Document:

Filed by Bowne Pure Compliance

Exhibit 10.35

BOND PURCHASE AGREEMENT

$22,000,000

PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY

Water Facilities Revenue Bonds

(Aqua Pennsylvania, Inc. Project)

Series A of 2008

Bond Purchase Agreement dated December 4, 2008, among the PENNSYLVANIA ECONOMIC DEVELOPMENT
FINANCING AUTHORITY (the “Authority”), AQUA PENNSYLVANIA, INC., a Pennsylvania corporation (the
“Company”), and SOVEREIGN SECURITIES CORPORATION, LLC, a Pennsylvania limited liability company
(the “Underwriter”).

Section 1. Background.

(a) The Authority proposes to enter into a Financing Agreement (the “Financing Agreement”)
dated as of December 1, 2008 with the Company, under which the Authority will agree to loan to the
Company funds to (i) finance certain capital costs of the construction, acquisition and
installation of modifications, expansions and replacements of water distribution, treatment and
related operating systems located in the counties of Chester, Delaware and Montgomery in
Pennsylvania (the “Facilities”) that are part of the Company’s system (the “System”) for the
distribution of water to its customers, and (ii) pay related financing costs (collectively, the
“Project”). To finance the loan under the Financing Agreement, the Authority proposes to issue and
sell $22,000,000 aggregate principal amount of Pennsylvania Economic Development Financing
Authority Water Facilities Revenue Bonds (Aqua Pennsylvania, Inc. Project), Series A of 2008 (the
“Bonds”) to the Underwriter, who will in turn reoffer the Bonds for sale to the public.

(b) The Bonds will be issued pursuant to the Pennsylvania Economic Development Financing Law,
Act of August 23, 1967, P.L. 251, as amended and supplemented (the “Act”), a resolution adopted by
the Authority on October 8, 2008 (the “Authority Resolution”) and under a Trust Indenture dated as
of December 1, 2008 (the “Trust Indenture”), between the Authority and U.S. Bank National
Association, as trustee (the “Trustee”). The Bonds will have such terms as are set forth in
Schedule I attached hereto.

 

 

 

The Bonds will be payable out of payments by the Company under the Financing Agreement,
including payments under its First Mortgage Bond, 6.25% Series due 2017 in the principal amount of
$9,000,000] (the “2017 First Mortgage Bond”), and its First Mortgage Bond, 6.75% Series due 2018 in
the principal amount of $13,000,000] (the “2018 First Mortgage Bond” and, along with the 2017 First
Mortgage Bond, the “First Mortgage Bonds”) issued with respect to the Bonds. The First Mortgage
Bonds will be issued under and secured by the Company’s Indenture of Mortgage dated as of January
1, 1941 (the “Indenture of Mortgage”), from the Company to The Bank of New York Mellon Trust
Company, N.A., trustee (successor to The Pennsylvania Company for Insurance on Lives and Granting Annuities, The Pennsylvania
Company for Banking and Trusts, The First Pennsylvania Banking and Trust Company, First
Pennsylvania Bank, N.A., CoreStates Bank, N.A., Mellon Bank, N.A., Chase Manhattan Trust Company,
National Association and J.P. Morgan Trust Company, National Association) (the “Mortgage Trustee”),
as presently amended and supplemented and as to be further supplemented by a Forty-third
Supplemental Indenture of Mortgage to be dated as of December 1, 2008 (the “Forty-third
Supplemental Mortgage,” which together with the Indenture of Mortgage, as amended and supplemented,
is referred to hereinafter as the “Mortgage”). Each First Mortgage Bond will be issued in the same
aggregate principal amount and will mature on the same date and bear interest at the same rate as
the same maturity of Bonds that it secures. All of the Authority’s rights under the Financing
Agreement to receive and enforce repayment of its loan to the Company and to enforce payment of the
Bonds, including all of the Authority’s rights to the First Mortgage Bonds, and all of the
Authority’s rights to moneys and securities in the Project Funds, the Revenue Funds and the Debt
Service Funds (and the accounts within all such Funds applicable to the Bonds) established by the
Trust Indenture, except for the Authority’s rights to certain fees and reimbursements for expenses,
indemnification and notice thereunder and rights relating to amendments of and notices under the
Financing Agreement, will be assigned to the Trustee as security for the Bonds pursuant to the
Trust Indenture.

(c) The Project will finance the acquisition, construction, installation and equipping of
facilities for the furnishing of water for purposes of Section 142(a)(4) of the Internal Revenue
Code of 1986, as amended (the “Code”), so that the interest on the Bonds will not be includable in
gross income for federal income tax purposes under the Code and the Underwriter may offer the Bonds
for sale without registration under the Securities Act of 1933, as amended (the “1933 Act”) or
qualification of the Trust Indenture under the Trust Indenture Act of 1939, as amended (the “1939
Act”).

(d) A Preliminary Official Statement dated November 12, 2008, including the Appendices thereto
and all documents incorporated therein by reference (the “Preliminary Official Statement”), has
been supplied to the parties hereto, and a final Official Statement to be dated the date hereof,
including the Appendices thereto and all documents incorporated therein by reference, prepared for
use in such offerings will be supplied to the parties hereto as soon as it is available, subject to
Section 10 hereof (such final Official Statement, as it may be amended or supplemented with the
consent of the Authority, the Underwriter and the Company, is hereinafter referred to as the
“Official Statement”).

Section 2. Purchase, Sale and Closing. On the terms and conditions herein set forth,
the Underwriter will buy from the Authority, and the Authority will sell to the Underwriter, all
(but not less than all) of the Bonds at a purchase price equal to $21,490,630, which is equal to
the $22,000,000, aggregate principal amount of the Bonds, less original issue discount of $179,370,
less the underwriting discount of $330,000. Payment for the Bonds shall be made in immediately
available funds to the Trustee for the account of the Authority. Closing (the “Closing”) will be at
the offices of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania (“Bond Counsel”),
at 10:00 a.m., Eastern Standard Time, on December 18, 2008 or at such other date, time or place or
in such other manner as may be agreed on by the parties hereto. The Bonds will be delivered as
fully registered bonds in the aggregate principal amount of $22,000,000 in the name of Cede & Co.,
as nominee for The Depository Trust Company (“DTC”), with CUSIP numbers printed thereon, and shall conform in all respects to DTC’s Book-Entry Only System.
Delivery of the Bonds to DTC will be made by delivering the Bonds to the Trustee utilizing the DTC
FAST system. If the Underwriter so requests, the Bonds shall be made available to the Underwriter
(prior to their delivery to DTC) in Philadelphia, Pennsylvania at least three full business days
before the Closing for purposes of inspection.

 

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The Underwriter agrees to make a bona fide public offering of the Bonds at the initial
offering prices or yields set forth in the Official Statement; provided, however, that the
Underwriter reserves the right (and the Authority and the Company hereby expressly acknowledge such
right): to make concessions to dealers; to effect transactions that stabilize or maintain the
market price of the Bonds above that which might otherwise prevail in the open market and to
discontinue at any time such stabilizing transactions; and to change such initial offering prices,
all as the Underwriter shall deem necessary in connection with the marketing of the Bonds.

Section 3. Authority’s Representations. The Authority makes the following representations on
and as of the date hereof, all of which shall survive Closing:

(a) The Authority is a body politic and corporate, duly created and existing under the
Constitution and laws of the Commonwealth of Pennsylvania (the “Commonwealth”), and has, and at the
date of Closing will have, full legal right, power and authority to: enter into this Bond Purchase
Agreement; execute and deliver the Bonds, the Trust Indenture, the Financing Agreement, this Bond
Purchase Agreement and the Authority’s tax certificate and the other various certificates executed
by the Authority in connection therewith (collectively, with the Authority Resolution, the
“Authority Financing Documents”); issue, sell and deliver the Bonds to the Underwriter as provided
herein; and carry out and consummate the transactions contemplated by the Authority Financing
Documents and the Official Statement to be carried out and/or consummated by it.

(b) The Authority Resolution was duly adopted at a public meeting of the Authority at which a
quorum was present and acted throughout; and the Authority Resolution is in full force and effect
and has not been amended, repealed or superseded in any way.

(c) The sections entitled “INTRODUCTORY STATEMENT” (insofar as it relates to the Authority),
“THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION” (solely insofar as the information set forth
therein relates to the Authority) contained in the Preliminary Official Statement as of its date
did not contain any untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements contained therein, in the light
of the circumstances under which they were made, not misleading.

(d) The sections entitled “INTRODUCTORY STATEMENT” (insofar as it relates to the Authority),
“THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION” (solely insofar as the information set forth
therein relates to the Authority) contained in the Official Statement as of its date does not or
will not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.

 

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(e) The Authority has complied, and will at the Closing be in compliance, in all material
respects with the provisions of the Act.

(f) The Authority has duly authorized and approved the Preliminary Official Statement and the
Official Statement; and has duly authorized and approved the execution and delivery of, and the
performance by the Authority of the obligations on its part contained in, the Authority Financing
Documents.

(g) To the best of the knowledge of the Authority after due inquiry, the Authority is not in
material breach of or in default under any applicable law or administrative regulation of the
Commonwealth or the United States; and the execution and delivery of the Authority Financing
Documents, and compliance with the provisions of each thereof, do not and will not conflict with or
constitute a breach of or default under any existing law, administrative regulation, judgment,
decree, loan agreement, note, resolution, agreement or other instrument to which the Authority is a
party or is otherwise subject.

(h) All approvals, consents and orders of any governmental authority, board, agency or
commission having jurisdiction that would constitute a condition precedent to the Authority’s legal
ability to issue the Bonds or to the Authority’s performance of its obligations hereunder and under
the Authority Financing Documents have been obtained or will be obtained prior to the Closing.

(i) The Bonds, when issued, authenticated and delivered in accordance with the Trust Indenture
and sold to the Underwriter as provided herein, will be validly issued and will be valid and
binding limited obligations of the Authority enforceable against the Authority in accordance with
their terms (except as enforcement may be affected by bankruptcy, insolvency, reorganization,
moratorium or other laws or legal or equitable principles affecting the enforcement of creditors’
rights (“Creditors’ Rights Limitations”).

(j) The terms and provisions of the Authority Financing Documents when executed and delivered
by the respective parties thereto will constitute the valid, legal and binding obligations of the
Authority enforceable against the Authority in accordance with their respective terms (except as
enforcement of remedies may be limited by Creditors’ Rights Limitations).

(k) There is no action, suit, proceeding, inquiry or investigation, at law or in equity,
before or by any court, or public board or body, pending or, to the knowledge of the Authority
after due inquiry, threatened against the Authority, affecting the existence of the Authority or
the titles of its officers to their respective offices or seeking to prohibit, restrain or enjoin
the sale, issuance or delivery of the Bonds or of the revenues or assets of the Authority pledged
or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in
any way contesting or affecting the validity or enforceability of the Authority Financing Documents
or contesting in any way the completeness or accuracy of the Preliminary Official Statement or the
Official Statement, or contesting the power or authority of the Authority with respect to the
issuance of the Bonds or the execution, delivery or performance of any of the Authority Financing
Documents, wherein an unfavorable decision, ruling or finding would affect in any way the validity
or enforceability of any of the Authority Financing Documents.

 

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(l) The net proceeds received from the Bonds and applied in accordance with the Trust
Indenture and the Financing Agreement shall be used in accordance with the Act as described in the
Official Statement.

(m) Any certificate signed by any of the authorized officers of the Authority and delivered to
the Underwriter shall be deemed a representation and warranty by the Authority to the Underwriter
as to the statements made therein.

Section 4. Company’s Representations and Warranties. The Company makes the following
representations and warranties on and as of the date hereof and as of the date of Closing, all of
which will survive the Closing:

(a) The Company has not sustained since December 31, 2007 any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or decree; and since
the respective dates as of which information is given in the Official Statement, there have not
been any material changes in the outstanding capital stock or the long-term debt of the Company or
any material adverse change, or a development involving a prospective material adverse change, in
or affecting the general affairs, management, financial position, stockholder’s equity or results
of operations of the Company, otherwise than as set forth or contemplated in the Official
Statement.

(b) The Company was organized, is in good standing and subsists as a corporation under the
laws of the Commonwealth, with power (corporate and other) to own its properties and conduct its
business as described in the Official Statement.

(c) The First Mortgage Bonds have been duly authorized; and, when issued and delivered as
contemplated by this Bond Purchase Agreement, will have been duly executed, authenticated, issued
and delivered and will constitute valid and legally binding obligations of the Company enforceable
in accordance with their terms (except as may be affected by Creditors’ Rights Limitations)
entitled to the benefits provided by the Mortgage.

(d) The Indenture of Mortgage has been duly authorized, executed and delivered by the Company,
and the Forty-third Supplemental Mortgage has been duly authorized by the Company. When the
Forty-third Supplemental Mortgage, in substantially the form approved by the Underwriter and Bond
Counsel, has been executed and delivered by the Company and assuming due authorization and
execution by the Mortgage Trustee, and recorded as required by law, the Mortgage will constitute a
valid and legally binding instrument enforceable against the Company in accordance with its terms
except as enforceability may be affected by Creditors’ Rights Limitations; will constitute a
direct, valid and enforceable first mortgage lien (except as enforceability of such lien may be
affected by Creditors’ Rights Limitations) upon all of the properties and assets of the Company
(not heretofore released as provided for in the Mortgage) specifically or generally described or
referred to in the Mortgage as being subject to the lien thereof, excepting permitted liens under
the Mortgage and excepting property and assets that the Mortgage expressly excludes from the lien
thereof; and will create a mortgage upon all properties and assets acquired by the Company after
the execution and delivery of the Forty-second Supplemental Mortgage and required to be subjected
to the lien of the Mortgage pursuant thereto when so acquired, except for permitted liens under the Mortgage. The Indenture of
Mortgage has been and the Forty-third Supplemental Mortgage will be duly filed, recorded or
registered in each place in the Commonwealth in which such filing, recording or registration was or
is required to protect and preserve the lien of the Mortgage; and all necessary approvals of
regulatory authorities, commissions and other governmental bodies having jurisdiction over the
Company required to subject the mortgaged properties and assets or trust estate (as defined in the
Mortgage) to the lien of the Mortgage have been duly obtained.

 

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(e) With only such exceptions as are not material and do not interfere with the conduct of the
business of the Company, the Company has good and marketable title to all of its real property
currently held in fee simple, and all of its other interests in real property (other than certain
rights of way, easements, occupancy rights, riparian and flowage rights, licenses, leaseholds and
real property interests of a similar nature). In each case such title is free and clear of all
liens, encumbrances and defects except such as may be described in the Official Statement, the lien
of the Mortgage, permitted liens under the Mortgage or such as do not materially affect the value
of such property and do not interfere with the use made and proposed to be made of such property by
the Company. Any real property and buildings held under lease by the Company are held by it under
valid, subsisting and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and buildings by the Company.

(f) With only such exceptions as are not material and do not interfere with the conduct of the
business of the Company, the Company has all licenses, franchises, permits, authorizations, rights,
approvals, consents and orders of all governmental authorities or agencies necessary for the
ownership or lease of the properties owned or leased by it and for the operation of the business
carried on by it as described in the Official Statement, and all water rights, riparian rights,
easements, rights of way and other similar interests and rights described or referred to in the
Mortgage necessary for the operation of the business carried on by it as described in the Official
Statement. Except as otherwise set forth in the Official Statement, all such licenses, franchises,
permits, orders, authorizations, rights, approvals and consents are in full force and effect and
contain no unduly burdensome provisions. Except as otherwise set forth in the Official Statement,
there are no legal or governmental proceedings pending or, to the knowledge of the Company after
due inquiry, threatened that would result in a material modification, suspension or revocation
thereof. The Company has the legal power to exercise the rights of eminent domain for the purposes
of conducting its water utility operations.

(g) The issue and sale of the Bonds, the issue and delivery of the First Mortgage Bonds and
the compliance by the Company with all of the applicable provisions of the First Mortgage Bonds and
the Mortgage and the execution, delivery and performance by the Company of the Forty-third
Supplemental Mortgage, the Financing Agreement, this Bond Purchase Agreement and the Continuing
Disclosure Agreement will not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition of any lien, charge or
encumbrance (other than the lien of the Mortgage) upon any of the property or assets of the Company
pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company is a party or by which the Company is bound or to which any of
the property or assets of the Company are subject, nor will such action result in a violation of
the provisions of the Articles of Incorporation, as amended, or the Bylaws of the Company or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over the Company or any
of its property. No consent, approval, authorization, order, registration or qualification of or
with any court or any such regulatory authority or other governmental body (other than those
already obtained) is required to be obtained by the Company for the issue and sale of the Bonds,
the issue and delivery of the First Mortgage Bonds, the execution, delivery and performance by the
Company of this Bond Purchase Agreement, the Financing Agreement, the Forty-third Supplemental
Mortgage, the First Mortgage Bonds and the Continuing Disclosure Agreement, or the consummation by
the Company of the other transactions contemplated by this Bond Purchase Agreement or the Mortgage.

 

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(h) The Company has obtained from the Pennsylvania Public Utility Commission an order duly
authorizing the issuance and delivery of the First Mortgage Bonds by the Company and the incurring
of the debt evidenced thereby, on terms not inconsistent with this Bond Purchase Agreement.

(i) The Company is not a holding company, a registered holding company or an affiliate of a
registered holding company within the meaning of the Public Utility Holding Company Act of 1935, as
amended.

(j) There are no legal or governmental proceedings pending to which the Company is a party or
to which any property of the Company is subject, other than as set forth in the Official Statement,
wherein an unfavorable ruling, decision or finding would have a material adverse effect on the
financial position, stockholder’s equity or results of operations of the Company; and, to the best
of the Company’s knowledge after due diligence, no such proceedings are threatened by governmental
authorities or threatened by others.

(k) The Project consists of either land or property of a character subject to depreciation for
federal income tax purposes and will be used to furnish water that is or will be made available to
members of the general public (including electric utility, industrial, agricultural, or commercial
users); the rates for the furnishing or sale of the water have been established or approved by a
state or political subdivision thereof, by an agency or instrumentality of the United States, or by
a public service or public utility commission or other similar body of any state or political
subdivision thereof; and all other information supplied by the Company to the Underwriter with
respect to the exclusion from gross income pursuant to Section 103 of the Code of the interest on
the Bonds is correct and complete.

(l) The Company has not, within the immediately preceding ten (10) years, defaulted in the
payment of principal or interest on any of its bonds, notes or other securities, or any legally
authorized obligation issued by it.

(m) The information with respect to the Company and the Project and the descriptions of the
First Mortgage Bonds and the Mortgage contained in the Preliminary Official Statement and the
Official Statement (including appendices A and B thereto) do not contain any untrue statement of a
material fact or omit to state any material fact necessary to be stated therein in order to make
such information and descriptions, in the light of the circumstances under which they were made,
not misleading.

 

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Section 5. Authority’s Covenants. The Authority will:

(a) Furnish such information, execute such instruments and take such other action in
cooperation with the Underwriter as the Underwriter may reasonably request to qualify the Bonds for
offer and sale under the Blue Sky or other securities laws and regulations of such states and other
jurisdictions in the United States of America as the Underwriter may designate and will assist, if
necessary therefor, in the continuance of such qualifications in effect so long as required for
distribution of the Bonds; provided, however, that the Authority shall in no event be required to
file a general consent to suit or service of process or to qualify as a foreign corporation or as a
dealer in securities in any such state or other jurisdiction.

(b) Not, on its part, amend or supplement the Official Statement without prior notice to and
the consent of the Underwriter and the Company and will advise the Underwriter and the Company
promptly of the institution of any proceedings by any governmental agency or otherwise affecting
the use of the Official Statement in connection with the offer and sale of the Bonds.

(c) Refrain from knowingly taking any action (and permitting any action with regard to which
the Authority may exercise control) that would result in the loss of the exclusion from gross
income for federal income tax purposes of interest on the Bonds.

Section 6. Company’s Covenants. The Company agrees that it will:

(a) Refrain from knowingly taking any actions (and from permitting any action with regard to
which the Company may exercise control) that would result in the loss of the exclusion from gross
income for federal tax purposes of interest on the Bonds.

(b) Indemnify and hold harmless the Authority, its members, directors, officers, agents,
attorneys, and employees and the Underwriter, its officers, directors, officials, agents,
attorneys, employees, and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the Securities Exchange Act of 1934, as amended (the
“1934 Act”), from and against all losses, claims, damages, liabilities and expenses, joint or
several, to which the Authority and the Underwriter, or either of them, or any of their respective
members, directors, officers, agents, attorneys, and employees and each person, if any, who
controls the Underwriter within the meaning of the 1933 Act or 1934 Act as aforedescribed may
become subject, under federal laws or regulations, or otherwise, insofar as such losses, claims,
damages, liabilities and expenses (or actions in respect thereof) arise out of or are based upon:
(i) a breach of the Company’s representations included in this Agreement; (ii) any untrue statement
or alleged untrue statement of any material fact pertaining to the Project or the Company set forth
in the Official Statement, the Preliminary Official Statement or any amendment to either; (iii) the
willful or negligent omission of (or the alleged omission to state) a material fact in the Official
Statement, the Preliminary Official Statement, or any amendment or supplement to either, as such
fact is required to be stated therein or necessary to make the statements therein that pertain to
the Company or the Project not misleading in the light of the circumstances under which they were
made; (iv) or arising by virtue of the failure to register the Bonds under the 1933 Act or the
failure to qualify the Indenture under the 1939 Act; or (v) arising by virtue of any audit or
investigation conducted by a state or federal agency, department or entity questioning, among
other things, the tax-exempt status of the Bonds.

 

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(c) Undertake, pursuant to the Continuing Disclosure Agreement dated as of December 1, 2008 to
be entered into between the Company and the Trustee (the “Continuing Disclosure Agreement”), to
provide annual reports and notices of certain material events in accordance with Rule 15c2-12 under
the 1934 Act, as amended (“Rule 15c2-12”).

(d) Not amend or supplement the Official Statement without prior notice to, and the consent
of, the Underwriter, and will advise the Underwriter and the Authority promptly of the institution
of any proceedings by any governmental agency or otherwise affecting the use of the Official
Statement in connection with the offer and the sale of the Bonds.

(e) Take all actions reasonably necessary to maintain in effect and to comply with the order
of the Commonwealth Public Utility Commission dated October 23, 2008, registering the Securities
Certificate for the issuance of the First Mortgage Bonds in support of the Bonds.

Section 7. Underwriter’s Covenant and Compensation.

(a) By acceptance hereof the Underwriter agrees to indemnify and hold harmless the Authority,
its members, directors, officers, agents, attorneys, and employees and the Company, its officers,
directors, agents, attorneys, and employees and each person if any, who controls the Company within
the meaning of Section 15 of the 1933 Act against all or several claims, losses, damages,
liabilities and expenses asserted against them, or any of them, at law or in equity, in connection
with the offering and sale of the Bonds on the grounds that the information under the caption
“UNDERWRITING” in the Preliminary Official Statement or the Official Statement (or any supplement
or amendment to said information) contains an untrue or allegedly untrue statement of a material
fact or omits or allegedly omits to state any material fact necessary to make the statements
therein not misleading in the light of the circumstances under which they were made (it being
understood that the Underwriter furnished only the information under such “UNDERWRITING” heading),
or failure on the part of the Underwriter to deliver an Official Statement to any purchaser. The
Underwriter will reimburse any legal or other expenses reasonably incurred by a party, person or
entity indemnifiable under this Section 7 in connection with investigating or defending any such
loss, claim, damage, liability or action. This indemnity agreement will be in addition to any
liability that the Underwriter may otherwise have. The Underwriter shall not be liable for any
settlement of, any such action effected without its consent.

(b) The Underwriter will be paid an underwriting discount of $330,000 with respect to the
Bonds.

(c) The Underwriter acknowledges that the Authority is relying upon the accuracy of the
certification in clause (b) above on the date hereof as a condition precedent to lending the
proceeds of the Bonds to the Company.

 

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Section 8. Notice of Indemnification; Settlement. Promptly after a party, person or entity
indemnifiable under Section 6 or 7 of this Bond Purchase Agreement (an “Indemnitee”) receives
notice of the commencement of any audit, investigation or action against such Indemnitee in respect
of which indemnity is to be sought by the Indemnitee against the Company
or an Underwriter, as the case may be (the “Indemnifying Party”), the Indemnitee will notify
the Indemnifying Party in writing of such action, and the Indemnifying Party may assume the defense
thereof, including the employment of counsel and the payment of all expenses; but the failure so to
notify the Indemnifying Party will not relieve the Indemnifying Party from any liability that it
may have to the Indemnitee otherwise than hereunder. The Indemnifying Party shall not be liable for
any settlement of any such action effected without its consent, but if settled with the consent of
the Indemnifying Party or if there is a final judgment for the plaintiff in any such action, the
Indemnifying Party will indemnify and hold harmless the Indemnitee from and against any loss or
liability by reason of such settlement or judgment. The indemnity agreements contained in this Bond
Purchase Agreement shall include reimbursement for expenses reasonably incurred by an Indemnitee in
investigating the claim and in defending it if the Indemnifying Party declines to assume the
defense and shall survive delivery of the Bonds. Notwithstanding the foregoing, in the event of an
investigation or audit by the Internal Revenue Service or the Securities and Exchange Commission or
any other state or federal agency, department, or entity with respect to the Bonds, the Authority
shall have the right and duty to undertake its own defense, including the employment of counsel,
with full power to litigate, compromise or settle the same on its own behalf, and the Company
agrees that it will indemnify and hold the Authority harness for all costs and expenses, including,
but not limited to, attorney fees and expenses and costs, of any such settlement.

Section 9. Equitable Contribution. If the indemnification provided for in Section 6(b) of this
Bond Purchase Agreement is unavailable to the Underwriter (or any controlling person thereof) in
respect of any losses, claims, damages or liabilities referred to therein, then the Company shall,
in lieu of indemnifying the Underwriter, contribute to the amount paid or payable by the
Underwriter as a result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative benefits received by the Company and the Underwriter,
respectively, from the offering of the Bonds. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then the Company shall
contribute to such amount paid or payable by the Underwriter in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the Company and the
Underwriter, respectively, in connection with the statements or omission which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The
relative benefit received by the Company or the Underwriter shall be deemed to be in the same
proportion as the total proceeds from the offering (before deducting issuance costs and expenses
other than underwriting fees and commissions) received by the Company, on the one hand, bear to the
total underwriting fees and commissions received by the Underwriter, on the other hand. The
relative fault shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission to state a material
fact related to information supplied by the Company or the Underwriter and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriter agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro rata allocation or by any other
method of allocation that does not take account of the equitable considerations referred to above
in this Section 9. The amount paid or payable by the Underwriter as a result of the losses, claims,
damages or liabilities referred to above in this Section 9 shall be deemed to include any
reasonable legal or other expenses reasonably incurred by the Underwriter in connection with
investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9, the Underwriter shall not be required to
contribute any amount in excess of the amount of the discount allowed to the Underwriter as set
forth in Section 7(b) hereof.

 

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Section 10. Official Statement; Public Offering.

(a) In order to enable the Underwriter to comply with Rule 15c2-12, the Company has prepared
(or caused to be prepared) the Preliminary Official Statement, which the Company and the Authority
(in the case of the Authority, only with respect to the information therein under the headings “THE
AUTHORITY” and, insofar as they relate to the Authority, “INTRODUCTORY STATEMENT” and “ABSENCE OF
MATERIAL LITIGATION”) deem final and complete as of its date except for certain permitted omissions
as described in Rule 15c2-12. The Company shall provide to the Underwriter sufficient copies of
the Official Statement in sufficient time to accompany any confirmation that requires payment from
any customer and in any event within seven business days after the date of this Bond Purchase
Agreement. If the Company, during the period described in Section 10(b) below, has or gains
knowledge of a fact or circumstance that would render the Official Statement misleading in any
material respect, then the Company shall promptly give the Underwriter written notice thereof. The
Authority and the Company hereby authorize the use of the Preliminary Official Statement and the
Official Statement by the Underwriter in connection with the offering of the Bonds.

(b) The Authority and the Company will not adopt or distribute any amendment of or supplement
to the Official Statement, except with the prior written consent of the Underwriter. If from the
date hereof until the earlier of (i) ninety (90) days after the end of the underwriting period (as
defined in Rule 15c2-12) or (ii) the time when the Official Statement is available to any person
from the Repository with which it has been deposited, but in no case less than twenty-five (25)
days following the end of the underwriting period, any event relating to or affecting the
Authority, the Company or the Bonds shall occur, the result of which shall make it necessary, in
the opinion of the Underwriter, to amend or supplement the Official Statement in order to make it
not misleading in the light of the circumstances existing at that time, the Company shall forthwith
prepare, and the Company and the Authority shall approve for distribution, a reasonable number of
copies of an amendment of or supplement to the Official Statement, in form and substance reasonably
satisfactory to the Underwriter, so that the Official Statement then will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances existing at that time, not misleading. The Authority
shall cooperate with the Company in the issuance and distribution of any such amendment or
supplement.

(c) Upon Closing, the Underwriter shall promptly provide a Nationally Recognized Municipal
Securities Information Repository and the Municipal Securities Rulemaking Board with a copy of the
Official Statement for filing in accordance with Rule 15c2-12, and inform the Authority and the
Company in writing as to the date and place of such filing and the date of the end of the
underwriting period.

 

 - 11 - 

 

Section 11. Conditions of Underwriter’s and Authority’s Obligations. The Underwriter’s
obligations to purchase and pay for the Bonds and the Authority’s obligation to issue and deliver
the Bonds are subject to fulfillment of the following conditions at or before
Closing:

(a) The representations of the Authority and the Company herein, as applicable, shall be true
in all material respects on and as of the date of the Closing and shall be confirmed by appropriate
certificates at Closing.

(b) Neither the Authority nor the Company, as applicable, shall be in default in the
performance of any of their respective covenants herein.

(c) The Underwriter shall have received:

(i) An opinion of Ballard Spahr Andrews & Ingersoll, LLP, Bond Counsel, dated the date of
Closing, substantially in the form attached as Exhibit A hereto, addressed to (or with reliance
letters delivered in respect of) the Authority, the Trustee, the Company and the Underwriter.

(ii) An opinion of Ballard Spahr Andrews & Ingersoll, LLP, Bond Counsel, dated the date of
Closing, substantially in the form attached as Exhibit B hereto, addressed to the Underwriter.

(iii) An opinion of the Office of Chief Counsel of the Pennsylvania Department of Community
and Economic Development, as counsel for the Authority, dated the date of Closing, substantially in
the form attached as Exhibit C hereto, addressed to the Underwriter, the Trustee, the Company and
Bond Counsel.

(iv) Opinions of Dilworth Paxson LLP, counsel to the Company, and the Company’s Senior Vice
President-Law and Administration, dated the date of Closing, substantially in the forms attached as
Exhibit D hereto, addressed to the Underwriter, the Authority and Bond Counsel.

(v) An agreed upon procedures letter dated the date of the Official Statement and addressed to
the Company and the Underwriter from the Company’s auditor with respect to financial information
set forth in Appendix A and Appendix B to the Official Statement, in form and substance reasonably
satisfactory to the Company’s auditor and the Underwriter.

(vi) A certificate dated the date of Closing executed by the Chairman and the Executive
Director of the Authority and addressed to the Underwriter to the effect that, to the best of their
respective knowledge:

(A) the representations and warranties of the Authority contained herein are true and correct
in all material respects as of the date of Closing; and

(B) the Authority has complied in all material respects with all agreements executed by the
Authority in connection with issuance of the Bonds and satisfied in all material respects the
Authority’s covenants contained in Section 5 herein and all of the conditions on its part to be
performed or satisfied at or prior to the Closing.

 

 - 12 - 

 

(vii) A certificate dated the date of Closing executed by the chief financial officer of the
Company and addressed to the Underwriter to the effect that, to the best of his knowledge:

(A) the representations and warranties of the Company in this Bond Purchase Agreement are true
and correct in all material respects as of the date of Closing;

(B) the Preliminary Official Statement and the Official Statement, as of their respective
dates, insofar as they relate to the Company, do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary to make the
statements therein, under the circumstances in which they were made, not misleading in any respect;
and

(C) no event affecting the Company has occurred since the date of this Bond Purchase Agreement
that is required to be disclosed in the Official Statement or necessary in order to make the
statements and information therein not misleading in any material respect.

(viii) Two executed copies of the Trust Indenture, the Financing Agreement, the Bond Purchase
Agreement, the Forty-third Supplemental Mortgage and the Continuing Disclosure Agreement and
specimen copies of the First Mortgage Bonds.

(ix) Two copies of the Articles of Incorporation and Bylaws of the Company, as amended to the
date of Closing, and of the resolutions of the Board of Directors of the Company authorizing and
approving the execution and delivery of this Bond Purchase Agreement, the Financing Agreement, the
First Mortgage Bonds, the Forty-third Supplemental Mortgage, the Continuing Disclosure Agreement
and the incurrence of indebtedness with respect thereto and all transactions described in the
Official Statement and contemplated by this Bond Purchase Agreement, all certified by its Secretary
or Assistant Secretary.

(x) Two copies of the Authority Resolution.

(xi) One or more letters from the Company’s auditor, dated the date of the Preliminary
Official Statement and the Official Statement and addressed to the Company and the Underwriter,
consenting to the use of the financial statements reported upon by such firm and all references to
such firm contained in the Preliminary Official Statement and the Official Statement.

(xii) Evidence satisfactory to the Underwriter of a rating of “AA-” assigned by Standard &
Poor’s Ratings Services, a Division of The McGraw-Hill Companies, and that such rating is in full
force and effect as of the date of Closing.

(xiii) Evidence satisfactory to Bond Counsel and the Underwriter of the receipt by the
Authority of a Preliminary Allocation relating to the Bonds and approval of the Project from the
Pennsylvania Department of Community and Economic Development and of the registration of a
Securities Certificate relating to the First Mortgage Bonds and the Bonds with the Pennsylvania
Public Utility Commission.

 

 - 13 - 

 

(xiv) Such additional documentation, including, without limitation, legal opinions, as the
Underwriter or its counsel or Bond Counsel may reasonably request to evidence compliance with
applicable law and the validity of the Bonds, the Financing Agreement, the Trust Indenture, this
Bond Purchase Agreement, the Forty-third Supplemental Mortgage, the First Mortgage Bonds and the
Continuing Disclosure Agreement, and to evidence that the interest on the Bonds is not includable
in gross income under the Code and the status of the offering under the 1933 Act and the 1939 Act.

(d) At Closing there shall not have been any material adverse change in the financial
condition of the Company or any adverse development concerning the business or assets of the
Company that would result in a material adverse change in the prospective financial condition or
results of operations of the Company from that described in the Official Statement, which, in the
judgment of the Underwriter, makes it inadvisable to proceed with the sale of the Bonds; and the
Underwriter shall have received certificates of the Company certifying that no such material
adverse change has occurred or, if such a change has occurred, full information with respect
thereto.

(e) The Underwriter shall deliver at Closing a certificate in form acceptable to Bond Counsel
to the effect that the Underwriter has sold to the public (excluding bond houses and brokers) a
substantial amount of the Bonds at initial offering prices no higher than, or yields no lower than,
those shown on the cover page of the Official Statement and that such certificate may be relied
upon for purposes of determining compliance with Section 148 of the Code.

Section 12. Events Permitting the Underwriter to Terminate. The Underwriter may terminate its
obligation to purchase the Bonds at any time before Closing if any of the following occurs:

(a) A legislative, executive or regulatory action or proposed action, or a court decision,
which in the reasonable judgment of the Underwriter casts sufficient doubt on the legality of, or
the exclusion from gross income for federal income tax purposes of interest on, obligations such as
the Bonds so as to materially impair the marketability or materially lower the market price of the
Bonds.

(b) Any action by the Securities and Exchange Commission or a court that would require
registration of the Bonds or the First Mortgage Bonds under the 1933 Act or qualification of the
Indenture under the 1939 Act.

(c) Any general suspension of trading in securities on the New York Stock Exchange or the
establishment, by the New York Stock Exchange, by the Securities and Exchange Commission, by any
federal or state agency, or by the decision of any court, of any limitation on prices for such
trading, or any outbreak of new hostilities or other national or international calamity or crisis,
or any material escalation in any such hostilities, calamity or crisis, the effect of which on the
financial markets of the United States of America shall be such as to materially impair the
marketability or materially lower the market price of the Bonds.

 

 - 14 - 

 

(d) Any event or condition occurring or arising after the date hereof, which in the reasonable
judgment of the Underwriter renders untrue or incorrect, in any material respect as of
the time to which the same purports to relate, the information contained in the Official
Statement, or which requires that information not reflected in the Official Statement or Appendices
thereto should be reflected therein in order to make the statements and information contained
therein not misleading in any material respect as of such time; provided that the Authority, the
Company and the Underwriter will use their best efforts to amend or supplement the Official
Statement to reflect, to the reasonable satisfaction of the Underwriter, such changes in or
additions to the information contained in the Official Statement.

(e) Pending or threatened litigation affecting or arising out of the ownership of the
Facilities or any other facilities of the Company or the issuance of the Bonds, which, in the
reasonable judgment of the Underwriter, would materially impair the marketability or materially
lower the market price of the Bonds.

(f) Quantities of the Official Statement are not delivered to the Underwriter in a timely
manner as required by Section 10 hereof.

If the Underwriter terminates its obligation to purchase the Bonds because any of the
conditions specified in Section 11 hereof or this Section 12 shall not have been fulfilled at or
before the Closing, such termination shall not result in any liability on the part of the
Authority, the Underwriter or the Company, except for the obligations of the Company under Sections
6(b), 8, 9 and 14 which shall remain in full force and effect.

Section 13. [Intentionally Omitted]

Section 14. Expenses. All expenses and costs of the authorization, issuance, sale and delivery
of the Bonds including, without limitation, accrued interest, the preparation of and furnishing to
the Underwriter of the Preliminary Official Statement and the Official Statement, the preparation
and execution of the Bonds, the Financing Agreement, the Trust Indenture, the First Mortgage Bonds,
the Forty-third Supplemental Mortgage, the Continuing Disclosure Agreement and this Bond Purchase
Agreement, rating agency fees, the issuance and closing fees of the Authority, the fees and
disbursements of counsel to the Authority, the fees and disbursements of Bond Counsel, the fees and
disbursements of counsel to the Underwriter and the expenses incurred in connection with qualifying
the Bonds for sale under the securities laws of various jurisdictions and preparing a Blue Sky
memorandum, if any, shall be paid by the Company from funds contributed by the Company and from
proceeds of the Bonds. The Authority shall bear no out-of-pocket expense in connection with the
transactions contemplated by this Bond Purchase Agreement. The Underwriter will pay all other
expenses of the Underwriter in connection with the public offering of the Bonds.

Section 15. Execution in Counterparts. This Bond Purchase Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the same instrument,
and any of the parties hereto may execute this Bond Purchase Agreement by signing any such
counterpart.

 

 - 15 - 

 

Section 16. Notices and Other Actions. All notices, requests, demands and formal actions
hereunder will be in writing mailed, faxed (with confirmation of receipt) or delivered by
nationally recognized, next-day delivery service to:

The Underwriter:

Sovereign Securities Corporation, LLC

Mail Code: 20-210-CPC

1500 Market Street 

Centre Square-Concourse

Philadelphia, Pennsylvania 19102

Attention: George C. Werner, III Managing Director

Fax #: (267) 675-0643

Email: gwerner@sovereignbank.com

The Company:

Aqua Pennsylvania, Inc.

762 Lancaster Avenue

Bryn Mawr, Pennsylvania 19010

Attention: Stephen F. Anzaldo, Treasurer

Fax #: (610) 519-0989

Email: sfanzaldo@aquaamerica.com

The Authority:

Pennsylvania Economic Development Financing Authority

Center for Private Financing

400 North Street, 4th Floor

Harrisburg, PA 17120-0225

Attention: Stephen Drizos, Director

Fax #: (717) 787-0879

Email: sdrizos@state.pa.us

Section 17. Governing Law. This Bond Purchase Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, excluding those relating to choice of
laws or conflict of laws, and may not be assigned by the Authority, the Company or the Underwriter.

Section 18. Successors. This Bond Purchase Agreement will inure to the benefit of and be
binding upon the parties and their respective successors and, as to Sections 6, 7, 8 and 9 hereof,
the Indemnitees, and will not confer any rights upon any other person. The term “successor” shall
not include any holder of any Bonds merely by virtue of such holding.

Section 19. Limitations on Liability. No personal recourse shall be had for any claim based on
this Bond Purchase Agreement or the Bonds against any board member, officer, agent, employee, or
attorney past, present or future, of the Authority or any successor body as such,
either directly or through the Authority or any successor body, under any constitutional
provision, statute, or rule of law or by enforcement of any assessment or penalty or otherwise.
Notwithstanding any provision or obligation to the contrary in this Bond Purchase Agreement, the
liability of the Authority for payments of any kind, nature or description provided for herein or
in any other document executed pursuant hereto shall be limited to the revenues derived by the
Authority from the Financing Agreement.

(Signatures on next page)

 

 - 16 - 

 

IN WITNESS WHEREOF, the Authority, the Company and the Underwriter have caused their duly
authorized officers to execute and deliver this Bond Purchase Agreement as of the date first
written above.

	 	 	 	 	 
	 	PENNSYLVANIA ECONOMIC

DEVELOPMENT FINANCING

AUTHORITY

 	 
	 	By:  	/s/ Stephen Drizos
 	 
	 	 	STEPHEN DRIZOS, Director 	 
	 
	 	AQUA PENNSYLVANIA, INC.

 	 
	 	By:  	/s/ Stephen F. Anzaldo
 	 
	 	 	STEPHEN F. ANZALDO, Treasurer 	 
	 
	 	SOVEREIGN SECURITIES CORPORATION, LLC

 	 
	 	By:  	/s/ George C. Werner, III
 	 
	 	 	GEORGE C. WERNER, III 	 
	 	 	Managing Director 	 

 

 - 17 - 

 

SCHEDULE I

Terms of Bonds

Dated Date: December 18, 2008

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Principal	 	 	 	 	 	 	 	 	 	 
	Series	 	Maturity Date	 	 	Amount	 	 	Rate of Interest	 	 	Price	 	 	Yield	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2008A
	 	October 1, 2017	 	$	9,000,000	 	 	 	6.25	%	 	 	98.007	 	 	 	6.55	%
	2008A
	 	October 1, 2018	 	$	13,000,000	 	 	 	6.75	%	 	 	100.000	 	 	 	6.75	%

Interest Payment Dates: April 1 and October 1, commencing April 1, 2009

Redemption Provisions: The Bonds are subject to redemption as follows:

Optional Redemption. The Bonds are not subject to optional redemption.

Extraordinary Optional Redemption. The Bonds are subject to redemption, at any time prior to
maturity, at the option of the Authority, upon the direction of the Company, in whole, at a
Redemption Price of 100% of the principal amount of the Bonds to be redeemed, plus interest accrued
thereon to the date fixed for redemption, if any of the following events shall have occurred:

(a) the damage or destruction of all or substantially all of the Facilities to such extent,
that, in the reasonable opinion of the Company, the repair and restoration thereof would not be
economical; or

(b) the taking by condemnation, or the threat thereof, of all or substantially all of the
Facilities or the taking by condemnation of any part, use or control of the Facilities so as to
render them unsatisfactory to the Company for their intended use; or

(c) in the Company’s reasonable opinion, (1) unreasonable burdens or excessive liabilities
shall have been Imposed upon the Company with respect to the Facilities or the operation thereof,
including, but not limited to, federal, state or other ad valorem, property, income or other taxes
not being imposed on the date of the Agreement other than ad valorem property taxes presently
levied upon privately owned property used for the same general purposes as the Facilities, or (2)
the continued operation of the Facilities is impractical, uneconomical or undesirable for any
reason.

Any such redemption shall be on any date within 180 days following the occurrence of one of
the events listed above permitting the exercise of the option.

Special Mandatory Redemption. The Bonds are subject to mandatory redemption, in part, on the
first interest payment date for which notice can be given in accordance with the Trust Indenture
after the Project has been completed and the certificate of the Company with respect
thereto required by the Financing Agreement has been filed with the Authority and the Trustee,
to the extent of any amounts transferred from the Project Fund to the Debt Service Fund pursuant to
the Trust Indenture, at a Redemption Price of 100% of the principal amount of the Bonds to be
redeemed, plus accrued interest thereon to the date fixed for redemption.

Selection shall be made and notice given in accordance with the Trust Indenture.

 

 

 

EXHIBIT “A”

FORM OF APPROVING OPINION OF

BALLARD SPAHR ANDREWS & INGERSOLL, LLP

Upon delivery of the Bonds, Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania,
Bond Counsel, will issue its approving opinion in substantially the following form

December __, 2008

	 	 	 	 	 
	 

	 	Re:
	 	$                    
aggregate principal amount of Pennsylvania Economic Development
Financing Authority Water Facilities Revenue Bonds
(Aqua Pennsylvania, Inc. Project) Series A of 2008

Ladies and Gentlemen:

We have acted as Bond Counsel to the Pennsylvania Economic Development Financing Authority
(the “Authority”) in connection with the issuance and sale of its $                     aggregate principal
amount of Pennsylvania Economic Development Financing Authority Water Facilities Revenue Bonds
(Aqua Pennsylvania, Inc. Project) Series A of 2008 (the “Bonds”). The Bonds are being issued by the
Authority at the request of Aqua Pennsylvania, Inc., as successor to Philadelphia Suburban Water
Company (the “Company”), to finance facilities located in the Pennsylvania Counties of Chester,
Delaware and Montgomery (the “Project Facilities”) for the furnishing of water which is made
available on reasonable demand to members of the general public in portions of the Pennsylvania
Counties of Chester, Delaware and Montgomery.

The Bonds are issuable in fully registered form under a Trust Indenture dated as of December
1, 2008 (the “Indenture”) between the Authority and U.S. Bank National Association, as trustee (the
“Trustee”). The Authority and the Company are entering into a Financing Agreement dated as of
December 1, 2008 (the “Financing Agreement”), pursuant to which the Authority will lend the
proceeds of the Bonds to the Company to finance the Project Facilities.

 

A-1

 

In satisfaction of its obligation under the Financing Agreement with respect to the Bonds, the
Company, concurrently with the issuance of the Bonds, is delivering to the Trustee its First
Mortgage Bond                     % Due 2028 (the “2028 First Mortgage Bond”) and its First Mortgage Bond                     % Due
2030 (the “2030 First Mortgage Bond” and, together with the 2028 First Mortgage Bond, the “First
Mortgage Bonds”) in the aggregate principal amount equal to the aggregate principal amount of the
Bonds. The Authority has assigned its interests under the Financing Agreement with respect to the
Bonds, including its right to receive the First Mortgage Bonds and the payments thereunder, to the
Trustee for the benefit of the holders of the Bonds.

Sections 103 and 141-150 of the Internal Revenue Code of 1986, as amended (the
"Code"), provide generally that interest on certain issues of bonds, the
proceeds of which are to be used to provide facilities for the furnishing of water within the
meaning of Section 142(a) of the Code, will be excludable from the gross income of the holder
thereof. The Code imposes various requirements pertaining to the use and investment of the proceeds
of such bonds, the maturity of and security for such bonds, the procedure for issuance of such
bonds, the rebate of arbitrage profits to the Internal Revenue Service and filings with the
Internal Revenue Service. We have concluded that the Bonds meet the requirements of the Code in
reliance on representations of the Authority and the Company with respect to the application of the
proceeds of the Bonds, the nature of the Project Facilities and other matters solely within the
knowledge of the Authority and the Company which we have not independently verified, and have
assumed continuing compliance with the covenants in the Indenture, the Financing Agreement and the
certificates of the Company with respect to the Project Facilities delivered at closing pertaining
to the requirements of those sections of the Code which affect the exclusion from gross income of
interest on the Bonds for federal income tax purposes. In the event that such representations are
determined to be inaccurate or incomplete or the Authority or the Company fails to comply with the
aforementioned covenants, interest on the Bonds could become includable in gross income from the
date of issuance, regardless of the date on which the event causing such inclusion occurs.

In our capacity as Bond Counsel, we have examined such documents, records of the Authority and
other instruments as we deemed necessary to enable us to express the opinions set forth below,
including original counterparts or certified copies of the Indenture, the Financing Agreement, the
First Mortgage Bonds, the other documents listed in the closing memorandum filed with the Trustee
and an executed Water Facilities Revenue Bond (Aqua Pennsylvania, Inc. Project) Series A of 2008 as
authenticated by the Trustee.

Based on the foregoing, it is our opinion that:

1. The Authority is a public instrumentality of the Commonwealth of Pennsylvania and a body
corporate and politic, organized and existing under Pennsylvania law, with full power and authority
to execute and deliver the Financing Agreement and the Indenture, and to issue and sell the Bonds.

2. The Financing Agreement and the Indenture have been duly authorized, executed and delivered
by the Authority and constitute legal, valid and binding obligations of the Authority enforceable
against the Authority in accordance with their respective terms, subject to state and federal laws
and equitable principles affecting the enforcement of creditors’ rights.

 

A-2

 

3. All right, title and interest of the Authority under the Financing Agreement as they relate to
the Bonds, including the right to receive the First Mortgage Bonds and the payments thereunder
(except for certain rights to indemnification and to payments in respect of administrative expenses
of the Authority), have been effectively assigned to the Trustee by the Indenture.

4. The issuance and sale of the Bonds have been duly authorized by the Authority; the Bonds
have been duly executed and delivered by the Authority; and, on the assumption that all Bonds have
been authenticated by the Trustee, the Bonds are legal, valid and binding obligations of the
Authority enforceable against the Authority in accordance with their terms, subject to state and
federal laws and equitable principles affecting the enforcement of creditors’ rights, and are
entitled to the benefit and security of the Indenture.

5. Under existing laws as enacted and construed on the date of initial delivery of the Bonds,
interest on the Bonds is excludable from gross income for purposes of federal income tax, assuming
the accuracy of the certifications of the Authority and the Company and continuing compliance by
the Authority and the Company with the requirements of the Code, except that interest on a Bond is
not excludable while the Bond is held by a substantial user of the Project Facilities or a related
person as provided in the Code. Interest on the Bonds is a tax preference item that is subject to
individual and corporate federal alternative minimum tax. Interest on Bonds held by foreign
corporations may be subject to the branch profits tax imposed by the Code.

Certain of the maturities of the Bonds are offered at a discount (“original issue discount”)
equal generally to the difference between public offering price and principal amount. For federal
income tax purposes, original issue discount on a Bond accrues periodically over the term of the
Bond as interest with the same tax exemption and alternative minimum tax status as regular
interest. The accrual of original issue discount increases the holder’s tax basis in the Bond for
determining taxable gain or loss from sale or from redemption prior to maturity.”

Ownership of the Bonds may result in other federal income tax consequences to certain
taxpayers, including, without limitation, financial institutions, property and casualty insurance
companies, individual recipients of social security or railroad retirement benefits, certain S
corporations and taxpayers who may be deemed to have incurred or continued debt to purchase or
carry the Bonds. We express no opinion as to these matters.

6. Under the existing laws of the Commonwealth of Pennsylvania as enacted and construed on the
date of initial delivery of the Bonds, interest on the Bonds is exempt from Pennsylvania personal
income tax and Pennsylvania corporate net income tax, and the Bonds are exempt from personal
property taxes in Pennsylvania.

We do not express any opinion herein as to the adequacy or accuracy of the Official Statement
of the Authority pertaining to the offering of the Bonds.

We call your attention to the fact that the Authority’s obligation to make payments in respect
of the Bonds is limited to moneys received from payments to be made by the Company pursuant to the
First Mortgage Bonds and as provided in the Indenture and that the Bonds do not pledge the credit
or taxing power of the Commonwealth of Pennsylvania or any political subdivision thereof. The
Authority has no taxing power.

Very truly yours,

 

A-3

 

EXHIBIT B

FORM OF SUPPLEMENTAL OPINION OF

BALLARD SPAHR ANDREWS & INGERSOLL, LLP

December __, 2008

	 	 	 	 	 
	 

	 	Re:
	 	$                     aggregate principal amount of Pennsylvania Economic Development
Financing Authority Water Facilities Revenue Bonds,
(Aqua Pennsylvania, Inc. Project) Series A of 2008

Ladies and Gentlemen:

Reference is made to our approving opinion as Bond Counsel of even date herewith identified as
Closing Item No. [E-3(a)] delivered to you concurrently herewith and relating to the
above-referenced Bonds (the “Bonds”). At your request we have undertaken a review of certain other
matters pertaining to the Bonds. All terms are used but not defined herein shall have the same
meanings ascribed to them in the Official Statement dated November
 _____, 2008 (the “Official
Statement”) prepared in connection with the public offering of the Bonds.

Based on the review described in our approving opinion, it is our opinion that:

1. The Bond Purchase Agreement dated November
 _____, 2008 (the “Bond Purchase Agreement”), among
you, the Company and the Authority relating to the Bonds has been duly authorized, executed and
delivered by the Authority and constitutes the legal, valid and binding obligation of the Authority
enforceable against the Authority in accordance with its terms, except as enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’
rights generally and general principles of equity.

2. It is not necessary in connection with the offering and sale of the Bonds to register the
Bonds under the Securities Act of 1933, as amended, or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended.

3. The information in the Official Statement under the captions “INTRODUCTORY STATEMENT -
Description of the Bonds” and “INTRODUCTORY STATEMENT — Security for the Bonds,” “THE BONDS” (other
than the information under the sub-caption “Book-Entry Only System,” as to which we express no
view) and “SECURITY FOR THE BONDS” (other than the information under the sub-captions “The
Mortgage” and “Additional Parity Indebtedness” as to which we express no view) and the information
set forth in Appendix C to the Official Statement (other than information under the heading “THE
FIRST MORTGAGE BONDS AND THE MORTGAGE” as to which we express no view), insofar as such information
purports to summarize provisions of the Bonds, the Indenture and the Agreement, fairly and
accurately summarize such information in all material respects. The information in the Official
Statement under the caption “TAX MATTERS” and the related information set forth on the outside
front cover of the Official Statement accurately reflect our firm’s opinion with respect to the
matters discussed therein in all material respects.

This letter is furnished by us solely for your benefit in connection with the provisions of
the Bond Purchase Agreement and may not be relied upon by any other persons for any purpose
without our express written permission.

Very truly yours,

 

B-1

 

EXHIBIT C

FORM OF OPINION OF COUNSEL FOR THE AUTHORITY

December __, 2008

	 	 	 
	Aqua Pennsylvania, Inc.

	 	U.S. Bank National Association, as Trustee
	762 Lancaster Avenue

	 	2 Liberty Place, Suite 2000
	Bryn Mawr, PA 19010

	 	50 So. 16th Street
	 

	 	Philadelphia, PA 19102
	 
	 	 
	Sovereign Securities Corporation, LLC

	 	Ballard Spahr Andrews & Ingersoll, LLP
	1500 Market Street

	 	Mellon Bank Center
	Centre Square — Concourse

	 	1735 Market Street, 51st Floor
	Philadelphia, PA 19102

	 	Philadelphia, PA 19103

	 	 	 	 	 
	 

	 	Re:
	 	$                     aggregate principal amount of Pennsylvania Economic Development
Financing Authority Water Facilities Revenue Bonds,
(Aqua Pennsylvania, Inc. Project) Series A of 2008

Ladies and Gentlemen:

I have acted as counsel to the Pennsylvania Economic Development Financing Authority (the
“Authority”) in connection with the authorization, execution and issuance by the Authority of the
captioned Bonds (the “Bonds”). This opinion is being rendered pursuant to Section 11(c)(iii) of the
Bond Purchase Agreement, dated November
 _____, 2008 (the “Bond Purchase Agreement”) by and among
Sovereign Securities Corporation, LLC (the “Underwriter”), Aqua Pennsylvania, Inc. (the “Borrower”)
and the Authority. Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Bond Purchase Agreement.

As the basis for this opinion, I have examined the Pennsylvania Economic Development Financing
Law, 73 P.S. §§ 371 et seq., as amended (the “Act”); the Resolution of the Board of
Directors of the Authority relating to the Bonds adopted on October 8, 2008 ( the “Resolution”),
and such other documents, certificates and records of the Authority and other instruments and
matters of law as I have deemed necessary to enable me to express the opinion set forth below,
including, without limitation, original counterparts or certified copies of the Trust Indenture,
dated as of December 1, 2008 (the “Indenture”), between the Authority and U.S. Bank National
Association, as trustee (the “Trustee”), the Financing Agreement, dated as of December 1, 2008 (the
“Financing Agreement”), between the Authority and the Borrower) and the Bond Purchase Agreement.
The Indenture, the Financing Agreement and the Bond Purchase Agreement are collectively referred to
herein as the “Authority Documents”.

I have assumed and relied upon the truth, completeness, authority and accuracy of all
documents, certificates and instruments examined and the authenticity of all signatures thereon
other than those of the Authority.

 

C-1

 

I have also assumed that each of the documents referred to herein are, where appropriate, duly
authorized and executed by and valid and legally binding obligations of, and enforceable in
accordance with their terms against all parties thereto other than the Authority and that the
actions required to be taken or consents required to be obtained by such parties have been taken
and obtained. In rendering this opinion, I have also assumed that such parties have acted in full
compliance with the terms of all applicable laws, regulations and orders.

As to questions of fact material to this opinion, I have relied upon certificates and
representations of officers and representatives of the Authority or of other public officials,
without independent investigation.

I have not made any independent investigation in rendering this opinion other than the
examination described above. My opinion is therefore qualified in all respects by the scope of that
examination.

My opinions are specifically limited to the present internal laws of the Commonwealth of
Pennsylvania (“Commonwealth”) and present federal law and no opinion is expressed as to the effect
the laws of any other jurisdiction may have upon the subject matter of the opinions expressed
herein under conflict of laws principles or otherwise.

Based upon the foregoing, and subject to the limitations, assumptions, qualifications and
exceptions set forth herein, I am of the opinion that:

1. The Authority is a body corporate and politic constituting an instrumentality of the
Commonwealth and is duly created and presently existing pursuant to the Act.

2. The Authority has duly authorized the execution and issuance of the Bonds and the execution
and delivery of the Authority Documents. The Bonds have been duly and validly executed and
delivered by the Authority and the Authority Documents have each been duly and validly executed and
delivered by the Authority and the Bonds and each of the Authority Documents are valid and binding
agreements of the Authority, enforceable against the Authority in accordance with their respective
terms.

3. The execution and the issuance by the Authority of the Bonds, the execution and delivery by
the Authority of the Authority Documents and performance by the Authority of the Authority’s
obligations under the Bonds and the Authority Documents, do not conflict with or constitute on the
part of the Authority a violation of, breach of or default under any existing constitutional
provision or statute of the Commonwealth applicable to the Authority, or, to my knowledge without
having undertaken any independent investigation, any indenture, mortgage, deed of trust,
resolution, note agreement or other agreement or instrument to which the Authority is a party or by
which the Authority is bound and which is known to me, or, to my knowledge, without having
undertaken any independent investigation, any order, rule or regulation of any court, governmental
agency or body of the Commonwealth having jurisdiction over the Authority or any of its activities
or property.

 

C-2

 

4. To my knowledge, without having undertaken any independent investigation, there
is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by
any court, public board or body, pending or threatened against the Authority, wherein an
unfavorable decision, ruling or order would materially and adversely affect the obligations of the
Authority under the Bonds.

5. The Resolution has been duly adopted by the Authority in compliance with the Pennsylvania
Sunshine Act of October 15, 1998, P.L. 729, No. 93 (65 P.S. § 701 et seq.)

6. The Authority has approved the distribution of the Preliminary Official Statement dated
November
 _____, 2008 and the Official Statement dated November
 _____, 2008 (the “Official Statement”) by
the Underwriter in connection with the offering of the Bonds.

7. The information contained in the Official Statement under the headings “INTRODUCTORY
STATEMENT — The Authority,” “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION” (solely insofar as
the information set forth therein relates to the Authority) has been reviewed by me and nothing has
come to my attention which would lead me to believe that such information contains any untrue
statement of a material fact or omits to state a material fact which is required to be stated
therein or which is necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading in any material respect.

The opinions expressed herein are subject in all respects to the following qualifications: (a)
no opinion is rendered as to the availability of equitable remedies including, but not limited to,
specific performance and injunctive relief, whether enforceability is considered in a proceeding in
equity or at law; (b) no opinion is rendered as to the effect of bankruptcy, reorganization,
insolvency, fraudulent conveyance, moratorium and other similar laws or legal principles affecting
creditors’ rights or remedies; (c) no opinion is rendered as to the creation, perfection or
priority of any lien or security interest; (d) no opinion is rendered with respect to any “blue
sky” or other securities laws of the Commonwealth or of other jurisdictions; and (e) no opinion is
rendered with regard to any federal income tax law or regulation or any state tax law or regulation
of the Commonwealth or of other jurisdictions.

No opinion is expressed as to the validity or enforceability of any provisions of the
Authority Documents: (a) allowing any person or entity to institute judicial or non judicial
proceedings or to exercise any other rights, without notice to the person or entity against whom
enforcement is sought; (b) waiving any right or defense of any person or entity; (c) providing or
implying the availability of self-help in any particular event or circumstances; (d) relating to
court costs or legal fees which may be properly chargeable or recoverable in any judicial
proceedings; and (e) relating to indemnification.

I call your attention to the fact that the Bonds are special and limited obligations of the
Authority, payable solely from the payments derived by the Authority under the Financing Agreement.
The Bonds are not obligations or liabilities of the Commonwealth or any political subdivision
thereof nor do the Bonds pledge the credit of the Commonwealth of Pennsylvania or any political
subdivision thereof nor do the Bonds pledge the credit of the Authority (other than to the limited
extent described above). The Authority has no taxing power.

This opinion is given as of the date hereof. No opinion is expressed as to any matter not set
forth in the numbered paragraphs herein. I make no undertaking to supplement this opinion if
facts or circumstances hereafter come to my attention or changes in law occur after the date
hereof. This opinion is rendered solely in connection with the original delivery and payment for
the Bonds on the date hereof, and may not be relied upon for any other purpose. This opinion may
not be relied upon by any other person, including any purchaser of the Bonds from the Underwriter
or otherwise or for any other purpose, nor may this opinion be distributed, quoted or disclosed to
any person, firm or entity without my prior written consent in each instance.

Very truly yours,

 

C-3

 

EXHIBIT D

FORM OF OPINIONS OF THE COMPANY’S LEGAL COUNSEL AND THE

COMPANY’S SENIOR VICE PRESIDENT — LAW ANDADMINISTRATION

Letterhead of Dilworth Paxson LLP

December __, 2008

Pennsylvania Economic Development Financing Authority

400 North Street, 4th Floor

Harrisburg, PA 17120-0225

Sovereign Securities Corporation, LLC

1500 Market Street

Philadelphia, PA 19102

Ballard Spahr Andrews & Ingersoll, LLP

1735 Market Street, 51st Floor

Philadelphia, PA 19103

	 	 	 	 	 
	 

	 	Re:
	 	$                     aggregate principal amount of Pennsylvania Economic Development
Financing Authority Water Facilities Revenue Bonds
(Aqua Pennsylvania, Inc. Project) Series A of 2008

Ladies and Gentlemen:

We have acted as counsel to Aqua Pennsylvania, Inc. (the “Company”) in connection with (i) the
issuance by the Pennsylvania Economic Development Financing Authority (the “Authority”), and the
sale to Sovereign Securities Corporation, LLC pursuant to that certain Bond Purchase Agreement
dated November
 _____, 2008 (the “Purchase Agreement”), of $                     aggregate principal amount of
Pennsylvania Economic Development Financing Authority Water Facilities Revenue Bonds (Aqua
Pennsylvania, Inc. Project), Series A of 2008 (the “Authority Bonds”), and (ii) the issuance and
delivery of the Company’s First Mortgage Bond,                     % Series due 2028 in the principal amount of
$                     (the “2028 First Mortgage Bond”); and its First Mortgage Bond,                     % Series due 2030 in
the principal amount of $                     (the “2030 First Mortgage Bond” and along with the 2028 First
Mortgage Bond collectively, the “First Mortgage Bonds”), issued under an Indenture of Mortgage (the
“Original Mortgage”) dated as of January 1, 1941, as amended and supplemented by supplemental
indentures thereto, including the Forty-third Supplemental Indenture dated as of December 1, 2008
(the “Supplemental Indenture”) under which The Bank of New York Mellon Trust Company, N.A. is
successor trustee (the “Mortgage Trustee”). The original Mortgage as amended and supplemented is
hereinafter called the “Mortgage”. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in the Purchase Agreement.

 

D-1

 

We have examined and reviewed, among other things:

(a) a copy of the Articles of Incorporation of the Company, as amended and restated and now in
effect;

(b) a copy of the bylaws of the Company as now in effect;

(c) resolutions of the Board of Directors of the Company authorizing the execution and
delivery of the Purchase Agreement, the Financing Agreement, the Supplemental Indenture, the First
Mortgage Bonds, the Continuing Disclosure Agreement and the Official Statement;

(d) the Purchase Agreement;

(e) the Financing Agreement dated as of December 1, 2008 (the “Financing Agreement”) between
the Authority and the Company;

(f) the Continuing Disclosure Agreement dated as of December 1, 2008 (the “Continuing
Disclosure Agreement”) between the Company and U.S. Bank National Association, as trustee for the
Authority Bonds (the “Trustee”);

(g) the Official Statement relating to the Authority Bonds dated November
 _____ 
, 2008 (the
“Official Statement”);

(h) the Securities Certificate relating to the issue and sale of the First Mortgage Bonds,
filed by the Company with the Pennsylvania Public Utility Commission pursuant to the provisions of
Chapter 19 of the Pennsylvania Public Utility Code, and a copy of the Order of the Public Utility
Commission registering such Securities Certificate, certified by the Secretary of the Pennsylvania
Public Utility Commission;

(i) a Subsistence Certificate from the Secretary of the Commonwealth with respect to the
Company;

(j) executed counterparts of the Original Mortgage and of the Supplemental Indenture and
evidence satisfactory to us of the due recordation thereof in the Counties of Adams, Berks,
Bradford, Bucks, Carbon, Chester, Columbia, Crawford, Cumberland, Delaware, Forest, Juniata,
Lackawanna, Lawrence, Lehigh, Luzerne, Mercer, Monroe, Montgomery, Northampton, Northumberland,
Pike, Schuylkill, Snyder, Susquehanna, Wayne and Wyoming, Pennsylvania;

(k) the documents delivered to the Mortgage Trustee in connection with the authentication of
the First Mortgage Bonds pursuant to the provisions of Sections 2(B) and 3 of Article IV of the
Original Mortgage;

(l) the First Mortgage Bonds delivered to the Trustee at the Closing held today;

(m) the certificates of the Company and other documents delivered to the Mortgage Trustee at
the Closing;

(n) a certificate of the Company and various bringdown title searches of various title
companies in the Counties of Adams, Berks, Bradford, Bucks, Carbon, Chester, Columbia, Crawford,
Cumberland, Delaware, Forest, Juniata, Lackawanna, Lawrence, Lehigh, Luzerne, Mercer, Monroe,
Montgomery, Northampton, Northumberland, Pike, Schuylkill, Snyder,
Susquehanna, Wayne and Wyoming, Pennsylvania, each dated as of a recent date (collectively,
“Title Searches”), as to matters relating to title to real estate and the lien of the Mortgage
thereon, on which certificate and searches we are relying for the purposes of this opinion; and

(o) various certificates of officers of the Company relating to title to real property and the
priority of any lien thereon.

 

D-2

 

In rendering this opinion, we have assumed that all signatures on documents and instruments
examined by us are genuine (except signatures of the Company on the Purchase Agreement, the
Supplemental Indenture, the Financing Agreement, the First Mortgage Bonds and the Continuing
Disclosure Agreement (collectively, the “Company Documents”) and the Official Statement), the
authenticity of all documents submitted to us as originals and the conformity with the original
documents of all documents submitted to us as copies. We have also assumed, with your permission,
that none of the signatories of the documents and instruments referred to above is an affiliate of
the Company within the meaning of 66 Pa.C.S. §2101 (1989).

As to questions of fact material to the opinions hereinafter expressed, we have relied solely
and without investigation upon certificates of public officials, certificates of officers of the
Company and the representations of the Company contained in the Company Documents (including the
exhibits and schedules to such documents) and the certificates and other documents delivered
pursuant thereto. To the extent that the opinions contained herein are given to our knowledge, such
knowledge means the actual knowledge of those attorneys within our firm who have provided
substantive representation to the Company in connection with this financing, without investigation
and inquiry, and does not include matters of which such attorneys could be deemed to have
constructive knowledge.

In rendering this opinion, we have also assumed that each of the Company Documents has been
duly authorized, executed and delivered by each party thereto (other than the Company) and that
each of the Company Documents is binding and enforceable against each such party in accordance with
its respective terms.

Further, as to matters relating to title to real estate and the lien of the Mortgage, we have
relied exclusively upon various certificates of officers of the Company and the Title Searches and
we have not made, nor undertaken to make, any investigation or inquiry with respect to title to
real property or the priority of any lien thereon.

We are generally familiar with the Company’s operations as a public utility within the
Commonwealth of Pennsylvania (the “Commonwealth”).

Based upon the foregoing and such other examination of fact and law as we have deemed
necessary for purposes of this opinion, we are of the opinion that:

1. The Company was organized and subsists under the laws of the Commonwealth, with the
corporate power to own its properties and conduct its business as described in the Official
Statement.

2. The Company has the corporate power and authority to enter into and perform the Company
Documents. The execution, delivery and performance by the Company of the Company Documents have
been duly authorized by all requisite corporate action.

 

D-3

 

3. The Purchase Agreement, the Financing Agreement and the Continuing Disclosure Agreement
constitute legal, valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.

4. The First Mortgage Bonds have been duly authorized, executed, authenticated, issued and
delivered and each constitutes a valid and legally binding obligation of the Company entitled to
the benefits provided by the Mortgage.

5. The First Mortgage Bonds are not subject to the registration requirements of the 1933 Act.

6. The Mortgage constitutes a direct, valid and enforceable mortgage lien (except as
enforceability of such lien may be limited by bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors’ rights) upon all of the properties and assets of the
Company (not heretofore released as provided for in the Mortgage) specifically or generally
described or referred to in the Mortgage as being subject to the lien thereof, except for permitted
liens under the Mortgage; (i) the Original Mortgage, either separately or as an exhibit to (a) the
Thirty-Fifth Supplemental Indenture dated as of January 1, 2002, (b) the Thirty-Eighth Supplemental
Indenture dated as of November 15, 2004 or (c) the Forty-first Supplemental Indenture dated as of
January 1, 2007, and (ii) the Forty-third Supplemental Indenture dated as of December 1, 2008, has
been properly recorded in the Counties of Adams, Berks, Bradford, Bucks, Carbon, Chester, Columbia,
Crawford, Cumberland, Delaware, Forest, Juniata, Lackawanna, Lawrence, Lehigh, Luzerne, Mercer,
Monroe, Montgomery, Northampton, Northumberland, Pike, Schuylkill, Snyder, Susquehanna, Wayne and
Wyoming in the Commonwealth and such recordations are the only recordations necessary in order to
establish, preserve, protect and perfect the lien of the Mortgage on all real estate and fixed
property of the Company (excluding easement and other similar nights) described in the Mortgage as
subject to the lien thereof.

7. With such exceptions as are not material and do not interfere with the conduct of the
business of the Company, the Company has good and marketable title to all of its real property
currently held in fee simple; good and marketable title to all of its other interests in real
property (other than to certain rights of way, easements, occupancy rights, riparian and flowage
rights, licenses, leaseholds, and real property interests of a similar nature); and good and
marketable title to all personal property owned by it; in each case free and clear of all liens,
encumbrances and defects except such as may be described in the Official Statement, the lien of the
Mortgage, permitted liens under the Mortgage or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by the Company are held by it under
valid, subsisting and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and buildings by the Company.

8. The Company is not a holding company, a registered holding company or an affiliate of a
registered holding company within the meaning of the Public Utility Company Holding Act of 1935, as
amended.

9. The Mortgage and the First Mortgage Bonds conform in all material respects as to legal
matters to the descriptions thereof in the Official Statement.

 

D-4

 

Without having undertaken to determine independently the accuracy, completeness and
fairness of the statements contained in the Official Statement, nothing has come to our
attention in connection with our representation of the Company in respect of the issuance of the
First Mortgage Bonds which leads us to believe that the information with respect to the Company
contained in the Official Statement (including Appendix A and the information incorporated therein
by reference) contains any untrue statement of a material fact or omits to state a material fact
which is required to be stated therein or which is necessary to make such information and
descriptions, in the light of the circumstances under which they were made, not misleading in any
material respect.

The foregoing opinions are subject to the following qualifications:

(i) The opinions expressed in paragraphs 3 and 4 are subject to the qualifications that the
enforceability of the First Mortgage Bonds are subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium, and other similar laws of general application relating to or affecting
creditors’ rights, (ii) certain provisions of Pennsylvania law affecting the availability of
certain remedies, and (iii) the further qualification that the availability of specific
performance, injunctive relief or other equitable remedies is subject to the discretion of the
court before which any proceeding therefor maybe brought.

(ii) Our opinions are subject to limitations imposed by general principles of equity,
including principles of commercial reasonableness, good faith and fair dealing (regardless of
whether enforcement is considered in proceedings at law or in equity).

(iii) We express no opinion as to the enforceability with respect to any provisions purporting
to waive the effect of applicable laws and remedies and any provisions releasing any party from, or
requiring indemnification for, liability for gross negligence, recklessness or willful misconduct.

(iv) Any requirements in any of the documents specifying that provisions of a document may
only be waived in writing may not be enforced to the extent that an oral agreement or an implied
agreement by trade practice or course of conduct has been created modifying any provision of such
document.

(v) We express no opinion as to the applicability to the transactions contemplated by the
Company Documents of Section 548 of the Bankruptcy Code or any applicable state law relating to
fraudulent transfers and obligations.

(vi) Other applicable local, state and federal laws, regulations and ordinances, court
decisions and constitutional requirements may limit or render unenforceable certain of the rights
or remedies contained in the Company Documents, but in our opinion, none of the same would
materially impair the practical realization of the benefits intended to be provided by the Company
pursuant to the Company Documents.

(vii) Our opinion is limited in all respects to the laws of the Commonwealth in effect as of
the date hereof and we express no opinion as to the laws of any other jurisdiction.

(viii) This opinion is limited to the matters set forth herein, no opinion may be inferred or
implied beyond the matters expressly stated herein, and our statements contained in the opinion
portion of this letter must be read in conjunction with the assumptions, limitations, exceptions
and qualifications set forth in this letter.

(ix) The opinions herein are expressed as of the date hereof only and not as of some future
date. We undertake no responsibility to advise you of any change in law or new laws, regulations or
judicial decisions in the future. Nor do we assume any obligation to update or supplement this
opinion to reflect any facts or circumstances which may hereafter come to our attention. References
to “laws,” “regulations” and “judicial decisions” herein shall include only officially published
laws and regulations of the Commonwealth.

This opinion is solely for the benefit of each of you and the benefit of any subsequent holder
of the First Mortgage Bonds or the Authority Bonds and may not be relied upon by any other person
or for any other purpose.

Very truly yours,

 

D-5

 

[Letterhead of Aqua Pennsylvania]

December __, 2008

Pennsylvania Economic Development Financing Authority

400 North Street, 4th Floor

Harrisbukrg, PA 17120-0225

Sovereign Securities Corporation, LLC

1500 Market Street

Philadelphia, PA 19102

Ballard Spahr Andrews & Ingersoll, LLP

1735 Market Street, 51st Floor

Philadelphia, PA 19103

	 	 	 	 	 
	 

	 	Re:
	 	$                     aggregate principal amount of
Pennsylvania Economic Development Financing Authority Water
Facilities
Revenue Bonds (Aqua Pennsylvania, Inc. Project) Series A of
2008

Ladies and Gentlemen:

I am Senior Vice President-Law and Administration for Aqua Pennsylvania, Inc. (the “Company”).

Pursuant to Section 11(c)(iv) of the Bond Purchase Agreement dated November
 _____ 
, 2008 (the
“Purchase Agreement”) among the Authority, the Underwriter and the Company (fka Pennsylvania
Suburban Water Company, as successor by merger to Philadelphia Suburban Water Company) relating to
the Authority Bonds, I have been asked to render an opinion to you regarding certain matters
involving the Company. Capitalized terms used herein and not otherwise defined shall have the
definitions ascribed to such terms in the Purchase Agreement.

In rendering this opinion, I have assumed the following:

(i) the genuineness of all signatures (other than the signatures of the Company on the
Forty-third Supplemental Mortgage, as hereinafter defined);

(ii) the authenticity and completeness of all documents submitted to me as originals;

(iii) the conformity to original documents of all documents submitted to me as copies, and the
authenticity of the originals of such copies;

(iv) the entity executing the Mortgage as trustee is duly organized and validly existing, in
good standing under the laws of the jurisdiction of its organization, is properly qualified to do
business in all jurisdictions in which the business conducted by it makes such qualification
necessary and has all necessary legal and corporate power and authority to enter into and perform
its obligations under the Mortgage;

 

E-1

 

(v) the due authorization, execution and delivery of the Mortgage by or on behalf of the party
thereto other than the Company;

(vi) the enforceability against each party thereto (other than the Company) of the Mortgage in
accordance with its respective terms; and

(vii) that the execution, delivery and performance of the Mortgage by the entity other than
the Company which is party thereto does not and will not conflict with, result in any breach of, or
constitute a default under any order, writ, injunction or decree of any court or governmental
authority, or any agreement, indenture or other instrument, to which any such party is a party or
by which it or its properties are bound, and that all necessary approvals, consents, permits,
registrations, filings or other notices to or grants of authority from any federal or local
governmental body necessary for the execution, delivery and performance of the Mortgage by each
party thereto (other than the Company) have been duly received or made, with all appeal periods
expired and no appeals taken.

I am making each of the foregoing assumptions with your permission and with the disclaimer
that we make no representation as to the accuracy of such assumptions, although I have no knowledge
that any such assumption is untrue.

In my opinion:

1. With such exceptions as are not material and do not materially interfere with the conduct
of the business of the Company: (a) the Company has all licenses, franchises, permits,
authorizations, rights, approvals, consents and order of all governmental authorities or agencies
necessary for the ownership or lease of the properties owned or leased by it and for the operation
of the business carried on by it as described in the Official Statement, and ail water rights,
riparian rights, easements, rights of way and other similar interests and rights described or
referred to in the Mortgage necessary for the operation of the business carried on by it as
described in the Official Statement; (b) except as otherwise set forth in the Official Statement,
all such licenses, franchises, permits, orders, authorizations, rights, approvals and consents are
in full force and effect; (c) to the best of my knowledge, except as otherwise set forth in the
Official Statement, there are no legal or governmental proceedings pending or, to my knowledge,
threatened that would result in a material modification, suspension or revocation thereof; and (d)
the Company has the legal power to exercise the rights of eminent domain for the purposes of
conducting its water utility operations.

2. The issue and sale of the Bonds; the issue and delivery of the First Mortgage Bonds and the
compliance by the Company with all of the applicable provisions of the First Mortgage Bonds and the
Mortgage; and the execution, delivery and performance by the Company of the Forty-third
Supplemental Mortgage, the Financing Agreement, the Purchase Agreement and the Continuing
Disclosure Agreement will not materially conflict with or result in a material breach of any of the
terms or provisions of, or constitute a material default under, or result in the creation or
imposition of any material lien, charge or encumbrance (other than the lien of the Mortgage) upon
any of the property or assets of the Company pursuant to the terms of, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which the Company is a party or
by which the Company is bound or to which any of the property or assets of the Company is
subject, nor will such action result in a violation of the provisions of the Articles of
Incorporation, as amended, or the Bylaws of the Company or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over the Company or any
of its property. No consent, approval, authorization, order, registration or qualification of or
with any court or any such regulatory authority or other governmental body not already obtained is
required for the issue and delivery of the First Mortgage Bonds, the execution, delivery and
performance of the Purchase Agreement, the Financing Agreement, the Forty-third Supplemental
Mortgage, the First Mortgage Bonds, and the Continuing Disclosure Agreement, or the consummation of
the other transactions contemplated by the Purchase Agreement or the Mortgage.

 

E-2

 

3. There are no legal or governmental proceedings pending to which the Company is a party or
of which any property of the Company is the subject, other than as set forth in the Official
Statement and other than litigation incident to the kind of business conducted by the Company,
wherein an unfavorable ruling, decision or finding is likely that would have a material adverse
effect on the financial position, stockholders’ equity or results of operations of the Company.

4. Each of the Indenture of Mortgage dated as of January 1, 1941 (the “Original Mortgage”),
between the Company and The Philadelphia Company for Insurance on Lives and Exacting Annuities (now
The Bank of New York Mellon Trust Company, N.A., as successor in interest), as trustee (the
“Trustee”) and the forty-three indentures supplemental thereto, including the Forty-third
Supplemental Indenture dated as of December 1, 2008 between the Company and the Trustee (the
Original Mortgage as so supplemented and amended, the “Mortgage”) was duly authorized, executed and
delivered by the Company and the Mortgage constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws
relating to creditors’ rights generally from time to time in effect, and subject, as to
enforceability, to general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law).

The foregoing opinions are subject to the following qualifications:

(i) The enforceability of the Mortgage, including, without limitation, any non judicial and
self-help remedies and waivers contained therein, may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws affecting the rights of
creditors generally and are subject to limitations imposed by general principles of equity,
including principles of commercial reasonableness, good faith and fair dealing (regardless of
whether enforcement is considered in proceedings at law or in equity), public policy and applicable
law which may limit the availability of the remedies provided for therein,

(ii) I express no opinion as to the adequacy of any notice with respect to the disposition of
any collateral. I also express no opinion as to the effectiveness or enforceability of provisions
relating to waivers of notice or waivers of other rights, severability, prepayment fees or
penalties, choice of law, or any provisions which release or limit the Company’s liability or
relate to cumulative remedies or, to the extent they purport to or would have the effect of
compensating the Company in amounts in excess of any actual loss suffered by the Company,
provisions relating to the payment of a default rate of interest.

(iii) I express no opinion as to enforceability with respect to any provisions in the
Mortgage executed by the Company purporting to waive the effect of applicable laws and
remedies and any provisions releasing any party from, or requiring indemnification for, liability
for gross negligence, recklessness or willful misconduct.

 

E-3

 

(iv) Requirements in the Mortgage specifying that provisions of the Mortgage may only be
waived in writing may not be enforced to the extent that an oral agreement or an implied agreement
by trade practice or course of conduct has been created modifying any provision of such Mortgage.

(v) My opinion is limited in all respects to laws of the Commonwealth of Pennsylvania in
effect as of the date hereof and we express no opinion as to the laws of any other jurisdiction.

(vi) This opinion is limited to the matters set forth herein, no opinion may be inferred or
implied beyond the matters expressly stated herein, and our statements contained in the opinion
portion of this letter must be read in conjunction with the assumptions, limitations, exceptions
and qualifications set forth in this letter.

(vii) The opinions herein are expressed as of the date hereof only and not as of some future
date. I undertake no responsibility to advise you of any change in law or new laws, regulations or
judicial decisions in the future nor do I assume any obligation to update or supplement this
opinion to reflect any facts or circumstances which may hereafter come to our attention. References
to “laws,” “regulations” and “judicial decisions” herein shall include only officially published
laws and regulations of the Commonwealth of Pennsylvania.

This opinion is solely for your benefit and may not be relied upon by any other person or for
any other purpose.

Very truly yours,

 

E-4Filed by Bowne Pure Compliance

Exhibit 10.36

AQUA AMERICA, INC 

2004 EQUITY COMPENSATION PLAN

(amended and restated as of January 1, 2009)

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.

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.

 

2

 

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:

(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.

 

3

 

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 in Control of the Corporation, as defined in Section 16.

(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, whether exercisable or unexercisable, 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, as a result of the
grantee’s retirement, disability or death, such unexercisable portion of the option shall terminate
as of such date.

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 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) Retirement, Disability, or Death. Options may be exercised upon termination of a grantee’s
employment as a result of retirement, disability or death in accordance with the following
provisions:

	 	(i)	 	Options granted prior to January 1, 2009 may be exercised over
a period that does not exceed: (1) one year from the date of such termination
of employment in the case of death; (2) two years from the date of such
termination of employment in the case of retirement or permanent and total
disability (within the meaning of section 22(e)(3) of the Code); and (3) 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.

	 
	 	(ii)	 	Options granted on or after January 1, 2009 may be exercised
over a period that does not exceed: (1) 12 months from the date of such
termination of employment in the case of death; and (2) 38 months from the date
of such termination of employment in the case of “Early Retirement” as defined
in paragraph (iii) below, “Normal Retirement” as defined in paragraph (iv)
below, or disability; provided, however, that in no event shall the exercise
period extend beyond the expiration of the option term and the exercise period
for any option shall not be accelerated as a result of Early Retirement or
Normal Retirement. Notwithstanding any determinations by the Committee
regarding the exercise period of any option, all outstanding options of a
grantee which are granted on or after January 1, 2009 shall become immediately
exercisable if the grantee terminates employment due to death or disability.
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.

	 
	 	(iii)	 	“Early Retirement” shall mean a termination of employment that
occurs on or after the date that the grantee become eligible for early
retirement pursuant to the terms of the Retirement Income Plan for Aqua
America, Inc. and Subsidiaries (the “Pension Plan”); provided, however, that if
a grantee is not an active participant in the Pension Plan immediately prior to
terminating employment, “Early Retirement” shall mean a termination of
employment that occurs on or after the date that a grantee is first eligible
for Social Security retirement benefits and has completed at least 10 years of
service for vesting purposes under the Pension Plan.

	 
	 	(iv)	 	“Normal Retirement” shall mean a termination of employment on
or after the date a grantee first satisfies the conditions for normal
retirement benefits under the terms of the Pension Plan, whether or not the
grantee is covered by the Pension Plan.

 

5

 

(e) Notwithstanding any contrary provision in subsection (c) or (d) above, 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. 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.

(f) Limits on Incentive Stock Options. Each Grant of an incentive stock option shall provide that
(i) it is not transferable by the grantee other than by will or the laws of descent and
distribution and otherwise is exercisable, during the grantee’s lifetime, only by the grantee, and
(ii) 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.

(g) Forfeiture of Options. Notwithstanding any other provisions set forth above, if the grantee
shall (i) commit any act of malfeasance or wrongdoing affecting the Corporation, any parent or
subsidiary, (ii) breach any covenant not to compete, or employment contract, with the Corporation,
any parent or subsidiary, or (iii) engage in conduct that would warrant the grantee’s discharge for
cause (excluding general dissatisfaction with the performance of the Grantee’s duties, but
including any act of disloyalty or any conduct clearly tending to bring discredit upon the
Corporation, any parent or subsidiary), all options, or the unexercised portion thereof, shall
immediately terminate and be void.

(h) Non-Compete Agreement. All unexercised stock options following a grantee’s termination of
full-time employment by reason of Early Retirement or Normal Retirement with respect to grants made
on or after January 1, 2009, shall be forfeited if, during the period of 38 months following the
grantee’s termination of regular full-time employment, the grantee violates the terms of a
non-compete agreement in the grant agreement.

 

6

 

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(g), and the provisions of Section
7(e), restrictions on the transfer of shares of Common Stock set forth in Section 7(c) shall lapse
on such date or dates as the Committee may approve until the restrictions have lapsed on 100% of
the shares. 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; provided, however, with respect to Grants made on or after
January 1, 2009, a restricted stock grant shall not terminate as a result of a termination of
employment due to Normal Retirement as defined in Section 6(d)(iv) above, and, in the case of a
termination of employment due to Early Retirement as defined in Section 6(d)(iv) above, a pro-rata
share of the restricted stock grant based on the period in which the grantee was employed during
the Restriction Period shall not terminate as a result of the grantee’s termination of employment.
The Committee may provide for complete or partial exceptions to the requirement in this subsection
as it deems equitable. Restricted stock grants made on or after January 1, 2009 that do not
terminate as a result of the grantee’s termination of employment due to Normal Retirement or Early
Retirement pursuant to this Section, will still be subject to any performance goals established by
the Committee with respect to such grant pursuant to Section 7(g).

(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, a Change in Control of the Corporation, or effective with respect to grants made on or
after January 1, 2009, the termination of employment of the grantee due to a disability, 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.

 

7

 

(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) (i) Restricted Stock Awards Subject to Performance Goals. From time to time the Committee may
issue 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 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.

(ii) 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 (1) 90 days after the beginning of the period
during which the specified performance goals are to be measured or (2) 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).

 

8

 

(iii) 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.

(iv) Non-Compete Agreement. All restricted stock grant with respect to which the
applicable restrictions have not lapsed following a grantee’s termination of
full-time employment by reason of Early Retirement or Normal Retirement with respect
to grants made on or after January 1, 2009, shall be forfeited if, during the
Restricted Period following the grantee’s termination of regular full-time
employment, the grantee violates the terms of a non-compete agreement in the grant
agreement.

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 that portion of
the Dividend Equivalent Amount for each grantee attributable to 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 (the “Accumulation Period”),

	 	(ii)	 	the date of the termination of regular full-time employment for
any reason other than total disability (as defined in section 22(e)(3) of the
Code), Normal Retirement as defined in Section 6(d)(iv) above, Early Retirement
as defined in Section 6(d)(iv) above, or death of the grantee, (or effective
with respect to grants made prior to January 1, 2009, 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.

The Corporation shall maintain in its books and records separate accounts which
identify each grantee’s Dividend Equivalent Amount, reduced by all amounts paid
pursuant to subsection (b) below. No interest shall be credited to any such
account.

 

9

 

(b) Payment of Credited Dividend Equivalents. Any Dividend Equivalent Amounts accrued in an
account between the date of the Grant to March 1 of the following year shall be distributed to the
grantee no later than March 15 of the year following the date of grant, and any Dividend Equivalent
Amounts accrued in an account from March 2 of the year following the date of Grant (or any
anniversary thereof) through March 1 of the following year shall be distributed to the grantee no
later than March 15 of such following year, subject to subject to subsection (c) below; provided,
however, that the total Dividend Equivalent Amount accrued in a grantee’s account on March 1, 2009
which has not, prior to such date, been paid to the grantee or forfeited, shall be paid to the
grantee by March 15, 2009, subject to subsection (c) below. Notwithstanding the foregoing, upon a
Change in 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 be paid within 60 days to the
grantee.

(c) Forfeiture of Dividend Equivalents. Except as otherwise determined by the Committee, payment
of Dividend Equivalent Amounts for any accrual period ending on March 1 as described in subsection
(b) shall be forfeited by the grantee if the grantee is not employed in regular full-time
employment by the Corporation or a subsidiary on March 1 of such accrual period; provided, however,
that a grantee shall not forfeit any payments if the grantee terminates employment by reason of (i)
death, (ii) total disability (as defined in section 22(e)(3) of the Code), (iii) solely with
respect to grants made prior to January 1, 2009, retirement under the Corporation’s or a
subsidiary’s retirement plan, or (iv) solely with respect to grants made on or after January 1,
2009, Normal Retirement as defined in Section 6(d)(iv) above or Early Retirement as defined in
Section 6(d)(iv) above, subject to subsection (e) below.

(d) Form of Payment. A Dividend Equivalent Amount shall be paid solely in cash.

(e) Non-Compete Agreement. All unpaid Dividend Equivalent Amounts following a grantee’s
termination of full-time employment by reason of Early Retirement or Normal Retirement with respect
to grants made on or after January 1, 2009, shall be forfeited if, during applicable Accumulation
Period, the grantee violates the terms of a non-compete agreement in the grant agreement.

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

 

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 than 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.

 

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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.

16. Change in 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”).

 

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(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.

(c) A “Change in 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.

 

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Notwithstanding anything in this subsection (c) to the contrary, a Change in 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.

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.

 

14

 

(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 became effective on March 18, 2004, upon the approval of the Corporation’s
stockholders at the May 20, 2004 meeting of the Corporation’s stockholders. This amendment and
restatement of the Plan shall be effective January 1, 2009.

20. Grandfathered Benefits

The terms of the amended and restated Plan shall not apply to any grant made under the Plan
which vested on or before December 31, 2004 (“2004 Grants”). The 2004 Grants shall be governed
pursuant to the terms of the Plan as in effect before January 1, 2005 and prior to this amendment
and restatement, consistent with the “grandfather” provisions of section 409A of the Internal
Revenue Code of 1986, as amended.

 

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