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PHILADELPHIA SUBURBAN CORPORATION
762 W. LANCASTER AVENUE
BRYN MAWR, PENNSYLVANIA 19010
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 1994
------------------------------
TO THE SHAREHOLDERS OF
PHILADELPHIA SUBURBAN CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders of
PHILADELPHIA SUBURBAN CORPORATION will be held at the Company's principal
offices, 762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania 19010, at 10:00 A.M.,
local time, on Thursday, May 19, 1994, for the following purposes:
1. To elect three directors;
2. To approve the adoption by the Board of Directors of the Company's
1994 Employee Stock Purchase Plan;
3. To approve the adoption by the Board of Directors of the Company's
1994 Equity Compensation Plan;
4. To consider and vote upon a shareholder proposal to elect all
directors annually, as described in the proxy statement; and
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record at the close of business on March 21, 1994 will
be entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments thereof.
By order of the Board of Directors,
PATRICIA M. MYCEK
Secretary
April 1, 1994
REGARDLESS OF WHETHER OR NOT THEY PLAN TO ATTEND THE MEETING, SHAREHOLDERS ARE
URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION
762 LANCASTER AVENUE
BRYN MAWR, PENNSYLVANIA 19010
------------------------------
PROXY STATEMENT
------------------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Philadelphia Suburban Corporation (the
'Company') to be used at the Annual Meeting of Shareholders to be held May 19,
1994 and at any adjournments thereof. This proxy statement and the enclosed
proxy are being mailed to shareholders on or about April 1, 1994.
The cost of soliciting proxies will be paid by the Company, which has
arranged for reimbursement, at the rate suggested by the New York Stock
Exchange, of brokerage houses, nominees, custodians and fiduciaries for the
forwarding of proxy materials to the beneficial owners of shares held of record.
In addition, the Company has retained the firm of Corporate Investor
Communications, Inc., to assist in the solicitation of proxies from (i) brokers,
bank nominees and other institutional holders, and (ii) individual holders of
record. The fee to Corporate Investor Communications, Inc., for normal proxy
solicitation is $4,000 plus expenses, which will be paid by the Company.
Directors, officers and regular employees of the Company may also solicit
proxies, although no additional compensation will be paid by the Company for
such efforts.
The Annual Report to Shareholders for the year ended December 31, 1993,
including financial statements and other information with respect to the Company
and its subsidiaries, was mailed with this proxy statement by third class mail
to shareholders of record on March 21, 1994. Additional copies of the Annual
Report may be obtained by writing to the Company. KPMG Peat Marwick, the
Company's independent certified public accountants, has been selected by the
Board of Directors to continue in such capacity for the current year.
Representatives of that firm are expected to be present at the meeting and will
be available to respond to appropriate questions.
PURPOSES OF THE MEETING
As the meeting is the Annual Meeting of Shareholders, the shareholders of
the Company will be requested to elect three directors to hold office as
provided by law and the Company's Bylaws. The shareholders will also be
requested to approve the adoption by the Board of Directors of the Company's
1994 Employee Stock Purchase Plan and the 1994 Equity Compensation Plan. Also, a
shareholder proposal to elect all directors of the Company annually must be
voted upon, although the results of this vote will not have the effect of
changing the present system for electing directors. The vote will simply express
the wishes of the shareholders.
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VOTING AT THE MEETING
Holders of shares of the Company's common stock ('Common Stock') of record
at the close of business on March 21, 1994 are entitled to vote at the meeting.
As of that date, there were 11,374,928 shares of Common Stock outstanding and
entitled to be voted at the meeting. Each shareholder entitled to vote shall
have the right to one vote on each matter presented at the meeting for each
share of Common Stock outstanding in such shareholder's name. The presence in
person or by proxy of shareholders entitled to cast a majority of all votes
entitled to be cast will constitute a quorum at the meeting.
The shares of Common Stock represented by each properly executed proxy will
be voted at the meeting in accordance with the shareholder's directions.
Shareholders are urged to specify their choices by marking the appropriate boxes
on the enclosed proxy card; if no choice has been specified, the shares will be
voted as recommended by the Board of Directors. If any other matters are
properly presented to the meeting for action, which is not presently
anticipated, the proxy holders will vote the proxies (which confer discretionary
authority to vote on such matters) in accordance with their best judgment.
Under the Pennsylvania Business Corporation Law, if a shareholder
(including a nominee, broker or other record owner) records the fact of
abstention or fails to vote (including broker non-votes) either in person or by
proxy, such action is not considered a vote cast and would have no effect in the
election of directors or the voting upon Proposals 2, 3 or 4.
Execution of the accompanying proxy will not affect a shareholder's right
to attend the meeting and vote in person. Any shareholder giving a proxy has the
right to revoke it by giving written notice of revocation to the Secretary of
the Company at any time before the proxy is voted by executing a proxy bearing a
later date, which is voted, at the meeting, or by attending the meeting and
voting in person.
YOUR PROXY VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE ASKED TO COMPLETE, SIGN
AND RETURN THE ACCOMPANYING PROXY CARD REGARDLESS OF WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING.
The Company's transfer agent, Mellon Bank, N.A., will vote any shares of
Common Stock that it holds as trustee for shareholders participating in the
Company's Customer Stock Purchase Plan and Dividend Reinvestment and Optional
Stock Purchase Plan in accordance with the proxies returned by participants with
respect to shares of Common Stock owned of record by such participants. If the
proxy is not returned, the participant's shares held by Mellon Bank, N.A. as
trustee will not be voted. Employees will not receive a separate proxy for
shares owned (subject to vesting) under the Company's Thrift Plan, as the
trustee for the Thrift Plan will vote the shares of Common Stock held
thereunder.
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(PROPOSAL NO. 1)
ELECTION OF DIRECTORS
VOTING ON PROPOSAL NO. 1.
The Board of Directors is divided into three classes. One class is elected
each year to hold office for a three-year term and until successors of such
class are duly elected and qualified, except in the event of death, resignation
or removal. Therefore, only Messrs. Austin, McCaughan and Wilson, who are
current directors and whose terms expire in 1994, are being presented to
shareholders for election as directors at the Annual Meeting for terms expiring
in 1997.
Three directors are to be elected by a plurality of the votes cast at the
Annual Meeting, and six directors will continue to serve in accordance with
their prior election. At the meeting, proxies in the accompanying form, properly
executed, will be voted for the election of the three nominees listed below,
unless authority to do so has been withheld in the manner specified in the
instruction on the proxy card. Discretionary authority is reserved to cast votes
for the election of a substitute should any nominee be unable or unwilling to
serve as a director. Each nominee has stated his willingness to serve and the
Company believes that all of the nominees will be available to serve.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR the
election of Messrs. Austin, McCaughan and Wilson as directors. Proxies solicited
by the Board of Directors will be so voted unless shareholders specify otherwise
on their proxy cards.
GENERAL INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held six meetings in 1993. The Company's Bylaws
provide that the Board of Directors, by resolution adopted by a majority of the
whole Board, may designate an Executive Committee and one or more other
committees, with each such committee to consist of two or more directors. The
Board of Directors annually elects from its members the Executive, Audit,
Executive Compensation and Employee Benefits, Nominating, and Pension
Committees. Each incumbent director, for the period served in 1993, attended at
least 75% of all meetings of the Board and the committees on which he or she
served.
Executive Committee. The Company's Bylaws provide that the Executive
Committee shall have and exercise all of the authority of the Board in the
management of the business and affairs of the Company, with certain exceptions.
The Executive Committee is intended to serve in the event that action by the
Board of Directors is necessary or desirable between regular meetings of the
Board, or at a time when convening a meeting of the entire Board is not
practical, and to make recommendations to the entire Board with respect to
various matters. The Executive Committee held four meetings in 1993.
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The Executive Committee currently has six members, and the Chairman of the
Company serves as Chairman of the Executive Committee.
Audit Committee. The Audit Committee is composed of three directors who
are not officers of the Company or any of its subsidiaries. It meets
periodically with the Company's financial officers and independent certified
public accountants to review the scope of auditing procedures and the policies
relating to the Company's accounting procedures and controls. The Committee also
provides general oversight with respect to the accounting principles employed in
the Company's financial reporting. The Audit Committee held two meetings in
1993.
Executive Compensation and Employee Benefits Committee. The Executive
Compensation and Employee Benefits Committee is composed of four members of the
Board who are not officers of the Company or any of its subsidiaries and who are
otherwise ineligible to participate in any of the Company's incentive
compensation plans. The Executive Compensation and Employee Benefits Committee
has the power to grant options under and administer the 1982 and 1988 Stock
Option Plans and to administer the Executive Incentive Award Plan. In addition,
the Executive Compensation and Employee Benefits Committee reviews the
recommendations of the Company's Chief Executive Officer as to appropriate
compensation of the Company's officers and key personnel and recommends to the
Board the compensation of such officers and the Company's Chief Executive
Officer for the ensuing year. The Executive Compensation and Employee Benefits
Committee held two meetings in 1993.
Nominating Committee. The Nominating Committee reviews and makes
recommendations to the Board of Directors with respect to candidates for
director of the Company. The Nominating Committee has three members and held one
meeting during 1993. It is the present policy of the Nominating Committee to
consider nominees who are recommended by shareholders as additional members of
the Board or to fill vacancies on the Board. Shareholders desiring to submit the
names of, and any pertinent data with respect to, such nominees should send this
information in writing to the Chairman of the Nominating Committee in care of
the Company.
Pension Committee. The Pension Committee serves as the Plan Administrator
for the Company's qualified benefit plans. The Committee reviews and recommends
to the Board any actions to be taken by the Board in the discharge of the
Board's fiduciary responsibilities under the Company's qualified benefit plans
and meets periodically with the Company's financial, legal, actuarial, and
investment advisors. The Committee consists of three members and held two
meetings in 1993.
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The current members of the Committees of the Board of Directors are as
follows:
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION AND
EXECUTIVE COMMITTEE EMPLOYEE BENEFITS COMMITTEE AUDIT COMMITTEE
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
Nicholas DeBenedictis* John F. McCaughan* John H. Austin, Jr.*
John H. Austin, Jr. G. Fred DiBona, Jr. John W. Boyer, Jr.
John W. Boyer, Jr. Claudio Elia Harvey J. Wilson
G. Fred DiBona, Jr. Joseph C. Ladd
Joseph C. Ladd
John F. McCaughan
</TABLE>
<TABLE>
<CAPTION>
PENSION COMMITTEE NOMINATING COMMITTEE
- --------------------------------- ---------------------------------
<S> <C>
Joseph C. Ladd* G. Fred DiBona, Jr.*
John W. Boyer, Jr. Mary C. Carroll
Nicholas DeBenedictis Nicholas DeBenedictis
</TABLE>
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* Chairman
REQUIREMENTS FOR ADVANCE NOTIFICATION OF NOMINATIONS
Nominations for election of directors may be made at the Annual Meeting by
any shareholder entitled to vote for the election of directors, provided that
written notice (the 'Notice') of the shareholder's intent to nominate a director
at the meeting is filed with the Secretary of the Company prior to the Annual
Meeting in accordance with provisions of the Company's Amended and Restated
Articles of Incorporation and Bylaws.
Section 4.13 of the Company's Bylaws requires the Notice to be received by
the Secretary of the Company not less than 14 days nor more than 50 days prior
to any meeting of the shareholders called for the election of directors, with
certain exceptions. These notice requirements do not apply to nominations for
which proxies are solicited under applicable regulations of the Securities and
Exchange Commission ('SEC'). The Notice must contain or be accompanied by the
following information:
(1) the name and residence of the shareholder who intends to make the
nomination;
(2) a representation that the shareholder is a holder of record of
voting stock and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the Notice;
(3) such information regarding each nominee as would have been
required to be included in a proxy statement filed pursuant to the SEC's
proxy rules had each nominee been nominated, or intended to be nominated,
by the management or the Board of Directors of the Company;
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(4) a description of all arrangements or understandings among the
shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to
be made by the shareholder; and
(5) the consent of each nominee to serve as a director of the Company
if so elected.
Pursuant to the above requirements, appropriate Notices in respect of
nominations for directors must be received by the Secretary of the Company no
later than May 5, 1994.
INFORMATION REGARDING NOMINEES AND DIRECTORS
For the three nominees for election as directors at the 1994 Annual Meeting
and the six directors whose terms of office expire either at the 1995 Annual
Meeting or the 1996 Annual Meeting, there follows information as to the
positions and offices with the Company held by each, the principal occupation of
each during the past five years, and certain directorships of public companies
and other organizations held by each.
- --------------------------------------------------------------------------------
NOMINEES FOR ELECTION AT ANNUAL MEETING
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John H. Austin, Jr .............. Mr. Austin retired as President of PECO Energy Company, a public utility, in
Berwyn, PA 1988. Mr. Austin served as President of PECO Energy Company from 1982 to 1988.
Director since 1981 He is also a director of Selas Corporation of America. Age: 65.
John F. McCaughan ............... Mr. McCaughan is Chairman of Betz Laboratories, Inc., which provides
Doylestown, PA engineered chemical treatment of water, wastewater and process systems. Mr.
Director since 1984 McCaughan was Chairman and Chief Executive Officer of Betz Laboratories from
1982 to 1994. He is also a director of Betz Laboratories, Inc. and Penn Mutual
Life Insurance Company. Age: 58.
Harvey J. Wilson ................ Mr. Wilson has been a self-employed businessman and investor since mid-1983.
Delray Beach, FL Mr. Wilson served as President of Shared Medical Systems Corporation, of which
Director since 1983 he was a co-founder, until June 1983 and as Vice Chairman until May 1984. He
is a director of Legent Corporation. Age: 55.
</TABLE>
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- --------------------------------------------------------------------------------
DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Mary C. Carroll ................. Ms. Carroll is a consultant, a community volunteer and an advisor to nonprofit
Bryn Mawr, PA corporations, businesses and government agencies. Between 1992 and 1993 she
Director since 1981 served as President of Hospitality Philadelphia Style. She is Vice Chairman of
Ft. Mifflin on the Delaware and is a founder, director or trustee of various
civic and charitable organizations, including Preservation Action, the
National Parks Mid-Atlantic Council, the Friends of Independence National
Historical Park, the Urban Affairs Coalition and the Metropolitan YMCA. Age:
53.
Claudio Elia .................... Mr. Elia has served since September, 1988 as President and Chief Executive
Greenwich, CT Officer of Anjou International Company, the U.S. holding company of Compagnie
Director since 1992 Generale des Eaux, a diversified local service company providing a broad range
of water, power, heating and urban maintenance services. He has also served as
President and Chief Executive Officer of Limbach Holdings, a construction and
service company, and President of Montenay International Co., a waste-to-
energy company, both of which are affiliates of Compagnie Generale des Eaux.
Mr. Elia is also a director of Consumers Water Company, Anjou International
Company, Limbach Holdings and Montenay International Co. Age: 51.
Joseph C. Ladd .................. Mr. Ladd is the retired Chairman, President and Chief Executive Officer of The
Rosemont, PA Fidelity Mutual Life Insurance Company, serving in those capacities from July,
Director since 1983 1971 to January, 1992. He is currently a director of CoreStates Financial
Corp., CoreStates Bank N.A. and PECO Energy Company. Age: 67.
</TABLE>
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DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John W. Boyer, Jr ............... Mr. Boyer retired as Chairman of the Company on May 20, 1993, having served in
St. Davids, PA that capacity since the restructuring of the Company on July 1, 1981. Mr.
Director since 1981 Boyer also served as the Company's Chief Executive Officer from July 1, 1981
to July 1, 1992. Mr. Boyer is a director of Betz Laboratories, Inc., Gilbert
Associates, Inc. and Rittenhouse Trust Company. Age: 65.
Nicholas DeBenedictis ........... Mr. DeBenedictis has served as Chairman of the Company since May 20, 1993. Mr.
Philadelphia, PA DeBenedictis also continues to serve as the Company's Chief Executive Officer
Director since 1992 and President, the positions he has held since joining the Company in 1992. He
also serves as Chairman and Chief Executive Officer of the Company's principal
subsidiary, Philadelphia Suburban Water Company. Between April 1989 and June
1992, he served as Senior Vice President for Corporate Affairs of PECO Energy
Company. From December 1986 to April 1989, he served as President of the
Greater Philadelphia Chamber of Commerce and from 1983 to 1986 he served as
the Secretary of the Pennsylvania Department of Environmental Resources. Mr.
DeBenedictis is also a member of the PNC Bank, N.A., Philadelphia Advisory
Board. Age: 48.
G. Fred DiBona, Jr .............. Mr. DiBona has served since 1990 as President and Chief Executive Officer of
Bryn Mawr, PA Independence Blue Cross, the Delaware Valley region's largest health insurer.
Director since 1993 He also serves as Chairman of Independence Blue Cross' subsidiaries and
affiliates. Between 1986 and 1990, Mr. DiBona served as President and Chief
Executive Officer for Pennsylvania Blue Shield's holding company, Keystone
Ventures, Inc. Mr. DiBona is also a director of Independence Blue Cross and
its subsidiaries, as well as various civic and charitable organizations. Age:
43.
</TABLE>
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of January 31, 1994,
with respect to shares of Common Stock of the Company beneficially owned by each
director and executive officer and by all directors and executive officers of
the Company as a group. This information has been provided by each of the
directors and officers at the request of the Company. Beneficial ownership of
securities as
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shown below has been determined in accordance with applicable guidelines issued
by the SEC and includes the possession, directly or indirectly, through any
formal or informal arrangement, either individually or in a group, of voting
power (which includes the power to vote, or to direct the voting of, such
security) and/or investment power (which includes the power to dispose of, or to
direct the disposition of, such security).
<TABLE>
<CAPTION>
TOTAL AND
SOLE VOTING SHARED VOTING PERCENT OF
AND/OR SOLE AND/OR SHARED CLASS
BENEFICIAL OWNER INVESTMENT POWER INVESTMENT POWER(1)(2) OUTSTANDING(3)
- -------------------------------------------- ----------------- ---------------------- ---------------
<S> <C> <C> <C>
John H. Austin, Jr.......................... 1,000 -- 1,000
John W. Boyer, Jr........................... 58,503 -- 58,503
Mary C. Carroll............................. 600 400 1,000
Nicholas DeBenedictis....................... 12,300 6,647(4) 18,947
G. Fred DiBona, Jr.......................... 300 -- 300
Claudio Elia (5)............................ -- -- --
Michael P. Graham........................... 10,000 4,976 14,976
Joseph C. Ladd.............................. 2,451 -- 2,451
Robert A. Luksa............................. 18,300 22,622 40,922
John F. McCaughan........................... 2,000 -- 2,000
Roy H. Stahl................................ 21,382 1,755 23,137
Harvey J. Wilson............................ 6,500 -- 6,500
All directors and executive officers as a
group (12 persons)........................ 133,336(6) 36,400(7) 169,736(1.49%)
</TABLE>
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(1) The shareholdings indicated include 244 shares held in the Company's
Dividend Reinvestment Program.
(2) Under the Company's Thrift Plan, participants do not have any present voting
power with respect to shares allocated to their accounts. Such shares have
been included in this column.
(3) Percentages for each person or group are based on the aggregate of the
shares of Common Stock outstanding as of January 31, 1994 (11,403,468
shares) and all shares issuable to such person or group upon the exercise of
outstanding stock options exercisable within 60 days of that date.
Percentage ownership of less than 1% of the class then outstanding as of
January 31, 1994 has not been shown.
(4) The shareholdings indicated include 400 shares owned of record by Mr.
DeBenedictis' wife and 3,169 shares owned of record by Mr. DeBenedictis'
son. Mr. DeBenedictis disclaims beneficial ownership as to such shares.
(5) As Chief Executive Officer of Anjou International Company, Mr. Elia oversees
Compagnie Generale des Eaux's interests in the United States, including
their share ownership in Philadelphia Suburban Corporation. Consequently, he
may be deemed to share voting and dispositive power for the shares held by
Compagnie Generale des Eaux.
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(6) The shareholdings indicated include 41,100 shares exercisable under the 1982
Stock Option Plan and the 1988 Stock Option Plan on or before April 1, 1994
and 10,000 shares awarded but not released under the Company's Executive
Incentive Award Plan.
(7) The shareholdings indicated include 28,018 shares (i) held in joint
ownership with spouses, (ii) held as custodian for minor children or (iii)
owned by family members.
The following table sets forth certain information as of February 28, 1994,
except as otherwise indicated, with respect to the ownership of shares of Common
Stock of the Company by certain beneficial owners of 5% or more of the Company's
total outstanding shares.
<TABLE>
<CAPTION>
PERCENT OF
OUSTANDING
BENEFICIAL OWNER AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP SHARES
- ---------------------------------------------- --------------------------------------------------- -------------
<S> <C> <C>
Compagnie Generale des Eaux
52 Rue D'Anjou 75008 Sole voting and dispositive
Paris, France power over 1,526,000 shares(1) 13.41%
</TABLE>
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(1) Based on the Form 4 of Compagnie Generale des Eaux dated March 8, 1994.
EXECUTIVE COMPENSATION
REPORT OF THE EXECUTIVE COMPENSATION AND
EMPLOYEE BENEFITS COMMITTEE
OVERALL OBJECTIVES
Philadelphia Suburban Corporation's executive compensation program is
designed to motivate its senior executives to achieve the Company's goals of
providing its customers with cost-effective, reliable water services and
providing the Company's shareholders with a market-based return on their
investment.
Toward that end, the program:
o Provides compensation levels that are competitive with those provided by
companies with which the Company may compete for executive talent.
o Motivates key senior executives to achieve strategic business initiatives
and rewards them for their achievement.
o Creates a strong link between stockholder and financial performance and
the pay of the Company's senior executives.
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In administering the executive compensation program, the Executive
Compensation and Employee Benefits Committee (the 'Committee') attempts to
strike an appropriate balance among the above-mentioned objectives, each of
which is discussed in greater detail below.
At present, the executive compensation program is comprised of three
components: base salary, annual cash incentive opportunities and equity
incentive opportunities. In determining the relative weighting of compensation
components and target level of compensation for the Company's executives, the
Committee considers compensation programs of a peer group of companies. Because
of the limited number of investor-owned water utilities from which comparable
compensation data is available, the Committee utilizes survey data from a
composite market ('Composite Market') compiled by a nationally recognized
compensation consulting firm in assessing the competitiveness of base salaries
and annual incentive targets. The Composite Market consists of 50% water
utilities, 25% other utilities and 25% general industrial businesses. There are
fourteen water utilities in the Composite Market, eleven of which are included
in the Edward D. Jones & Co. Water Utility Index used for the stock performance
chart contained herein. Competitive compensation levels are targeted at the
median of the third quartile range of compensation levels in the Composite
Market, except for equity incentive awards, which are evaluated using the 50th
percentile of the compensation consulting firm's data base of general industrial
organizations, including utilities, that have long-term incentive programs.
COMPENSATION COMPONENTS
Base Salary
To ensure that its pay levels are competitive, the Company regularly
compares its executive compensation levels with those of other companies and
sets its salary structure in line with competitive data from the Composite
Market. Individual salaries are considered for adjustment annually and any
adjustments are based on general movement in external salary levels, individual
performance, and changes in individual duties and responsibilities.
Cash Incentive Awards
Annual incentive awards are based upon two factors -- the Company's overall
financial results and the executive's individual performance objectives. The
annual incentive plan consists of target incentive awards for each executive
stated as a percentage of base salary that were evaluated for competitiveness
against the Composite Market. Annual incentive awards for executive officers are
calculated by a formula that multiplies the executive's target incentive
percentage times factors for both the Company and individual performance that
can range from 0 to 1 1/2 times. Each of these percentages are established by
the Committee each year. Regardless of the Company's performance, the Committee
retains the authority to determine the final Company rating factor, and actual
payment and amount of any bonus is always subject to the discretion of the
Committee.
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Equity Incentives
Historically, the Company's equity incentives have consisted primarily of
qualified and nonqualified stock options. The shares reserved for issuance under
the Company's 1988 Stock Option Plan were fully utilized with the grants made in
1993. As part of its review of the total compensation package for the Company's
officers, the Committee, with the assistance of a nationally-recognized
compensation consulting firm, reviewed the Company's equity incentive
compensation program. In determining a competitive level for such equity
incentives, the Committee, upon the recommendation of the consultant, has
adopted a target of the 50th percentile of all industrial organizations,
including utilities, based on the consultant's data base of such organizations
that have long-term incentive programs.
Since stock options for all of the shares of Common Stock reserved for
issuance under the Company's 1988 Stock Option Plan have been awarded, the
consultant recommended to the Committee a new equity compensation plan composed
of stock options, dividend equivalents and restricted stock. Given the
importance of dividends to a utility investor, the consultant recommended using
a combination of stock options and dividend equivalents to best link executive
long-term incentives to corporate performance and shareholder interests. The
consultant also recommended increasing the percentage of the Chief Executive
Officer's total direct compensation represented by equity incentives to come in
line with the market, as defined above.
After reviewing the consultant's recommendations, the Committee at its
March 21, 1994 meeting, approved a proposed Equity Compensation Plan for
recommendation to the Company's Board of Directors. Under the terms of the Plan,
which are more fully described on pages 23 through 28 of this proxy statement,
the Committee and the Board of Directors may grant stock options to officers,
key employees and key consultants, and may grant dividend equivalents and
restricted stock to officers and key employees, of the Company and its
subsidiaries who are in a position to contribute materially to the successful
operation of the business of the Company. The purpose of the Plan is to help
align executive compensation with shareholder interests by providing the
participants with a long-term equity interest in the Company. The plan also
provides a means through which the Company can attract and retain employees of
significant abilities. Upon the recommendation of the Committee, the Executive
Committee of the Board of Directors adopted the Plan, subject to the approval of
the Company's shareholders as set forth in Proposal No. 3 on pages 23 to 28 of
this Proxy Statement.
SUMMARY OF ACTIONS TAKEN BY COMMITTEE
Salary Increase
Under the Company's salary program, the base salary budget is based on
salary levels for comparable positions in the Composite Market. The projected
overall annual increase is based on annual salary budget increase data reported
by published surveys. Under these guidelines, actual salary increases are
determined based on a combination of an assessment of the individual's
performance and the individual's salary compared to the market. In the case of
executive officers named in this Proxy
12
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Statement, the determination of salary levels is made by the Committee, subject
to approval by the Board of Directors.
Mr. DeBenedictis' salary for 1993 was consistent with the target level
within the Composite Market. Mr. DeBenedictis' salary for 1994 is consistent
with published salary survey information on salary levels and projected annual
salary increases for 1994 and is based on the Committee's favorable assessment
of his and the Company's performance.
Annual Incentive Award
At its February 25, 1994 meeting, the Committee determined annual incentive
awards based on the Company's 1993 results. The awards were based on the
Company's performance compared to its financial goal for 1993 as well as the
participants' achievement of their individual objectives. Mr. DeBenedictis
earned $145,454 in annual incentive compensation for 1993, based on the
Company's earnings and the Committee's positive assessment of Mr. DeBenedictis'
individual performance. Mr. DeBenedictis' achievements in 1993 included
successful completion of the divestitures of the Company's non-regulated
businesses, increasing net income significantly over 1992 levels and above the
target in the 1993 business plan, significant progress in implementing the
financial restructuring of the Company, and completing the Company's third water
system acquisition.
Equity Incentives
At its March 2, 1993 meeting, the Committee approved the grant of qualified
stock options under the Company's 1988 Stock Option Plan to its executive
officers at the fair market value on the date of grant of $17.125. The options
are exercisable in installments of 20% each year starting on the first
anniversary of the date of grant and carry a term of 10 years from the date of
grant. Mr. DeBenedictis received a option grant for 9,000 shares at this grant
price. At its March 21, 1994 meeting, the Committee approved the 1994 Equity
Compensation Plan, subject to shareholder approval, as described above.
Respectfully submitted,
John F. McCaughan
G. Fred DiBona, Jr.
Claudio Elia
Joseph C. Ladd
The foregoing report of the Executive Compensation and Employee Benefits
Committee shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933 or Securities Exchange Act of 1934, except to the extent
that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
13
<PAGE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table shows compensation paid by the
Company for services rendered during the years 1993, 1992 and 1991 for the
Company's Chief Executive Officer and the other four most highly compensated
executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------
---------------------------------- RESTRICTED SECURITIES PAYOUTS ALL
OTHER ANNUAL STOCK UNDERLYING --------- OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) SAR'S (#) PAYOUTS($) ($)(5)
- ---------------------- --------- --------- --------- ------------ ----------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
N. DeBenedictis(6).... 1993 231,751 145,454 2,698 -- 9,000 -- 21,840
CEO 1992 112,500 50,220 -- -- 50,000 -- 21,840
J. Boyer, Jr.......... 1993 200,000 -- 208,218 -- -- -- 3,200
Chairman (retired) 1992 293,752 -- 3,438 -- -- -- 1,180
1991 268,760 101,106 3,500 -- -- -- 2,817
R. Luksa.............. 1993 196,526 66,078 4,497 -- 6,500 -- --
President-PSWC 1992 188,107 51,001 3,500 -- 5,000 -- --
1991 177,507 54,000 3,500 -- -- -- --
R. Stahl.............. 1993 144,200 54,545 4,326 -- 5,000 -- --
Senior V.P. 1992 138,000 42,500 3,050 -- 5,000 -- --
1991 129,500 30,332 3,500 -- -- 126,917 --
M. Graham............. 1993 112,651 43,157 3,379 -- 5,000 -- --
Senior V.P.-Finance... 1992 102,504 34,177 2,580 -- 5,000 -- --
1991 93,753 21,830 2,100 -- 5,000 -- --
</TABLE>
- ------------------
(1) Salary deferred at the discretion of the executive and contributed to the
Company's Thrift Plan is included in this Column.
(2) Includes cash bonuses for services rendered during the specified year,
regardless of when paid.
(3) Company matching contributions pursuant to the Company's Thrift Plan are
included in this column. Included in the amount for Mr. Boyer is $190,625
paid to him to cancel his outstanding stock options, which amount
represented the spread between his option exercise price and the fair market
value of the Company's stock on August 11, 1993 and the supplemental
retirement benefits of $13,096 paid to Mr. Boyer in 1993.
(4) Mr. Luksa was awarded 10,000 shares of restricted stock under the Company's
expired 1982 Executive Incentive Award Plan subject to restrictions that are
due to expire in March, 1994. The value of these shares at December 31,
1993, less their par value paid by Mr. Luksa, is $178,750. Mr. Luksa
receives the dividends on these shares.
(5) The premium payments made by the Company or its subsidiary under split
dollar life insurance programs for Mr. DeBenedictis and Mr. Boyer are
included in this column. The Company will be reimbursed the amount of the
premiums paid under the split dollar program for Mr. DeBenedictis upon his
death or repaid such premiums by Mr. DeBenedictis if he leaves the Company
and if he desires to maintain the policy.
(6) Mr. DeBenedictis was elected Chief Executive Officer effective July 1, 1992
and was not employed by the Company or any of its subsidiaries prior
thereto. Therefore, his salary and bonus payments for 1992 are based on his
employment with the Company for six months of 1992. Under the terms of an
employment agreement entered into during 1992, Mr. DeBenedictis serves as
Chief Executive Officer of the Company at a base salary of not less than
$225,000 per year, plus annual and long-term incentives.
14
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the last five years with the weighted average
cumulative total return of a peer group of companies represented by the Edward
D. Jones & Co. ('EDJ') Water Utility Industry Index (adjusted for total market
capitalization) and the cumulative total return on the S&P 500 over the same
period, assuming a $100 investment on January 1, 1988 and the reinvestment of
all dividends. The Edward D. Jones & Co. Water Utility Industry Index consists
of the following companies: American Water Works Company, Inc.; Aquarion
Company; California Water Service Company; Connecticut Water Service Company;
Consumers Water Company; E'town Corporation; IWC Resources Corporation;
Middlesex Water Company; SJW Corporation; Southern California Water Company;
United Water Resources, Inc.; GWC Corporation; Philadelphia Suburban
Corporation; and Southwest Water Company.
[Insert Stock Performance Graph Here]
<TABLE>
<CAPTION>
EDJ Weighted Avg S&P 500 PSC
<S> <C> <C> <C>
1988 100 100 100
1989 108 132 113
1990 99 128 107
1991 138 166 149
1992 151 179 162
1993 174 197 197
</TABLE>
The foregoing comparative stock performance graph shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
15
<PAGE>
STOCK OPTION GRANTS IN 1993
The following table sets forth information concerning individual grants of
stock options under the Company's 1988 Stock Option Plan during 1993 to each
executive officer identified in the Summary Compensation Table who received
options during the period.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
% OF GRANT DATE
NUMBER OF TOTAL VALUE
SECURITIES OPTIONS/SAR'S -----------
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SAR'S EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE VALUE($)(3)
- ------------------------------------------- --------------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DeBenedictis............................... 9,000 7.0% 17.125 3/02/03 17,724
Boyer...................................... -- -- -- -- --
Luksa...................................... 6,500 5.1% 17.125 3/02/03 12,801
Stahl...................................... 5,000 3.9% 17.125 3/02/03 9,847
Graham..................................... 5,000 3.9% 17.125 3/02/03 9,847
</TABLE>
- ------------------
(1) The options listed in this column are incentive stock options granted at an
exercise price equal to the fair market value of the Company's common stock
on the date of grant under the Company's 1988 Stock Option Plan. Grants
become exercisable in installments of 20% per year commencing on the first
anniversary of the grant date.
(2) The exercise price for options granted is equal to the mean of the high and
low sale prices of the Company's common stock on the New York Stock Exchange
composite tape on the date the option is granted.
(3) The values in this column were determined using Black-Scholes Option Pricing
Model. The actual value, if any, that may be realized will depend on the
difference between the exercise price and the market price on the date of
exercise. The estimated values under the Black-Scholes model are based on
assumptions as to such variables as interest rates, stock price volatility
and dividend yield. The key assumptions used in the Black-Scholes model
valuation of the options are (i) an annual dividend yield of 5.7%, (ii) a
risk free rate of return of 6%, (iii) a beta coefficient of 1, (iv) an
exercise date of 10 years from the date of grant, and (v) no reduction in
values to reflect non-transferability or other restrictions on the options.
These assumptions are not a forecast of future dividend yield or stock
performance or volatility.
16
<PAGE>
STOCK OPTION EXERCISES IN 1993 AND VALUE OF OPTIONS AT YEAR-END 1993
The following table sets forth information concerning the number of stock
options exercised under the Company's 1982 and 1988 Stock Option Plans during
1993 by each executive officer listed below and the number and value of
unexercised options as of December 31, 1993, indicating in each case the number
and value of those options that were exercisable and unexercisable as of that
date.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SAR'S AT OPTIONS/SAR'S AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END ($)(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
DeBenedictis................ -- -- 10,000 49,000 40,000 171,250
Boyer....................... 50,000 190,625 -- -- -- --
Luksa....................... -- -- 6,000 10,500 16,875 20,625
Stahl....................... 4,500 27,594 8,400 9,600 29,925 22,013
Graham...................... 10,000 51,469 6,000 15,000 27,188 48,876
</TABLE>
- ------------------
(1) Based on the closing price on the New York Stock Exchange-Composite
Transactions of the Company's Common Stock on December 31, 1993 ($18.375).
CERTAIN COMPENSATION PLANS
RETIREMENT PLAN
The Retirement Plan for Employees of the Company (the 'Retirement Plan') is
a defined benefit pension plan. In general, participants are eligible for normal
pension benefits upon retirement at age 65 and are eligible for early retirement
benefits upon retirement at age 55 with ten years of credited service. Under the
terms of the Retirement Plan, a participant becomes fully vested in his or her
accrued pension benefit after five years of credited service. Benefits payable
to employees under the Retirement Plan are based upon 'final average
compensation', which is defined as the average cash compensation through the
five highest consecutive years of the last ten full years preceding retirement.
The Employee Retirement Income Security Act of 1974, as amended, ('ERISA')
imposes maximum limitations on the annual amount of pension benefits that may be
paid under, and the amount of compensation that may be taken into account in
calculating benefits under, a qualified, funded defined benefit pension plan
such as the Retirement Plan. The Retirement Plan complies with these ERISA
limitations. Effective December 1, 1989, the Board of Directors adopted an
Excess Benefits Plan for Salaried Employees (the 'Excess Plan'). The Excess Plan
is a nonqualified, unfunded
17
<PAGE>
pension benefit plan that is intended to provide an additional pension benefit
to participants in the Retirement Plan and their beneficiaries whose benefits
under the Retirement Plan are adversely affected by these ERISA limitations. The
benefit under the Excess Plan is equal to the difference between (i) the amount
of the benefit the participant would have been entitled to under the Retirement
Plan absent such ERISA limitations, and (ii) the amount of the benefit actually
payable under the Retirement Plan.
The following tabulation shows the estimated annual pension payable
pursuant to the Retirement Plan and the Excess Plan to employees, including
employees who are directors or officers of the Company, upon retirement after
selected periods of service. This table is provided for illustrative purposes
only and does not reflect pension benefits presently due under the Retirement
Plan or Excess Plan.
PENSION TABLE
<TABLE>
<CAPTION>
AVERAGE SALARY ESTIMATED ANNUAL PENSION BASED ON SERVICE OF
DURING FIVE YEARS ---------------------------------------------------------------
PRECEDING RETIREMENT 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------------------------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$100,000........................................ $ 25,500 $ 34,000 $ 42,400 $ 44,900 $ 47,400
125,000........................................ 32,200 43,000 53,700 56,800 59,900
150,000........................................ 39,000 52,000 64,900 68,700 72,400
175,000........................................ 45,700 61,000 76,200 80,600 84,900
200,000........................................ 52,500 70,000 87,400 92,400 97,400
225,000........................................ 59,200 79,000 98,700 104,300 109,900
250,000........................................ 66,000 88,000 109,900 116,200 122,400
300,000........................................ 79,500 106,000 132,400 139,900 147,400
350,000........................................ 93,000 124,000 154,900 163,700 172,400
400,000........................................ 106,500 142,000 177,400 187,400 197,400
450,000........................................ 120,000 160,000 199,900 211,200 222,400
500,000........................................ 133,500 178,000 222,400 234,900 247,400
</TABLE>
18
<PAGE>
The Company's contributions to the Retirement Plan are computed on the
basis of straight life annuities. The following executive officers listed in
Summary Compensation Table have the indicated number of completed years of
service under the Retirement Plan, and would, upon retirement at age 65 on March
31, 1994, be entitled to a pension based on the remuneration level listed in the
following table:
<TABLE>
<CAPTION>
COMPLETED
COVERED YEARS OF
NAME REMUNERATION CREDITED SERVICE
- --------------------------------------------------------------------- -------------- ---------------------
<S> <C> <C>
Nicholas DeBenedictis................................................ $ 174,170 2
John W. Boyer, Jr.................................................... 212,056 22
Robert A. Luksa...................................................... 192,594 38
Roy H. Stahl......................................................... 149,375 12
Michael P. Graham.................................................... 108,706 17
</TABLE>
Supplemental Executive Retirement Plans or SERPs have been established for
both Mr. DeBenedictis and Mr. Boyer. These Plans, which are nonqualified and
unfunded, were approved by the Board of Directors and are intended to provide
Mr. DeBenedictis and Mr. Boyer with a total retirement benefit, in combination
with the Retirement Plan and Excess Plan, that is commensurate with the
retirement benefits for the chief executive officers of other companies. Under
the terms of the SERPs, Mr. DeBenedictis and Mr. Boyer will be eligible to
receive a benefit at normal retirement equal to the difference between (i) the
benefit to which they would otherwise be entitled under the Retirement Plan
assuming they had 25 years of service and absent the ERISA limitations referred
to above, and (ii) the benefit payable to them under the Retirement Plan and the
Excess Plan. Under the terms of Mr. DeBenedictis's SERP, if his employment is
terminated for any reason prior to age 65, he is entitled to receive a
supplemental retirement benefit equal to the difference between (i) the benefit
to which he would otherwise be entitled under the Retirement Plan assuming he
was credited with two years of service for each of his first seven years of
credited service and (ii) the benefit payable to him under the Retirement Plan
and the Excess Plan. Mr. Boyer has reached retirement age of 65 and is currently
receiving an annual benefit under the SERP of $11,106. If Mr. DeBenedictis
retires from the Company at age 65, the SERP is projected to provide an annual
benefit of $56,000.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Under the terms of Mr. DeBenedictis' employment arrangement, if his
employment is terminated by the Company for any reason other than his
disability, death or for cause, he will be entitled to receive a severance
payment equal to twelve months of his base compensation paid in twelve equal
monthly installments without offset. A restricted stock award in the amount of
10,000 shares of Common Stock, held by Mr. Luksa and subject to restrictions
until March 1994 under a now-expired plan, includes a provision for the release
of restrictions upon certain change in control events.
19
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are full-time employees of the Company do not receive a
retainer or fees for service on the Board of Directors or Committees of the
Board. In 1993, members of the Board of Directors who were not full-time
employees of the Company or any of its subsidiaries received an annual retainer
fee of $12,000 plus a fee of $750 for attendance at each meeting of the Board of
Directors of the Company and meeting fees of $750 for attendance at each
Committee meeting of the Board. In addition, each Committee Chairman, who is not
a full-time employee of the Company, received an annual retainer fee of $2,000.
All directors are reimbursed for reasonable expenses incurred in connection with
attendance at Board or Committee meetings.
(PROPOSAL NO. 2)
APPROVAL OF THE 1994 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors is submitting to the shareholders for their approval
the Company's 1994 Employee Stock Purchase Plan (the 'ESPP'). The ESPP was
adopted by the Board of Directors effective March 15, 1994, subject to final
approval by the shareholders. The proposal to approve the ESPP requires the
affirmative vote of a majority of shares present in person or represented by
proxy at the Annual Meeting for its approval.
The text of the ESPP in the form submitted to the shareholders for approval
is set forth in full as Exhibit A to this proxy statement, and the description
of the ESPP contained herein is qualified in its entirety by reference to
Exhibit A. All capitalized terms in this description shall have the meanings set
forth in the ESPP. A description of the Company's other compensation plans
established for the benefit of executive officers and other employees appears
under the caption 'Executive Compensation' in this proxy statement.
The Company believes that the ESPP will serve to align its employees'
interests more closely to those of its shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR APPROVAL
OF THE ADOPTION OF THE 1994 EMPLOYEE STOCK PURCHASE PLAN.
DESCRIPTION OF THE ESPP
The ESPP provides Eligible Employees of the Company and its subsidiaries
with the opportunity to purchase shares of the Company's Common Stock (the
'Stock') at a five percent (5%) discount from the prevailing market price.
Purchases can be made through regular payroll deductions or voluntary cash
deposits. The minimum payroll deduction is five dollars ($5.00) per week (ten
dollars ($10.00) per payroll period for employees paid bi-weekly or
semi-monthly). The maximum payroll deduction cannot exceed ten percent (10%) of
an employee's base compensation. Participants' purchases through both payroll
deductions and voluntary deposits are limited to an aggregate market
20
<PAGE>
value of the shares of Stock purchased of twenty-five thousand dollars
($25,000), determined at the time of the Offerings, for each calendar year.
The ESPP is open to all active full-and part-time employees of the Company
and employees who are not so classified if their customary employment is for
more than twenty (20) hours per week and for more than five (5) months per year.
New employees must complete at least six (6) months of continuous service with
the Company to be eligible to participate in the ESPP. As of March 15, 1994,
there were approximately 525 employees eligible to participate in the ESPP.
A total of 300,000 shares of the Company's Stock are available for purchase
under the ESPP. The shares may be newly issued shares, Treasury stock or may be
purchased by the Company on the open market. As of March 15, 1994, the closing
price of the Common Stock on the New York Stock Exchange was $18.63.
The purchase price of the shares of stock purchased under the ESPP will be
ninety-five (95%) percent of the average of the high and low trading prices of
the Company's Stock on the last business day (the 'Exercise Date') of each
month. If for any reason the Company's Stock does not trade on that day, then
the Exercise Date shall be the next preceding date on which the Company's Stock
was traded. The Company pays all the administrative costs and brokerage fees
associated with maintaining the ESPP and purchasing shares for the participants'
accounts. The full amount in the participants' Stock Purchase Accounts on the
Exercise Date will be used to buy full and fractional shares for each
participant, which will be held in the participant's Employee Stock Purchase
Plan account (the 'Employee Account') until directed otherwise by the
participant.
Dividends will be paid on all full and fractional shares held in a
participant's Employee Account. Unless otherwise directed by a participant, all
dividends paid on such shares will be automatically reinvested under the
Company's Dividend Reinvestment and Optional Stock Purchase Plan (the 'DRP'). In
accordance with the terms of the DRP, reinvested dividends will be used to
purchase additional shares of Stock at a five percent (5%) discount from the
prevailing market price. Participants may alternatively elect to receive the
dividends on all of their full and fractional shares in cash.
Participants may sell the shares in their Employee Account at any time, but
are responsible for any applicable back-up tax withholding and brokers'
commissions.
The ESPP is administered by the Company, which has delegated certain of its
administrative responsibilities to the Company's transfer agent, Mellon Bank,
N.A. The ESPP is not subject to either the Employee Retirement Income Security
Act of 1974 or Section 401(a) of the Internal Revenue Code of 1986, as amended
(the 'Code'). The ESPP is intended to constitute an 'employee stock purchase
plan' within the meaning of Section 423 of the Code.
The ESPP will continue through March 14, 2004 unless terminated prior
thereto pursuant to its provisions or pursuant to action by the Board of
Directors, which has the right to terminate the ESPP at any time without prior
notice to any participant. The Board of Directors may, at any time and from time
to time, amend the ESPP in any respect, except that, without the approval of the
shareholders, no
21
<PAGE>
amendment may (1) increase the number of shares reserved for purposes of the
ESPP; (2) reduce the purchase price per share; or (3) allow any person who is
not an Eligible Employee to become a participant.
FEDERAL TAX CONSEQUENCES
The ESPP is intended to qualify as an 'employee stock purchase plan' within
the meaning of Section 423 of the Code, and it is also intended to comply with
the provisions of Sections 421 and 424 of the Code and the rules and regulations
issued thereunder. Under the Code as currently in effect, the federal income tax
consequences of the ESPP are outlined below.
Although the price a participant pays for a share of Stock purchased under
the ESPP is less than the market value for a share of Stock on the Exercise
Date, income need not be reported until the earlier of the following: (i) the
year in which the participant makes a sale or other disposition of the share or
(ii) the year of the participant's death if he or she has not made a sale or
other disposition of the share. The rules for determining the amount of taxable
ordinary income (as opposed to capital gain) to be reported in the participant's
federal income tax return for that year are summarized below. The amount of
ordinary income tax that the participant must report in his or her federal
income tax return is the same whether the share is held by the participant in
his or her name alone or jointly, with right of survivorship, in his or her name
and the name of his or her spouse or another person.
Generally, Section 423 of the Code requires that the participant must not
dispose of the Stock within two years after its offering date. If the
participant disposes of the Stock after the expiration of the required holding
period, he or she must include in taxable income at the time of disposition of
the shares (or in the event of his or her death while still holding the shares,
his or her estate), the lesser of (a) the amount by which the market value of
the Stock on the Exercise Date exceeds the purchase price of the Stock or (b)
the amount, if any, by which the market value of the Stock at the time of such
disposition or death exceeds the purchase price; any balance is taxable as a
long-term capital gain. If the participant disposes of the Stock before the
expiration of the required holding period, he or she must include in taxable
income at the time of disposition of the shares the amount by which the market
value of the shares on the Exercise Date exceeds the purchase price of the
shares. This amount must be reported as ordinary income even if the participant
made no profit or realized a loss on the sale of the shares or gave them away as
a gift.
When the participant reports ordinary income as described above, the amount
so reported is added to the purchase price of the share and this sum becomes his
or her tax 'basis' of the share for the purpose of determining capital gain or
loss on a sale or exchange of the share. There are special rules regarding the
tax 'basis' to a person who is given the shares by the participant and the tax
'basis' to the participant's estate of shares acquired by it as a result of his
or her death. There is no capital gain or loss on a disposition by gift or
transfer of title at death. If the participant must report ordinary income
because of a disposition of Stock prior to the expiration of the required
holding period, the Company will be entitled to a deduction from its income in
an amount equal to the ordinary income the participant is required to report in
his or her income tax return.
22
<PAGE>
(PROPOSAL NO. 3)
PROPOSAL TO APPROVE THE
1994 PHILADELPHIA SUBURBAN CORPORATION
EQUITY COMPENSATION PLAN
THE PROPOSAL
At the Annual Meeting, there will be presented to the shareholders a
proposal to approve and ratify the adoption of the 1994 Philadelphia Suburban
Corporation Equity Compensation Plan (the 'Plan'). The Plan was created to
assist the Company in retaining and attracting officers and other key employees
and key consultants by offering those individuals a proprietary interest in the
Company. On March 23, 1994, the Executive Committee of the Board adopted the
Plan, subject to shareholder approval at the Annual Meeting. The Plan will not
be effective unless or until shareholder approval is obtained. The proposal to
approve the Plan requires the affirmative vote of a majority of shares present
in person or represented by proxy at the Annual Meeting for its approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR APPROVAL
OF THE ADOPTION OF THE 1994 EQUITY COMPENSATION PLAN.
DESCRIPTION OF THE PLAN
The Plan is set forth as Exhibit B to this Proxy Statement, and the
description of the Plan contained herein is qualified in its entirety by
reference to Exhibit B.
General. Subject to adjustment in certain circumstances as discussed
below, the Plan currently authorizes up to 450,000 shares of Common Stock for
issuance pursuant to the terms of the Plan. The maximum number of shares of
Common Stock that may be issued under the Plan in connection with grants of
restricted stock is 25,000 shares. If and to the extent options granted under
the Plan terminate or expire without being exercised, or if any shares of
restricted stock are forfeited, the shares subject to such grant again will be
available for purposes of the Plan.
Administration of the Plan. The Plan is administered and interpreted by a
Committee of the Board (the 'Committee') consisting of not less than three
persons appointed by the Board from among its members who are not employees of
the Company and who are not entitled to participate in the Plan. The Committee
or the Board, subject to the terms of the Plan, in its sole discretion, may make
grants under the Plan to eligible officers and other key employees and key
consultants. A person may serve on the Committee only if he is not eligible, and
has not been eligible, to receive a grant under the Plan for at least one year
before his appointment. Reference to the Committee in the following paragraphs
shall also mean the Board when acting under its authority to make grants under
the Plan.
Grants. Incentives under the Plan consist of incentive stock options,
nonqualified stock options, restricted stock grants and dividend equivalents
(hereinafter collectively referred to as 'Grants'). All
23
<PAGE>
Grants are subject to the terms and conditions set forth in the Plan and to
those other terms and conditions consistent with the Plan as the Committee deems
appropriate and as are specified in writing by the Committee to the designated
individual (the 'Agreement'). The Committee must approve the form and provisions
of each Agreement.
Eligibility for Participation. Officers and other key employees of the
Company and key consultants are eligible to participate in the Plan (hereinafter
referred to individually as the 'Participant' and collectively as the
'Participants'). The Committee or the Board may select the persons to receive
Grants (the 'Grantees') from among the Participants and determine the number of
shares of Common Stock subject to a particular Grant. As of March 23, 1994,
there are approximately 60 key employees and no consultants eligible to
participate in the Plan.
Granting of Options. The Committee may grant options qualifying as
incentive stock options ('ISOs') within the meaning of section 422 of the Code
and/or other stock options ('NQSOs') in accordance with the terms and conditions
set forth in the Plan or any combination of ISOs or NQSOs (hereinafter referred
to collectively as 'Stock Options'). The Committee may grant only NQSOs to key
consultants under the Plan.
Term, Purchase Price, Exercisability and Method of Exercise. The exercise
price of Common Stock subject to an ISO or NQSO is the fair market value of such
stock on the date the Stock Option is granted. On March 23, 1994, the fair
market value of a share of Common Stock was $18.75 per share.
The Committee determines the option exercise period for each Stock Option;
provided, however, that the exercise period for an ISO may not exceed ten years
from the date of grant and the exercise period for a NQSO may not exceed ten
years and one day from the date of grant. The time when Stock Options become
exercisable is determined by the Committee, in its sole discretion, and is
specified in the Agreement. A Grantee may exercise a Stock Option by delivering
a notice of exercise to the Committee with accompanying payment of the option
price. The Grantee may pay the option price in cash, by delivering shares of
Common Stock already owned by the Grantee and having a fair market value on the
last trading day prior to the date of exercise equal to the option price or with
a combination of cash and shares. The Grantee must pay the option price and the
amount of any withholding tax due, if any, at the time of exercise. Shares of
Common Stock are not to be issued or transferred upon exercise of the Stock
Option until the option price and the withholding obligation are fully paid.
Restricted Stock Grants. The Committee may issue or transfer shares of
Common Stock under a Grant (a 'Restricted Stock Grant') pursuant to the Plan to
officers and other key employees. Shares of Common Stock issued pursuant to a
Restricted Stock Grant may be issued for consideration or for no consideration,
and the Committee grants to each Grantee a number of shares of Common Stock
determined in its sole discretion. The total number of shares of Common Stock
subject to Restricted Stock Grants under the Plan may not exceed 25,000 shares
of Common Stock. If a Grantee's employment terminates during the period, if any,
designated in the Agreement as the period during
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which the transfer of the shares is restricted (the 'Restriction Period'), the
Restricted Stock Grant terminates with respect to all shares covered by the
Grant as to which the restrictions on transfer have not lapsed, and those shares
of Common Stock must be immediately returned to the Company. During the
Restriction Period, a Grantee has all of the rights of a shareholder, including
the right to vote and receive dividends, except that during the Restriction
Period, a Grantee may not sell, assign, transfer, pledge or otherwise dispose of
the shares of Common Stock to which such Restriction Period applies, except to a
successor grantee in the event of the Grantee's death. All restrictions imposed
under the Restricted Stock Grant lapse upon the expiration of the applicable
Restriction Period. In addition, the Committee may determine as to any or all
Restricted Stock Grants that all restrictions will lapse under such other
circumstances as it deems equitable.
Dividend Equivalents. The Committee may grant dividend equivalents to
officers and other key employees either alone or in conjunction with all or any
part of any Stock Option granted under the Plan. A dividend equivalent is equal
to the dividend payable on a share of Common Stock of the Company. The Company
will credit to an account maintained for the Grantee on its books and records an
amount that is generally equal to the dividend equivalents subject to the Grant
during the accumulation period designated by the Committee.
The amount of a dividend equivalent is determined by applying the following
factors: (i) the number of dividend equivalents granted, (ii) the per-share cash
dividend, or the per-share fair market value of any non-cash dividend, paid by
the Company during the applicable accumulation period and (iii) the length of
the applicable accumulation period designated by the Committee at the time of
grant.
Generally, a Grantee will receive payment of a percentage of his dividend
equivalents as specified by the Committee at the time of grant, at the end of
the performance period established by the Committee at the time of the grant. A
performance period will generally be four years, but may be as long as eight
years or as short as two years from the date of grant, depending on the
performance criteria established by the Committee at the time of the grant. A
Grantee's dividend equivalents may be subject to more than one performance
period and more than one set of performance criteria.
Generally, no payments of dividend equivalents will be made before the end
of the applicable performance period or periods or to any Grantee whose
employment terminates before the end of the applicable performance period or
periods for any reason other than retirement under the Company's or a
subsidiary's retirement plan, death or total disability, unless the Committee,
in its sole discretion, determines otherwise.
Payment of dividend equivalents, at the discretion of the Committee, may be
made solely in cash, solely in credits to be applied toward payment of an
exercisable related option or a combination of cash and such credits. A Grantee
may also defer receipt of the payment of dividend equivalents, if he elects to
do so on or before December 31 of the year preceding the beginning of the last
full year of the applicable performance period.
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Amendment and Termination of the Plan. The Board may amend or terminate
the Plan at any time; provided, however, that any amendment that materially
increases the benefits accruing to Participants under the Plan, increases the
aggregate number (or individual limit for any Grantee) of shares of Common Stock
that may be issued or transferred under the Plan or materially modifies the
requirements as to eligibility for participation will be subject to approval by
the shareholders of the Company. The Plan will terminate on May 19, 2004 unless
terminated earlier by the Board.
Amendment and Termination of Outstanding Grants. An amendment of the Plan
that occurs after a Grant is made will not result in the amendment of the Grant
unless the Grantee consents or unless the Committee revokes a Grant, the terms
of which are contrary to applicable law. The termination of the Plan will not
impair the power and authority of the Committee with respect to outstanding
Grants.
Adjustment Provisions; Change of Control of the Company. If there is any
change in the number or kind of shares of Common Stock through the declaration
of stock dividends, or through a recapitalization, stock split, or combinations
or exchanges of such shares, or merger, recapitalization or consolidation of the
Company, reclassification or change in the par value or by reason of any other
extraordinary or unusual event, the number of shares of Common Stock available
for Grants and the number of such shares covered by outstanding Grants, the
price per share or the applicable market value of such Grants or the terms and
conditions applicable to dividend equivalents will be proportionately adjusted
by the Committee to reflect any increase or decrease in the number or kind of
issued shares of Common Stock.
In the event of a Change of Control of the Company, (i) all outstanding
Stock Options will become immediately exercisable, (ii) all restrictions on the
transfer of shares with respect to a Restricted Stock Grant which have not,
prior to such date, been forfeited will immediately lapse and (iii) all
outstanding dividend equivalents which have not, prior to such date, been
forfeited will become immediately payable, regardless of whether the applicable
performance period has ended. A Change of Control of the Company will be deemed
to have taken place with certain exceptions if (i) a person or group, other than
the Company, one of its affiliates or one of its employee benefit plans acquires
20% or more of the Common Stock then outstanding or (ii) during any 24-month
period, there is a change in the majority of the Board other than by approval of
the Board immediately prior to such change.
Other Plan Provisions. A Grant under the Plan will not be construed as
conferring upon any Grantee a contract of employment or service, and such Grant
will not confer upon the Grantee any rights upon termination of employment or
service, other than certain limited rights as to the exercise of a Stock Option
for a designated period of time following such termination.
Federal Income Tax Consequences. Set forth below is a general description
of the federal income tax consequences relating to Grants under the Plan.
Non-Qualified Stock Options. There are no federal income tax consequences
to Grantees or to the Company upon the grant of an NQSO under the Plan. Upon the
exercise of NQSOs, Grantees will
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recognize ordinary compensation income in an amount equal to the excess of the
fair market value of the shares at the time of exercise over the exercise price
of the NQSO, and the Company generally will be entitled to a corresponding
federal income tax deduction. Upon the sale of shares acquired by exercise of an
NQSO, a Grantee will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares were held) in an amount equal to
the difference between the amount realized upon the sale and the Grantee's
adjusted tax basis in the shares (the exercise price plus the amount of ordinary
income recognized by the Grantee at the time of exercise of the NQSO).
Incentive Stock Options. Grantees will not be subject to federal income
taxation upon the grant or exercise of ISOs granted under the Plan, and the
Company will not be entitled to a federal income tax deduction by reason of such
grant or exercise. However, the amount by which the fair market value of the
shares at the time of exercise exceeds the Stock Option price (or the Grantee's
other tax basis in the shares) is an item of tax preference subject to the
alternative minimum tax applicable to the person exercising the ISO. A sale of
shares acquired by exercise of an ISO that does not occur within one year after
the exercise or within two years after the grant of the ISO generally will
result in the recognition of long-term capital gain or loss in the amount of the
difference between the amount realized on the sale and the Stock Option price
(or the Grantee's other tax basis in the shares), and the Company will not be
entitled to any tax deduction in connection therewith.
If such sale occurs within one year from the date of exercise of the ISO or
within two years from the date of grant (a 'disqualifying disposition') and is a
transaction in which a loss, if sustained, would be recognized, the Grantee
generally will recognize ordinary compensation income equal to the lesser of (i)
the excess of the fair market value of the shares on the date of exercise over
the exercise price (or the Grantee's other tax basis in the shares), or (ii) the
excess of the amount realized on the sale of the shares over the exercise price
(or the Grantee's other tax basis in the shares). In the case of a disqualifying
disposition where a loss, if sustained, would not be recognized, the Grantee
will recognize ordinary income equal to the excess of the fair market value of
the shares on the date of exercise over the Stock Option price (or the Grantee's
other tax basis in the shares). Any amount realized on a disqualifying
disposition in excess of the amount treated as ordinary compensation income (or
any loss realized) will be a long-term or a short-term capital gain (or loss),
depending upon the length of time the shares were held. The Company generally
will be entitled to a tax deduction on a disqualifying disposition corresponding
to the ordinary compensation income recognized by the Grantee.
Generally, where previously acquired Common Stock is used to exercise an
outstanding ISO or NQSO, appreciation on such stock will not be recognized as
income. However, if such Common Stock was acquired pursuant to the exercise of
an ISO, a disqualifying disposition will be deemed to have occurred if such
stock is used to exercise another ISO prior to the expiration of the applicable
holding periods.
Restricted Stock. A Grantee normally will not recognize taxable income
upon the award of a Restricted Stock Grant, and the Company will not be entitled
to a deduction, until such stock is
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transferable by the Grantee or no longer subject to a substantial risk of
forfeiture for federal tax purposes, whichever occurs earlier. When the Common
Stock is either transferable or is no longer subject to a substantial risk of
forfeiture, the Grantee will recognize ordinary compensation income in an amount
equal to the fair market value of the Common Stock at that time, less any
consideration paid by the Grantee for such Restricted Stock, and the Company
will be entitled to a deduction in the same amount. A Participant may, however,
elect to recognize ordinary compensation income in the year the Restricted Stock
Grant is awarded in an amount equal to the fair market value of the Common Stock
at that time, determined without regard to the restrictions. In this event, the
Company will be entitled to a deduction in the same year, provided the Company
complies with the applicable withholding requirements for federal tax purposes.
Any gain or loss recognized by the Grantee upon subsequent disposition of the
Common Stock will be capital gain or loss. If, after making the election, any
Common Stock subject to a Restricted Stock Grant is forfeited, or if the market
value declines during the Restriction Period, the Grantee is not entitled to any
tax deduction or tax refund.
Dividend Equivalents. Generally, a Grantee will not recognize any income
upon the grant of dividend equivalents and the Company will not be entitled to a
deduction, until the Grantee receives payment of the dividend equivalent or the
dividend equivalent payment is credited towards the exercise of a related Stock
Option. At the time the dividend equivalent is paid to the Grantee or credited
towards the exercise of a related Stock Option, the Grantee will recognize
ordinary compensation income in the amount of the payment or credit and the
Company will be entitled to a deduction in the same amount.
Tax Withholding. The acceptance, exercise or surrender of a Grant will
constitute a Grantee's full consent to whatever action the Committee deems
necessary to satisfy any federal, state and local income and employment
withholding tax obligations arising under the Plan. The Company may require
Grantees who exercise NQSOs or who possess shares of Common Stock as to which
the restrictions on transfer have lapsed to remit an amount sufficient to cover
the Grantee's federal, state and local withholding tax obligations associated
with the exercise of such Grants. Grantees, upon the receipt of shares following
the exercise of ISOs, are obligated to (i) immediately notify the Company of the
disposition of any or all ISO shares within two years of the date of grant of
the ISO or one year of the date of such exercise, and (ii) remit to the Company
an amount sufficient to satisfy any withholding obligation arising from such
disposition. If acceptable to the Committee, Grantees may deliver Common Stock
or cash in order to satisfy all such withholding obligations.
No Grants will be made under the Plan until after shareholder approval of
the Plan is obtained during the Annual Meeting and, because Grants are made at
the discretion of the Committee, it is not possible to ascertain the officers
and other key employees who will receive Grants under the Plan in the current
fiscal year.
For information with respect to the grant of options to certain executive
officers during the year ended December 31, 1993, similar to those which may be
granted under the Plan, see the table captioned 'Option Grants in Last Fiscal
Year' on page 16 above.
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(PROPOSAL NO. 4)
SHAREHOLDER PROPOSAL
Messrs. George R. Yake and Samuel J. Yake, of 45 Chestnut Road, Paoli,
Pennsylvania 19301-1502, who were the holders of record of 566 shares of Common
Stock as of September 7, 1993, have submitted the following shareholder
proposal:
RESOLVED: That the stockholders of Philadelphia Suburban Corporation,
assembled in annual meeting in person and by proxy, hereby request that
the Board of Directors take the steps necessary to provide that all
directors be elected annually and not by classes, as is now provided.
REASONS
In 1993, 1,475,918 shares were cast in favor of our similar resolution.
Stockholders should be able to elect ALL directors each year.
The majority of New York Stock Exchange listed companies elect all of
their directors annually. So should Philadelphia Suburban.
Lewis D. Gilbert, dean of corporate shareholder activists, says: 'The
stagger system is a frank device to lessen the control of stockholders
and to perpetuate management continuity and domination regardless of
shareholder wishes.'
If you agree, please mark your proxy FOR this resolution; otherwise, it
is automatically cast against it, unless you have marked to abstain.
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION TO SHAREHOLDER PROPOSAL
The Board of Directors believes that the present method of electing
directors of the Company, under which directors are elected for overlapping,
staggered terms is beneficial to the Company and should not be changed.
Under the system currently used by the Company, one-third of the directors
are elected every year. This permits the Company to change the composition of
its Board of Directors in an orderly fashion, while also providing an important
continuity of management which enhances the ability of the Company to carry out
its long range plans for its benefit and that of its shareholders.
Notwithstanding the statement of Messrs. Yake regarding other New York Stock
Exchange companies, the Company believes that a classified board of directors is
used by many major public corporations and is certainly not unusual, as Messrs.
Yake suggest.
Since it would ordinarily be necessary for two annual meetings to be held
before a shareholder controlling a majority of the shares voting at a meeting
could elect a majority of the members of the Board of Directors, the present
method of electing directors may discourage takeover proposals for the
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Company. The Board of Directors believes, however, that simply changing from the
current arrangement of staggered terms to a system under which the entire Board
of Directors is elected each year will not have a material effect on the
likelihood that a takeover proposal would be made for the Company.
In order to be approved, the Shareholder Proposal must be approved by the
affirmative vote of the shareholders present at the annual meeting, in person or
by proxy, who are entitled to cast a majority of the votes which all
shareholders present are entitled to cast thereon. Approval of the Shareholder
Proposal will not have the effect of changing the present system for electing
directors by classes, but will represent simply an expression of the wishes of
the shareholders on that subject. The Board of Directors would still be required
by statute to decide whether it would be in the best interests of the Company to
change the present system and could decide in the exercise of its business
judgment to retain the present system unchanged.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THE
SHAREHOLDER PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO
VOTED UNLESS SHAREHOLDERS SPECIFY OTHERWISE ON THEIR PROXY CARDS.
SHAREHOLDER SUGGESTIONS AND PROPOSALS FOR 1995 ANNUAL MEETING
Consideration of certain matters is required at the Annual Meeting of
Shareholders, such as the election of directors. In addition, pursuant to
applicable regulations of the Securities and Exchange Commission, shareholders
may present resolutions, which are proper subjects for inclusion in the proxy
statement and for consideration at the Annual Meeting, by submitting their
proposals to the Company on a timely basis. In order to be included for the 1995
Annual Meeting, resolutions must be received by December 1, 1994.
The Company receives many shareholder suggestions which are not in the form
of resolutions. All are given careful consideration. We welcome and encourage
your comments and suggestions. Your correspondence should be addressed as
follows:
Patricia M. Mycek
Secretary
Philadelphia Suburban Corporation
762 W. Lancaster Avenue
Bryn Mawr, PA 19010
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ADDITIONAL INFORMATION
THE COMPANY WILL PROVIDE WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR 1993. PLEASE DIRECT YOUR REQUESTS
TO PATRICIA M. MYCEK, SECRETARY, PHILADELPHIA SUBURBAN CORPORATION, 762 W.
LANCASTER AVENUE, BRYN MAWR, PA 19010.
OTHER MATTERS
The Board of Directors is not aware of any other matters which may come
before the meeting. However, if any further business should properly come before
the meeting, the persons named in the enclosed proxy will vote upon such
business in accordance with their judgment.
By Order of the Board of Directors,
PATRICIA M. MYCEK
Secretary
April 1, 1994
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EXHIBIT A
PHILADELPHIA SUBURBAN CORPORATION
1994 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
Introduction
Sec. 1.01 Statement of Purpose. The purpose of the Philadelphia Suburban
Corporation 1994 Employee Stock Purchase Plan is to provide eligible employees
of Philadelphia Suburban Corporation, and its subsidiaries, with an opportunity
to purchase common stock of Philadelphia Suburban Corporation. The Board of
Directors of Philadelphia Suburban Corporation believes that employee
participation in ownership will be to the mutual benefit of both the employees
and Philadelphia Suburban Corporation.
Sec. 1.02 Internal Revenue Code Considerations. The Plan is intended to
constitute an 'employee stock purchase plan' within the meaning of Section 423
of the Internal Revenue Code of 1986, as amended.
ARTICLE II
Definitions
Sec. 2.01 'Authorization Form' means the document prescribed by the Company
pursuant to which an Eligible Employee has enrolled to be a Participant.
Sec. 2.02 'Board of Directors' means the Board of Directors of the Company.
Sec. 2.03 'Code' means the Internal Revenue Code of 1986, as amended, and
any successor statute of similar nature. References to specific Sections of the
Code shall be taken to be references to corresponding Sections of any successor
statute.
Sec. 2.04 'Company' means Philadelphia Suburban Corporation.
Sec. 2.05 'Compensation' means the total regular salary or wages paid,
during the period of reference, to an Employee by an Employer, (excluding
overtime payments, bonuses and commissions), to which has been added (a) any
elective deferral amounts by which the Employee has had his current remuneration
reduced for the purposes of funding a contribution to any plan sponsored by the
Company and satisfying the requirements of Section 401(k) of the Code and (b)
any amounts by which the Employee's Compensation has been reduced pursuant to a
Compensation reduction agreement between the Employee and the Employer for the
purpose of funding benefits through any cafeteria plan sponsored by the Employer
meeting the requirements of Section 125 of the Code.
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Sec. 2.06 'Continuous Service' means the period of time immediately
preceding the Offering Date during which the Employee has been employed by an
Employer and during which there has been no interruption of the Employee's
employment with the Employer. For this purpose, periods of Excused Absence shall
not be considered to be interruptions of Continuous Service.
Sec. 2.07 'Effective Date' shall mean March 15, 1994, if within twelve
months of that date, the Plan is or has been approved at a meeting of the
shareholders of the Company.
Sec. 2.08 'Eligible Employee' means each individual who, on an Offering
Date, meets all of the following requirements:
(a) The individual is an Employee of an Employer;
(b) The individual has completed at least six (6) months of Continuous
Service; and
(c) The individual is not deemed for purposes of Section 423(b) (3) of
the Code to own stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of an Employer.
Sec. 2.09 'Employee' means (a) each person employed by an Employer who is
classified by the Employer as an 'active regular full or part-time non-union
employee' or as an 'active full or part-time union employee' and (b) each
person who is not so classified, if such person's customary employment is
for more than twenty (20) hours per week and for more than five (5) months
per year.
Sec. 2.10 'Employee Account' means a noninterest bearing account on the
books of the Company to which shall be credited the number of shares (and
fractional shares) of Stock purchased by each Participant to whom such shares of
Stock have not been delivered.
Sec. 2.11 'Employer' means the Company and each subsidiary of the Company
that, with the consent of the Board of Directors, has adopted the Plan.
Sec. 2.12 'Exchange Act' means the Securities Exchange Act of 1934, as
amended, and as the same may hereafter be amended.
Sec. 2.13 'Excused Absence' means absence pursuant to a leave of absence
granted by the Employer, absence due to disability or illness, absence by reason
of a layoff, or absence by reason of active duty in the armed forces of the
United States. In no event may an Excused Absence exceed the period of the
individual's active duty in the armed forces of the United States and such
period thereafter as such individual's right to reemployment by Employer is
protected by law, and any absence shall cease to be an Excused Absence upon the
last day of the calendar month in which the leave expires by its terms, the
layoff ends by recall or permanent separation from service, or recovery from
illness or disability occurs.
Sec. 2.14 'Exercise Date' means the last business day of each Purchase
Period.
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Sec. 2.15 'Market Value' means the average of the high and the low price
for the Stock as reported on the New York Stock Exchange. If there was no such
price reported for the date of reference, 'Market Value' means the 'Market
Value' as of the date next preceding the date of reference for which such price
was reported.
Sec. 2.16 'Offering' means the offering of shares of Stock under the Plan.
Sec. 2.17 'Offering Date' means the first business day of each calendar
month during which the Plan is in effect, commencing with the Effective Date.
Sec. 2.18 'Participant' means each Eligible Employee who elects to
participate in the Plan.
Sec. 2.19 'Plan' means the Philadelphia Suburban Corporation 1994 Employee
Stock Purchase Plan, as the same is set forth herein and as the same may
hereafter be amended.
Sec. 2.20 'Plan Year' means the calendar year.
Sec. 2.21 'Purchase Period' means the period beginning on an Offering Date
and ending on the last business day of the calendar month in which such Offering
Date occurred.
Sec. 2.22 'Stock' means the common stock of the Company.
Sec. 2.23 'Stock Purchase Account' means a noninterest bearing account
consisting of all amounts withheld from a Participant's Compensation (or
otherwise paid into the Plan) for the purpose of purchasing shares of Stock for
such Participant under the Plan, increased by any amounts contributed by such
Participant pursuant to Section 4.05(b) hereof, and reduced by all amounts
applied to the purchase of Stock for such Participant under the Plan. No
interest shall be paid or payable with respect to any amount held in a
Participant's Stock Purchase Account.
ARTICLE III
Admission to Participation
Sec. 3.01 Initial Participation. Any Eligible Employee may elect to be a
Participant and may become a Participant by executing and filing with the
Company's Human Resources Department an Authorization Form at least seven (7)
days prior to the next Offering Date. The effective date of an Eligible
Employee's participation shall be the Offering Date next following the date on
which the Human Resources Department receives from the Eligible Employee a
properly executed Authorization Form.
Sec. 3.02 Voluntary Discontinuance of Participation. Any Participant may
voluntarily withdraw from the Plan by filing a 'Notice of Withdrawal' with the
Human Resources Department prior to an Exercise Date. Upon such withdrawal, the
amount, if any, standing to the Participant's credit in the Stock Purchase
Account will be refunded to the Participant.
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Sec. 3.03 Involuntary Withdrawal; Termination of Eligible Employee
Status. If a Participant's Continuous Service terminates for any reason, or if
a Participant ceases to be an Eligible Employee, the entire amount standing to
the Participant's credit in the Stock Purchase Account on the effective date of
such occurrence shall be refunded to him.
Sec. 3.04 Readmission to Participation. Any Eligible Employee who has
previously been a Participant, who has discontinued participation (whether by
interruption of Continuous Service or otherwise), and who wishes to be
reinstated as a Participant may again become a Participant by executing and
filing with the Human Resources Department a new Authorization Form at least
seven (7) days prior to the next Offering Date. Reinstatement to Participant
status shall be effective as of the Offering Date next following the date on
which the Human Resources Department receives from the Eligible Employee the
properly executed Authorization Form.
ARTICLE IV
Stock Purchase
Sec. 4.01 Reservation of Shares. There shall be 300,000 shares of Stock
reserved for the Plan. Subject to adjustment in accordance with the antidilution
provisions hereinafter set forth in Section 5.02, the aggregate number of shares
that may be purchased under the Plan shall not exceed the number of shares
reserved for the Plan. The shares of Stock may be (i) Treasury or newly issued
shares of the Company or (ii) purchased by the Company on the open market.
Sec. 4.02 Limitation on Shares Available. The maximum number of shares of
Stock that may be purchased for each Participant on an Exercise Date is the
lesser of (a) the number of whole and fractional shares of Stock that can be
purchased by applying the full balance of the Participant's Stock Purchase
Account to such purchase of shares at the Purchase Price (as hereinafter
determined) or (b) the Participant's proportionate part of the maximum number of
whole and fractional shares of Stock available within the limitation established
by the maximum aggregate number of such shares reserved for the Plan, as stated
in Section 4.01 hereof. Notwithstanding the foregoing, if any person entitled to
purchase shares pursuant to any offering hereunder would be deemed for the
purposes of Section 423(b) (3) of the Code to own stock (including any number of
shares that such person would be entitled to purchase hereunder) possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of an Employer, the maximum number of shares that such person shall be
entitled to purchase pursuant to the Plan shall be reduced to that number which,
when added to the number of shares of Stock that such person is so deemed to own
(excluding any number of shares that such person would be entitled to purchase
hereunder), is one less than such five percent (5%). Any portion of a
Participant's Stock Purchase Account that cannot be applied by reason of the
foregoing limitation shall remain in the Participant's Stock Purchase Account
for application to the purchase of Stock on the next Offering Date (unless
withdrawn before that Offering Date).
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Sec. 4.03 Purchase Price of Shares. The Purchase Price per share of the
Stock sold to Participants pursuant to any Offering shall be the sum of (a)
ninety-five percent (95%) of the Market Value of such share on the Exercise Date
on which such Offering expires and (b) any transfer, excise or similar tax
imposed on the transaction pursuant to which such share of Stock is purchased.
In no event shall the Purchase Price be less than the par value of the Stock.
Sec. 4.04 Exercise of Purchase Privilege.
(a) Subject to the provisions of Section 4.02 above and of paragraph (b)
of this Section 4.04, if on the Exercise Date there is an amount standing to the
credit of the Participant in the Stock Purchase Account, there shall be
purchased for the Participant at such Purchase Price the number of whole and
fractional shares of Stock as can be purchased with the amount then standing to
the Participant's credit in the Stock Purchase Account. Each such purchase shall
be deemed to have occurred on the Exercise Date occurring at the close of the
Offering for which the purchase was made.
(b) A Participant may not purchase shares of Stock having an aggregate
Market Value of more than twenty-five thousand dollars ($25,000), determined at
the time of the Offering(s), for each calendar year in which one or more such
Offering(s) is/are outstanding at any time, and a Participant may not purchase a
share of Stock under any Offering after the expiration of the Purchase Period
for such Offering.
(c) With respect to Participants subject to Section 16 of the Exchange
Act, Stock may not be sold for at least six (6) months after acquisition under
the Plan, except in the case of death or disability.
Sec. 4.05 Establishment of Stock Purchase Account.
(a) Payroll Deductions. Each Participant may authorize payroll
deductions from Compensation for the purpose of funding his Stock Purchase
Account. In the Authorization Form, each Participant electing payroll deductions
shall authorize a deduction from each payment of his Compensation during a
Purchase Period, which deduction shall not be more than ten percent (10%) of the
gross amount of such payment, rounded to the next highest whole dollar amount.
The minimum deduction for a Participant who is paid weekly is $5 per paycheck.
The minimum deduction for an employee who is paid biweekly or semi-monthly is
$10 per paycheck. A Participant may change the deduction to any permissible
level once each calendar quarter by filing notice thereof at least seven (7)
days prior to the closing date of the next payroll period.
(b) Voluntary Deposits. Each Participant may also make voluntary
deposits to his or her Stock Purchase Account, subject to the following rules:
(1) Only one such voluntary deposit shall be accepted from any
Participant in each calendar quarter; and
(2) Such voluntary deposits shall be a minimum of twenty-five dollars
($25).
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(3) Such voluntary deposits together with all payroll deductions
pursuant to paragraph (a) above may not exceed the $25,000 limitation
specified in paragraph (b) of Section 4.04 above.
(c) Dividends. Dividends will be paid on all whole and fractional
shares held in each Participant's Stock Purchase Account. Unless otherwise
directed by the Participant, all dividends paid with respect to shares held in
the Participant's Stock Purchase Account will automatically be reinvested under
the Philadelphia Suburban Corporation Dividend Reinvestment and Optional Stock
Purchase Plan.
Sec. 4.06 Payment for Stock. The Purchase Price for all shares of Stock
purchased by a Participant under the Plan shall be paid out of the Participant's
Stock Purchase Account. As of each Exercise Date, the amount standing to the
credit of each Participant in the Stock Purchase Account on the Exercise Date in
the Offering that expires on such Exercise Date shall be charged with the
aggregate Purchase Price of the shares of Stock purchased by such Participant on
the Exercise Date. No interest shall be paid or payable with respect to any
amount held in the Participant's Stock Purchase Account.
Sec. 4.07 Share Ownership; Issuance of Certificates.
(a) The shares of Stock purchased by a Participant on an Exercise Date
shall, for all purposes, be deemed to have been issued and/or sold at the close
of business on such Exercise Date. Prior to that time, none of the rights or
privileges of a shareholder of the Company shall inure to the Participant
with respect to such shares. All the shares of Stock purchased under the Plan
shall be delivered by the Company in the manner determined by the Human
Resources Department; provided, however, that until such shares are delivered to
the Participant the shares shall be credited to each Participant's Employee
Account.
(b) The Human Resources Department, in its sole discretion, may
determine that the shares of Stock shall be delivered by the Company by (i)
issuing and delivering to the Participant a certificate for the number of shares
of Stock purchased by such Participant on an Exercise Date or during a Plan
Year, (ii) issuing and delivering a certificate or certificates for the number
of shares of Stock purchased by all Participants on an Exercise Date or during a
Plan Year to a member firm of the New York Stock Exchange which is also a member
of the National Association of Securities Dealers, as selected by the Human
Resources Department from time to time, which shares shall be maintained by such
member firm in separate brokerage accounts for each Participant or (iii) issuing
and delivering a certificate or certificates for the number of shares of Stock
purchased by all Participants on an Exercise Date or during the Plan Year to a
bank or trust company or affiliate thereof, as selected by the Human Resources
Department from time to time, which shares shall be maintained by such bank or
trust company or affiliate in separate accounts for each Participant. Each
certificate or account, as the case may be, may be in the name of the
Participant or, if the Participant designates on the Stock Authorization Form,
in the Participant's name jointly with another individual, with the right of
survivorship. Such designation may be changed by filing notice thereof.
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ARTICLE V
Special Adjustments
Sec. 5.01 Shares Unavailable. If, on any Exercise Date, the aggregate
funds available for the purchase of Stock would purchase a number of shares in
excess of the number of shares then available for purchase under the Plan, the
following events shall occur:
(a) The number of shares that would otherwise be purchased by each
Participant shall be proportionately reduced on the Exercise Date in order
to eliminate such excess;
(b) The Plan shall automatically terminate immediately after the
Exercise Date as of which the supply of available shares is exhausted; and
(c) Any amount remaining in the Stock Purchase Account of each of the
Participants shall be repaid to such Participants.
Sec. 5.02 Anti-Dilution Provisions. The aggregate number of shares of
Stock reserved for purchase under the Plan, as hereinabove provided, and the
calculation of the Purchase Price per share may be appropriately adjusted to
reflect any increase or decrease in the number of issued shares of Stock
resulting from a subdivision or consolidation of shares or other capital
adjustment, or the payment of a stock dividend, or other increase or decrease in
such shares, if effected without receipt of consideration by the Company. Any
such adjustment shall be made upon the approval of the Board of Directors.
Sec. 5.03 Effect of Certain Transactions. Subject to any required action
by the shareholders, if the Company shall be the surviving or resulting
corporation in any merger or consolidation, any Offering hereunder shall pertain
to and apply to the shares of Stock of the Company. However, in the event of a
dissolution or liquidation of the Company, or of a merger or consolidation in
which the Company is not the surviving or resulting corporation, the Plan and
any Offering hereunder shall terminate upon the effective date of such
dissolution, liquidation, merger or consolidation, and the balance then standing
to the credit of each Participant in the Stock Purchase Account shall be
returned to the Participant.
ARTICLE VI
Miscellaneous
Sec. 6.01 Non-Alienation. The right to purchase shares of Stock under
the Plan is personal to the Participant, is exercisable only by the Participant
during the Participant's lifetime, except as hereinafter set forth, and may
not be assigned or otherwise transferred by the Participant. Notwithstanding
the foregoing, there shall be delivered to the executor, administrator or
other personal representative of a deceased Participant such shares of Stock
and such residual balance as may remain in the Participant's Stock Purchase
Account as of the Exercise Date occurring at the close of the period
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in which the Participant's death occurs, including shares of Stock purchased as
of that date or prior thereto with moneys deposited by the Participant and/or
withheld from the Participant's Compensation.
Sec. 6.02 Administrative Costs. The Company shall pay all administrative
expenses associated with the operation of the Plan. No administrative charges
shall be levied against the Stock Purchase Accounts of the Participants.
Sec. 6.03 Administration. The Company, acting through its Human Resources
Department, shall have the authority and power to administer the Plan and to
make, adopt, construe, and enforce rules and regulations not inconsistent with
the provisions of the Plan. The Human Resources Department shall adopt and
prescribe the contents of all forms required in connection with the
administration of the Plan, including, but not limited to, the Authorization
Form, payroll withholding authorizations, withdrawal documents, and all other
notices required hereunder. The Human Resources Department shall have the
fullest discretion permissible under law in the discharge of its duties. The
Human Resources Department's interpretations and decisions in respect of the
Plan, the rules and regulations pursuant to which it is operated, and the rights
of Participants hereunder shall be final and conclusive.
Sec. 6.04 Amendment of the Plan.
(a) The Board of Directors may, at any time and from time to time, amend
the Plan in any respect, except that no amendment may:
(i) increase the number of shares reserved for purposes of the Plan;
(ii) reduce the Purchase Price per share; or
(iii) allow any person who is not an Eligible Employee to become a
Participant without the approval of the shareholders.
(b) The requirement described in paragraph (b)(1)(ii) of Rule 16b-3
under the Exchange Act may not be amended more than once every six (6) months,
other than to comport with changes in the Code or the rules thereunder.
Sec. 6.05 Expiration and Termination of the Plan. The Plan shall continue
in effect through March 14, 2004 unless terminated prior thereto pursuant to the
provisions of the Plan or pursuant to action by the Board of Directors, which
shall have the right to terminate the Plan at any time without prior notice to
any Participant and without liability to any Participant. Upon the expiration or
termination of the Plan, the balance, if any, then standing to the credit of
each Participant in the Stock Purchase Account shall be refunded to the
Participant.
Sec. 6.06 Repurchase of Stock. The Company shall not be required to
purchase or repurchase from any Participant any of the shares of Stock that the
Participant acquired under the Plan.
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Sec. 6.07 Notice. An Authorization Form and any notice that a Participant
files pursuant to the Plan shall be on the form prescribed by the Company and
shall be effective only when received by the Human Resources Department.
Delivery of such forms may be made by hand or by certified mail, sent postage
prepaid, to Philadelphia Suburban Corporation, 762 Lancaster Avenue, Bryn Mawr,
PA 19010, Attention: Human Resources Department. Delivery by any other mechanism
shall be deemed effective at the option and discretion of the Company.
Sec. 6.08 Government Regulation. The Company's obligation to sell and to
deliver the Stock under the Plan is at all times subject to all approvals of any
governmental authority required in connection with the authorization, issuance,
sale or delivery of such Stock.
Sec. 6.09 Headings, Captions, Gender. The headings and captions herein are
for convenience of reference only and shall not be considered as part of the
text. The masculine shall include the feminine, and vice versa.
Sec. 6.10 Severability of Provisions; Prevailing Law. The provisions of
the Plan shall be deemed severable. In the event any such provision is
determined to be unlawful or unenforceable by a court of competent jurisdiction
or by reason of a change in an applicable statute, the Plan shall continue to
exist as though such provision had never been included therein (or, in the case
of a change in an applicable statute, had been deleted as of the date of such
change). The Plan shall be governed by the laws of the Commonwealth of
Pennsylvania, to the extent such laws are not in conflict with, or superseded
by, federal law.
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EXHIBIT B
PHILADELPHIA SUBURBAN CORPORATION
1994 EQUITY COMPENSATION PLAN
1. PURPOSE
The purpose of this plan (the 'Plan') is to provide an incentive, in the
form of a proprietary interest in Philadelphia Suburban Corporation (the
'Corporation'), to officers and other key employees of the Corporation and its
subsidiaries and key consultants who are in a position to contribute materially
to the successful operation of the business of the Corporation, to increase
their interest in the Corporation's welfare, and to provide a means through
which the Corporation can attract and retain officers and other key employees
and key consultants of significant abilities.
2. ADMINISTRATION
This Plan shall be administered by a Committee (the 'Committee') of the
Board of Directors of the Corporation. The Committee shall consist of three or
more of those members of the Board of Directors who are not eligible, and for at
least one year prior to their appointment were not eligible, to receive grants
under the Plan or any other plan of the Corporation or any of its affiliates
entitling the participants therein to acquire stock, stock options, stock
appreciation rights or dividend equivalents of the Corporation or any of its
affiliates.
From time to time the Committee or the Board of Directors may make grants,
subject to the terms of the Plan, with respect to such number of shares of
Common Stock of the Corporation as the Committee or the Board of Directors, each
acting in its sole discretion, may determine. All references to the Committee
hereunder shall also mean the Board of Directors when acting pursuant to its
authority to make grants under the Plan.
Subject to the provisions of the Plan, the Committee shall be authorized to
interpret the Plan and the grants made under the Plan, to establish, amend and
rescind any rules and regulations relating to the Plan, to determine the terms
and provisions of the agreement related to grants described in Section 9 hereof,
and to make all other determinations, including factual determinations,
necessary or advisable for the administration of the Plan. The Committee may
correct any defect, supply any omission and reconcile any inconsistency in the
Plan or in any option or grant in the manner and to the extent it shall be
deemed desirable to carry it into effect. The determinations of the Committee in
the administration of the Plan, as described herein, shall be final and
conclusive. The Committee may adopt such rules and regulations as it deems
necessary for governing its affairs.
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3. GRANTS
Pursuant to the terms of the Plan, the Committee shall have the authority
to grant stock options to officers and other key employees and key consultants
and restricted stock and dividend equivalents to officers and other key
employees (hereinafter collectively referred to as the 'Grants'). All Grants
shall be subject to the terms and conditions set forth herein and to those other
terms and conditions consistent with this Plan as the Committee deems
appropriate and as are specified in writing by the Committee in the agreement
described in Section 9 of the Plan (the 'Agreement'). Grants under a particular
Section of the Plan need not be uniform as among the employees or consultants
and Grants under two or more Sections of the Plan may be combined in one
instrument.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 15, the maximum aggregate
number of shares of the Common Stock of the Corporation that may be issued or
transferred under the Plan shall be 450,000 shares. The maximum number of shares
of Common Stock that may be issued or transferred under the Plan subject to
restricted stock grants is 25,000 shares of Common Stock. Shares deliverable
under the Plan may be authorized and unissued shares or treasury shares, as the
Committee may from time to time determine. Shares of Common Stock related to the
unexercised or undistributed portion of any terminated, expired or forfeited
Grant for which no material benefit was received by a grantee also may be made
available for distribution in connection with future Grants under the Plan.
5. ELIGIBILITY
Only officers, key employees and key consultants of the Corporation and its
subsidiaries (excluding any director who is not a salaried employee) shall be
eligible for Grants under the Plan. The term 'subsidiaries' shall mean any
corporation in an unbroken chain of corporations beginning with the Corporation,
if at the time of the Grant, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
6. GRANTING OF OPTIONS
The Committee may, from time to time, grant stock options to eligible
officers and other key employees and shall designate options at the time of
grant as either 'incentive stock options' intended to qualify as such under
section 422 of the Internal Revenue Code of 1986, as from time to time amended
or any successor statute of similar purpose (the 'Code'), or 'nonqualified stock
options', which options are not intended to so qualify. The Committee may, from
time to time, grant nonqualified stock options to key consultants. Except as
hereinafter provided, options granted pursuant to the Plan shall be subject to
the following terms and conditions:
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(a) Price
The purchase price per share of stock deliverable upon the exercise of each
option shall be not less than 100% of the fair market value of the Corporation's
Common Stock on the date the option is granted. The fair market value shall be
the mean of the high and low sale prices of the Corporation's Common Stock on
the New York Stock Exchange composite tape or other recognized market source, as
determined by the Committee, on the date the option is granted, or if there is
no sale on such date, then the mean of such high and low sale prices on the last
previous day on which a sale is reported. In any event, in case of the grant of
an incentive stock option, the fair market value shall be determined in a manner
consistent with section 422 of the Code.
Shares may be purchased only by delivering a notice of exercise to the
Committee with accompanying payment of the purchase price therefor in full. Such
notice may instruct the Corporation to deliver shares of Common Stock due upon
the exercise of the option to any registered broker or dealer in lieu of
delivery to the grantee. Such instructions must designate the account into which
the shares are to be deposited. The grantee may tender this notice of exercise,
which has been properly executed by the grantee, and the aforementioned delivery
instructions to any broker or dealer. With the consent of the Committee, payment
of the purchase price may be made, in whole or in part, through the surrender of
shares of the Common Stock of the Corporation (including without limitation
shares of Common Stock acquired pursuant to the option then being exercised) at
the fair market value of such shares determined as of the last trading day prior
to the date on which the option is exercised, in the same manner set forth in
the above paragraph.
(b) Terms of Options
The term during which each incentive stock option may be exercised shall be
determined by the Committee, but in no event shall an incentive stock option be
exercisable in whole or in part more than 10 years from the date it is granted
and in no event shall a nonqualified stock option be exercisable in whole or in
part more than 10 years and one day from the date it is granted. All rights to
purchase pursuant to an option shall, unless sooner terminated, expire at the
date designated by the Committee.
The Committee shall determine the date on which each option shall become
exercisable and may provide that an option shall become exercisable in
installments. The shares comprising each installment may be purchased in whole
or in part at any time after such installment becomes exercisable. The Committee
may, in its sole discretion, accelerate the time at which any option may be
exercised in whole or in part. Notwithstanding any determinations by the
Committee regarding the exercise period of any option, all outstanding options
shall become immediately exercisable upon a Change of Control of the Corporation
(as defined herein).
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(c) Termination of Employment
Upon the termination of a grantee's employment for any reason (except as a
result of retirement, disability or death), the options held by such grantee
shall terminate. Notwithstanding the fact that, in all cases, a grantee's
employment shall be deemed to have terminated upon the sale of a subsidiary of
the Corporation that employs such grantee, the Committee, in its sole
discretion, may extend the period during which any option held by such a grantee
may be exercised after such sale to the earliest of (i) a date which is not more
than three years from the date of the sale of the subsidiary, (ii) the date of
the grantee's termination of employment with the subsidiary (or successor
employer) following such sale for reasons other than retirement, disability or
death, (iii) the date which is one year from the date of the grantee's
termination of employment with the subsidiary on account of the grantee's total
disability (as defined in section 22(e)(3) of the Code), or three months from
the date of such termination if on account of retirement or a disability other
than a total disability, or (iv) the expiration of the original term of the
option as established at the time of grant. The Committee, in its sole
discretion, may similarly extend the period of exercise of any option held by a
grantee employed by the Corporation whose employment with the Corporation is
terminated in connection with the sale of a subsidiary of the Corporation.
Upon termination of a grantee's employment as a result of retirement,
disability or death, the period during which the options may be exercised shall
not exceed: (i) one year from the date of such termination of employment in the
case of death and (ii) two years from the date of such termination in the case
of permanent and total disability (within the meaning of section 22(e)(3) of the
Code) or retirement; and (iii) three months from the date of such termination of
employment in the case of other disability; provided, however, that in no event
shall the period extend beyond the expiration of the option term.
Subject to the foregoing, in the event of death, such options may be
exercised by a grantee's legal representative or beneficiary, but only to the
extent that installments had accrued as of the date of death. Notwithstanding
the foregoing, the Committee, in its sole discretion, may determine that
installments that have not accrued as of the date of the grantee's death,
temination of employment on account of permanent and total disability (within
the meaning of section 22(e)(3) of the Code) or other termination of employment,
may also be exercised by a grantee or in the case of death, a grantee's legal
representative or beneficiary. Transfer from the Corporation to a subsidiary,
from a subsidiary to the Corporation, or from one subsidiary to another, shall
not be deemed to be a termination of employment. All references in this Section
6(c) to the termination of a grantee's employment shall include the termination
of a consultant's relationship with the Corporation or any subsidiary.
(d) Limits on Incentive Stock Options.
Each Grant of an incentive stock option shall provide that it (i) is not
transferable by the grantee otherwise than by will or the laws of descent and
distribution or, if permitted under Rule 16b-3 of the Securities Exchange Act of
1934 (the 'Exchange Act') and if permitted in any specific case by the
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Committee in its sole discretion, pursuant to a qualified domestic relations
order as defined under the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended ('ERISA') or the rules thereunder, and (ii) is
exercisable, during the grantee's lifetime, only by the grantee and that the
aggregate fair market value of the Common Stock on the date of the Grant with
respect to which incentive stock options are exercisable for the first time by a
grantee during any calendar year under the Plan and under any other stock option
plan of the Corporation shall not exceed the limitation set forth in section
422(d) of the Code. An incentive stock option shall not be granted to any
Grantee who, at the time of grant, owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Corporation or
subsidiary of the Corporation, unless the exercise price of the incentive stock
option is no less than 110% of the fair market value per share on the date of
grant and the term of the incentive stock option is not more than five years.
Unless a grantee could otherwise transfer Common Stock issued pursuant to an
incentive stock option granted hereunder without incurring liability under
section 16(b) of the Exchange Act, at least six months must elapse from the date
of acquisition of an incentive stock option to the date of disposition of the
Common Stock issued upon exercise of such option.
7. RESTRICTED STOCK GRANTS
The Committee may issue or transfer shares of Common Stock of the
Corporation to an eligible officer or other key employee subject to the maximum
number of shares of Common Stock reserved for issuance in connection with
restricted stock grants described in Section 4 of the Plan. The following
provisions are applicable to restricted stock grants:
(a) General Requirements. Shares of Common Stock of the Corporation issued
pursuant to restricted stock grants may be issued for consideration or for no
consideration. Subject to any other restrictions by the Committee as provided
pursuant to Section 7(e), restrictions on the transfer of shares of Common Stock
set forth in Section 7(c) shall lapse on such date or dates as the Committee may
approve until the restrictions have lapsed on 100% of the shares; provided,
however, that upon a Change of Control of the Corporation, all restrictions on
the transfer of the shares which have not, prior to such date, been forfeited
shall immediately lapse. The period of years during which the restricted stock
grant will remain subject to restrictions will be designated in the Agreement
(the 'Restriction Period'). Prior to the lapse of the Restriction Period the
shares of Common Stock granted to any grantee shall be held by the Corporation.
(b) Number of Shares. The Committee shall grant to each grantee a number
of shares of Common Stock of the Corporation determined in its sole discretion.
(c) Requirement of Employment. If the grantee's employment terminates
during the Restriction Period, the restricted stock grant terminates as to all
shares covered by the Grant as to which restrictions on transfer have not
lapsed, and those shares of Common Stock must be immediately returned to the
Corporation. The Committee may, however, provide for complete or partial
exceptions to this requirement as it deems equitable.
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(d) Restrictions on Transfer and Legend on Stock Certificate. During the
Restriction Period, a grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the shares of Common Stock to which such Restriction Period
applies except to a successor grantee (as defined in Section 10 of the Plan).
Each certificate for a share issued or transferred under a restricted stock
grant shall contain a legend giving appropriate notice of the restrictions in
the Grant. The grantee shall be entitled to have the legend removed from the
stock certificate or certificates covering any of the shares subject to
restrictions when all restrictions on such shares have lapsed.
(e) Lapse of Restrictions. All restrictions imposed under the restricted
stock grant shall lapse upon the expiration of the applicable Restriction
Period; provided, however, that upon a Change of Control of the Corporation, all
restrictions on the transfer of shares which have not, prior to such date, been
forfeited shall immediately lapse. In addition, the Committee may determine as
to any or all restricted stock grants, that all the restrictions shall lapse,
without regard to any Restriction Period, under such circumstances as it deems
equitable.
8. DIVIDEND EQUIVALENTS
The Committee may grant dividend equivalents to eligible officers and other
key employees either alone or in conjunction with all or part of any option
granted under the Plan. A dividend equivalent shall be equal to the dividend
payable on a share of Common Stock of the Corporation. The amount of dividend
equivalents for any grantee (the 'Dividend Equivalent Amount') is determined by
multiplying the number of dividend equivalents subject to the Grant by the
per-share cash dividend, or the per-share fair market value (as determined by
the Committee) of any dividend in other than cash, paid by the Corporation on
each record date for the payment of a dividend during the period described in
Section 8(a).
(a) Amount of Dividend Equivalent Credited.
The Corporation shall credit to an account for each grantee maintained by
the Corporation in its books and records on each record date, from the date of
grant until the earlier of the date of (i) the end of the applicable
accumulation period designated by the Committee at the time of grant, (ii) the
date of the termination of employment for any reason (including retirement),
other than total disability (as defined in section 22(e)(3) of the Code) or
death of the grantee, or as otherwise determined by the Committee, in its sole
discretion, at the time of a grantee's termination of employment or (iii) the
end of a period of four years from the date of grant, that portion of the
Dividend Equivalent Amount for each such grantee attributable to each record
date. The Corporation shall maintain in its books and records separate accounts
which identify each grantee's Dividend Equivalent Amount. Except as set forth in
Section 8(e) below, no interest shall be credited to any such account.
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(b) Payment of Credited Dividend Equivalents.
The Committee, at the time of grant, shall designate the percentage of each
grantee's Dividend Equivalent Amount that shall be paid to the grantee at the
end of an applicable performance period (the 'Performance Period') of four years
from the date of grant (the Committee, in its sole discretion, shall retain the
right to designate a longer or shorter Performance Period at the time of grant);
provided, however, that such Performance Period shall be:
(i) reduced by one year for each calendar year during the applicable
Performance Period ending after the date of grant in which the measurable
performance criteria established by the Committee at the time of grant for
the applicable Performance Period exceeds the targets for such criteria
established by the Committee at the time of grant.
(ii) increased by one year for each calendar year during the
applicable Performance Period ending after the date of grant in which the
measurable performance criteria established by the Committee at the time of
grant for the applicable Performance Period is less than the targets for
such criteria established by the Committee at the time of grant.
(iii) In no event shall the Performance Period be reduced to less than
two years or increased to more than eight years from the date of grant.
(iv) In the event that the applicable Performance Period is shorter
than the period described in Section 8(a), a grantee shall receive the
payment of the amount credited to his account at the end of the applicable
Performance Period and any portion of the Dividend Equivalent Amount not
yet so credited to his account shall be paid on the Corporation's normal
dividend payment dates until the grantee's Dividend Equivalent Amount for
the period described in Section 8(a) is fully paid to the grantee.
(c) Timing of Payment of Dividend Equivalents.
Except as otherwise determined by the Committee in the event of a grantee's
termination from employment prior to the end of the applicable Performance
Period, no payments of the Dividend Equivalent Amount shall be made until the
end of the applicable Performance Period and no payments shall be made to any
grantee whose employment by the Corporation or a subsidiary terminates prior to
the end of the applicable Performance Period for any reason other than
retirement under the Corporation's or a subsidiary's retirement plan, death or
total disability (as defined in section 22(e)(3) of the Code). Subject to
Section 8(b)(iv), as soon as practicable after the end of such Performance
Period, unless a grantee shall have made an election under Section 8(f) to defer
receipt of any portion of such amount, a grantee shall receive 100% of the
Dividend Equivalent Amount payable to him. Notwithstanding the foregoing, upon a
Change of Control of the Corporation, any Dividend Equivalent Amount or portion
thereof, which has not, prior to such date, been paid to the grantee or
forfeited shall immediately become payable to the grantee without regard to
whether the applicable Performance Period has ended.
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(d) Form of Payment. The Committee shall have the sole discretion to
determine whether the Corporation's obligation in respect of the payment of a
Dividend Equivalent Amount shall be paid solely in credits to be applied toward
payment of the option price under then exercisable options, solely in cash or
partly in such credits and partly in cash.
(e) Interest on Dividend Equivalents. From a date which is 45 days after
the end of the applicable Performance Period until the date that the Dividend
Equivalent Amount payable to the grantee is paid to such grantee, the account
maintained by the Corporation in its books and records with respect to such
dividend equivalents shall be credited with interest at a market rate determined
by the Committee.
(f ) Deferral of Dividend Equivalents. A grantee shall have the right to
defer receipt of any Dividend Equivalent Amount payments if he shall elect to do
so on or prior to December 31 of the year preceding the beginning of the last
full year of the applicable Performance Period (or such other time as the
Committee shall determine is appropriate to make such deferral effective under
the applicable requirements of federal tax laws). The terms and conditions of
any such deferral (including the period of time thereof and any earnings on the
deferral) shall be subject to approval by the Committee and all deferrals shall
be made on a form provided a grantee for this purpose.
9. AGREEMENT WITH GRANTEES
Each grantee who receives a Grant under the Plan shall enter into an
agreement with the Corporation which shall contain such provisions, consistent
with the provisions of the Plan, as may be established from time to time by the
Committee.
10. TRANSFERABILITY OF GRANTS
Only a grantee or his or her authorized legal representative may exercise
rights under a Grant. Such persons may not transfer those rights except by will
or by the laws of descent and distribution or, if permitted under Rule 16b-3 of
the Exchange Act and if permitted in any specific case by the Committee in their
sole discretion, pursuant to a qualified domestic relations order as defined
under the Code or Title I of ERISA or the rules thereunder. When a grantee dies,
the personal representative or other person entitled to succeed to the rights of
the grantee ('Successor Grantee') may exercise such rights. A Successor Grantee
must furnish proof satisfactory to the Corporation of his or her right to
receive the Grant under the grantee's will or under the applicable laws of
descent and distribution.
11. FUNDING OF THE PLAN
This Plan shall be unfunded. The Corporation shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. Subject to Section
8(e), in no event shall interest be paid or accrued on any Grant, including
unpaid installments of Grants.
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12. RIGHTS OF GRANTEES
Nothing in this Plan shall entitle any grantee or other person to any claim
or right to receive a Grant under this Plan. Neither this Plan nor any action
taken hereunder shall be construed as giving any grantee any rights to be
retained in the employ of the Corporation or to be retained as a consultant by
the Corporation.
13. WITHHOLDING OF TAXES
The Corporation shall have the right to deduct from all Grants paid in cash
any federal, state or local taxes required by law to be withheld with respect to
such cash awards. The grantee or other person receiving such shares shall be
required to pay to the Corporation the amount of any such taxes which the
Corporation is required to withhold with respect to such Grants. With respect to
Grants of restricted stock or nonqualified stock options, the Corporation shall
have the right to require that the grantee make such provision, or furnish the
Corporation such authorization as may be necessary or desirable so that the
Corporation may satisfy its obligation, under applicable income tax laws, to
withhold for income or other taxes due upon or incident to such restricted stock
or the exercise of such nonqualified stock options.
The Committee may adopt such rules, forms and procedures as it considers
necessary or desirable to implement such withholding procedures, which rules,
forms and procedures shall be binding upon all grantees, and which shall be
applied uniformly to all grantees similarly situated.
14. LISTING AND REGISTRATION
Each Grant shall be subject to the requirement that, if at any time the
Committee shall determine in its discretion that the listing, registration or
qualification of the Grant or the shares subject to the Grant upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, such Grant or the issue or purchase of
shares thereunder, no such Grant may be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
15. ADJUSTMENT OF AND CHANGES IN COMMON STOCK OF THE CORPORATION.
In the event of a reorganization, recapitalization, change of shares, stock
split, spin-off, stock dividend, reclassification, subdivision or combination of
shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Corporation, the Committee shall make such
adjustment as it deems appropriate in the number and kind of shares authorized
by the Plan, in the number and kind of shares covered by Grants made under the
Plan, in the purchase prices of outstanding options or the terms and conditions
applicable to dividend equivalents.
B-9
<PAGE>
16. RIGHTS OF GRANTEES
Neither the grantee nor any personal representative shall be, or have any
of the rights and privileges of, a shareholder of the Corporation in respect of
any shares related to any Grant or purchasable upon the exercise of any option,
in whole or in part, unless and until certificates for such shares have been
issued. Notwithstanding the foregoing, a grantee who receives a grant of
restricted stock shall have all rights of a shareholder, except as set forth in
Section 7(d), during the Restriction Period, including the right to vote and
receive dividends.
17. CHANGE OF CONTROL OF THE CORPORATION
As used herein, a 'Change of Control' shall be deemed to have taken place
if (i) any Person (including any individual, firm, corporation, partnership or
other entity except the Corporation or any employee benefit plan of the
Corporation or of any Affiliate or Associate, both as defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, any Person or entity organized, appointed or established by the
Corporation for or pursuant to the terms of any such employee benefit plan),
together with all Affiliates and Associates of such Person, shall become the
beneficial owner in the aggregate of 20% or more of the Common Stock of the
Corporation then outstanding or (ii) during any twenty-four month period,
individuals who at the beginning of such period constituted the Board of
Directors cease for any reason to constitute a majority thereof, unless the
election, or the nomination for election by the Corporation's shareholders, of
at least seventy-five percent of the directors who were not directors at the
beginning of such period was approved by a vote of at least seventy-five percent
of the directors in office at the time of such election or nomination who were
directors at the beginning of such period. Notwithstanding the foregoing, a
Change in Control shall not be deemed to have taken place under clause (i) of
the immediately preceding sentence if (a) such Person becomes the beneficial
owner in the aggregate of 20% or more of the Common Stock of the Corporation
then outstanding as a result of an inadvertent acquisition by such Person if
such Person, as soon as practicable, divests itself of a sufficient amount of
its Common Stock so that it no longer owns 20% or more of the Common Stock then
outstanding, as determined by the Board of Directors of the Corporation, or (ii)
the shares of Common Stock required to be counted in order to meet the 20%
minimum threshold described under such clause (i) include any of the shares
described in subsections (i) through (vi) of section 2543(b) of the Pennsylvania
Business Corporation Law of 1988 (15 Pa.C.S.A.Section2543(b)) as in effect on
the date of adoption of the Plan.
18. AMENDMENT AND TERMINATION
(a) The Plan may be amended by the Board of Directors of the Corporation as
it shall deem advisable to ensure such qualification and conform to any change
in the law or regulations applicable thereto, including such new regulations as
may be enacted pertaining to the tax treatment of incentive stock options to be
granted under this Plan, or in any other respect that the Board may deem to be
in the best interest of the Corporation; provided, however, that the Board may
not, without the authorization and approval of the shareholders of this
Corporation (i) materially increase the benefits accruing to participants under
the Plan, (ii) increase the number of shares which may be issued under
B-10
<PAGE>
the Plan, except pursuant to Section 15 hereof, or (iii) materially modify the
requirements as to eligibility for participation in the Plan.
The Board of Directors shall not amend the Plan if the amendment would
cause the Plan or any Grant, or the exercise of any right under the Plan to fail
to comply with the requirements of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended, or if such amendment would cause the Plan or the Grant or
exercise of an incentive stock option under the Plan to fail to comply with the
requirements of section 422 of the Code including, without limitation, a
reduction of the option price set forth in Section 6(a) or an extension of the
period during which an incentive stock option may be exercised as set forth in
Section 6(b).
(b) The Board of Directors of the Corporation may, in its discretion,
terminate, or fix a date for the termination of, the Plan. Unless previously
terminated, the Plan shall terminate on May 19, 2004 and no Grants shall be made
under the Plan after such date.
(c) A termination or amendment of the Plan that occurs after a Grant is
made shall not result in the termination or amendment of the Grant unless the
grantee consents or unless the Committee acts under Section 19. The termination
of the Plan shall not impair the power and authority of the Committee with
respect to an outstanding Grant. Whether or not the Plan has terminated, an
outstanding Grant may be terminated or amended under this Section 18 or may be
amended by agreement of the Corporation and the grantee consistent with the
Plan.
19. COMPLIANCE WITH LAW.
The Plan, the exercise of Grants and the obligations of the Corporation to
issue or transfer shares of Common Stock under Grants shall be subject to all
applicable laws, including any applicable federal or Pennsylvania state law, and
to approvals by a governmental or regulatory agency as may be required. With
respect to persons subject to section 16 of the Exchange Act, it is the intent
of the Corporation that the Plan and all transactions under the Plan comply with
all applicable conditions of Rule 16b-3 or its successors under the Exchange
Act. The Committee may revoke any Grant if it is contrary to law or modify a
Grant to bring it into compliance with any valid and mandatory government
regulation. The Committee may also adopt rules regarding the withholding of
taxes on payments to grantees. The Committee may, in its sole discretion, agree
to limit its authority under this Section.
20. EFFECTIVE DATE OF THE PLAN
The Plan shall be effective as of April 1, 1994, subject to the approval by
a majority of the Corporation's shareholders within twelve months of such
effective date. No Grant shall be made pursuant to the Plan on or after the
tenth anniversary of the date of shareholder approval, but Grants made prior to
such tenth anniversary may extend beyond that date.
B-11
<PAGE>
<PAGE>
PROXY
PHILADELPHIA SUBURBAN CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PHILADELPHIA SUBURBAN CORPORATION
Proxy for Annual Meeting of Shareholders, May 19, 1994
The undersigned hereby appoints Nicholas DeBenedictis, Roy H. Stahl and
Patricia M. Mycek, or a majority of them or any one of them acting singly in the
absence of the others, with full power of substitution, the proxy or proxies of
the undersigned, to attend the Annual Meeting of Shareholders of Philadelphia
Suburban Corporation, to be held at 762 W. Lancaster Avenue, Bryn Mawr,
Pennsylvania, 19010, at 10:00 a.m., on Thursday, May 19, 1994 and any
adjournments thereof, and, with all powers the undersigned would possess if
present, to vote all shares of Common Stock of the undersigned in Philadelphia
Suburban Corporation, including any shares held in the Dividend Reinvestment
Plan of Philadelphia Suburban Corporation, as designated on the reverse side.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned. If no direction is made, this proxy will be voted FOR
the nominees listed in item 1 on the reverse side; FOR the approval of the
adoption of the 1994 Employee Stock Purchase Plan as set forth in item 2; FOR
the approval of the adoption of the 1994 Equity Compensation Plan as set forth
in item 3; AGAINST the Shareholder Proposal set forth in item 4; and in
accordance with the proxies' best judgment upon other matters properly coming
before the meeting and any adjournments thereof.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE ENCLOSED
ENVELOPE.
(continued on reverse side)
<PAGE>
1. Election of Directors. The Board of Directors recommends that you vote FOR
all nominees: John H. Austin, Jr., John F. McCaughan, Harvey J. Wilson.
VOTE FOR WITHHOLD To withhold authority to vote for any
all nominees listed AUTHORITY individual nominee while voting for the
(except as marked to vote for remainder, write the nominee's name in
to the contrary) all nominees space below:
O O __________________________________________
2. Adoption of the 1994 Employee Stock Purchase Plan. The Board of Directors
recommends that you vote FOR approval of the adoption of the Employee Stock
Purchase Plan.
FOR AGAINST ABSTAIN
O O O
3. Adoption of the 1994 Equity Compensation Plan. The Board of Directors
recommends that you vote FOR approval of the 1994 Equity Compensation Plan.
FOR AGAINST ABSTAIN
O O O
4. Shareholder Proposal. The Board of Directors recommends that you vote
AGAINST the Shareholder Proposal to elect all nominees annually.
FOR AGAINST ABSTAIN
O O O
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
DATED: __________________________________________________________________ , 1994
________________________________________________________________________________
Signature
________________________________________________________________________________
Signature (if held jointly)
THIS PROXY MUST BE SIGNED EXACTLY AS NAME APPEARS HEREIN. Executors,
administrators, trustees, etc. should give full title as such. If the signer is
a corporation, please sign full corporate name by duly authorized officer.
PLEASE MARK INSIDE BLUE BOXES SO THAT DATA PROCESSING EQUIPMENT WILL RECORD YOUR
VOTES.
