UNITED WATER RESOURCES INC, PRE 14A, 1997-03-17

UNITED WATER RESOURCES INC
PRE 14A, 1997-03-17
WATER SUPPLY

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<PAGE>

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [_]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

United Water Resources Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

United Water Resources Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials:

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[_] 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:

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(2) Form, Schedule or Registration Statement no.:

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(3) Filing Party:

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(4) Date Filed:

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<PAGE>

United Water [LOGO]
UNITED WATER RESOURCES
200 Old Hook Road
Harrington Park, NJ 07640
telephone 201 784 9434
facsimile 201 767 6579

- --------------------------------------------------------------------------------

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS, MAY 12, 1997

- --------------------------------------------------------------------------------

To the Shareholders of UNITED WATER RESOURCES INC.:

The Annual Meeting of the Shareholders of United Water Resources Inc.
("United Water") will be held at the Montvale Inn, 100 Chestnut Ridge Road,
Montvale, New Jersey 07645, on Monday, May 12, 1997, at 9:30 a.m. for the
following purposes:

1. To elect four Directors to Class I and one Director to Class II of the
Board of Directors.

2. To adopt an amendment to the Restated Certificate of Incorporation of
United Water to increase the authorized number of shares of Common Stock
from 50,000,000 to 100,000,000.

3. To ratify, confirm and approve the amendment to United Water and
subsidiaries' Management Incentive Plan made by the Board of Directors on
January 23, 1997.

4. To ratify, confirm and approve a Restricted Stock Plan for the Board
of Directors.

5. To ratify, confirm and approve the act of the Board of Directors on
March 5, 1997 appointing Price Waterhouse LLP, New York, New York as the
auditor for United Water and its subsidiaries for the year 1997.

6. To transact such other business as may properly be brought before such
meeting or any adjournment thereof.

The close of business on March 14, 1997, has been fixed as the time for the
determination of the shareholders entitled to vote at said meeting, or any
adjournments thereof, and only shareholders of record at such time will be
entitled to vote at such meeting, or at any adjournments thereof.

You are urged to sign, date and return the enclosed proxy promptly, using the
envelope enclosed for your convenience. This will not limit your right to vote
in person at the meeting if you plan to attend.

By Order of the Board of Directors

DOUGLAS W. HAWES, Secretary

Harrington Park, New Jersey
April , 1997

THE ANNUAL MEETING IS BEING HELD AT THE MONTVALE INN, 100 CHESTNUT RIDGE
ROAD, MONTVALE, NEW JERSEY 07645. DIRECTIONS TO THE MEETING ARE INCLUDED AT THE
END OF THIS PROXY STATEMENT AND MAY ALSO BE OBTAINED BY TELEPHONING UNITED
WATER AT (201) 784-9434.
<PAGE>

United Water [LOGO]

UNITED WATER RESOURCES
200 Old Hook Road
Harrington Park, NJ 07640
telephone 201 784 9434
facsimile 201 767 6579

- --------------------------------------------------------------------------------

PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 12, 1997

- --------------------------------------------------------------------------------

The proxy which is requested in the foregoing Notice of Annual Meeting of
Shareholders is being solicited by the Board of Directors of United Water
Resources Inc. ("United Water" or the "Company") with respect to the
shareholders' meeting to be held on May 12, 1997. The mailing address and
principal executive office of United Water is 200 Old Hook Road, Harrington
Park, New Jersey 07640. Any proxy given may be revoked by the shareholder
executing such proxy by notifying the secretary of the meeting in writing at
any time prior to the voting thereof. Unless revoked, the shares represented by
all such proxies will be voted. It is expected that the Notice, Proxy Statement
and form of Proxy will be mailed to shareholders on or about April , 1997.

The close of business on March 14, 1997, has been fixed as the time for the
determination of the shareholders entitled to vote at the Annual Meeting. Each
share of United Water Common Stock, no par value, is entitled to one vote. On
January 31, 1997, there were 34,596,874 shares of United Water's Common Stock
outstanding and entitled to vote.

United Water's Annual Report to Shareholders, including financial statements
for the year ended December 31, 1996, is being mailed to all shareholders of
record at their respective last known addresses.

A COPY OF UNITED WATER'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL
BE FURNISHED BY UNITED WATER WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROXY
STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON TO UNITED
WATER RESOURCES INC., 200 OLD HOOK ROAD, HARRINGTON PARK, NEW JERSEY 07640,
ATTENTION: ALLAN D. SHAKLEY, ASSISTANT SECRETARY (TELEPHONE NUMBER: (201) 784-
9434).
<PAGE>

ELECTION OF DIRECTORS

OWNERSHIP OF SECURITIES BY DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL
OWNERS

The following information pertains to the Common Stock of United Water
beneficially owned, directly or indirectly, by each director and nominee and
certain executive officers individually and by all directors and executive
officers of United Water and its subsidiaries as a group.

<TABLE>
<CAPTION>
NUMBER OF
NAME OF BENEFICIAL OWNER(A) SHARES(B)(D)(F)
--------------------------- ---------------
<S> <C>
Edward E. Barr.......................................... 5,634(g)
Frank J. Borelli........................................ 7,489
Thierry Bourbie......................................... 113
Lawrence R. Codey....................................... 3,698
Donald L. Correll....................................... 195,360(e)
Peter Del Col........................................... 9,916
Frank J. DeMicco........................................ 55,020(e)
Allan R. Dragone........................................ 100
Robert L. Duncan, Jr.................................... 3,329
Ronald S. Dungan........................................ 38,337(e)
Jon F. Hanson........................................... 30,282(c)(g)
George M. Haskew, Jr.................................... 78,842(c)(e)
Douglas W. Hawes........................................ 13,543
George F. Keane......................................... 1,000
Richard B. McGlynn...................................... 25,267(e)
Dennis M. Newnham....................................... 4,486
Jacques F. Petry........................................ 2,178
Joseph Simunovich....................................... 51,049(e)
Marcia L. Worthing...................................... 5,202(g)
Directors and Executive Officers As a Group (24 per-
sons).................................................. 682,479(c)(e)
</TABLE>
- --------
(a) All individuals listed are currently serving as directors or directors and
executive officers of United Water and its subsidiaries, except for Mr.
DeMicco, Mr. Dungan, Mr. McGlynn, and Mr. Simunovich, who are serving as
executive officers only.
(b) None of the directors or executive officers of United Water owns equity
securities of United Water or any of its subsidiaries other than Common
Stock. As of January 31, 1996, each director or executive officer
beneficially owned less than .05% of the outstanding Common Stock of United
Water and all of the directors and executive officers as a group
beneficially own 1.9% of such stock. Fractional shares have been rounded to
the nearest whole share.
(c) The number of shares listed above includes, in compliance with applicable
regulations and interpretations, shares of Common Stock held by the spouse
or other relatives who share the home, in custody for children or
grandchildren of the persons indicated or indirectly through a trust or
similar arrangement in the following amounts: J. Hanson (16,846); G.
Haskew, Jr. (714); and all directors and executive officers as a group
(17,777). Such persons disclaim any beneficial ownership of such shares.
(d) Based solely upon a review of Forms 3, 4 and 5 and written representations
furnished to United Water, United Water believes that during the fiscal
year ended December 31, 1996, the directors and officers of United Water
complied with all filing requirements of Section 16(a) of the Securities
Exchange Act of 1934 except Mr. Hanson did not file on time one report
covering one transaction.
(e) These numbers include shares of Common Stock which may be acquired pursuant
to options awarded under United Water's Management Incentive Plan in the
following amounts: D. Correll (156,499); F. DeMicco (54,130); R. Dungan
(37,620); G. Haskew, Jr. (34,175); R. McGlynn (24,080); J. Simunovich
(47,250); and all directors and executive officers as a group (456,449).
(f) The number of shares listed above include shares of restricted common stock
which may be acquired pursuant to the conversion of the existing directors'
pension plan to a restricted stock plan adopted January 1, 1997, totaling
35,695 shares.
(g) These numbers include non-voting common stock equivalent units acquired in
accordance with the directors' deferred compensation unit plan in the
following amounts: E. Barr (1,381); J. Hanson (9,495); M. Worthing (384).

2
<PAGE>

The following corporation is known to United Water to be the beneficial owner
of more than 5% of a class of United Water's voting securities. To the
knowledge of United Water, no other person is the holder of more than 5% of any
class of United Water's voting securities.

<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
TITLE OF NAME AND ADDRESS OF BENEFICIAL OF BENEFICIAL OF
CLASS OWNER OWNERSHIP CLASS
-------- ------------------------------ ----------------- -------
<C> <S> <C> <C>
Common Stock Lyonnaise American Holding, Inc. 9,515,682 shares 27.5%
2000 First State Boulevard
Wilmington, Delaware 19804-0507
</TABLE>

Lyonnaise American Holding, Inc. ("Lyonnaise American"), its parent company
Lyonnaise des Eaux ("Lyonnaise"), and certain of their respective affiliates
are subject to the terms of a Governance Agreement, dated April 22, 1994,
which, among other things, prohibits, subject to certain exceptions, such
parties from acquiring additional United Water securities, commencing
unsolicited tender or exchange offers to acquire United Water's securities,
making offers to acquire United Water's assets or soliciting proxies against
United Water's management and which requires their United Water Common Stock to
be voted in accordance with the votes of the holders of 75% of the Common Stock
if any proposal obtains that vote.

DIRECTORS OF UNITED WATER

Effective as of the Annual Meeting, the Board of Directors of United Water is
comprised of thirteen directors, divided into three classes. At the Annual
Meeting four directors will be elected to Class I for a three year term and one
director to Class II for a one year term. At the 1998 Annual Meeting of
Shareholders four directors will be elected to Class II for a three year term
and at the 1999 Annual Meeting of Shareholders five directors will be elected
to Class III for a three year term. Information with respect to the five
nominees proposed for election and information with respect to the eight other
continuing directors is set forth below. It is intended that the persons named
in the proxy will vote in favor of the five nominees for election.

Messers. Bourbie and Keane have been designated as nominees for director by
Lyonnaise American. Pursuant to the Governance Agreement, Lyonnaise American
may designate up to four persons to be appointed to the Board of Directors for
United Water. Messers. Bourbie and Keane are included in Class II and Class I
respectively of directors being recommended to the shareholders of United
Water.

3
<PAGE>

The affirmative vote of a plurality of the votes cast by shareholders of
United Water entitled to notice of and to vote at the Annual Meeting is
required for the election of directors.

All directors of United Water also serve as directors of United Water New
Jersey and United Waterworks.

<TABLE>
<CAPTION>
PERIOD SERVED AS DIRECTOR
AND BUSINESS EXPERIENCE
NAME AND AGE DURING PAST FIVE YEARS
------------ -------------------------
<S> <C>
CLASS I
Robert L. Duncan, Jr., Served as director of United Water since 1988.
54(c)...................... Member of the law firm of De Forest & Duer.
Lawrence R. Codey, 52(b).... Served as director of United Water since 1991.
President and Chief Operating Officer of Public
Service Electric & Gas Co. ("PSE&G") since 1991.
Director, Trust Company of New Jersey, Public
Service Enterprise Group, Inc., and Sealed Air
Corporation.
Donald L. Correll, 46(b).... Served as director of United Water since 1992.
Chairman of the Board of United Water since May
1994, Chief Executive Officer since 1992,
President since 1991, and Vice President and Chief
Financial Officer from 1986 to 1991. Director,
Interchange Financial Service Corporation since
1993.
George F. Keane, 68(c),(d).. Served as director of United Water since January
1997. Chairman of the Board for Trigen Energy Corp
since 1996. President Emeritus and Senior Invest-
ment Advisor for The Common Fund from 1993 to
1996. President and Chief Executive Officer of The
Common Fund from 1971 to 1993.
CLASS II
Peter Del Col, 62(a)........ Served as director of United Water since 1983.
Chairman of FundQuest and Theraphysics since 1994.
President, Colson Services Corp. since 1986 and
Partner, Colson Investments since 1985.
Jon F. Hanson, 60(b),(d).... Served as director of United Water since 1986.
Chairman, Hampshire Management Company since 1976.
Director, Orange and Rockland Utilities, Inc.,
Prudential Insurance Company of America and Neuman
Distributors, Inc..
Marcia L. Worthing, Served as director of United Water since 1987. Se-
54(a),(d).................. nior Vice President--Human Resources and Corporate
Affairs since January 1995, Senior Vice Presi-
dent--Human Resources from 1990 to 1995.
Thierry Bourbie, 44(a)(b)... Served as director of United Water since September
1996. President of the International Water Divi-
sion of Lyonnaise des Eaux since September 1996.
Director of French Water Operations of Lyonnaise
des Eaux from 1994 to 1996. Chief Executive Offi-
cer and Chairman of Lyd Infoun (Lyonnaise des Eaux
Subsidiary) from 1994 to 1996. Chief Executive Of-
ficer and Chairman of Apic Syot (Lyonnaise des
Eaux Subsidiary) from 1991 to 1995.
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
PERIOD SERVED AS DIRECTOR
AND BUSINESS EXPERIENCE
NAME AND AGE DURING PAST FIVE YEARS
------------ -------------------------
<S> <C>
CLASS III
Frank J. Borelli, 61(d)..... Served as director of United Water since 1983. Di-
rector, Senior Vice President and Chief Financial
Officer, Marsh & McLennan Companies, Inc. and Di-
rector, Interpublic Group of Companies Inc. and
Mid-Ocean Reinsurance Company Ltd.
Douglas W. Hawes, 64(b)..... Served as director of United Water since 1983.
Secretary of United Water since 1983, of United
Water New Jersey since 1981 and United Waterworks
since 1994. Member of the law firm of LeBoeuf,
Lamb, Greene & MacRae, L.L.P. Director, Bay State
Gas Company.
Dennis M. Newnham, Served as director of United Water since 1986.
56(a),(c).................. President and Chief Executive Officer of Tsumuru
International since March 1996 and Adirondack Bev-
erages Inc. from 1995 to 1996. Venture capitalist
consultant since March 1994. Formerly Chairman of
the Board, President and Chief Executive Officer
of Lea & Perrins, Inc. Director, Nutramax Products
Inc.
Edward E. Barr, 60(b),(c)... Served as director of United Water since April
1994. Director, GWC Corporation from 1987 to 1994.
President and Chief Executive Officer of Sun Chem-
ical Corporation since 1987 and President and
Chief Executive Officer of DIC American, Inc. from
1988 to 1997. Director, Dainippon Ink and Chemi-
cals, Tokyo and First Union Corp. Trustee, North-
western Mutual Insurance Company.
Jacques F. Petry, 42(b),(d). Served as director of United Water since April
1994. Director, GWC Corporation from 1991 to 1994.
Chairman and Chief Executive Officer of SITA since
September 1996. President of the International Wa-
ter Division of Lyonnaise des Eaux since June
1993. Director of International Water Operations
of Lyonnaise from 1989 to May 1993.
</TABLE>

Mr. Brongniart, Mr. Correll, Mr. Del Col, Mr. Dragone and Mr. Hanson also
serve as directors of United Properties Group. Mr. Correll serves as a director
and officer of certain subsidiaries of United Water.

Effective May 12, 1997, Mr. Haskew will be retiring from the Board of
Directors of United Water and its subsidiaries.

Effective December 31, 1996, Mr. Dragone retired from the Board of Directors
of United Water and its subsidiaries.
- --------
(a) Member of Pension Committees.
(b) Member of Executive Committees.
(c) Member of Audit Committees.
(d) Member of Compensation Committees.

United Water and two of its subsidiaries, United Water New Jersey and United
Waterworks, have directors who are not salaried employees; each pays a portion
of the retainers and fees set forth below. No fees are paid to directors who
are salaried officers of United Water.

Directors receive an annual retainer of $12,000 and a daily attendance fee of
$800. During 1996, United Water's Board of Directors had six meetings.

5
<PAGE>

United Water's Board of Directors has an Executive Committee which, during
the interim between board meetings, exercises board authority to the extent
permitted by law; an Audit Committee, which reviews financial statements,
management and internal audits; a Compensation Committee, which reviews the
compensation paid to employees; and a Pension Committee, which reviews
retirement plans. United Water does not have Nominating Committees charged with
reviewing the credentials of nominees for the board. Daily attendance fees for
the Executive Committee meeting are $800, and all other committees are $525.
Chairmen of committees receive a double committee fee in light of their
responsibilities. During 1996 the Executive Committee met five times and all
other committees met two times. The total amount paid directors was $207,500.
This amount also includes fees paid by United Properties Group to directors who
are not salaried employees. They receive a meeting fee of $750. This amount
does not include $50,325 of deferred compensation applied toward the United
Water deferred compensation unit plan and amounts paid to a director of United
Properties Group who is not a director of United Water. Each director, except
Messrs. Barr, Borelli, Bourbie, Brongniart and Dragone, attended at least 75%
of the aggregate of the number of meetings of the board and committees on which
he or she served.

Effective January 1, 1996, the Board of Directors changed the existing
directors' deferred compensation plan by adopting the United Water Resources
and Subsidiaries Non-Employee Directors Deferred Compensation Unit Plan. It
provided directors with an opportunity to defer all or a portion of their
director fees and to link the ultimate value of such deferred compensation to
the performances of the common stock of the Company.

Effective January 1, 1997, the Board of Directors converted the existing
Directors' Pension Plan to the United Water Resources and subsidiaries Non-
Employee Director Restricted Stock Pension Plan ("the Plan"). It provided that
the actuarially present value of the current pension benefits for directors
elected by the shareholders and currently serving on the board as of that date
be converted to restricted stock. The ultimate value of the Plan will depend
upon the performance of the common stock of the Company.

During 1996, LeBoeuf, Lamb, Greene & MacRae, L.L.P., of which Mr. Hawes is a
member, performed legal services for United Water and its subsidiaries.

Mr. Barr is a director of First Union Corp. which has credit lines with
United Water totally $25 million. At December 31, 1996 there was $5.5 million
available on these credit lines.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The current members of the Compensation Committee of the Board of Directors
of United Water (the "Compensation Committee") are Ms. Worthing (Chairman), Mr.
Borelli, Mr. Hanson, Mr. Keane and Mr. Petry. No executive officer of United
Water serves on Compensation Committees of other bodies determining executive
compensation for other publicly traded corporations. In 1992, Laboratory
Resources, Inc. ("LRI"), a subsidiary of United Water, entered into a five-year
lease (with a renewal option) for approximately 14,200 square feet of office
space located in Teterboro, New Jersey. LRI increased its office space to
approximately 24,400 square feet and paid rent of $216,216 in 1996 and expects
to negotiate rent in future years at comparable amounts. Mr. Hanson owns
approximately a 1.6% interest in the lessor, his three adult children own an
aggregate 15.7% interest in the lessor, and his brother, Peter Hanson, owns
approximately a 16.3% interest in the lessor. Mr. Hanson abstained from all
discussion and from the authorizing vote on this transaction.

6
<PAGE>

EXECUTIVE OFFICERS OF UNITED WATER

The following table sets forth the age and principal occupation during the
past five years of each executive officer of United Water and its Subsidiaries
who is not a director of United Water.

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING
NAME AND AGE PAST FIVE YEARS
------------ --------------------------
<S> <C>
David E. Chardavoyne, 49..... Served as President United Waterworks since August
1996. President and Chief Operating Officer Ja-
maica Water Supply Company from 1992 to 1996. Vice
President Citizens Utilities Company from 1986 to
1992.
William D. Colford, 52....... Vice President--Support Services since November
1996 and Vice President--Administration of United
Water M&S since June 1994 and United Water New
Jersey since 1992. Assistant to Senior Vice Presi-
dent--Administration of United Water New Jersey
from 1987 to 1992.
Frank J. DeMicco, 52......... President of United Water New Jersey since August
1996. Senior Vice President--Operations of United
Water M&S since September 1994. Vice President--
Operations of United Water New Jersey since 1991.
Ronald S. Dungan, 58*........ Senior Vice President of United Water M&S since
September 1994. President and Chief Executive Of-
ficer of United Waterworks from 1989 to 1996 and
Executive Vice President of GWC Corporation from
1989 to 1994.
Robert J. Iacullo, 43........ Vice President--Regulatory Business since February
1996 and Vice President--Rates of United Water M&S
since September 1994 and United Water New Jersey
since June 1994. Director--Rates of United Water
New Jersey from 1988 to 1994.
John T. Marino, 45........... Treasurer of United Water M&S since June 1994, and
United Water from 1988 to 1994.
Richard B. McGlynn, 58....... General Counsel of United Water since August 1996.
Vice President and General Counsel of United Water
M&S since January 1995. Partner of LeBoeuf, Lamb,
Greene & MacRae, L.L.P. from 1992 to 1994 and
Partner of Stryker, Tams & Dill from 1980 to 1992.
Joseph Simunovich, 57........ President of United Water M&S since August 1996.
Senior Vice President--External Affairs and Mar-
keting of United Water M&S from 1994 to 1996. Vice
President--External Affairs and Marketing of
United Water M&S from June to November 1994 and
United Water New Jersey from 1992 to 1994. Direc-
tor of Sales of New Jersey Bell Telephone Co. from
1978 to 1992.
John J. Turner, 47........... Treasurer of United Water and Vice President--Fi-
nance and Controller of United Water M&S since
June 1994. Vice President--Controller of United
Water from 1992 to 1994 and Controller from 1989
to 1992.
</TABLE>
- --------
* Retired December 31, 1996.

7
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth the annual and long-term compensation of the
chief executive officer and the four other most highly compensated executive
officers of United Water, and its subsidiaries for services in all capacities
for the years ended December 31, 1994, 1995 and 1996.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL
COMPENSATION RESTRICTED SECURITIES
NAME AND PRINCIPAL POSITION ----------------- STOCK UNDERLYING ALL OTHER
AT DECEMBER 31, 1996 YEAR SALARY BONUS AWARDS(A) OPTIONS COMPENSATION(B)
- --------------------------- ---- -------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald L. Correll........ 1996 $315,000 $100,000 $11,050 43,290 $4,500
Chairman, President and
Chief 1995 315,000 60,175 16,656 34,130 4,500
Executive Officer 1994 280,000 94,500 51,790 36,380 8,400
Ronald S. Dungan......... 1996 208,000 41,000 -- 13,230 4,500
Senior Vice President(c) 1995 208,000 20,600 -- 12,400 4,500
1994 138,333 60,000 -- 11,990 4,620
Joseph Simunovich........ 1996 177,500 94,500 -- 9,630 4,500
President--United Water
M&S(d) 1995 165,000 43,000 -- 7,590 4,500
1994 146,666 33,150 -- 5,470 4,400
Frank J. DeMicco......... 1996 168,100 57,500 -- 12,490 4,500
President--United Water
New Jersey(d) 1995 156,000 23,400 -- 9,840 4,500
1994 139,780 28,063 -- 5,220 2,130
Richard B. McGlynn....... 1996 180,000 38,500 -- 6,980 4,500
General Counsel 1995 180,000 21,000 -- 5,490 4,500
1994 -- -- -- -- --
</TABLE>
- --------
(a) Valued at closing price reported on the New York Stock Exchange-Composite
Transactions service for United Water Common Stock (the "NYSE Closing
Price") on the date of grant. The number and value of the aggregate
restricted stock holdings at December 31, 1996, for D. Correll, 25,000
shares, $387,500. Dividends are paid on such stock.
(b) "All Other Compensation" includes contributions by United Water to its
Thrift Plan.
(c) Mr. Dungan retired effective December 31, 1996.
(d) Elected August 1, 1996.

EXECUTIVE EMPLOYMENT AGREEMENTS

Except as discussed herein, the named executive officers serve at the
pleasure of the Board of Directors. United Water has an employment agreement
with Mr. Correll that provides for compensation and benefits for services
performed under the agreement. The agreement provides for a two-year term of
employment commencing January 1, 1988, with renewal of the two-year term at the
end of each year unless prior notice of termination has been given. This
agreement has been renewed and is currently in effect. Mr. Correll's agreement
provides that in the event he is involuntarily terminated without cause (except
upon two years' notice), or terminates employment voluntarily following
constructive discharge, he shall receive certain employee benefits for the
remainder of the term and shall be paid in accordance with the formula under
his agreement (i) his salary; (ii) incentive compensation and bonuses, if any,
based upon full attainment of objectives; (iii) projected Thrift Plan matching
contributions and (iv) the actuarial present value of retirement benefits, all
determined for and payable during the remainder of the two-year term of
employment. He may also elect to surrender stock options that have been
outstanding for at least six months in exchange for a cash payment per optioned
share equal to the difference between the highest share price (as determined
under the agreement) as of the date of termination and the option exercise
price. These payments and benefits will be offset by any corresponding benefits
received from post-termination employment.

If a "Change in Control" (as defined in the agreement) occurs and involuntary
termination or constructive discharge occurs within the next 24 months, he will
receive a lump sum cash payment equal to

8
<PAGE>

the sum of (a) the actuarially determined present value as provided for in the
agreement of the compensation and other benefits listed in clauses (i) through
(iv) of the preceding paragraph; (b) unpaid deferred compensation and incentive
cash awards under certain plans and (c) the value of surrendered stock options.
The estimated value of the payments and benefits that he would have been
entitled to if a Change of Control and termination had occurred on December 31,
1996, is $2,545,498. If a Change of Control occurs without a termination of
employment, he will receive a lump sum cash payment equal to the amounts
determined under clauses (b) and (c) of this paragraph plus the actuarially
determined present value as of the Change of Control of benefits under his
supplemental retirement benefit plan. United Water has an employment agreement
with Mr. McGlynn that provides for compensation and benefits for services
performed under the agreement. The agreement was effective January 1, 1995 and
ends December 31, 1999. The agreement provides that in the event he is
involuntarily terminated without cause or terminates employment with good
reason, he shall receive his base annual salary at the time of his termination
times the number of years (and fractions thereof) then remaining to the end of
the agreement. The estimated value of the payments and benefits that he would
have been entitled to if a termination had occurred on December 31, 1996 is
$540,000. United Water and certain of its subsidiaries have an employment
agreement with Mr. Chardavoyne that provides for compensation and benefits for
services performed under the agreement. The agreement was effective August 1,
1996, and ends July 31, 1998, unless renewed. The agreement provides that in
the event he is terminated without cause or voluntarily terminates with good
reason he shall receive in a lump sum (i) two times his base annual salary;
(ii) a prorate of his bonus and (iii) continuation of his benefits for two
years. The value of the payments and benefits that he would have been entitled
to on December 31, 1996 is $370,000.

RETIREMENT PLANS

The table below contains information concerning estimated annual retirement
benefits in accordance with the Employee Retirement Income Security Act payable
under United Water's pension plans upon retirement at age 65 for certain key
executives with final average pay and years of credited service as set forth
below.

PENSION PLAN TABLE(A)

<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE(C)
-----------------------------------------------------
FINAL AVERAGE PAY(B) 10 15 20 25 30 35
- -------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$200,000.................. $ 60,000 $ 80,000 $100,000 $120,000 $140,000 $140,000
250,000.................. 75,000 100,000 125,000 150,000 175,000 175,000
300,000.................. 90,000 120,000 150,000 180,000 210,000 210,000
350,000.................. 105,000 140,000 175,000 210,000 245,000 245,000
400,000.................. 120,000 160,000 200,000 240,000 280,000 280,000
450,000.................. 135,000 180,000 225,000 270,000 315,000 315,000
</TABLE>
- --------
(a) Pension benefits are calculated on a straight life annuity basis (other
benefit forms are available). Benefits are not subject to any deduction or
offset for Social Security or other amounts.
(b) Average of compensation in the three calendar years in which it was highest
during the ten calendar years immediately preceding retirement.
Compensation includes all amounts listed in the Summary Compensation Table
under "Salary" and "Bonus" plus certain other items of compensation for
federal income tax purposes.
(c) The years of credited service as of December 31, 1996, for certain
executive officers included in the Summary Compensation Table are as
follows: D. Correll, 20 years; F. DeMicco, 5 years; and J. Simunovich, 4
years.

The retirement benefits summarized in the preceding table are provided by
United Water's qualified defined benefit pension plan, which covers executive,
supervisory and other employees of United Water and certain subsidiaries who
are not included in collective bargaining units and by a supplemental
retirement benefit plan. The qualified plan provides a normal retirement
benefit of 1 1/2% of a participant's average base

9
<PAGE>

wage or salary rate (up to the maximum permitted for tax-qualified retirement
plans under federal income tax laws and regulations, which is currently
$150,000 as adjusted for inflation) multiplied by years of credited service.
Average base wage or salary rate is as defined in the plan and is substantially
equivalent to the "Salary" reported in the Summary Compensation Table; the
average is computed over the five years having the highest base wage or salary
of the last ten years of service. The normal form of retirement benefit is a
straight life annuity for unmarried participants or an actuarially reduced 50%
joint and surviving spouse retirement benefit for married participants. Other
optional forms of benefit payment are available on an actuarially equivalent
basis. Federal income tax laws and regulations also limit the maximum annual
retirement benefit payable from the qualified defined benefit pension plan.

The supplemental retirement benefit plan for the benefit of certain key
executive employees, including some of those named in the Summary Compensation
Table, authorizes the payment out of general funds of benefits in addition to
those provided under the defined benefit pension plan according to a formula
that takes into account years of service, age, final average pay and defined
benefit pension plan benefits. The normal form of payment is a single life
annuity with a ten-year certain guaranty. Other optional forms of benefit
payment are available on an actuarially equivalent basis.

United Water and its subsidiaries provide retirement benefits for their
retired directors, excluding directors who were officers, but including
directors who were officers but who were not full-time employees. Any retired
director as of January 1, 1997 who served as a director for ten years or who
attained the age specified for retirement as a director is receiving annually
an amount equal to the total amount of annual retainers the director would have
received (or would be entitled to receive but for the fact of being an officer
as well as a director) for the year of retirement. However, such benefits may
be increased at the discretion of the Board to an amount equal to the total
amount of annual retainers such director would have been entitled to receive
for the year of the distribution if he were not retired. Retirement benefits
for non-employee directors elected by the shareholders and serving on the board
as of January 1, 1997 have been converted to restricted stock.

OPTION GRANTS

Shown below is additional information on grants of options for shares of
United Water under the Management Incentive Plan during 1996 to the executive
officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE GRANT DATE
UNDERLYING OPTIONS ALL EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(A) DURING 1996 PER SHARE DATE VALUE(B)
- ---- -------------------- ------------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Donald L. Correll....... 43,290 21.2 $12.25 1/5/06 $200,261
Ronald S. Dungan........ 13,230 6.5 12.25 1/5/06 61,203
Joseph Simunovich....... 9,630 4.7 12.25 1/5/06 44,549
Frank J. DeMicco........ 12,490 6.1 12.25 1/5/06 57,779
Richard B. McGlynn ..... 6,980 3.4 12.25 1/5/06 32,909
</TABLE>
- --------
(a) All options reported here were granted on January 4, 1996. The exercise
price per share equalled the fair market value on the date of grant. See
"Executive Employment Agreements," above as to rights to surrender options
for a cash payment on termination or a Change in Control of United Water.
(b) The grant date present value shown is estimated in part using the Black-
Scholes option pricing model, a method of approximating the present value
of options exercisable at a fixed price at the end of a fixed period. It
relies on certain assumptions as of the date of grant of the options, such
as interest rates, dividend yield, time to exercise, and stock price
sensitivity (volatility). Each of these factors could change over the life
of the options and affect the estimated value. The actual value of the
options when exercised may be a lesser or greater amount, depending on the
price of the stock at the date of exercise; it is also possible that the
options will expire unexercised and produce no cash value to the optionee.
The estimated grant date present value also includes the discounted present
value of dividend equivalent rights accompanying the options, which accrue
until the earlier of the time of exercise or the fifth anniversary of
grant, based upon the current dividend policy and the interest rate
assumption below. The use of the Black-Scholes model is set forth in the
rules of the Securities and Exchange Commission as an acceptable method of
option valuation.

10
<PAGE>

The values of the options estimated under the Black-Scholes model were based
on the following assumptions:
. Risk-free rate of 5.6%
. Dividend yield of 7.1%
. 10 years to exercise the options
. Stock price volatility of 12.9%
. No adjustment has been made for non-transferability or risk of
forfeiture of the options

OPTION EXERCISES AND VALUES OF UNEXERCISED OPTIONS

The table below summarizes information as of December 31, 1996, as to
unexercised options to purchase United Water Common Stock held by the executive
officers named in the Summary Compensation Table and granted under the
Management Incentive Plan.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED,
NUMBER OF VALUE UNEXERCISED IN-THE-MONEY
SHARES REALIZED OPTIONS AT OPTIONS AT
ACQUIRED UPON UPON DECEMBER 31, DECEMBER 31,
NAME EXERCISE OF OPTION EXERCISE 1996(A) 1996(B)
---- ------------------ -------- ------------ ------------
<S> <C> <C> <C> <C>
Donald L. Correll..... 31,051 $50,933 113,799 $140,693
Ronald S. Dungan...... -- -- 37,620 42,998
Joseph Simunovich..... -- -- 28,750 27,120
Frank J. DeMicco...... -- -- 35,630 40,593
Richard B. McGlynn.... -- -- 12,470 22,685
</TABLE>
- --------
(a) All such options are presently exercisable.
(b) Difference between exercise price and NYSE Closing Price (if higher than
exercise price) for December 31, 1996.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

The Compensation Committee of the Board of Directors is charged with
reviewing United Water's plans for compensating executive officers as well as
recommending to the Board of Directors for adoption the individual compensation
to be paid to the Chief Executive Officer. The Compensation Committee also
exercises general review over compensation plans for all employees, such as the
Thrift Plan and pension plans. The Committee has furnished the following report
on executive compensation.

United Water and all its subsidiaries have adopted executive compensation
programs with the purpose of fairly compensating executives for their work,
attracting and retaining superior individuals, and encouraging them to increase
United Water's long-term profitability, all with the goal of enhancing total
returns to shareholders. The Compensation Committee continues to be committed
to strengthening the relationship between executive pay and performance.

To ensure its overall competitiveness in the relevant employment markets for
executives, United Water compares its compensation structure with those of
industrial companies nationwide, New York metropolitan area industrial
companies, and a group of utilities located nationwide, virtually all of which
are part of the Wilshire 5000 index shown in the Shareholder Return
Presentation following this report. All of these are considered to be relevant
recruitment markets for United Water's executives. These comparisons are
provided by outside independent compensation consultants. In addition to
reviewing outside competitive compensation levels, United Water also uses job
evaluation to set salary levels that are internally equitable relative to the
scope and accountability of the position.

United Water's executive compensation program has three major elements: base
salary, the Management Incentive Plan, and restricted stock on a selected
basis.

11
<PAGE>

1. Base salary levels are set to attract and retain key executive talent.
Salary increases for all executives, including the Chief Executive Officer, are
based upon the executive's individual contribution to the Company and on salary
trends within the relevant employment markets described above for executives.
Consistent with this policy, Mr. Correll's base salary range reflects
compensation for Chief Executive Officers with similar responsibilities,
challenges, and tenure.

2. The Management Incentive Plan is designed to motivate executives to
achieve both individual goals and Company objectives in order to provide
competitive returns to shareholders. The plan as utilized for 1996 has two
components: an annual cash bonus and annual stock option grants.

Annual cash bonuses are awarded after the end of each year based on
achievement of specific financial, operational and/or strategic goals set at
the beginning of that year for each participating executive. Typical goals for
1996 addressed financial performance, customer satisfaction standards, core
business growth, operating efficiencies, human resource effectiveness, and
regulatory relations. Goals for executives are weighted between achievement of
individual or workgroup objectives and achievement of Company-wide financial
and operating targets based on the executive's primary responsibilities. The
bonus actually granted may range from 0 to 150 percent of the target level
based on the executive's attainment of the goals set at the beginning of the
year.

Mr. Correll's 1996 goals included achieving United Water's earnings per share
target, expanding market share, several corporate development initiatives and
productivity gains. After consideration of his achievement of the above goals
and the circumstances relative to the current earnings per share, the committee
determined his incentive compensation for 1996 as reported in the table above.

Stock options are granted annually to provide incentives for executives to
improve shareholder value. The executives realize benefits from these options
only if United Water's shareholder value appreciates during the terms of the
options.

3. Restricted stock is granted to executives on a selective basis to retain
key individuals and to give them an immediate propriety stake in United Water.
On this basis Mr. Correll was granted additional shares of restricted stock in
1996 which will vest after five years.

The Compensation Committee intends to continue this practice of tieing
incentives more closely to a total return to shareholders in order to further
motivate executives to achieve long-term corporate objectives and to improve
shareholders' total returns. By shifting a higher proportion of executive total
pay to incentives, the emphasis on producing strong returns for shareholders
has become an even more prominent feature of United Water's program.

The Compensation Committee believes that Section 162(m) of the Internal
Revenue Code will not impact United Water's tax deduction for compensation paid
to executives for 1996 or 1997.

Compensation Committee

Marcia L. Worthing, Chairman
Frank J. Borelli
Jon F. Hanson
Jacques F. Petry

12
<PAGE>

SHAREHOLDER RETURN PRESENTATION

The following two line graphs compares the yearly percentage change in
cumulative total return to shareholders investing $100 in United Water Common
Stock to the cumulative total returns of the Wilshire 5000 Equity Index and the
Edward D. Jones Water Utility Index for the five year period and one year
period ending December 31, 1996. Total return includes both capital
appreciation and dividend payments and the graph assumes that all dividends
were reinvested in United Water Common Stock through the Dividend Reinvestment
and Stock Purchase Plan, which during a portion of the five year period
provided for a discount from market prices on the purchase of Common Stock. The
measurement points are the last business day of each year.

Five-Year Cumulative Total Returns
Value of $100 Invested on
December 31, 1991
<TABLE>
<CAPTION>
UWR E.D.Jones Wilshire 5000
<S> <C> <C> <C>
1991 100 100 100
1992 96.33 110.75 108.98
1993 97.45 126.19 121.29
1994 94.25 117.56 121.22
1995 96.47 147.9 165.46
1996 133 180.82 200.53
</TABLE>

One-Year Cumulative Total Returns
Value of $100 Invested on
December 31, 1995

<TABLE>
<CAPTION>
UWR E.D.Jones Wilshire 5000
<S> <C> <C> <C>
1995 100 100 100
1996 137.87 122.26 121.2
</TABLE>

13
<PAGE>

PROPOSAL 2--APPROVAL OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK

At a meeting held on March 5, 1997, the Company's Board of Directors
unanimously adopted resolutions approving, and submitting to a vote of the
shareholders, an amendment to Article 5 of the Company's Restated Certificate
of Incorporation (the "Certificate of Incorporation") which would increase the
number of authorized shares of common stock, without par value, of the Company
(the "Common Stock") from 50,000,000 to 100,000,000.

On January 31, 1997, the Company had outstanding 34,596,874 shares of Common
Stock, excluding treasury shares. In addition, on that date shares of Common
Stock were reserved for issuance as follows: 3,023,684 shares upon conversion
of the 5% preference stock, without par value, of the Company, 2,171,000 shares
pursuant to the Company's Dividend Reinvestment Plan and 206,756 shares
pursuant to employee benefit plans of the Company.

The Board of Directors believes that the proposed increase in authorized
Common Stock is desirable to enhance the Company's flexibility in connection
with possible future actions, such as acquisitions, financings, stock splits,
stock dividends, use in employee benefit plans or other general corporate
purposes. Once authorized, such Common Stock would be available for issuance
from time to time to such persons and for such consideration and on such terms
as the Board of Directors determines. No further action or authorization by the
Company's shareholders would be necessary prior to the issuance of the
additional shares of Common Stock unless required by applicable law or by the
rules of any stock exchange on which the Company's securities may then be
listed. The holders of any of the additional shares of Common Stock issued in
the future would have the same rights and privileges as the holders of the
shares of Common Stock currently authorized and outstanding. Those rights do
not include preemptive rights with respect to the future issuance of any
additional shares.

The Company has no immediate plans, understandings or agreements with respect
to the issuance of any additional shares of Common Stock which would be
authorized by the proposed amendment. However, shareholders should be aware
that the authority of the Board to issue Common Stock might be considered as
having the effect of discouraging an attempt by another person or entity to
effect a takeover or otherwise gain control of the Company, because the
issuance of additional Common Stock would dilute the voting power of the Common
Stock then outstanding. As of this date, the Board is not aware of any pending
or threatened effort to accumulate the Company's shares or to obtain control of
the Company by means of a merger, tender offer, solicitation in opposition to
management or otherwise.

The affirmative vote of the holders of a majority of shares of the Common
Stock present or represented at the Annual Meeting and entitled to vote on the
proposal is required for approval of the amendment to the Certificate of
Incorporation.

If the shareholders approve the proposed amendment, Article 5 of the
Certificate of Incorporation would be amended to read as follows:

"5. The shares of capital stock which the Corporation has authority to
issue shall consist of the following:

(a) Common Stock divided into 100,000,000 shares, without par value,

(b) Preferred Stock divided into 2,000,000 shares, without par value,
and

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION.

14
<PAGE>

PROPOSAL 3--APPROVAL OF AMENDMENT TO THE MANAGEMENT INCENTIVE PLAN

In 1986, the shareholders of United Water approved the Management Incentive
Plan (the "Plan") in order to tie the interests of the employees and the
shareholders of the Company more closely together. The Board of Directors has
approved, subject to shareholder approval, an amendment to the Plan. As
described below, the amendment primarily provides for (i) the Plan to be funded
with one and one-quarter percent of the outstanding Common Stock of the Company
as of the end of each fiscal year; (ii) the maximum number of shares of Common
Stock, if any, an individual may receive, in any given year, is 100,000 and
(iii) the stock options and dividend units are separate and distinct awards.

PLAN SUMMARY AND OTHER INFORMATION

Form of Awards. Awards under the plan may be granted in the form of cash,
dividend units, stock options and performance shares. Shares used under the
Plan may be either authorized but unissued shares or issued shares reacquired
by the Company.

Number of Shares. The Plan provides for the plan to be funded with one and
one-quarter percent (1.25%) of the outstanding Common Shares of the Company
annually, together with any shares remaining from prior years or prior plans.
Further, no individual may, in any one year, receive more than 100,000 Common
Shares under the Plan.

Duration. The Plan will remain in effect for 10 years, through January 1,
2007, unless terminated earlier by the Board of Directors. Options granted
under the Plan will generally remain exercisable for 10 years from the date of
grant.

Administration. The Plan is administered by the Compensation Committee of the
Board of Directors. The Committee is composed of nonemployee directors who are
not eligible to participate in the Plan. Among other things, the Committee has
the authority to determine the employees to whom awards will be granted, the
type of awards, restrictions applicable to awards and to interpret the Plan.

Eligibility. All officers, executives and key employees who are regular full
time employees of the Company or its affiliates (of which there are currently
approximately 140) are eligible to receive awards under the Plan. It is
presently contemplated that awards will be made each year to the officers and
other executives of the Company, as well as to other, high performance non-
executive employees. No determination has been made as to the types or amounts
of awards which will be granted in the future to specific individuals under the
Plan.

Cash Awards. The Committee may grant cash awards to individuals based on a
combination of company-wide and individual objectives which may relate to
financial performance, customer service, quality, efficiency or other measures
which in the judgement of the Committee contribute to the success of the
Company.

Dividend Units. The Committee may grant dividend units, which are the right
to receive dividend equivalents to those paid on the Common Stock of the
Company for a period of time.

Stock Options. The Committee may grant non-qualified stock options, which are
priced at no less than 100% of the fair market value of the closing price of
the Company's Common Stock on the date of the grant. Payment by an employee
upon exercise of an option may be made in cash, in already-owned shares or a
combination of the two.

Performance Shares. The Committee may grant shares of the Common Stock of the
Company which are payable on the achievement of performance criteria specified
by the Committee at the time of the grant.

Federal Tax Consequences. The following statements are based on current
interpretations of existing federal income tax law. The law is highly technical
and the statements represent only a general summary of some of the applicable
provisions.

If the shareholders approve the Plan, the Company believes it will be
entitled to a deduction for all compensation attributable to an employee's
exercise of a non-qualified stock option. The Company believes it will be
entitled to a deduction for compensation paid pursuant to cash awards, dividend
units and

15
<PAGE>

performance shares, to the extent allowed by Section 162(m) of the Internal
Revenue Code, as amended. Section 162(m) limits the deductibility of
compensation to the extent that payments to an individual exceed one million
dollars in a calendar year, and could limit the deductibility of cash awards
and performance shares, depending on the performance conditions established on
the awards. Based on the compensation levels of the Company's executives, it
believes that all compensation paid is currently deductible. The following four
paragraphs set forth the federal tax consequences to the employee and the
Company of the specific award vehicles.

Cash Awards At the time a cash award is paid to an individual participant,
the participant will recognize ordinary income in an amount equal to the award.
The Company will receive a federal income tax deduction in an amount equal to
the income recognized by the employee.

Stock Options There are no federal income tax consequences to the employee or
the Company when a non-qualified stock option is granted. When an employee
exercises a non-qualified stock option, the employee will have taxable ordinary
income equal to the excess of the fair market value of the shares on the
exercise date over the option price. The Company will receive a federal income
tax deduction in an amount equal to the income recognized by the employee.

Dividend Units There are no federal income tax consequences to the employee
or the Company when a dividend unit is granted. At the time the dividend unit
vests and is payable to the employee, the employee will have taxable ordinary
income equal to the cash value of the accrued dividends. The Company will
receive a federal income tax deduction in an amount equal to the income
recognized by the employee.

Performance Shares There are no federal income tax consequences to the
employee or the Company when a performance share is granted. At the time the
performance share vests and is payable to the employee, the employee will have
taxable ordinary income equal to the current fair market value of the shares.
The Company will receive a federal income tax deduction in an amount equal to
the income recognized by the employee.

The deductibility of all awards is subject to the limitations of Section
162(m).

Termination of Employment, Death or Disability. Upon termination of
employment for any reason other than death, disability, or retirement, all
options held by an employee will terminate. Vested options may be exercised
within the earlier of 10 years from the date of grant or five years upon
termination of employment by the employee in the case of disability, or by the
employee's estate or beneficiaries in the case of an employee's death or upon
retirement. Cash awards, dividend units and performance shares will only vest
upon termination of employment on the determination of the Committee.

Transferability. All awards granted under the plan are non-transferable
except in the case of the employee's death.

Adjustments. The Committee may make such adjustments to outstanding awards
(including the exercise price of options) to the number of shares as to which
awards may be granted as it deems appropriate or equitable in the event of
distributions to holders of Common Stock, stock splits, recapitalizations, or
other changes in the outstanding Common Stock or in the event of mergers,
acquisitions and certain other transactions. The number of shares available for
award will not be diminished in any way by any awards made and any shares
delivered upon the assumption of, or in substitution for, outstanding awards
made by an entity acquired by the Company, unless such awards are made to
individuals who, upon the acquisition, become subject to Section 16(b) of the
Securities Exchange Act of 1934.

Termination and Amendment of the Plan. The Board of Directors may suspend,
terminate, modify or amend the Plan, provided however, that any amendment that
would materially increase the aggregate number of shares which may be issued,
materially increases the benefits accruing to the participants, or materially
modifies the requirements for participation, will be subject to shareholder
approval.

16
<PAGE>

Requisite Vote. The affirmative vote of a majority of the shares of Common
Stock present or represented and entitled to vote on the proposal at the Annual
Meeting is required for approval of the Stock Plan.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL
OF AMENDMENT TO THE MANAGEMENT INCENTIVE PLAN.

PROPOSAL 4--APPROVAL OF THE 1997 DIRECTORS RESTRICTED STOCK PLAN

In 1996, the Company retained an independent compensation consultant to
review the compensation of the Board of Directors of the Company both in terms
of competitiveness of the total package and in terms of creating a closer link
between the directors and the shareholders. The consultant recommended that the
Company terminate the directors' pension plan, increase the level of directors
compensation and deliver a portion of the directors compensation in Company
stock in order to tie the interests of the directors and the shareholders of
the Company more closely together. The Company has already terminated the prior
directors pension plan approved by the shareholders in 1987 and replaced it
with an equivalent value of shares restricted stock in the Company. In
addition, the Board of Directors has approved, subject to shareholder approval,
the creation of a restricted stock plan for the non-employee directors of the
Company, both as a pension replacement for new directors, and as a means to
make the compensation of the existing directors more competitive and linked to
the Company's performance.

PLAN SUMMARY AND OTHER INFORMATION

Form of Awards. Non-employee Directors, on the occasion of their first
election to the Board will receive a grant of 3,000 shares of restricted stock.
All non-employee Directors will receive, in addition to their retainer and
meeting fees, an annual grant of 500 shares of restricted stock.

Number of Shares. The Plan provides for the Plan to be funded with 125,000
shares of Restricted Stock.

Duration. The Plan will remain in effect for 10 years, through January 1,
2007, unless terminated earlier by the Board of Directors.

Administration. The Plan is non-discretionary in terms of the awards.

Eligibility. All non-employee Directors of the Company (of which there are
currently approximately 12) are participants in the plan.

Restrictions on Stock. A Director may not sell, transfer or dispose of the
shares in any way until the earlier of death, disability or retirement from the
Board of Directors. If a Director ceases to serve as a Director before he or
she has served on the Board for a period of 10 years, the first election grant
of 3,000 shares shall be forfeited.

Dividends. Any dividends payable on restricted stock is reinvested in
additional restricted stock, subject to the same restrictions as the shares on
which the dividends are paid.

If the shareholders approve the Plan, the Company believes it will be
entitled to a deduction for all amounts payable under the plan. There are no
federal income tax consequences to the employee or the Company when a share of
restricted stock is granted. At the time the shares are paid to the Director,
he or she will have taxable ordinary income equal to the current fair market
value of the shares. The Company will receive a federal income tax deduction in
an amount equal to the income recognized by the Director.

Termination of Service, Death or Disability. Upon termination of service
after ten years for any reason all shares held shall vest and be payable. Prior
to the tenth anniversary of a Director's first election to the Board, only
those shares associated with 500 share/year grant shall vest and be payable at
the termination of service.

17
<PAGE>

Transferability. All awards granted under the plan are non-transferable
except in the case of the Director's death.

Adjustments. The Company shall make such adjustments to the restricted shares
granted or available under the plan in the event of distributions to holders of
Common Stock, stock splits, recapitalizations, or other changes in the
outstanding Common Stock or in the event of mergers, acquisitions and certain
other transactions.

The following table summarizes certain information with respect to restricted
stock awards under the plan:

NEW PLAN BENEFITS
1997 DIRECTORS RESTRICTED STOCK PLAN

<TABLE>
<CAPTION>
DOLLAR NUMBER OF
VALUE AT RESTRICTED
3/12/97* SHARES
---------- ----------
<S> <C> <C>
Non-employee directors scheduled to receive one-time
grants
in 1997............................................ $99,750.00 6,000
Non-employee directors scheduled to receive annual
grants
in 1997............................................ $83,150.00 5,000
</TABLE>
- --------
* Assumes the market price for the Common Stock is $16.63 per share, the March
12, 1997 closing price for shares of Common Stock on the New York Stock
Exchange.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL
OF THE 1997 DIRECTORS RESTRICTED STOCK PLAN.

18
<PAGE>

INDEPENDENT PUBLIC ACCOUNTANTS

At the regular meeting held March 5, 1997, the Board of Directors of United
Water acted to appoint Price Waterhouse LLP, New York, New York, as auditors
for United Water and its Subsidiaries for the year 1997. At the Annual Meeting
it is the intention of the persons named in the proxy enclosed herewith to vote
in favor of the ratification, confirmation and approval of such action by the
Board of Directors. Price Waterhouse LLP performed the function of auditors of
United Water and its subsidiaries in 1996. A representative of Price Waterhouse
LLP will attend the meeting and, if so desires, make a statement. The
representative will also respond to appropriate questions.

The appointment of Price Waterhouse LLP by the Board of Directors is based on
the recommendations of the Audit Committee, which historically has reviewed
both the audit scope and the estimated audit fees and related services for the
coming year. The affirmative vote of a majority of the votes cast by the
shareholders entitled to notice and to vote at the Annual Meeting is required
for approval of such appointment.

At its February 20, 1997, meeting the Audit Committee (1) recommended the
appointment of Price Waterhouse LLP as auditors for 1997 and the continuance by
that firm of certain nonaudit services, and (2) concluded that rendering such
nonaudit services does not impair the independence of Price Waterhouse LLP with
respect to their examination of the December 31, 1997, financial statements of
United Water and its subsidiaries.

COST OF PROXY SOLICITATION

The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Annual Meeting and form of Proxy will be borne by United Water.
United Water has retained Georgeson & Co., Inc., a proxy solicitation firm, to
assist in the solicitation of proxies at an estimated cost of $7,000, plus
expenses. In addition, United Water will request brokerage houses, custodians,
nominees and fiduciaries to forward the proxy material to the beneficial owners
of the stock held of record by such persons, and United Water will reimburse
them, upon request, for reasonable expenses incurred in connection therewith.

OTHER MATTERS FOR THE MEETING

No other business is to be presented to the meeting so far as is now known or
foreseen, but in the event that any other matter is properly presented by
persons other than the Board of Directors, it is intended that the enclosed
proxy will be voted upon it according to the judgment of the person or persons
voting the proxy to the extent permitted by regulations of the Securities and
Exchange Commission.

VOTING PROCEDURES

Votes made by proxies returned prior to the date of the Annual Meeting will
be counted by United Water's transfer agent. Votes made by proxies returned on
the date of the Annual Meeting to the secretary of the meeting and votes cast
by shareholders attending or represented by proxyholders (other than those
named by management) will be counted by inspectors of election appointed by the
chairman of the meeting and who are expected to be employees of United Water or
its subsidiaries. Those votes will be added to those counted by the transfer
agent and the last vote or proxy will control. Abstentions and failures by
record holders to vote shares owned by beneficial owners (including "broker
non-votes") will have no effect.

19
<PAGE>

PROPOSALS FOR 1998 ANNUAL MEETING

Shareholder proposals for the 1998 Annual Meeting of United Water must be
received at the executive offices of United Water at 200 Old Hook Road,
Harrington Park, New Jersey 07640, no later than November 28, 1997, for
inclusion in the 1998 proxy statement and form of proxy.

On Behalf of the Board of Directors

Peter Del Col
Douglas W. Hawes
Marcia L. Worthing

Proxy Committee

Harrington Park, New Jersey
March 28, 1997

20
<PAGE>

ANNUAL MEETING NOTES
<PAGE>

United Water [LOGO]

- --------------------------------------------------------------------------------

1997 ANNUAL MEETING

LOCATION: MONTVALE INN

- --------------------------------------------------------------------------------

Directions to the Annual Meeting

Garden State Parkway north to exit 172, turn left at traffic light off exit
ramp onto Grand Avenue. At first traffic light turn left onto Chestnut Ridge
Road. Hotel is approximately 100 yards on the right.

New York/George Washington Bridge to Route 80 West and exit at Saddle Brook
for the Garden State Parkway, north. Follow Garden State Parkway instructions
above.

New York/Lincoln Tunnel to NJ Turnpike, north. Then take 80 West and exit at
Saddle Brook for the Garden State Parkway, north. Follow Garden State Parkway
instructions above.

Upstate New York take the New York Thruway (Interstate 87) south to Exit 14A
Garden State Parkway Extension. Take first exit, "Chestnut Ridge." Turn left
off exit ramp. Turn right at first traffic light (Summit Avenue). Turn left
onto Chestnut Ridge Road. Hotel is 100 yards on right past Grand Avenue.

LOCAL STREETS NEAR THE MONTVALE INN

[MAP]

<PAGE>

UNITED WATER RESOURCES INC.

PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- MAY 12, 1997

The undersigned shareholder of United Water Resources Inc. ("United
Water") hereby constitutes and appoints PETER DEL COL, DOUGLAS W. HAWES, and
MARCIA L. WORTHING, or any of them, the attorneys or attorney and proxies or
proxy of the undersigned, with full power of substitution and revocation, for
and in the name of the undersigned, to attend the Annual Meeting of Shareholders
of United Water to be held at the Montvale Inn, 100 Chestnut Ridge Road,
Montvale, New Jersey 07645, on Monday, May 12, 1997, at 9:30 a.m., and any
adjournment or adjournments thereof, receipt of the notice of which meeting
stating the purposes thereof being hereby acknowledged, to vote all of the
shares of United Water which the undersigned would be entitled to vote if then
personally present as follows:

(Continued and to be signed on other side)

X Please mark your votes as indicated in this example

This Proxy Is Solicited On Behalf Of The Board of Directors

1. Election of Directors For Withheld

The Nominees to Class I are:
Lawrence R. Codey, Donald L. Correll, Robert L. Duncan Jr.,
George F. Keane
The Nominee to Class II is:
Thierry Bourbie

Withheld For: (Write that nominee's name in the space provided below)

---------------------------------------------------------------------

2. To Amend the Restated Certificate of
Incorporation - For Against Abstain
3. To Amend the Management Incentive
Plan - For Against Abstain
4. To Approve a Restricted Stock Plan
for the Board of Directors - For Against Abstain
5. To Approve Auditors - For Against Abstain
6. To vote all of such shares as they
or he or she may deem proper upon all
other matters that may properly come
before said meeting and any
adjournments thereof.
7. Mark box if you plan to attend the
Annual Meeting (_____)

This Proxy is given and is to be construed
under the laws of the State of New Jersey
and will be voted "FOR" the Nominees named
herein and "FOR" the above proposals, if
in either case the undersigned has not
specified a choice in the boxes proved
therefore. This proxy when properly
executed will be voted in the manner
directed herein by the undersigned.

Signature(s) of Shareholder(s)___________________ Date ____________, 1997

Note: Please date and sign exactly as name appears hereon. When shares are held
by joint tenants both should sign. (Executors, Administrators, Trustees, etc.
should so indicate).