exv10w1



 





Exhibit
10.1




August 10, 2006




Confirmation of Forward Stock Sale Transaction




	 	 	 
	To:

	 	Aqua America, Inc.
	 

	 	762 Lancaster Ave.
	 

	 	Bryn Mawr, PA 19010
	 
	 	 
	From:

	 	UBS AG, London Branch
	 

	 	c/o UBS Securities LLC
	 

	 	299 Park Avenue
	 

	 	New York, NY 10171
	 

	 	Tel: 212-821-2100
	 

	 	Fax: 212-821-7031





 




Dear Sir/Madam:



The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions
of the Transaction entered into between UBS AG, London Branch (“Party A” or “UBS”) and Aqua
America, Inc. (“Party B”) on the Trade Date specified below (the “Transaction”). This confirmation
constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.



The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (as
published by the International Swaps and Derivatives Association, Inc. (“ISDA”)) (the “Equity
Definitions”) are incorporated into this Confirmation. In the event of any inconsistency between
the Equity Definitions and this Confirmation, this Confirmation will govern. Any reference to a
currency shall have the meaning contained in Annex A to the 1998 ISDA FX and Currency Option
Definitions, as published by ISDA.





	1.	 	This Confirmation evidences a complete and binding agreement between Party A and Party B as
to the terms of the Transaction to which this Confirmation relates. This Confirmation shall
supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master
Agreement (the “Agreement”) as if Party A and Party B had executed an agreement in such form
on the Trade Date (but without any Schedule except for the election of the laws of the State
of New York as the governing law). In the event of any inconsistency between provisions of
that Agreement and this Confirmation, this Confirmation will prevail for the purpose of the
Transaction to which this Confirmation relates. The parties hereby agree that no Transaction
other than the Transaction to which this Confirmation relates shall be governed by the
Agreement. For purposes of the Equity Definitions, the Transaction is a Share Forward
Transaction.
	 
	2.	 	The terms of the particular Transaction to which this Confirmation relates are as follows:





	 	 	 
	GENERAL TERMS:
	 	 
	 
	 	 
	Trade Date:

	 	August 10, 2006
	 
	 	 
	Effective Date:

	 	August 16, 2006
	 
	 	 
	Base Shares:

	 	3,000,000 Shares, as shall be increased by the number of
shares purchased by the Underwriters (as defined in the
Underwriting Agreement) from Party A pursuant to Section 3(e)
of the Underwriting Agreement (as defined below). On each
Settlement Date, the Base Shares shall be reduced by the
number of 






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	 	Settlement Shares for such Settlement Date.
	 
	 	 
	Maturity Date:

	 	August 1, 2008 (or, if such date is not a Scheduled Trading
Day, the next following Scheduled Trading Day), subject to
extension if a Settlement Date on such date is deferred as
provided below in clause (ii) of the proviso to the
definition of Settlement Date; provided that if the Maturity
Date is a Disrupted Day, then the Maturity Date shall be the
first succeeding Scheduled Trading Day that is not a
Disrupted Day.
	 
	 	 
	Forward Price:

	 	On the Effective Date, the Initial Forward Price, and on any
other day, the Forward Price as of the immediately preceding
calendar day multiplied by the sum of (i) 1 plus (ii) the
Daily Rate for such day; provided that on each Forward Price
Reduction Date, the Price in effect on such date shall be
the Forward Price otherwise in effect on such date minus the
Forward Price Reduction Amount for such Forward Price
Reduction date, provided further that if the Underwriters
purchase any Borrowed Optional Securities (as defined in the
Underwriting Agreement) from Party A pursuant to Section
3(e) of the Underwriting Agreement, on the Optional Closing
Date (as defined in the Underwriting Agreement), the Forward
Price on such date shall be the Initial Forward Price if the
Optional Closing Date is the Effective Date, or if the
Optional Closing Date occurs after the Effective Date, the
Forward Price on such date shall be as a result of the
following formula:












	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	[BA’ x FP
x (1 + DR)] + (OS x IFP)	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	BA”	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	where:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	BA’	 	=	 	the Base Shares prior to increase thereof
as described opposite the caption “Base
Shares” above;
	 	 	FP	 	=	 	the Forward Price on the date immediately
preceding such Optional Closing Date;
	 	 	DR	 	=	 	the Daily Rate for such day;
	 	 	OS	 	=	 	the number of Borrowed Optional Securities
so purchased from Party A;
	 	 	IFP	 	=	 	the Initial Forward Price (as such Initial
Forward Price may be reduced by the Forward
Reduction Amount on any Forward Reduction Date
that occurs on or prior to the Optional
Closing Date); and
	 	 	BA’’	 	=	 	the Base Shares after increase thereof as
described above opposite the caption “Base
Shares” above.






	 	 	 
	Initial Forward Price:

	 	 USD21.857 per Share
	 
	 	 
	Daily Rate:

	 	For any day, (i)(A) USD-Federal Funds Rate for such day minus
(B) the Spread divided by (ii) 360.
	 
	 	 
	USD-Federal Funds Rate:

	 	For any day, the rate set forth for such day
opposite the caption “Federal funds”, as such rate
is displayed on the page “FedsOpen






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	 	<Index>
<GO>” on the BLOOMBERG Professional Service,
or any successor page; provided that if no rate
appears on any day on such page, the rate for the
immediately preceding day on which a rate appears
shall be used for such day.
	 
	 	 
	Spread:

	 	 1.10%
	 
	 	 
	Forward Price Reduction Date:

	 	Each of August 18, 2006, November 17, 2006,
February 15, 2007, May 18, 2007, August 17,
2007, November 16, 2007, February 15, 2008,
and May 16, 2008.
	 
	 	 
	Forward Price Reduction Amount:

	 	For each Forward Price Reduction Date, the
Forward Price Reduction Amount set forth
opposite such date on Schedule I.
	 
	 	 
	Shares:

	 	Common stock, $.50 par value per share, of Aqua America, Inc. (the
“Issuer”) (Exchange identifier: “WTR”).
	 
	 	 
	Exchange:

	 	NYSE
	 
	 	 
	Related Exchange(s):

	 	All Exchanges
	 
	 	 
	Clearance System:

	 	DTC
	 
	 	 
	Calculation Agent:

	 	Party A. The Calculation Agent shall provide Party A
and Party B with a schedule of all calculations,
adjustments and determinations in reasonable detail and
in a timely manner.
	 
	 	 
	Determining Party:

	 	Party A
	 
	 	 
	Exchange Act:

	 	The Securities Exchange Act of 1934, as amended from time to
time.
	 
	 	 
	SETTLEMENT TERMS:
	 	 
	 
	 	 
	Settlement Date:

	 	Subject to the provisions under “Acceleration Events”
and “Termination Settlement” below, any Scheduled
Trading Day following the Effective Date and up to, and
including, the Maturity Date, as designated by Party B
in a written notice (a “Settlement Notice”) that
satisfies the Settlement Notice Requirements and that
(a) if related to any Cash Settlement or Net Share
Settlement, is delivered to Party A at least sixty
Scheduled Trading Days prior to such Settlement Date
(the period from the giving of any such notice to the
Settlement Date being the “Cash/Net Share Notice
Period”) and (b) if related to Physical Settlement, may
be delivered at any time and settlement will be
completed as promptly as practicable thereafter;
provided that (i) subject to clause (ii) below, the
Maturity Date shall be a Settlement Date if on such date
the Base Shares is greater than zero; (ii) if Cash
Settlement or Net Share Settlement applies, any
Settlement Date, including a Settlement Date on the
original Maturity Date, shall, if Party A is unable to
completely unwind its hedge during the Unwind Period due
to (A) the restrictions of Rule 10b-18 under the
Exchange Act, (B) the existence of any Suspension Day or
Disrupted Day, or (C) the inability of Party A, in its
commercially reasonable judgment, to unwind its hedge
during the Unwind Period, be deferred until the third
Scheduled






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	 	Trading Day following the date on which Party
A is able to completely unwind its hedge, provided that
such deferral shall not extend beyond the 75th Scheduled
Trading Day after the Settlement Date designated in the
Settlement Notice, such 75th Scheduled Trading Day being
a Settlement Date to which (x) Cash Settlement or Net
Share Settlement, as applicable, will apply with respect
to the portion of such Settlement Shares as to which
Party A reasonably determines that it has unwound its
hedge during the Unwind Period, and (y) Physical
Settlement will apply with respect to the remainder of
such Settlement Shares, and (iii) no more than six
Settlement Dates other than the Maturity Date may be
designated by Party B; provided further that if Party A
shall fully unwind its hedge during an Unwind Period by
a date that is more than three Scheduled Trading Days
prior to a Settlement Date specified above, Party A may,
by written notice to Party B, specify any Scheduled
Trading Day prior to such original Settlement Date as
the Settlement Date; provided further that if any
Settlement Date specified above is not a Scheduled
Trading Day, the Settlement Date shall instead be the
next Scheduled Trading Day.
	 
	 	 
	 

	 	Party A will be deemed to have completely unwound its
hedge upon such time that Party A shall have acquired a
number of Shares (i) in the case of Cash Settlement,
equal to the number of Settlement Shares, and (ii) in
the case of Net Share Settlement, that has an aggregate
purchase price equal to (1) the product of (A) the
number of Settlement Shares and (B) the Forward Price as
of the first day of the applicable Unwind Period minus
USD 0.03 minus (2) the product of (A) the Forward Price
Reduction Amount for any Forward Price Reduction Date
that occurs during such Unwind Period and (B) the number
of Shares with respect to which Party A has not unwound
its hedge as of such Forward Price Reduction Date.
	 
	 	 
	Settlement Shares:

	 	Subject to the provisions under “Acceleration Events”
and “Termination Settlement” below, with respect to any
Settlement Date, a number of Shares, not to exceed the
Base Shares, designated as such by Party B in the
related Settlement Notice; provided that, on the
Maturity Date, the number of Settlement Shares shall be
equal to the Base Shares on such date; provided further
that if a Settlement Date has been specified for a
number of Shares equal to the Base Shares on or prior to
the Maturity Date and such Settlement Date has been
deferred as described above until a date later than the
original Maturity Date, the number of Settlement Shares
on the original Maturity Date shall be zero.
	 
	 	 
	Settlement:

	 	Subject to the provisions under “Settlement Date” above and
“Acceleration Events” and “Termination Settlement” below,
Physical, Cash, or Net Share, at the election of Party B as set
forth in a Settlement Notice that satisfies the Settlement
Notice Requirements; provided that Physical Settlement shall
apply if no Settlement Method is selected.
	 
	 	 
	Settlement Notice Requirements:

	 	Notwithstanding any other provisions
hereof, a Settlement Notice delivered by
Party B will not be effective to establish
a






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	 	Settlement Date unless Party B represents
in such Settlement Notice that it has
complied with the agreement set forth in
clause (c) under “Additional
Representations, Warranties and Agreements
of Party B” in Section 3 of this
Confirmation.
	 
	 	 
	 

	 	Notwithstanding any other provisions
hereof, a Settlement Notice delivered by
Party B that specifies Cash Settlement or
Net Share Settlement will not be effective
to establish a Settlement Date or require
Cash Settlement or Net Share Settlement (as
applicable) unless Party B delivers to
Party A with such Settlement Notice a
representation signed by Party B
substantially in the following form: “As of
the date of this Settlement Notice, Aqua
America, Inc. is not aware of any material
nonpublic information concerning itself or
the Shares, and is designating the date
contained herein as a Settlement Date in
good faith and not as part of a plan or
scheme to evade compliance with the federal
securities laws.”
	 
	 	 
	Unwind Period:

	 	The period from, and including, the first Scheduled Trading
Day following the date on which Party B elects Cash
Settlement or Net Share Settlement in respect of a
Settlement Date through the third Scheduled Trading Day
preceding such Settlement Date.
	 
	 	 
	Unwind Daily Share Amount:

	 	On each Scheduled Trading Day during the Unwind
Period, other than a Suspension Day or a
Disrupted Day, Party A will, in accordance with
the principles of best execution, purchase a
number of Shares equal to the lesser of (i) 100%
of the applicable volume limitation of Rule
10b-18 for the Shares on such Scheduled Trading
Day, without reference to any block purchases,
(ii) 25% of the daily trading volume for the
Shares on the Exchange on such Scheduled Trading
Day, and (iii) the number of Shares necessary to
complete the purchases required to calculate the
Cash Settlement Amount or the Net Share
Settlement Shares, as the case may be.
	 
	 	 
	Physical Settlement:

	 	On any Settlement Date in respect of which Physical
Settlement applies, Party B shall deliver to Party A a
number of Shares equal to the Settlement Shares for
such Settlement Date, and Party A shall deliver to
Party B, by wire transfer of immediately available
funds to an account designated by Party B, an amount
in cash equal to the Physical Settlement Amount for
such Settlement Date, on a delivery versus payment
basis.
	 
	 	 
	Physical Settlement Amount:

	 	For any Settlement Date in respect of which
Physical Settlement applies, an amount in cash
equal to the product of the Forward Price on
such Settlement Date and the number of
Settlement Shares for such Settlement Date.
	 
	 	 
	Cash Settlement:

	 	On any Settlement Date in respect of which Cash Settlement
applies, if the Cash Settlement Amount is a positive
number, Party A will pay the Cash Settlement Amount to
Party B. If the Cash Settlement Amount is a negative
number, Party B will pay the absolute value of the Cash
Settlement Amount to Party A. Such amounts shall be paid
on the Settlement Date.
	 
	 	 
	Cash Settlement Amount:

	 	For any Settlement Date in respect of which Cash
Settlement






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	 	applies, an amount determined by the
Calculation Agent equal to: (1) the product of (i)
(A) the Forward Price as of the first day of the
applicable Unwind Period minus (B) the weighted
average price at which Party A is able to purchase
Shares during the Unwind Period applicable to Cash
Settlement to unwind its hedge in compliance with
Rule 10b-18 under the Exchange Act as if it applied
to Party A during the Unwind Period minus (C) USD
0.03 and (ii) the number of Settlement Shares for
such Settlement Date minus (2) the product of (i)
the Forward Price Reduction Amount for any Forward
Price Reduction Date that occurs during such Unwind
Period and (ii) the number of Shares with respect
to which Party A has not unwound its hedge as of
such Forward Price Reduction Date .
	 
	 	 
	Net Share Settlement:

	 	On any Settlement Date in respect of which Net Share
Settlement applies, if the number of Net Share
Settlement Shares is a (i) positive number, Party A
shall deliver a number of Shares to Party B equal to
the Net Share Settlement Shares, and (ii) negative
number, Party B shall deliver a number of Shares to
Party A equal to the absolute value of the Net Share
Settlement Shares; provided that if Party A
determines in its good faith judgment that it would
be required to deliver Net Share Settlement Shares to
Party B, Party A may elect to deliver a portion of
such Net Share Settlement Shares on one or more dates
prior to the applicable Settlement Date.
	 
	 	 
	Net Share Settlement Shares:

	 	On any Settlement Date in respect of which Net
Share Settlement applies, an amount equal to
(A) the number of Shares acquired in the
Unwind Period applicable to Net Share
Settlement for such Settlement Date minus (B)
the number of Settlement Shares for such
Settlement Date.
	 
	 	 
	Settlement Currency:

	 	USD
	 
	 	 
	Failure to Deliver:

	 	Not Applicable
	 
	 	 
	SUSPENSION OF CASH OR NET SHARE SETTLEMENT:
	 
	 	 
	Suspension Day:

	 	Any day on which Party A determines based on the written
advice of counsel that Cash or Net Share Settlement may
violate applicable securities laws. Party A shall notify
Party B if it receives such written advice from its
counsel.
	 
	 	 
	ADJUSTMENTS:
	 	 
	 
	 	 
	Method of Adjustment:

	 	Calculation Agent Adjustment. Notwithstanding
anything in the Equity Definitions to the contrary,
the Calculation Agent may make an adjustment pursuant
to Calculation Agent Adjustment to any one or more of
the Base Shares, the Forward Price and any other
variable relevant to the settlement or payment terms
of the Transaction.






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	EXTRAORDINARY EVENTS:
	 	 
	 
	 	 
	Extraordinary Events:

	 	In lieu of the applicable provisions contained in
Article 12 of the Equity Definitions, the
consequences of any applicable Extraordinary Event
shall be as specified in “Acceleration Events” and
“Termination Settlement” hereunder.
	 
	 	 
	Tender Offer:

	 	Not Applicable.
	 
	 	 
	ACCOUNT DETAILS:
	 	 
	 
	 	 
	Payments to Party A:

	 	To be advised under separate cover or telephone
confirmed prior to each Settlement Date.
	 
	 	 
	Payments to Party B:

	 	To be advised under separate cover or telephone
confirmed prior to each Settlement Date.
	 
	 	 
	Delivery of Shares to Party A:

	 	To be advised
	 
	 	 
	Delivery of Shares to Party B:

	 	To be advised






3. Other Provisions:




Conditions to Effectiveness:





The effectiveness of this Confirmation on the Effective Date shall be subject to (i) the
condition that the representations and warranties of Party B contained in Section 3(a) of
the Agreement and the Underwriting Agreement dated the date hereof between Party B and UBS
Securities LLC, as representative of the underwriters, and the other underwriters named
therein (the “Underwriting Agreement”), and any certificate delivered pursuant to the
Underwriting Agreement by Party B be true and correct on the Effective Date as if made as
of the Effective Date, (ii) the condition that the representations and warranties of Party
A contained in Section 3(a) of the Agreement be true and correct on the Effective Date as
if made as of the Effective Date, (iii) the condition that Party B have performed all of
the obligations required to be performed by it under the Underwriting Agreement on or prior
to the Effective Date, (iv) delivery by Party A to Party B of a properly executed Internal
Revenue Service Form W-8BEN or similar documentation establishing an exemption from backup
withholding under the Internal Revenue Code of 1986, as amended, and (v) the satisfaction
of all of the conditions set forth in Section 7 and Section 8 of the Underwriting
Agreement. In addition, if Party A, in its commercially reasonable judgment, is unable to
borrow and deliver for sale a number of Shares equal to the Base Shares or if, in Party A’s
commercially reasonable judgment it would entail a stock loan cost of more than 100 basis
points per annum with respect to all or any portion of such Shares, the effectiveness of
this Confirmation shall be limited to the number of Shares Party A may borrow at a cost of
not more than 100 basis points per annum.



Additional Representations, Warranties and Agreements of Party B: Party B hereby represents
and warrants to, and agrees with, Party A as of the date hereof and on the Effective Date that:





	 	(a)	 	Any Shares, when issued and delivered in accordance with the terms of the
Transaction, will be duly authorized and validly issued, fully paid and nonassessable,
and the issuance thereof will not be subject to any preemptive or similar rights.
	 
	 	(b)	 	Party B has reserved and will keep available, free from preemptive rights, out of
its authorized but unissued Shares, solely for the purpose of issuance upon settlement
of the Transaction as herein provided, the full number of Shares as shall then be
issuable upon settlement of the Transaction.
	 
	 	(c)	 	Prior to any Settlement Date, the Settlement Shares with respect to that
Settlement Date shall have been approved for listing or quotation on the Exchange,
subject to official notice of issuance.




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	 	(d)	 	The execution and delivery of, and the performance by Party B of its obligations
under, this Confirmation have been duly and validly authorized by all necessary
corporate action on the part of Party B, and this Confirmation has been duly executed
and delivered by Party B. The execution and delivery of this Confirmation and the
consummation of the transactions herein contemplated and the fulfillment of the terms
thereof will not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, (I) any material indenture, mortgage, deed of trust
or other material agreement or instrument to which the Party B or any subsidiary listed
in Schedule III of the Underwriting Agreement (each a “Subsidiary”) is a party or by
which Party B or any Subsidiary or any of their respective properties is bound, (II) the
Charter or By-Laws of Party B or (III) any law, order, rule or regulation, judgment,
order, writ or decree applicable to the Party B or any Subsidiary of any court or of any
government, regulatory body or administrative agency or other governmental body having
jurisdiction, except with respect to (I) and (III) above where such breach or default
would not, individually or in the aggregate, have a material adverse effect on the
earnings, business, management, properties, assets, rights, operations or condition
(financial or otherwise) of Party B and its subsidiaries taken as a whole.
	 
	 	(e)	 	Each approval, consent, order, authorization, designation, declaration or filing
by or with any regulatory, administrative or other governmental body necessary in
connection with the execution and delivery by Party B of this Confirmation and the
consummation of the transactions herein contemplated, including the issuance and
delivery by Party B of the Shares has been obtained or made and is in full force and
effect.
	 
	 	(f)	 	Party B agrees not to repurchase any Shares if, immediately following such
repurchase, the Base Shares would be equal to or greater than 8.0% of the number of
then-outstanding Shares.
	 
	 	(g)	 	Party B is as of the date hereof, and after giving effect to the transactions
contemplated hereby will be, Solvent. As used in this paragraph, the term “Solvent”
means, with respect to a particular date, that on such date (A) the present fair market
value (or present fair saleable value) of the assets of Party B is not less than the
total amount required to pay the liabilities of Party B on its total existing debts and
liabilities (including contingent liabilities) as they become absolute and matured, (B)
Party B is able to realize upon its assets and pay its debts and other liabilities,
contingent obligations and commitments as they mature and become due in the normal
course of business, (C) assuming consummation of the transactions as contemplated by
this Agreement, Party B is not incurring debts or liabilities beyond its ability to pay
as such debts and liabilities mature, (D) Party B is not engaged in any business or
transaction, and does not propose to engage in any business or transaction, for which
its property would constitute unreasonably small capital after giving due consideration
to the prevailing practice in the industry in which Party B is engaged and (E) Party B
is not a defendant in any civil action that could reasonably be expected to result in a
judgment that Party B is or would become unable to satisfy.
	 
	 	(h)	 	Neither Party B nor any “affiliated purchaser” of Party B (as defined in Rule
10b-18 under the Exchange Act) shall take any action that would cause any purchases of
Shares by Party A during any Unwind Period relating to any Cash Settlement or Net Share
Settlement of this Transaction not to comply with Rule 10b-18 under the Exchange Act.
	 
	 	(i)	 	Party B will not engage in any “distribution” (as defined in Regulation M under
the Exchange Act) other than distributions permitted under Rule 102(c) of Regulation M
under the Exchange Act during any Unwind Period.
	 
	 	(j)	 	Party B is an “eligible contract participant” (as such term is defined in Section
1a(12) of the Commodity Exchange Act, as amended) and the Transaction was subject to
individual negotiation.
	 
	 	(k)	 	In addition to any other requirements set forth herein, Party B agrees not to
elect Cash Settlement or Net Share Settlement if such settlement would result in a
violation of the U.S. federal securities laws or any other federal or state law or
regulation applicable to Party B.
	 
	 	(l)	 	The representations and warranties of Party B contained in the Underwriting
Agreement and any certificate delivered pursuant thereto by Party B shall be true and
correct on the Effective Date as if made as of the Effective Date.




8









 






	 	(m)	 	Party B is not and has not been the subject of any civil proceeding of a judicial
or administrative body of competent jurisdiction that could reasonably be expected to
impair materially Party B’s ability to perform its obligations hereunder.
	 
	 	(n)	 	Party B will, by the next succeeding New York Business Day, notify Party A upon
obtaining knowledge of the occurrence of any event that would constitute an Event of
Default, a Potential Event of Default or a Potential Adjustment Event.





Covenant of Party B:





The parties acknowledge and agree that any Shares delivered by Party B to Party A on any
Settlement Date will be newly issued Shares and when delivered by Party A (or an affiliate
of Party A) to securities lenders from whom Party A (or an affiliate of Party A) borrowed
Shares in connection with hedging its exposure to the Transaction will be freely saleable
without further registration or other restrictions under the Securities Act of 1933, as
amended, in the hands of those securities lenders, irrespective of whether such stock loan
is effected by Party A or an affiliate of Party A to hedge Party A’s exposure under the
Transaction. Accordingly, Party B agrees that the Settlement Shares that it delivers to
Party A on each Settlement Date will not bear a restrictive legend and that such Settlement
Shares will be deposited in, and the delivery thereof shall be effected through the
facilities of, the Clearance System.



Covenants and Representation of Party A:





	 	(a)	 	Party A shall use any Settlement Shares delivered by Party B to Party A to return
to securities lenders to close out borrowings created by Party A (or an affiliate of
Party A) in connection with its hedging activities related to exposure under this
Transaction.
	 
	 	(b)	 	In connection with bids and purchases of Shares in connection with any Cash
Settlement or Net Share Settlement of this Transaction, Party A shall use commercially
reasonable efforts to comply, or cause compliance, with the provisions of Rule 10b-18
under the Exchange Act, as if such provisions were applicable to such purchases.
	 
	 	(c)	 	Party A is an “eligible contract participant” (as such term is defined in Section
1a(12) of the Commodity Exchange Act, as amended) and the Transaction was subject to
individual negotiation.





Acceleration Events: An Acceleration Event shall occur if:





	(a)	 	Stock Borrow Events. Notwithstanding any other provision hereof, if in
its commercially reasonable judgment Party A is unable to hedge Party A’s exposure to
the Transaction (a “Stock Borrow Event”) because (i) of the lack of sufficient Shares
being made available for Share borrowing by lenders or (ii) it would incur a stock loan
cost of more than 100 basis points per annum, Party A shall have the right to designate
any Scheduled Trading Day to be a Settlement Date on at least three Scheduled Trading
Days’ notice, and to select the number of Settlement Shares for such Settlement Date;
provided that (x) prior to the effectiveness of the designation of a Stock Borrow Event
under this paragraph (a), Party B may refer Party A to a lending party reasonably
acceptable to Party A that will lend Party A Shares within such three Scheduled Trading
Days, on terms reasonably acceptable to Party A and at a stock loan cost of no more than
100 basis points per annum and (y) the number of Settlement Shares for any Settlement
Date so designated by Party A shall not exceed the number of Shares as to which such
inability to, or cost limitation with respect to, borrow exists; or
	 
	(b)	 	Share Price Reduction. Notwithstanding any other provision hereof, if the
average of the closing bid and offer prices or, if available, the closing sale price per
Share on the Exchange for the regular trading session on any Scheduled Trading Day
occurring after the Trade Date is less than or equal to USD 10.00, Party A shall have
the right to designate any Scheduled Trading Day to be a Settlement Date on at least ten
Scheduled Trading Days’ notice, and to select the number of Settlement Shares for such
Settlement Date; or




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	(c)	 	Dividends and Other Distributions. Notwithstanding any other provision
hereof, if on any day occurring after the Trade Date Party B declares a distribution,
issue or dividend to existing holders of the Shares of (i) any cash dividend to the
extent all cash dividends having an ex-dividend date during the period from and
including any Forward Price Reduction Date (with each of the Trade Date and the Maturity
Date being a Forward Price Reduction Date for purposes of this clause (c) only) to but
excluding the next subsequent Forward Price Reduction Date exceeds, on a per Share
basis, the Forward Price Reduction Amount set forth opposite the first date of any such
period on Schedule I or (ii) share capital or securities of another issuer acquired or
owned (directly or indirectly) by Party B as a result of a spin-off or other similar
transaction or (iii) any other type of securities (other than Shares), rights or
warrants or other assets, which distribution, issue or dividend has a record date on or
prior to the final Settlement Date, then Party A shall have the right to designate any
Scheduled Trading Day to be a Settlement Date for the entire Transaction on at least
three Scheduled Trading Day’s notice, and to select the number of Shares for such
Settlement Date; or
	 
	(d)	 	ISDA Early Termination Date. Notwithstanding anything to the contrary
herein, in the Agreement or in the Definitions, if Party A has the right to designate an
Early Termination Date pursuant to Section 6 of the Agreement (other than as a result of
the occurrence of an event listed in Section 5(a)(vii) of the Agreement), Party A shall
have the right to designate any Scheduled Trading Day to be a Settlement Date for the
entire Transaction on at least three Scheduled Trading Days’ notice; or
	 
	(e)	 	Board Approval of Merger. Notwithstanding any other provision hereof, if
on any day occurring after the Trade Date the board of directors of Party B votes to
approve, or there is a public announcement of, in either case any action that, if
consummated, would constitute a Merger Event (as defined in the Equity Definitions),
Party B shall notify Party A of any such vote or announcement within one Scheduled
Trading Day (and, in the case of any such vote, Party B also covenants and agrees to
publicly announce the occurrence of such vote within one Scheduled Trading Day thereof).
Thereafter, Party A shall have the right to designate any Scheduled Trading Day to be a
Settlement Date for the entire Transaction on at least three Scheduled Trading Days’
notice; or
	 
	(f)	 	Other Events. Notwithstanding anything to the contrary herein, in the
Agreement or in the Equity Definitions, if a Nationalization, Delisting (as provided
further in the next sentence) or Change in Law (other than as specified in clause (Y) of
the definition thereof) occurs, Party A shall have the right to designate any Scheduled
Trading Day to be a Settlement Date for the entire Transaction on at least three
Scheduled Trading Days’ notice and Party A shall be the Determining Party. In addition
to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it will also
constitute a Delisting if the Exchange is located in the United States and the Shares
are not immediately re-listed, re-traded or re-quoted on any of the New York Stock
Exchange, the American Stock Exchange or the NASDAQ National Market (or their respective
successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such
exchange or quotation system, such exchange or quotation system shall be deemed to be
the Exchange.





Termination Settlement:





If a Settlement Date is specified following an Acceleration Event (a “Termination Settlement
Date”), Physical Settlement shall apply with respect to such Termination Settlement Date as set
forth above, and subject to the provisions described under “Limit on Beneficial Ownership”
below. If, upon designation of a Termination Settlement Date by Party A, Party B fails to
deliver the Settlement Shares relating to such Termination Settlement Date when due or
otherwise fails to perform its obligations in connection therewith, it shall be an Event of
Default with respect to Party B and Section 6 of the Agreement shall apply. If an Acceleration
Event occurs during an Unwind Period relating to a number of Settlement Shares to which Cash
Settlement or Net Share Settlement applies, then on the Termination Settlement Date relating to
such Acceleration Event, notwithstanding any election to the contrary by Party B, Cash
Settlement or Net Share Settlement shall apply to the portion of the Settlement Shares relating
to such Unwind Period as to which Party A has unwound its hedge and Physical Settlement shall
apply in respect



10









 







of (x) the remainder (if any) of such Settlement Shares and (y) the Settlement Shares
designated by Party A in respect of such Termination Settlement Date.



Rule 10b5-1:





It is the intent of Party A and Party B that the purchase of Shares by Party A during any
Unwind Period comply with the requirements of Rule 10b5-1(c)(1)(i)(B) of the Exchange Act and
that this Confirmation shall be interpreted to comply with the requirements of Rule 10b5-1(c).




Party B acknowledges that, except as otherwise provided herein, (i) during any Unwind Period
Party B does not have, and shall not attempt to exercise, any influence over how, when or
whether to effect purchases of Shares by Party A (or its agent or affiliate) in connection with
this Confirmation and (ii) Party B is entering into the Agreement and this Confirmation in good
faith and not as part of a plan or scheme to evade compliance with federal securities laws
including, without limitation, Rule 10b-5 promulgated under the Exchange Act.




Party B hereby agrees with Party A that during any Unwind Period Party B shall not communicate,
directly or indirectly, any material non-public information (within the meaning of any
applicable securities laws) to any Equity Personnel (as defined below). For purposes of this
Transaction, “Equity Personnel” means any employee on the trading side of the UBS Investment
Bank.



Interpretive Letter:





The parties intend for this Confirmation to constitute a “Contract” as described in the letter
dated October 6, 2003 submitted by Robert W. Reeder and Leslie N. Silverman to Paula Dubberly
of the staff of the Securities and Exchange Commission (the “Staff”) to which the Staff
responded in an interpretive letter dated October 9, 2003.



Restricted Shares:





If Party B is unable to comply with the Covenant of Party B above in this Section 3 because of
a change in law or a change in interpretation or the policy of the Securities and Exchange
Commission or its staff, or Party A otherwise determines in its reasonable opinion that any
Shares to be delivered to Party A by Party B may not be freely returned by Party A to
securities lenders as described in the Covenant of Party B above in this Section 3, then the
Calculation Agent may, in consultation with Party B, make adjustments to the terms of the
Transaction to preserve the economic intent of the parties, including adjustments to the
Forward Price to reflect any lack of liquidity in restricted Shares, and the parties shall work
together in good faith to effect settlement of the Transaction in a commercially reasonable
manner and in compliance with applicable law and regulations.



Maximum Share Delivery:





Notwithstanding any other provision of this Confirmation, in no event will Party B be required
to deliver on any Settlement Date, whether pursuant to Physical Settlement, Net Share
Settlement or Termination Settlement, more than the number of Base Shares to Party A, subject
to reduction by the aggregate number of Shares delivered by Party B on all prior Settlement
Dates.



Assignment:





Party A may assign or transfer any of its rights or delegate any of its duties hereunder to any
affiliate of Party A without the prior written consent of Party B, so long as the senior
unsecured debt rating (“Credit Rating”) of such affiliate (or any guarantor of its obligations
under the Transaction) is equal to or greater than the Credit Rating of Party A, as specified
by Standard and Poor’s Rating Services or Moody’s Investor Service, Inc., at the time of such
assignment or transfer. In connection with any assignment or transfer pursuant to the
immediately preceding sentence, the guarantee of any guarantor of the relevant



11









 







transferee’s obligation shall constitute a Credit Support Document under the Agreement.
Notwithstanding any other provision of this Confirmation to the contrary requiring or allowing
Party A to purchase or receive any Shares from Party B, Party A may designate any of its
affiliates to purchase or receive such Shares or otherwise to perform Party A’s obligations in
respect of this Transaction and any such designee may assume such obligations, and Party A
shall be discharged of its obligations to Party B to the extent of any such performance.



Matters Relating to Agent: 





(a) As a broker-dealer registered with the U.S. Securities and Exchange Commission, UBS, in its
capacity as agent (the “Agent”), will be responsible for (i) effecting the Transaction and (ii)
maintaining books and records relating to the Transaction.




(b) UBS shall act as “agent” for Party A and Party B within the meaning of Rule 15a-6 under the
Exchange Act in connection with the Transaction.




(c) The Agent, in its capacity as such, shall have no responsibility or liability (including,
without limitation, by way of guarantee, endorsement or otherwise) to Party A or Party B or
otherwise in respect of the Transaction, including, without limitation, in respect of the
failure of Party A or Party B to pay or perform under this Confirmation, except for its gross
negligence or willful misconduct in performing its duties as Agent hereunder.




(d) Each of Party A and Party B agree to proceed solely against the other to collect or recover
any securities or monies owing to Party A or Party B, as the case may be, in connection with or
as a result of the Transaction.




(e) The Agent will be Party A’s agent for service of process for the purpose of Section 13(c)
of the Agreement.



Indemnity:





Party B agrees to indemnify Party A and its affiliates and their respective directors,
officers, agents and controlling parties (Party A and each such affiliate or person being an
“Indemnified Party”) from and against any and all losses, claims, damages and liabilities,
joint and several, incurred by or asserted against such Indemnified Party arising out of, in
connection with, or relating to, any breach of any covenant or representation made by Party B
in this Confirmation or the Agreement or the consummation of the transactions contemplated
hereby and will reimburse any Indemnified Party for all reasonable expenses (including
reasonable legal fees and reasonable expenses) as they are incurred in connection with the
investigation of, preparation for, or defense of any pending or threatened claim or any action
or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto.
Party B will not be liable under this Indemnity paragraph to the extent that any loss, claim,
damage, liability or expense is found in a final and nonappealable judgment by a court of
competent jurisdiction to have resulted from Party A’s gross negligence, fraud, bad faith
and/or willful misconduct or a breach of any representation or covenant of Party A contained in
this Confirmation or Agreement.



Miscellaneous:




	 	 	 
	Non-Reliance:

	 	Applicable
	 
	 	 
	Additional Acknowledgements:

	 	Applicable
	 
	 	 
	Agreements and Acknowledgments Regarding Hedging Activities:

	 	Applicable







	4.	 	The Agreement is further supplemented by the following provisions:




12









 











Agreement Regarding Set-off and Collateral:





Notwithstanding Section 6(f) or any other provision of the Agreement or any other agreement
between the parties to the contrary, the obligations of Party B hereunder are not secured by
any collateral. Obligations under the Transaction shall not be set off against any other
obligations of the parties, whether arising under the Agreement, this Confirmation, under any
other agreement between the parties hereto, by operation of law or otherwise, and no other
obligations of the parties shall be set off against obligations under the Transaction, whether
arising under the Agreement, this Confirmation, under any other agreement between the parties
hereto, by operation of law or otherwise, and each party hereby waives any such right of
setoff. In calculating any amounts under Section 6(e) of the Agreement, notwithstanding
anything to the contrary in the Agreement, (a) separate amounts shall be calculated as set
forth in such Section 6(e) with respect to (i) the Transaction and (ii) all other Transactions,
and (b) such separate amounts shall be payable pursuant to Section 6(d)(ii) of the Agreement.



Bankruptcy Rights:





Notwithstanding anything to the contrary herein, in the Agreement or in the Equity Definitions,
upon the occurrence of an Insolvency, Insolvency Filing of Party B or an Event of Default of
the type described in Section 5(a)(vii) of the Agreement (a “Bankruptcy”) with respect to Party
B, the Transaction shall automatically terminate on the date of such occurrence without further
liability of either party under this Confirmation to the other party (except for any liability
in respect of any breach of representation or covenant by a party under this Confirmation prior
to the date of such Insolvency, Insolvency Filing or Bankruptcy).



Limit on Beneficial Ownership:





Notwithstanding any other provisions hereof, Party A shall not be entitled to receive Shares or
any other class of voting securities of Party B hereunder (whether in connection with the
purchase of Shares on any Settlement Date or any Termination Settlement Date or otherwise) to
the extent (but only to the extent) that such receipt would result in the ultimate parent
entity of Party A directly or indirectly beneficially owning (as such term is defined for
purposes of Section 13(d) of the Exchange Act) at any time in excess of 8.0% of the outstanding
Shares or any other class of voting securities of Party B. Any purported delivery hereunder
shall be void and have no effect to the extent (but only to the extent) that such delivery
would result in the ultimate parent entity of Party A directly or indirectly so beneficially
owning in excess of 8.0% of the outstanding Shares or any other class of voting securities of
Party B. If any delivery owed to Party A hereunder is not made, in whole or in part, as a
result of this provision, Party B’s obligation to make such delivery shall not be extinguished
and Party B shall make such delivery as promptly as practicable after, but in no event later
than one Clearance System Business Day after, Party A gives notice to Party B that such
delivery would not result in the ultimate parent entity of Party A directly or indirectly so
beneficially owning in excess of 8.0% of the outstanding Shares or any other class of voting
securities of Party B. If Net Share Settlement would result in the ultimate parent entity of
Party A beneficially owning more than 8.0% of the outstanding Shares in connection with closing
out its hedge position, Party A would be allowed to partially settle the Transaction based on
its purchase of that amount of Shares, and then to purchase the amount or amounts of additional
Shares necessary to settle the remainder of the Transaction, and to make the associated
deliveries at such times as determined by the Calculation Agent.



Severability: 





If any term, provision, covenant or condition of this Confirmation, or the application thereof
to any party or circumstance, shall be held to be invalid or unenforceable in whole or in part
for any reason, the remaining terms, provisions, covenants, and conditions hereof shall
continue in full force and effect as if this Confirmation had been executed with the invalid or
unenforceable provision eliminated, so long as this Confirmation as so modified continues to
express, without material change, the original intentions of the parties as to the subject
matter of this Confirmation and the deletion of such portion of this Confirmation will not
substantially impair the respective benefits or expectations of parties to this Agreement;
provided, however, that this severability provision shall not be applicable if any provision of



13









 







Section 2, 5, 6 or 13 of the Agreement (or any definition or provision in Section 14 to the
extent that it relates to, or is used in or in connection with any such Section) shall be so
held to be invalid or unenforceable.



Miscellaneous:





	 	(a)	 	Addresses for Notices. For the purpose of Section 12(a) of the Agreement:





	 	 	 	 	 	 	 
	 	 	Address for notices or communications to Party A:
	 
	 	 	 	 	 	 
	 

	 	 	 	Address:
	 	 UBS AG, London Branch
	 

	 	 	 	 	 	 c/o UBS Securities LLC
	 

	 	 	 	 	 	 299 Park Avenue
	 

	 	 	 	 	 	 New York, NY 10171
	 

	 	 	 	Attention:
	 	 Adam Frieman
	 

	 	 	 	Telephone No.:
	 	 212-821-2100
	 

	 	 	 	Facsimile No.:
	 	 212-821-7031
	 
	 	 	 	 	 	 
	 

	 	 	 	With a copy to:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Address:
	 	 Equities Legal Department
	 

	 	 	 	 	 	 677 Washington Boulevard
	 

	 	 	 	 	 	 Stamford, CT 06901
	 

	 	 	 	Attention:
	 	 David Kelly and Gordon Kiesling
	 

	 	 	 	Telephone No.:
	 	 (203) 719-0268
	 

	 	 	 	Facsimile No.:
	 	 (203) 719-5627
	 
	 	 	 	 	 	 
	 	 	Address for notices or communications to Party B:
	 
	 	 	 	 	 	 
	 

	 	Address:
	 	Aqua America, Inc.	 	 
	 

	 	 	 	762 Lancaster Ave.	 	 
	 

	 	 	 	Bryn Mawr, PA 19010	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Attn: General Counsel	 	 
	 

	 	 	 	Tel: 610-645-1035	 	 
	 

	 	 	 	Fax: 610-645-1061	 	 
	 
	 	 	 	 	 	 
	 	 	Party B payment instructions:
	 
	 	 	 	 	 	 
	 

	 	 	 	Account Name:
	 	 Aqua America, Inc.
	 

	 	 	 	Account #:
	 	 8541854208
	 

	 	 	 	ABA #:
	 	 031000053
	 

	 	 	 	Bank Name:
	 	 PNC Bank, 1600 Market Street, 19th Floor, Philadelphia,
	 

	 	 	 	 	 	 PA 19103






	 	(b)	 	Waiver of Right to Trial by Jury. Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect of any
suit, action or proceeding relating to this Confirmation or any Agreement. Each party
(i) certifies that no representative, agent or attorney of the other party has
represented, expressly or otherwise, that such other party would not, in the event of
such a suit action or proceeding, seek to enforce the foregoing waiver and (ii)
acknowledges that it and the other party have been induced to enter into this
Confirmation by, among other things, the mutual waivers and certifications in this
Section.





London Branch:




14









 









Party A is entering into this Confirmation and the Agreement through its London branch.
Notwithstanding the foregoing, Party A represents to Party B that the obligations of Party A are
enforceable against it to the same extent as if it had entered into this Confirmation and the
Agreement through its head or home office in Zurich.



15









 




Please confirm that the foregoing correctly sets forth the terms of our agreement by signing and
returning this Confirmation.




	 	 	 	 	 
	 	 	Yours faithfully,
	 
	 	 	 	 
	 	 	UBS AG, LONDON BRANCH
	 
	 	 	 	 
	 	 	By: /s/       Dmitriy Mandel
	 

	 	 	 	          Executive Director
	 

	 	 	 	          Equity Risk Management
	 

	 	 	 	          UBS Investment Bank
	 
	 	 	 	 
	 	 	By: /s/       Akshay Mansuidiani
	 

	 	 	 	          Associate Director
	 

	 	 	 	          Equity Risk Management
	 

	 	 	 	          UBS Investment Bank






	 	 	 
	Confirmed as of the date first written above:
	 
	 	 
	AQUA AMERICA, INC.
	 
	 	 
	By:

	 	/s/ David P. Smeltzer
	 

	 	Name: D. P. Smeltzer
	 

	 	 Title: Sr. VP - CFO





16









 






SCHEDULE I




	 	 	 
	Forward Price Reduction Date	 	Forward Price Reduction Amount
	Trade Date

	 	USD 0.00
	August 18, 2006

	 	USD 0.115
	November 17, 2006

	 	USD 0.115
	February 15, 2007

	 	USD 0.115
	May 18, 2007

	 	USD 0.115
	August 17, 2007

	 	USD 0.125
	November 16, 2007

	 	USD 0.125
	February 15, 2008

	 	USD 0.125
	May 16, 2008

	 	USD 0.125
	Thereafter

	 	USD 0.00







17