Document:

exv10w24

 

EXHIBIT 10.24

AQUA AMERICA, INC.

and SUBSIDIARIES

2007 ANNUAL CASH INCENTIVE COMPENSATION PLAN

BACKGROUND

In 1989, the Company and its compensation consultant conducted a
feasibility study to determine whether the Company should implement an
incentive compensation plan. The study was prompted by the positive
experience of other investor-owned water companies with incentive
compensation.

The study included interviews with executives and an analysis of
competitive compensation levels. Based on the results, the
compensation consultant recommended that the Company’s objectives and
competitive practice supported the adoption of an annual incentive
plan (the “Plan”). The Company has had a cash incentive compensation
plan in place since 1990 and management and the Board of Directors
believe it has had a positive effect on the Company’s operations,
aiding employees, shareholders (higher earnings) and customers (better
service and controlling expenses).

The Plan has two components — a Management Incentive Program and an
Employee Recognition (“Chairman’s Award”) Program.

The Plan is designed to provide an appropriate incentive to the
officers, managers and certain other key employees of the Company.
The 2007 Management Incentive Program will cover officers, managers
and certain key employees of Aqua America, Inc., and its subsidiaries.

All incentive awards under the Plan shall be paid by March 15 of the
calendar year following the calendar year in which such awards are
earned, or as soon as administratively practicable thereafter.

MANAGEMENT INCENTIVE PROGRAM

Performance Measures

	 	•	 	Annual incentive bonus awards are calculated by multiplying an individual’s
Target Bonus by a Company Factor based on the applicable company’s performance and an
Individual Factor based on the individual employee’s performance.

 

 

 

	 	 	 	The approach of having a plan tied to the applicable company’s income performance is
appropriate as the participants’ assume some of the same risks and rewards as the
shareholders who are investing in the company and making its capital construction
and acquisition programs possible. Customers also benefit from the participants’
individual objectives being met, as improvements in performance are accomplished by
controlling costs, improving efficiencies and enhancing customer service. For these
reasons, future rate relief should be lessened and less frequent, which directly
benefits all customers.
	 
	 	•	 	The applicable company’s actual after-tax net income from continuing operations
or earnings before interest, taxes and depreciation (“EBITD”) relative to its annual
budget will be the primary measure for the company’s performance. The measurement to
be used as the Company Factor (financial factor, thresholds and weighting by applicable
business unit) for each participant will be established by the Chairman of the Company
and, for the senior executives of the Company, approved individually by the Executive
Compensation and Employee Benefits Committee. Each year a “Target Net Income or
EBITD” level will be established. Portions of the Company Rating Factor may be tied to
the financial targets of more than one company for some participants whose
responsibilities involve more than one company. For purposes of the Plan, the Target
Net Income or EBITD may differ from the budgeted net income or EBITD level. For 2007,
the Target Net Income or EBITD will exclude the impact of any unbudgeted extraordinary
gains or losses as a result of changes in accounting principles.
	 
	 	•	 	Based on a review of historic performance, the minimum or threshold level of
performance is set at 90 percent of the Target Net Income or EBITD. That is, no bonus
awards will be made if actual net income is less than 90 percent of the Target Net
Income or EBITD for the year. No additional bonus will be earned for results exceeding
110 percent of the Target Net Income or EBITD.
	 
	 	•	 	Each individual’s performance and achievement of his or her objectives will
also be evaluated and factored into the bonus calculation (the “Individual Factor”).
Performance objectives for each participant are established each year and are primarily
directed toward customer growth, improving customer service, controlling costs and
improving efficiencies and productivity. Each objective has specific performance
measures that are used to determine the level of achievement for each objective. A
participant’s target Individual Factor should be no more than 90 points, with the
possibility of additional points up to 110 points being awarded for measurable
performance above the participant’s targeted performance level. Participants must
achieve at least 70 points for their Individual Factor to be eligible for a bonus award
under the Plan.

 

 

 

Participation

	 	•	 	Eligible participants consist of officers, managers and certain key employees.
	 
	 	•	 	Participation in the Management Incentive Program will be determined each year.
Each participant will be assigned a “Target Bonus Percentage” ranging from 5 to 70
percent depending on duties and responsibilities. The Executive Compensation and
Employee Benefits Committee will approve the Target Bonus Percentage for the CEO and
the senior executives designated by the Committee each year.
	 
	 	•	 	The Target Bonus Percentage for each participant will be applied to their base
salary.
	 
	 	•	 	Actual bonuses may range from 0, if the company’s financial results falls below
the minimum threshold or the participant does not make sufficient progress toward
achieving his or her objectives (i.e. performance measure points totaling less than 70
points), to 187.5 percent if performance — both Company and individual — is rated at
the maximum.
	 
	 	•	 	New employees who are hired into a position that is eligible to participate in
the Management Incentive Plan, will normally be eligible to receive a portion of the
bonus calculated in accordance with this Plan that is pro-rated based on the number of
full calendar months between the new employee’s hire date and the end of the calendar
year.
	 
	 	•	 	Employees who would otherwise be eligible to participate in this Management
Incentive Plan, but who leave employment with the company, either voluntarily,
involuntarily or as a result of retirement, prior to the end of the Company’s fiscal
year will not receive a bonus for the year in which their employment terminates. If an
employee who would otherwise be eligible to participate in this Management Incentive
Plan dies, the company will pay the deceased employee’s estate a portion of the bonus
the deceased employee would otherwise have been entitled to assuming a 100% Individual
Factor, but pro-rated for the number of full calendar months the employee completed
before his or her death.

 

 

 

Company Factor

	 	•	 	Company performance will be measured on the following schedule:

	 	 	 	 	 	 	 	 	 
	 	 	Percent of	 	 	Company	 
	 	 	Target	 	 	Factor	 
	Threshold
	 	 	<90	%	 	 	0	%
	 
	 	 	90	 	 	 	50	 
	 
	 	 	92	 	 	 	65	 
	 
	 	 	95	 	 	 	80	 
	 
	 	 	96	 	 	 	85	 
	 
	 	 	97	 	 	 	90	 
	 
	 	 	98	 	 	 	94	 
	 
	 	 	99	 	 	 	97	 
	Plan
	 	 	100	 	 	 	100	 
	 
	 	 	105	 	 	 	110	 
	 
	 	 	>110	 	 	 	125	 

	 	•	 	The actual Company Factor should be calculated by interpolation between the
points shown in the table above.
	 
	 	•	 	Regardless of the Company rating resulting from this Schedule, the Executive
Compensation and Employee Benefits Committee retains the authority to determine the
final Company Factor for purposes of this Plan.

Individual Factor

	 	•	 	Individual performance will be measured on the following scale:

	 	 	 	 	 
	Performance Measure	 	Individual	 
	Points	 	Factor	 
	0 - 69
	 	 	0	%
	70
	 	 	70	%
	80
	 	 	80	%
	90
	 	 	90	%
	100
	 	 	100	%
	110
	 	 	110	%

	 	•	 	In addition, up to 40 additional points and additional percentage points may be
awarded to a participant at the discretion of the Chief Executive Officer for exemplary
performance. Individual performance points for the Chief Executive Officer are
determined by the Executive Compensation and Employee Benefits Committee.

 

 

 

Sample Calculations

	•	 	Example 1

	 	 	 	 	 
	 

	 	Salary or
	 	$70,000 
	 

	 	Target Bonus
	 	10 percent ($7,000)
	 

	 	Company Factor
	 	100 percent
	 

	 	Individual Factor
	 	90 percent

Calculation:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Individual
	 	 	 	Company
	 	 	 	Individual	 	 
	 

	 	Target Bonus
	 	x
	 	Factor
	 	x
	 	Factor
	 	=
	 	Bonus Earned	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	$	7,000	 	 	x
	 	 	100	%	 	x
	 	 	90	%	 	=
	 	$6,300 
	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	•	 	Example 2

	 	•	 	Using the same salary and target bonus, but assuming Company performance was
less than 90 percent of Target EBITD, there would be no bonus earned.
	 
	 	 	 	Calculation:

$7,000          x          0          x          90%          =          0

	•	 	Example 3

	 	•	 	Similarly, if the Individual Factor is rated below 70 points, no bonus would be
earned regardless of the Company Factor.
	 
	 	 	 	Calculation:

$7,000          x          100%          x          0          =          0

 

 

 

	•	 	Example 4

	 	•	 	If the Company Factor is allocated between two companies, the bonus will be
calculated separately based on the allocation.
	 
	 	 	 	Calculation:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Company
	 	 	 	Company
	 	 	 	Individual
	 	 	 	 	 	 	 	 
	Target Bonus

	 	x
	 	Factor
	 	x
	 	Allocation
	 	x
	 	Factor
	 	=
	 	Bonus Earned
	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	$7,000

	 	x
	 	 	100	%	 	x
	 	 	20	%	 	x
	 	 	90	%	 	=
	 	$	1,260	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	$7,000

	 	x
	 	 	110	%	 	x
	 	 	80	%	 	x
	 	 	90	%	 	=
	 	 	$5,544	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Bonus

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	=
	 	$6,804 
	 	 

	•	 	Example 5

	 	•	 	It is also possible that one portion of the applicable Company Rating Factor is
zero, for which there would be no bonus, regardless of the participant’s Individual
Rating Factor.
	 
	 	 	 	Calculation:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Company
	 	 	 	Company
	 	 	 	Individual
	 	 	 	 	 	 	 	 
	Target Bonus

	 	x
	 	Factory
	 	x
	 	Allocation
	 	x
	 	Factor
	 	=
	 	Bonus Earned
	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	$7,000

	 	x
	 	 	0	%	 	x
	 	 	20	%	 	x
	 	 	90	%	 	=
	 	$	0	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	$7,000

	 	x
	 	 	110	%	 	x
	 	 	80	%	 	x
	 	 	90	%	 	=
	 	 	$5,544	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Bonus

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	=
	 	$	5,544	 	 	 

 

 

 

EMPLOYEE RECOGNITION (“CHAIRMAN’S AWARD”) PROGRAM

	1.	 	In addition to the Management Incentive Program, the Company maintains an Employee
Recognition Program known as the Chairman’s Award program to reward non-union employees who
are not eligible for the management bonus plan for superior performance that contains costs,
improves efficiency and productivity of the workforce and better serves our customers. Awards
may also be made for a special action or heroic deed, or for a project that positively impacts
the performance or image of the Company.
	 
	2.	 	Awards will be made from an annual pool designated by the Chairman of Aqua America with the
approval of the Executive Compensation and Employee Benefits Committee. Unused funds will not
be carried over to the next year. If financial performance warrants, management may request
special awards under the program.
	 
	3.	 	In general, Chairman’s Awards will not be made to employees of a company that does not
achieve at least 90% of its EBITD objective for the year.
	 
	4.	 	Awards may be made throughout the year, however, no more than one-third of a company’s
Chairman’s Award pool may be awarded until the company’s final EBITD for the year is
determined.
	 
	5.	 	Nominations for employees to receive Chairman’s Awards will be made to the applicable officer
and should include documentation on the reasons for the recommendations. The applicable
officer will review the nominations and forward their recommendations to the Chairman of Aqua
America.
	 
	6.	 	The Chairman will determine the individuals to actually receive a bonus and the amount.
The maximum award to any one employee is $5,000.
	 
	7.	 	Employees who would otherwise be eligible to participate in the Chairman’s Award
program, but who leave employment with the company, either voluntarily, involuntarily or as
a result of retirement, prior to the end of the Company’s fiscal year will not receive a
Chairman’s Award for the year in which their employment terminates.exv10w29

 

EXHIBIT 10.29

AQUA AMERICA, INC

2004 EQUITY COMPENSATION PLAN

(as amended February 22, 2007)

1. Purpose

The purpose of this plan (the “Plan”) is to provide an incentive, in the form of a proprietary interest in Aqua
America, Inc. (the “Corporation”), to officers, other key employees and Non-employee Directors, as defined below, 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, other key employees and Non-employee
Directors and key consultants of significant abilities. The Plan is a successor plan to the Corporation’s existing
Amended and Restated 1994 Equity Compensation Plan (the “1994 Plan.”)

2. Administration

This Plan shall be administered by a Committee (the “Committee”) of the Board of Directors of the Corporation.
Each of the members of the Committee may be an “outside director” as defined under section 162(m) of the Internal
Revenue Code of 1986, as amended (the “Code”), and related Treasury regulations and each of whom shall also be a
“non-employee director” as defined under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). However, the Board of Directors may ratify or approve any grants made by the Committee if the
Committee deems it appropriate in a particular circumstance.

From time to time the Committee 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, acting in its sole discretion, may determine. All
references to the Committee hereunder shall also mean the Board of Directors to the extent that the Board of Directors
is acting pursuant to its authority to ratify or approve grants under the Plan. Non-employee Directors, as defined
below, may only receive stock grants pursuant to the provisions of Section 7(f).

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. All powers of the Committee shall be executed in its sole
discretion, in the best interest of the Corporation, not as a fiduciary, and in keeping with the objectives of the Plan
and need not be uniform as to similarly situated individuals. An Agreement, as defined below, shall be executed by
each grantee and shall constitute that grantee’s acknowledgement and acceptance of the terms of the Plan and the
Committee’s authority and discretion.

 

 

1

 

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; provided, however, that Non-employee Directors, as defined below, may receive stock grants in accordance
with Section 7(f) (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 Corporation 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 grantees 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 3,675,000 shares; provided, however, that no more
than 50% of these shares shall be available for issuance as restricted stock. The maximum number of shares of Common
Stock that may be subject to Grants made under the Plan to any individual during any calendar year shall be 150,000
shares, subject to adjustment as provided in Section 15. 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 also may be made available
for distribution in connection with future Grants under the Plan. Additionally, if and to the extent options granted
under the 1994 Plan terminate or expire without being exercised, or if any shares of restricted stock are forfeited, or
shares of Common Stock otherwise issuable under the 1994 Plan are withheld by the Corporation in satisfaction of
withholding taxes incurred in connection with the exercise of a stock option or vesting of a restricted stock award,
the shares subject to such awards may be made available for distribution in connection with future Grants under the
Plan.

5. Eligibility

Only officers, key employees, members of the Board of Directors who are not employed in any capacity by the
Corporation (hereinafter referred to as “Non-employee Directors”) and key consultants of the Corporation and its
subsidiaries shall be eligible for Grants under the Plan; provided, however, that Grants to Non-employee Directors
shall be made only in accordance with Section 7(f). 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:

 

 

2

 

	 	(a)	 	Price. The purchase price per share of stock deliverable upon the issuance of shares pursuant
to 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 closing
price of the Corporation’s Common Stock on the New York Stock Exchange — Composite Transactions 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 closing price 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 Corporation with payment of the purchase
price therefore to be paid in full prior to the issuance of the shares. 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).

 

 

3

 

	 	(c)	 	Termination of Employment. Upon the termination of a grantee’s regular full-time 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 (an entity in which the Corporation
has at least a 50% ownership of the entity’s total voting power) 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 as a
regular full-time employee 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 death, 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
or a subsidiary. whose employment with the Corporation or subsidiary is terminated in connection with the
sale of a subsidiary of the Corporation. To the extent that any option is not otherwise exercisable as
of the date on which the grantee ceases to be employed as a regular full-time employee by the subsidiary
or the Corporation, as applicable, such unexercisable portion of the option shall terminate as of such
date.

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; (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. To the extent that any option is not otherwise exercisable as of the date on
which the grantee ceases to be employed by the Corporation or any subsidiary, as applicable, such
unexercisable portion of the option shall terminate as of such date.

Subject to the foregoing, in the event of a grantee’s death, such options may be exercised by a
grantee’s legal representative or beneficiary, but only to the extent that an option has become
exercisable as of the date of death. Notwithstanding the foregoing, the Committee, in its sole
discretion, may determine that any portion of an option that has not become exercisable as of the
date of the grantee’s death, termination 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.

 

 

4

 

	 	(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
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. 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) and 7(g), 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 by the Committee (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, subject to the provisions of Section 15 with respect to voting and dividends.

	 	(b)	 	Number of Shares. The Committee may 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 regular full-time 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.

 

 

5

 

	 	(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 the death of the
grantee or 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.

	 	(f)	 	Stock grants to Non-employee Directors. As of the first day of the month following the
Corporation’s annual meeting of shareholders, each Non-employee Director shall receive a grant of 1,500
shares of Common Stock. Such shares shall not be sold for 6 months following the date of grant. No
other restrictions shall apply to such shares. Notwithstanding any other provision of the Plan, this
Section 7(f) may not be amended more than once every 12 months, except for amendments necessary to
conform the Plan to changes of the provisions of, or the regulations relating to, the Code.

	 	(g)	 	(1) Restricted Stock Awards Subject to Performance Goals. From time to time the Committee may
issues shares of Common Stock of the Corporation pursuant to restricted stock grants, which, in addition
to the terms and restrictions of Sections 7(a)–(f) above, will be subject to certain pre-established
performance goals. In setting the performance goals for grants designated as “qualified
performance-based compensation” pursuant to this Section 7, the Committee may establish that the
Restriction Period of such restricted stock grants will lapse only upon the achievement of certain
pre-established corporate performance goals that 

 

 

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	 	 	 	shall be objectively determinable. The performance goals may be based on one or more of the
following criteria: (1) total return to shareholders; (2) dividends; (3) earnings per share; (4)
customer growth; (5) cost reduction goals; (6) the achievement of specified operational goals,
including water quality and the reliability of water supply; (7) measures of customer satisfaction;
(8) net income (before or after taxes) or operating income; (9) earnings before interest, taxes,
depreciation and amortization or operating income before depreciation and amortization; (10) revenue
targets; (11) return on assets, capital or investment; (12) cash flow; (13) budget comparisons; (14)
implementation or completion of projects or processes strategic or critical to the Company’s business
operations; and (15) any combination of, or a specified increase in, any of the foregoing. In
addition, such performance goals may be based upon the attainment of specified levels of the
Corporation’s performance under one or more of the measures described above relative to the
performance of other entities and may also be based on the performance of any of the Corporation’s
business units or divisions or any parent or subsidiary. Performance goals may be based upon the
attainment of specified levels of the Company’s performance under one or more of the measures
described above during a specified time period, which may differ from the Restriction Period.
Performance goals may include a minimum threshold level of performance below which no award will be
earned, levels of performance at which specified portions of an award will be earned and a maximum
level of performance at which an award will be fully earned. These performance goals shall satisfy
the requirements for “qualified performance-based compensation,” including the requirement that the
achievement of the goals be substantially uncertain at the time they are established and that the
performance goals be established in such a way that a third party with knowledge of the relevant
facts could determine whether and to what extent the performance goals have been met. The Committee
shall not have discretion to increase the amount of compensation that is payable upon achievement of
the designated performance goals, but the Committee may reduce the amount of compensation that is
payable upon achievement of the designated performance goals.

(2) Timing of Establishment of Goals. The Committee shall establish the performance goals in writing
either before the beginning of the commencement of the period during which the specified performance
goals are to be measured or during a period ending no later than the earlier of (i) 90 days after the
beginning of the period during which the specified performance goals are to be measured or (ii) the
date on which 25% of the period during which the specified performance goals are to be measured has
been completed, or such other date as may be required or permitted under applicable regulations under
Code section 162(m).

(3) Announcement of Results. The Committee shall certify and announce the results for the
Restriction Period to all grantees after the Company announces the Company’s financial results for
the Restriction Period. If and to the extent that the Committee does not certify that the
performance goals have been met, the applicable grants for the Restriction Period shall be forfeited
or shall not be paid, as applicable.

 

 

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(4) Death, Disability or Other Circumstances. The Committee may provide that grants shall be payable
or restrictions shall lapse, in whole or in part, in the event of the grantee’s death or disability
during the Restriction Period, a Change of Control or under other circumstances consistent with the
Treasury regulations and rulings under Code section 162(m).

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 with respect to 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 regular full-time 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.

	 	(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”), generally being 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 for the applicable Performance Period exceeds the targets for such criteria
established by the Committee .

	 	(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 for the applicable Performance Period is less than the targets for
such criteria established by the Committee.

 

 

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	 	(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 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 regular full-time 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 regular full-time
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.

	 	(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.

 

 

8

 

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 and shall constitute that grantee’s acknowledgement and acceptance of the terms of the Plan and the
Committee’s authority and discretion.

10. Transferability of Grants

	 	(a)	 	Nontransferability 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, with respect to Grants other then incentive stock options, if permitted
in any specific case by the Committee in their sole discretion, pursuant to a 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.

	 	(b)	 	Transfer of Nonqualified Stock Options. Notwithstanding the foregoing, the Committee may
provide, in the Agreement, that a grantee may transfer nonqualified stock options to family members, one
or more trusts for the benefit of family members, or one or more partnerships of which family members are
the only partners, according to such terms as the Committee may determine; provided that the grantee
receives no consideration for the transfer of an option and the transferred option shall continue to be
subject to the same terms and conditions as were applicable to the option immediately before the
transfer.

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.

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 or to 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. 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, to be retained as a consultant by the Corporation or to be
retained as a Non-employee Director by the Corporation.

 

 

9

 

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 will 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.
Any adjustment determined by the Committee shall be final, binding and conclusive.

 

 

10

 

16. Change of Control of the Corporation

As used herein, the following defined terms shall have the meanings described in this Section:

	 	(a)	 	“Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).

	 	(b)	 	A Person shall be deemed the “Beneficial Owner” of any securities: (i) that such Person or any
of such Person’s Affiliates or Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be
deemed the “Beneficial Owner” of securities tendered pursuant to a tender or exchange offer made by such
Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for
payment, purchase or exchange; (ii) that such Person or any of such Person’s Affiliates or Associates,
directly or indirectly, has the right to vote or dispose of or has “beneficial ownership” of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including
without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing;
provided, however, that a Person shall not be deemed the “Beneficial Owner” of any security under this
clause (ii) as a result of an oral or written agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding (A) arises solely from a revocable proxy
given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not then
reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report);
or (iii) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person (or any of such Person’s Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as described in the proviso to clause (ii) above)
or disposing of any voting securities of the Corporation; provided, however, that nothing in this
subsection (b) shall cause a Person engaged in business as an underwriter of securities to be the
“Beneficial Owner” of any securities acquired through such Person’s participation in good faith in a firm
commitment underwriting until the expiration of forty days after the date of such acquisition.

 

 

11

 

	 	(c)	 	“Change of Control” shall mean:

	 	(i)	 	any Person (including any individual, firm, corporation, partnership or other
entity except the Corporation, any subsidiary of the Corporation, any employee benefit plan of
the Corporation or of any subsidiary, or 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;

	 	(ii)	 	during any twenty-four month period, individuals who at the beginning of such
period constitute the Board 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; or

	 	(iii)	 	there occurs a sale of 50% or more of the aggregate assets or earning power
of the Corporation and its subsidiaries, or its liquidation is approved by a majority of its
shareholders or the Corporation is merged into or is merged with an unrelated entity such that
following the merger the shareholders of the Corporation no longer own more than 50% of the
resultant entity.

Notwithstanding anything in this subsection (c) to the contrary, a Change of Control shall not be deemed to have
taken place under clause (c)(i) above if (i) 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, in the determination of a majority of those
members of the Board of Directors of the Corporation in office prior to the acquisition, 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, or (ii) such Person becomes the beneficial
owner in the aggregate of 20% or more of the common stock of Corporation outstanding as a result of an acquisition of
common stock by the Corporation which, by reducing the number of common stock outstanding, increases the proportionate
number of shares of common stock beneficially owned by such Person to 20% or more of the shares of common stock then
outstanding; provided, however that if a Person shall become the beneficial owner of 20% or more of the shares of
common stock then outstanding by reason of common stock purchased by the Corporation and shall, after such share
purchases by the Corporation become the beneficial owner of any additional shares of common stock, then the exemption
set forth in this clause shall be inapplicable.

 

 

12

 

17. 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 amend the Plan, without the
authorization and approval of the shareholders of this Corporation, if such approval is required by
section 422 of the Code or section 162(m) of the Code.

The Board of Directors shall not amend the Plan if the 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 March 17, 2014
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 18. 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 17 or may be amended by agreement of the Corporation and the
grantee consistent with the Plan.

18. 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. In addition, it is the intent
of the Corporation that the Plan and applicable Grants of stock options under the Plan comply with the applicable
provisions of sections 162(m) and 422 of the Code. 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.

19. Effective Date of the Plan

The Plan shall be effective on March 18, 2004, but subject to the approval of the Corporation’s stockholders at
the May 20, 2004 meeting of the Corporation’s stockholders or any resumption thereof.

 

 

13

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