
Bridgeport, Connecticut 06601
IF YOU PLAN TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS, PLEASE CHECK
THE ABOVE BOX.
