UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Aquarion Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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Notes:
[LOGO] AQUARION
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
April 20, 1999
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Aquarion Company (the "Company") which will be held at 9:30 a.m., on Tuesday,
April 20, 1999, in the People's Bank, Multi-purpose room (Second Floor), 850
Main Street, Bridgeport, Connecticut, for the purposes set forth below.
1. To elect two directors to Class II of the Board of Directors.
2. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the coming year.
3. To approve a 1999 Stock Incentive Plan for officers and key employees
of the Company and its subsidiaries.
4. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on February 23, 1999, will
be entitled to vote at the meeting. Whether or not you plan to attend the
meeting, please sign and date the Proxy Card and promptly mail it in the
enclosed envelope. As an added convenience, you may vote by telephone. Please
follow the prompts on the enclosed Proxy Card to vote by telephone and indicate
if you plan on attending the meeting.
By Order of the Board of Directors
LARRY L. BINGAMAN
Secretary
================================================================================
PLEASE VOTE BY PROMPTLY RETURNING THE PROXY CARD IN THE ENCLOSED ENVELOPE OR,
YOU MAY FOLLOW THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD TO VOTE BY TELEPHONE.
YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE MEETING AND VOTE IN PERSON.
IF YOU PLAN TO ATTEND THE MEETING, PLEASE CHECK THE BOX PROVIDED ON YOUR PROXY
CARD OR FOLLOW THE PROMPTS ON THE TELEPHONE.
================================================================================
AQUARION COMPANY
835 Main Street
Bridgeport, Connecticut 06604
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held April 20, 1999
The enclosed Proxy is solicited by the Board of Directors of the Company
for use at the Annual Meeting of Shareholders to be held on April 20, 1999, and
any adjournment thereof.
Holders of the Common Stock of the Company of record at the close of
business on February 23, 1999, are entitled to notice of and to vote at the
meeting. On the record date, there were 7,525,379 outstanding shares of Common
Stock, which is the only class of capital stock of the Company entitled to vote
at the meeting. Each shareholder is entitled to one vote for each share of
Common Stock held.
A proxy may be revoked by a shareholder at any time before it is voted by
mailing his or her revocation or a subsequent proxy to the Secretary of the
Company at the above address or by filing a written revocation at the meeting
with the Secretary of the Company. Each valid proxy will be voted at the
meeting, and such vote will be cast in accordance with the shareholder's
direction specified in the proxy.
The cost of soliciting proxies, which will be borne by the Company, is
estimated to total $6,500. In addition to solicitation by mail, directors,
officers and regular employees of the Company may solicit proxies personally or
by telephone. Banks, brokerage houses and other custodians, nominees or
fiduciaries who hold stock in their names will be requested to solicit proxies
from the persons owning such stock. ChaseMellon Shareholder Services has been
retained by the Company to assist in such solicitation.
On February 16, 1999, the Board of Directors approved a 3 for 2 split of
the Company's common stock in the form of a 50% stock distribution, payable on
March 22, 1999, to shareholders on record on March 1, 1999. The information
herein does not reflect the effect of the stock split unless otherwise noted.
The Proxy Statement and Proxy are being mailed to shareholders beginning on
or about March 16, 1999.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees and Beneficial Ownership
The Board of Directors of the Company is divided into three classes. At
the Annual Meeting, two directors will be elected to Class II for a three-year
term. At the Year 2000 Annual Meeting of Shareholders, directors will be
elected to Class III for a three-year term and at the Year 2001 Annual Meeting
of Shareholders, directors will be elected to Class I for a three-year term.
Information with respect to the two nominees proposed for election to Class II
and information with respect to the six other directors is set forth below. All
nominees have been nominated by the Board of Directors for election as
directors. It is intended that the proxies will be voted for the two nominees
hereinafter named, each of whom have indicated their willingness to serve if
elected, unless otherwise indicated on any proxy. All nominees are presently
directors of the Company. Each nominee has held the principal occupation shown
for the past five years unless otherwise indicated. Directors are elected by
plurality vote. Abstentions and broker non-votes will not have the effect of
votes in opposition to a director.
While it is not anticipated that any of the nominees will be unable to
serve as a director, if that should occur, the proxies will be voted for such
other person or persons as the present Board of Directors shall determine, or
the Board of Directors may elect to fill such vacancy at a later date.
1
Mr. Donald M. Halsted, Jr., who is presently a Class II director, will be
retiring as of the date of the Annual Meeting. No nominee has been proposed for
election to fill the vacancy that will result from his retirement. The Board of
Directors is in the process of seeking a qualified individual to fill such
vacancy, but anticipates that it will not elect a candidate to fill such vacancy
prior to the Annual Meeting. Proxies cannot be voted for a greater number of
persons than the number of nominees named.
Nominees for Election as Class II Directors to Serve
Three-Year Terms Ending at the Year 2002
Annual Meeting of Shareholders
Age Principal Occupation Director
Since
Janet D. Greenwood 55 Partner (since 1994), Heidrick and Struggles, 1988
Inc., an executive search firm; consultant 1992
to 1994. President Emeritus of the University
of Bridgeport. Founding President of the Long
Island Sound Foundation.
John A. Urquhart 70 President, John A. Urquhart Associates, a 1990
management consulting firm. Senior Advisor to
the Chairman of Enron Corp (since 1998).
Former Vice Chairman of Enron Corp (1991-
1998). Director of TECO Energy, Inc., Enron
Corp., Hubbell Incorporated and The Weir
Group PLC. Director of Catalytica, Inc., and its
subsidiary, Catalytic Combustion Systems, Inc.
2
Class III Directors Whose Three-Year Terms End at the Year 2000 Annual Meeting
of Shareholders
Director
Age Principal Occupation Since
George W. Edwards, Jr. 59 Chairman of the Board (since October 1996) of 1988
the Company. Chairman of the Board of El
Paso Electric Company (since February 1996).
President and Chief Executive Officer (1991-
May 1995) of Kansas City Southern Railway Co.
Director of Hubbell Incorporated.
G. Jackson Ratcliffe 63 Chairman, President and Chief Executive 1982
Officer of Hubbell Incorporated, a manufacturer
of electrical/electronic components and
systems. Director of Praxair, Inc., Olin
Corporation and Sunoco, Inc.(since 1998).
Richard K. Schmidt 54 President and Chief Executive Officer (since 1995
October 1995) and formerly Senior Vice
President (1993-1995) of the Company.
President (1992-1995) and Chief Executive
Officer (1992-March 1997) of Industrial and
Environmental Analysts, Inc., a former
subsidiary of the Company.
Class I Directors Whose Three-Year Terms End at the Year 2001 Annual Meeting of
Shareholders
Age Principal Occupation Director
Since
Geoffrey Etherington 70 Chairman and President of Etherington Industries, 1976
a group of six privately held industrial companies.
Edgar G. Hotard 55 Former President, Chief Operating Officer and 1995
Director (1992 - 1998) of Praxair, Inc., an
industrial gases supplier and supplier of metal
and ceramic coatings and powders. Director of
Iwatani Industrial Gases, Inc., Osaka, Japan
and Dexter Corporation.
Jack E. McGregor 64 Chairman of the Board (1995-October 1996), 1987
Partner, Bridgeport Waterfront Investors, LLC,
and Of Counsel, Cohen & Wolf, P.C., a law firm,
(since October 1995). President and Chief
Executive Officer (January 1990-October 1995)
of the Company. Director of Bay State Gas
Company and People's Bank.
3
Stock Ownership of Directors and Officers
The following table sets forth the number of shares of Common Stock of the
Company beneficially owned, directly or indirectly, by each director, by each of
the four most highly compensated executive officers, and by all directors and
executive officers as a group, as of February 26, 1999:
Name of Individual or Shares Beneficially Owned Percent of
Number of Persons in Group Directly or Indirectly(1)(2)(3)(4) Class (5)
====================================================================================
George W. Edwards, Jr. 1,500.00 *
- ------------------------------------------------------------------------------------
Geoffrey Etherington 7,160.00 *
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Janet D. Greenwood 200.00 *
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Donald M. Halsted, Jr. 5,902.00 *
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Edgar G. Hotard 514.22 *
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Jack E. McGregor 130,421.23 1.7
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G. Jackson Ratcliffe 4,563.20 *
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Richard K. Schmidt 126,329.33 1.6
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John A. Urquhart 500.00 *
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Larry L. Bingaman 37,348.64 *
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Janet M. Hansen 67,830.53 *
- ------------------------------------------------------------------------------------
James S. McInerney 82,646.49 1.1
- ------------------------------------------------------------------------------------
Directors and Officers as a group 464,915.64 5.8
====================================================================================
4
(1) Based on reports furnished by the directors and officers. The shares
include, in some instances, shares held by the immediate families of
directors and officers or entities controlled by directors and officers,
the reporting of which is not to be construed as an admission of beneficial
ownership. The number of shares includes options to purchase shares that
may be acquired within 60 days through the exercise of stock options under
the Company's stock option plan as follows: Jack E. McGregor, 123,500
shares; Richard K. Schmidt, 124,498 shares; Larry L. Bingaman, 36,248
shares; Janet M. Hansen, 64,251 shares; James S. McInerney, 80,750 shares;
and, directors and executive officers as a group, 429,247 shares. See
"Compensation of Directors and Executive Officers" below.
(2) Each of the directors and officers included in the foregoing table has sole
voting and investment power as to the shares of Common Stock beneficially
owned, directly or indirectly, by him or her, except for the following: (i)
as to which such powers are shared, 1,100.64 shares with respect to Mr.
Bingaman; 1,198.79 shares with respect to Mrs. Hansen; and 337.51 shares
with respect to Mr. Schmidt; (ii) as to which such powers are held by other
people or entities, 1,018.43 shares with respect to Mr. Etherington; 4,734
shares with respect to Mr. McGregor; 125 shares with respect to Mr.
McInerney; and, (iii) as to which there are restrictions as to the
disposition of shares, 334 shares with respect to Mr. McInerney.
(3) Does not include share units, each representing one share of Common Stock
credited to and held under the Company's deferred compensation program for
directors who are not employees of the Company, as discussed below under
"Compensation of Directors." As of March 1, 1999, the following stock
units have been credited under the deferred compensation program: Mr.
Edwards, 147.33 units; Mr. Etherington, 24,677.22 units; Dr. Greenwood,
761.08 units; Mr. Halsted, 147.33 units; Mr. Hotard, 761.08 units; Mr.
McGregor, 194.43 units; Mr. Ratcliffe, 761.08 units; and, Mr. Urquhart,
761.08 units.
(4) Additional shares as a result of the 3 for 2 stock split effective March
22, 1999, are not reflected.
(5) Asterisk denotes percentage of beneficial stock ownership less than one
percent of the outstanding Common Stock of the Company.
Board of Directors Meetings
The Board of Directors held seven meetings during 1998. No director
attended fewer than 78 percent of the Board meetings and meetings of those
committees of which he or she was a member during 1998.
Committees of the Board
The Board of Directors has four standing committees: an Audit Committee, a
Compensation Committee, an Environmental and Public Affairs Committee, and a
Finance Committee. All members of the Committees are non-employee directors.
The Board does not have a standing Nominating Committee, as this function is
handled by the full Board. Shareholders desiring to recommend directors for
election at the Year 2000 Annual Meeting, must communicate with the Secretary of
the Company by January 20, 2000.
Audit Committee
The membership of the Audit Committee consisted of Messrs. Hotard,
Etherington, Halsted and Dr. Greenwood. The Committee met three times during
1998, each time with representatives of PricewaterhouseCoopers LLP, the
Company's public accountants, present. The functions of the Audit Committee are
to recommend the selection of auditors to the Company's Board of Directors;
review the scope of the annual audit; consider specific problems and questions
that may arise in the course of the audit; monitor the adequacy of accounting
and auditing controls; and, report to the Board of Directors with respect to
these matters.
5
Compensation Committee
The membership of the Compensation Committee consisted of Messrs.
Ratcliffe, Edwards, Halsted and Urquhart. The Committee met two times in 1998.
The functions of the Committee are to formulate executive compensation policy of
the Company; to consult with management with respect thereto and to present
recommendations relating thereto to the Board of Directors; to administer the
Company's incentive compensation plans; to formulate Company management
succession plans; and, to advise the Board of Directors on such matters as the
composition of the Board of Directors and its Committees.
Environmental and Public Affairs Committee
The membership of the Environmental and Public Affairs Committee consisted
of Dr. Greenwood, and Messrs. Edwards, Hotard, and McGregor. The Committee met
twice in 1998. The functions of the Committee are to oversee the Company's
policies, practices and procedures as to compliance with environmental laws and
regulations; to assist management in formulating plans and programs to develop
and enhance public understanding of the Company; to monitor compliance by the
Company and its personnel with laws and regulations relating to lobbying and the
political process; and, to oversee the Company's community relations programs
and approving the Company's annual contributions budget.
Finance Committee
The membership of the Finance Committee consisted of Messrs. Urquhart,
Etherington, McGregor, and Ratcliffe. The Committee met three times during
1998. The functions of the Finance Committee are to administer the Trust Fund
of the Company's retirement plans; to review and monitor the financial planning
and financial structure of the Company; and, to render advice, counsel and
assistance to the corporate financial officer in the execution of her
responsibilities.
Compensation of Directors
Each director who is not an employee of the Company receives an annual
retainer plus $750 for each Board meeting and Committee meeting attended. In
1999, the annual retainer was increased from $15,000 to $20,000, with the $5,000
increase to be paid to Directors in the form of an automatic allocation to the
Director's stock unit account of the Directors' Deferred Compensation Plan.
Committee chairmen are paid an additional annual retainer of $3,000. Directors
who are employed by the Company receive no additional compensation for their
services as directors of the Company. Pursuant to the Directors' Deferred
Compensation Plan, any outside director may defer payment of all or part of his
or her annual retainer and meeting fees in cash or stock units. Interest
equivalents on payments deferred in the form of cash (and on previously credited
interest) accrue quarterly at the then prevailing prime rate. Dividend
equivalents are paid on the stock units and are converted into additional stock
units. The deferred amounts plus interest will be paid to such a director
beginning with the calendar year following the termination of his or her service
as a director, in either a lump sum or in any number of equal installments as
the director elects. Amounts credited to a director's stock unit account shall
be paid in the form of one share of Common Stock for each stock unit.
The Company has a directors' retirement plan related to service as a non-
employee director. After five years of such service, a director earns an annual
retirement benefit equal to 50 percent of the amount of the annual retainer (the
"Annual Retainer") in effect at the time of the director's retirement . The
amount of the retirement benefit earned by a non-employee director increases for
each year of service thereafter by an amount equal to ten percent of the Annual
Retainer in effect upon the cessation of such director's service on the Board
until the director has earned, after ten years of non-employee Board service,
an annual retirement benefit equal to the full amount of the Annual Retainer.
As a result of the $5,000 increase in the annual retainer in 1999, the Board
increased the annual retirement benefit from a maximum of $15,000 to a maximum
of $20,000 for active directors who retire after March 1, 1999. The Board may
from time to time adjust the amount of the annual benefit currently paid to
retired directors. An annual retirement benefit not to exceed $20,000, subject
to Board adjustment, is also payable in the event of death or permanent and
total disability after five years as a non-employee director or upon termination
as a director in the event of a change in control of the Company. The benefit
is payable for the lifetime of the director and thereafter to the director's
6
designated beneficiary, to the extent that the director did not receive
retirement benefits for a period at least equal to his or her years of credited
service as a non-employee director. Except for death, disability or a change in
control of the Company, retirement benefits under the plan do not become payable
until age 65 or the later cessation of Board service. Such benefits are
unfunded.
Directors are covered under the Company's group health insurance plans as a
supplement to such insurance as may be applicable to the directors from other
sources except Mr. Edwards, whose primary coverage, effective February 1, 1998,
is the Company's group health insurance plans. In 1998, group health insurance
benefits provided to Dr. Greenwood and Messrs. Edwards, Etherington, Halsted,
and Urquhart amounted to $146, $930, $44, $730, and $383, respectively.
In addition to the annual retainer, Mr. Edwards also receives an annual
cash payment of $50,000 in his capacity as Chairman of the Board.
7
EXECUTIVE COMPENSATION
The following table presents the compensation provided by the Company to
its Chief Executive Officer and the Company's three most highly compensated
executive officers for services rendered to the Company in 1996, 1997 and 1998:
SUMMARY COMPENSATION TABLE
==============================================================================================
Long-Term
Compensation
----------------------------------
Annual Compensation Awards
---------------------------------------------------------------------
Restricted All
Other Stock Securities Other
Annual Awards Underlying Comp.
Year Salary Bonus Comp. (1) Options (2)
($) ($) ($) ($) (#) ($)
==============================================================================================
1998 246,250 154,000 40,000 15,581
R. K. Schmidt ---------------------------------------------------------------------
President and Chief 1997 233,750 100,000 40,000 14,377
Executive Officer ---------------------------------------------------------------------
1996 215,000 77,400 40,000 10,539
==============================================================================================
J. S. McInerney
Senior Vice 1998 188,750 84,000 20,000 11,366
President, Utilities ---------------------------------------------------------------------
Group; President 1997 182,500 63,825 20,000 8,993
and CEO, BHC ---------------------------------------------------------------------
Company 1996 175,000 44,100 20,000 10,215
==============================================================================================
J. M. Hansen 1998 163,750 73,500 20,000 9,853
Executive Vice ---------------------------------------------------------------------
President, CFO and 1997 157,500 55,200 20,000 8,910
Treasurer ---------------------------------------------------------------------
1996 150,000 40,500 20,000 8,555
==============================================================================================
L. L. Bingaman 1998 125,000 35,100 7,500 6,919
Vice President, ---------------------------------------------------------------------
Corporate Relations 1997 119,750 28,750 5,000 6,399
and Secretary ---------------------------------------------------------------------
1996 117,000 21,240 5,000 6,179
==============================================================================================
(1) The number and dollar value of shares of previously granted restricted
stock held on December 31, 1998, based on a closing price of the Company's
Common Stock on December 31, 1998, was: J. S. McInerney--334 shares
($13,694). Dividends are payable on these shares.
(2) The amounts shown for named officers represent the Company's contribution
to The Employee Savings and Investment Plan accounts for such officers.
8
Stock Options
The following table sets forth information with respect to all options
granted to the named executive officers during 1998.
Options Grants in Last Fiscal Year
=============================================================================================
Individual Grants
---------------------------------------------------------
Number
of % of Total
Securities Options
Underlying Granted to Exercise Grant Date
Options Employees or Base Present
Granted in FY Price Expiration Value
Name (#) 1998 ($/Sh) Date ($) (1)
=============================================================================================
R. K. Schmidt (2) 40,000 25% $37.750 12/14/08 $268,000
- ---------------------------------------------------------------------------------------------
J. S. McInerney (2) 20,000 13% $37.750 12/14/08 $134,000
- ---------------------------------------------------------------------------------------------
J. M. Hansen (2) 20,000 13% $37.750 12/14/08 $134,000
- ---------------------------------------------------------------------------------------------
L. L. Bingaman (2) 7,500 5% $37.750 12/14/08 $ 50,250
=============================================================================================
(1) The Black-Scholes option pricing model was used to estimate the options'
grant date present value. Assumptions for options granted are as follows:
24% volatility; risk free rate of return of 4.46% based on six-year U.S.
Treasury securities; dividend yield of 4.4%, and an estimated period to
exercise of 6 years.
(2) One-third of the stock options granted to the named executive become
exercisable on each of the first three anniversaries of the grant date, but
may be exercised earlier if there is a change in control of the Company as
defined under "Employment Contracts and Termination and Change-in-Control
Arrangements" below. The Company has not granted Stock Appreciation
Rights.
9
The following table sets forth the aggregated 1998 year-end option values.
During 1998, 12,500 options were exercised by the named executive officer.
Aggregated Option Exercises in 1998 and 1998 Fiscal Year-End Option Values
===================================================================================================
Number of
Securities
Underlying
Shares Unexercised Value of Unexercised
Acquired on Value Options at FY-End In-The-Money Options at
Exercise (#) Realized ($) (#) FY-Year End ($) (1)
------------------------------------------------------------------------------
Exercisable/
Name Unexercisable Exercisable/Unexercisable
- ---------------------------------------------------------------------------------------------------
R. K. Schmidt -- -- 124,499/80,001 2,045,049/610,014
- ---------------------------------------------------------------------------------------------------
J. S. McInerney 12,500 99,064 80,749/40,001 1,332,394/305,012
- ---------------------------------------------------------------------------------------------------
J. M. Hansen -- -- 64,251/39,999 1,040,858/304,986
- ---------------------------------------------------------------------------------------------------
L. L. Bingaman -- -- 36,249/12,501 569,583/84,387
===================================================================================================
(1) Market value of underlying securities at year-end, minus the exercise or
base price.
Retirement Program
Under the Company's qualified retirement plan (the "Pension Plan") and the
Supplemental Benefit Plan (the "Supplemental Plan") for certain key executives,
an eligible employee will receive a benefit at retirement that is based upon the
employee's number of years of credited service and average pensionable
compensation (salary in case of the Pension Plan and salary plus annual bonus in
case of the Supplemental Plan, in each case for the named executive officers as
set forth in the Summary Compensation Table) during the highest five consecutive
years of the employee's final ten years of service. The benefits under the
Supplemental Plan are not subject to the Internal Revenue Code provisions that
limit benefits under the Pension Plan. For a single employee, the normal form
of benefit is a straight life annuity option and for a married employee the
normal form of benefit is the 50 percent joint and survivor annuity option.
As of December 31, 1998, the years of credited service are 14 years (after
giving effect to Mr. Schmidt's employment agreement described below) for Mr.
Schmidt; for Mr. McInerney, 28 years; Mrs. Hansen, 23 years; and Mr. Bingaman, 9
years. Pursuant to Mr. Schmidt's employment agreement dated July 1, 1997,
described under the caption "Employment Contracts, Termination and Change-in-
Control Arrangements," years of service considered eligible under the
Supplemental Plan include his service with the former Aquarion Company
subsidiary, Industrial & Environmental Analysts, Inc. ("IEA, Inc."), for
eligibility, vesting and benefit purposes. In addition, Mr. Schmidt's
employment agreement doubles his credited years of service for the purposes of
the Supplemental Plan. The following table illustrates for representative
average annual pensionable compensation and years of credited service the annual
retirement benefit payable to employees under the Plans upon retirement in 1999
at age 65 based on the straight life annuity form of benefit.
10
Pension Plan Table
===========================================================================
Five-Year Average Years of Credited Service
Compensation Recognized -------------------------------------------------
Under the Plan 10 15 20 25 30
- ---------------------------------------------------------------------------
$150,000 $24,693 $ 37,039 $ 49,386 $ 61,732 $ 74,079
- ---------------------------------------------------------------------------
$210,000 $35,858 $ 53,787 $ 71,716 $ 89,645 $107,574
- ---------------------------------------------------------------------------
$270,000 $47,023 $ 70,534 $ 94,046 $117,557 $141,069
- ---------------------------------------------------------------------------
$330,000 $58,188 $ 87,282 $116,376 $145,470 $174,564
- ---------------------------------------------------------------------------
$390,000 $69,353 $104,029 $138,706 $173,382 $208,059
- ---------------------------------------------------------------------------
$450,000 $80,518 $120,777 $161,036 $201,295 $241,554
==========================================================================
Employment Contracts, Termination and Change-in-Control Arrangements
Messrs. Schmidt, McInerney, Bingaman and Mrs. Hansen each have an
employment agreement with the Company. Mr. Schmidt's agreement, dated July 1,
1997, and the agreements with Messrs. McInerney, Bingaman and Mrs. Hansen, each
have a term of two years and are extended monthly for an additional month unless
either the Company or the employee elects otherwise, in which event the
agreement would expire at the end of the then remaining two-year term. Each
agreement provides for the payment of a minimum base salary which is subject to
increase by the Board in accordance with the Company's customary compensation
practice and for participation by the employee in the Company's benefit plans
and programs. The annual base salaries, effective October 1, 1998, for Messrs.
Schmidt, McInerney and Mrs. Hansen are $265,000, $200,000 and $175,000,
respectively. The annual base salary for Mr. Bingaman, effective April 1, 1999,
is $135,000.
In the event of either a material lessening of the employee's
responsibilities during the term of the agreement, or assignment or reassignment
to another geographic area, or in the case of Messrs. McInerney, Bingaman and
Mrs. Hansen, liquidation, dissolution, consolidation, acquisition or merger of
the Company (except by a successor corporation of at least equal net worth which
assumes the agreement) or a reduction in compensation and benefits, the
agreement may be terminated and certain benefits would be provided to the
employee. In the case of Mr. Schmidt, the agreement may be terminated and
benefits provided if (i) any person or group acquires 20% of the Company's
outstanding voting shares; (ii) less than a majority of the Company's Board of
Directors are directors who were in office on the date of the agreement
("Incumbent Directors") or who were recommended or elected by a majority of
Incumbent Directors otherwise than as a result of a proxy contest; (iii)
consummation, with certain exceptions, of a reorganization, merger or
consolidation or disposition of substantially all of the assets of the Company;
or, (iv) approval by the shareholders of a liquidation or dissolution of the
Company. Mr. Schmidt's benefits may be paid in either a lump sum or in
installments but will be paid in a lump sum in the event of termination of the
agreement as a result of any of the foregoing change in control events. The
benefits provided under the respective agreements would essentially compensate
the employee for the salary (subject, in Mr. Schmidt's case, to a limit of 2
times his annual salary, as to Mr. McInerney and Mrs. Hansen, to a limit of 1.5
times such person's annual salary and in Mr. Bingaman's case, the amount of his
annual salary), benefits, including the Company's share of contributions which
would have been made on behalf of the employee to the Company's Employee Savings
and Investment Plan (and the related Supplemental Benefit Plan) and pension
rights he or she would have had for the remainder of the primary term of the
agreement. In addition, Mr. Schmidt's contract provides for a lump sum cash
payment equal to the average incentive award earned in accordance with the
provisions of the Company's annual incentive plan over the two calendar years
immediately preceding his termination. As stated under the captioned "Retirement
Program," Mr. Schmidt's employment agreement recognizes his years of service
with IEA, Inc. for eligibility, vesting and benefit purposes under the
Supplemental Benefit Plan and doubles his credited services for purposes of this
plan. At salary levels effective October 1, 1998, the maximum termination
benefits relating to the salaries of Messrs. Schmidt, McInerney, and Mrs. Hansen
would be $530,000, $300,000, and $262,500, respectively; Mr. Bingaman's maximum
termination benefit relating to his salary at April 1, 1999, would be $135,000.
Coverage under the Company's health and welfare benefit plans would be extended
to these individuals for a period of 24 months after termination under the
circumstances previously described.
11
Unvested options would become exercisable in the event of a change in
control of the Company and, to the extent exercisable, the optionee would have a
limited right to receive cash in lieu of exercising their options. Under the
Company's existing option plan, a change in control shall be deemed to have
occurred in the following circumstances unless the event in question has been
approved in advance by the continuing directors: (i) the acquisition by any
person or group of 15 percent of the Company's outstanding shares; (ii) the
purchase of the Company's outstanding shares under a tender offer or exchange
offer; (iii) less than two-thirds of the Company's Board of Directors are
continuing directors; or, (iv) approval of the shareholders of a merger,
consolidation, liquidation or dissolution of the Company or the sale of its
assets. Continuing directors shall mean members of the Board on the date the
option plan in question was adopted or who were recommended or elected to the
Board by a majority of continuing directors. As discussed below, the proposed
1999 Stock Incentive Plan would use a different definition of what constitutes a
change in control.
BOARD OF DIRECTORS COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
Executive Compensation Philosophy
The objectives of Aquarion's executive compensation program are to link
executive compensation with creation of customer and shareholder value, to
attract and to retain qualified executives, and to produce strong financial
performance for the benefit of our shareholders while providing a high level of
service and value for our customers. In order to meet these objectives, the
compensation program is designed to be competitive with compensation programs
provided by comparable businesses. For the water utility business, the
comparison group consists of water and other utilities (the "utility comparison
group") with comparable revenues as maintained in various databases, including
the companies in the Edward Jones water utility group displayed on the
performance graph. For the non-utility business, the comparison group consists
of companies with comparable revenues and lines of business as maintained in
various other databases.
Executive Compensation Program
Each year, the Compensation Committee, which is comprised entirely of
outside directors, recommends to the Board of Directors compensation
arrangements for officers, including the salary structure and salary grade
assignments, individual salaries, annual and long-term incentive plan awards,
performance standards for new awards, payouts from past awards, and the overall
design of the executive compensation program.
Aquarion's executive compensation program in 1998 consisted of three
components: salary, annual incentive compensation and stock options.
The primary comparison for CEO compensation is the utility comparison group
of 12 investor-owned water utilities to which Aquarion compares its business
performance. When performance standards are met, the total compensation for the
CEO will position him above the median of this comparison group.
Salary ranges are set by periodic comparison to rates of pay for comparable
positions within the utility industry for corporate and utility positions and
the non-utility industries for non-utility positions. Individual salaries are
generally considered for adjustment based on external salary levels, individual
performance and potential, and/or changes in duties and responsibilities. Based
on salary data compiled by outside consultants, officer salaries approximate the
median of the salaries reported for comparable positions.
Annual incentive compensation opportunities are targeted such that at
targeted performance levels, salary plus annual incentive awards for corporate
and water utility positions will be between the 50th and 75th percentile of
companies within the utility industry, and for non-utility positions, at or near
the 50th percentile within non-utility industries. Annual objectives are
established, subject to Compensation Committee approval, for corporate,
operating company and individual performance. Customer service performance is a
criterion for every executive with earnings per share being the criterion for
corporate performance and pre-tax profit being the criterion for operating
company performance. The Chief Executive Officer's targeted award is based
12
on corporate performance and customer service, while other officers' targets are
allocated among customer service, corporate operating company performance and
individual objectives, as appropriate. Targeted award levels also vary according
to magnitude of responsibility, with incentive compensation constituting a
potentially greater portion of the Chief Executive Officer's total annual
compensation than it does for other officers.
The Company's performance in 1998 is largely attributable to favorable
operating results at its primary water utility subsidiary, BHC Company,
including a $6.7 million nonrecurring land sale of the "Shelton Lakes" parcel to
the city of Shelton. Net income was $20.0 million, or $2.69 per share, versus
$15.0 million, or $2.10 per share in 1997. The financial achievements were
coupled with a number of awards received by BHC Company, including, among
others, the Environmental Success Award of Commendation by the Connecticut
Business & Industry Association for Earth Day events, the NAWC Management
Innovation Award for the "Diversity in Action" Committee, the Diamond Award for
Engineering Execellence from the New York Association of Consulting Engineers
for the construction of the William S. Warner Treatment Facility in Fairfield,
Conn., the EPA Consumer Awareness Award for excellence in customer
communications, and the Women's Leadership Council of the Bridgeport Regional
Business Council Insight Award in recognition of the Company's exemplary
encouragement and inclusion of women in positions of leadership. The Committee
adjusted upwards incentive compensation awards for six officers, including the
officers named in the Summary Compensation Table, to reflect the significant
land sale results which were excluded from its calculation of financial targets
for 1998.
Award opportunities under the stock option plan are targeted between 50th
and 75th percentile utility industry levels for the corporate and utility
positions and at the 50th percentile of general industry levels for non-utility
positions (which levels are reflected in databases maintained by the Company's
compensation consultants). The use of stock options is intended to encourage
stock ownership by management and to further assure alignment of management's
compensation with shareholder return. Option awards are determined each year
based on the expected present value of long-term incentives, and are made
independent of an executive's balance of unexercised options.
Under Section 162 (m) of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to publicly held corporations, federal income tax
deductions for compensation in excess of $1 million paid in a taxable year to
any of its named executive officers are denied, except in specified
circumstances. The Company does not anticipate that any of its executives will
exceed this limit on deductible compensation.
CEO Compensation - 1998
Based on the advice of professional consultants independently employed by
the Committee and coupled with its members' individual business judgments, the
Compensation Committee reviewed and approved the level and form of compensation
for the Chief Executive Officer in 1998.
Mr. Schmidt's base salary as CEO of Aquarion is positioned below the median
among chief executives within the utility comparison group. The Committee
recommended a 1998 annual incentive award of $154,000, based on performance
factors described above. Due to the outstanding corporate performance, when
incentive compensation is considered, this positions his total cash above the
median of the comparison group. Mr. Schmidt also received a stock option grant
in 1998 of 40,000 options. The grant is exercisable at a price equal to the
market price of the stock on the date of grant.
Compensation Committee
G. Jackson Ratcliffe, Chairman
George W. Edwards, Jr.
Donald M. Halsted, Jr.
John A. Urquhart
13
Shareholder Return Presentation
The following performance graph compares the yearly percentage change in
the Company's cumulative total shareholder return on its Common Stock with the
cumulative total return on the S&P 500 Index and the Edward Jones Water Utility
Industry Return Comparison, which includes the Company, for the five years
commencing 1994 and ended 1998. The Edward Jones Utility Industry peer group
provides a broad array of companies that are similar to Aquarion's market
capitalization.
The Peer Group consists of American Water Works Company, Inc., Aquarion
Company, American States Water Company, California Water Service Group,
Connecticut Water Service, Inc., Consumers Water Company, Dominguez Services
Corp., E'Town Corp., Middlesex Water Company, Philadelphia Suburban Corporation,
SJW Corp., Southwest Water Company and United Water Resources.
Five Year Cumulative Total Return - S&P 500,
Water Utility Industry, and Aquarion
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Water Utility
Industry Aquarion S&P 500
- -----------------------------------------------------
12/93 100 100 100
12/94 91 90 101.3
12/95 109.9 102.4 139.4
12/96 138.2 119.4 171.4
12/97 187 157.2 228.5
12/98 234 195.8 293.8
- -----------------------------------------------------
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected PricewaterhouseCoopers
LLP, 300 Atlantic Street, Stamford, Connecticut 06904, as its independent public
accountants for 1999. In accordance with a resolution of the Board of Directors,
this selection is being presented to shareholders for ratification at the Annual
Meeting.
The predecessor firm of PricewaterhouseCoopers LLP, Price Waterhouse, has
audited the financial statements of the Company annually since 1931. The Company
has been advised that representatives of PricewaterhouseCoopers LLP will be
present at the meeting with the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
If the appointment of PricewaterhouseCoopers LLP is not approved by the
shareholders, or Price-waterhouseCoopers LLP ceases to act as the Company's
independent accountants, or the Board of Directors removes
PricewaterhouseCoopers LLP as the Company's independent accountants, the Board
will appoint other independent accountants. The engagement of new accountants
for periods ending after the Year 2000 Annual Meeting will be subject to
ratification by the shareholders at the Year 2000 meeting.
The Board of Directors recommends a Vote "FOR" ratification of the
selection of PricewaterhouseCoopers LLP as the Company's independent public
accountants.
14
PROPOSAL NO. 3
1999 STOCK INCENTIVE PLAN
The Board of Directors has approved, and recommends to shareholders the
approval of, the Aquarion Company 1999 Stock Incentive Plan (the "Incentive
Plan"), which is set forth as Exhibit A to this Proxy Statement. The Incentive
Plan is substantially identical to the Plan in effect since 1994 and approved by
the stockholders at the 1994 Annual Meeting, except for certain changes
including a revised definition of Change In Control. The existing plan expires
by its term in April 1999. The Board believes that the Incentive Plan will
enable the Company to retain present key executives and to attract new key
executives. The Incentive Plan will be administered by the Compensation
Committee (the "Committee"). If the Incentive Plan is approved by the
shareholders at the Annual Meeting, it will be effective as of April 20, 1999.
The following description of the Incentive Plan is qualified in its entirety by
reference to Exhibit A.
Types of Awards Generally
The Incentive Plan provides for the grant of incentive stock options
qualified under Section 422 of the Code, non-qualified stock options, stock
appreciation rights, restricted stock and performance units (collectively,
"Awards"), but no more than an aggregate of 750,000 shares of Common Stock of
the Company, no par value ("Stock") (without adjustment for the 3 for 2 stock
split payable on March 22, 1999, but subject to adjustment in the event of
future stock splits or other changes in the Stock as provided in Section 16 of
the Incentive Plan), may be awarded under the Incentive Plan or purchased upon
the exercise of such options. The value of one share of the Company's Common
Stock, as quoted on the New York Stock Exchange at the close of trading on March
11, 1999 was $34 per share. In addition, the number of shares of Stock which
may be issued under options or stock appreciation rights granted under the
Incentive Plan to any one individual in any fiscal year shall not exceed
100,000. Certain key employees or groups of key employees designated by the
Committee from time to time are eligible to receive Awards under the Incentive
Plan. The number of individuals presently deemed by the Committee as eligible
to receive Awards in 1999 is approximately 30. Shares subject to options or
stock appreciation rights which are cancelled, forfeited or expire unexercised,
or shares subject to stock appreciation rights payable in Stock which are paid
in cash shall again become available for award under the Incentive Plan.
At the discretion of the Committee, payment of Awards (except for Awards of
restricted stock) may be in restricted or unrestricted shares of Stock, and
stock appreciation rights and performance units also may be paid in cash. No
Awards will be granted after April 20, 2004. Each Award will be evidenced by an
agreement incorporating its terms and conditions (an "Award Agreement").
Options
Incentive stock options and stock appreciation rights under the Incentive
Plan must expire ten years or less after their grant; non-qualified stock
options will expire no later than ten years and one day after their grant. The
aggregate fair market value (as determined on the date of grant) for which any
key employee may be granted incentive stock options which are exercisable for
the first time in any plan year shall not exceed $100,000. Options and stock
appreciation rights granted under the Incentive Plan shall be exercisable as
determined by the Committee. The exercise price for options and the base amount
to determine the subsequent value of a stock appreciation right, must be at
least equal to the fair market value (but in no event less than the par or
stated value, if any) of the Stock on the date of grant. The exercise price for
options may be paid to the Company, at the discretion of the Committee, in cash
or shares of Stock or a combination thereof at the time of exercise unless the
Committee extends a loan to an employee for all or a portion of the option
price.
Except as may be otherwise provided in an Award Agreement, during the
lifetime of an employee, an option or stock appreciation right may be exercised
only by him or her and, in the case of incentive stock options, no later than
three months after his or her termination of employment (twelve months if due to
death or disability). For all other options and stock appreciation rights, the
period of exercisability following a termination (to the extent options or
rights are exercisable at such time, unless provided otherwise) shall be as
follows: (i) if the termination occurs for any reason other than death,
retirement with consent of the Company or by reason of total disability (as
defined in the Plan), such option or right may be exercised on the
15
earlier of three months from the date of termination or the end of the exercise
period specified in the option or right; (ii) if the termination occurs due to
retirement with the consent of the Company, the installments of such option or
right shall continue to mature in the normal course as otherwise provided in the
option or right and shall be exercisable (by the participant or his or her
beneficiary, as the case may be) until the later of three years after the date
of such retirement or in the event that death occurs during such three-year
period, twelve months after death; (iii) if the termination occurs due to total
disability, the options or rights shall be exercisable until the later of twelve
months after the date of such retirement or in the event that death occurs
during such twelve-month period, twelve months after death; or (iv) if the
termination occurs due to death, any option or right shall be immediately
exercisable by the participant's estate or the person who acquires the option or
right by will or intestate succession until the earlier of one year from the
date of such death or the end of the exercise period specified in the option or
right. In no event may post-termination exercise be later than the expiration of
the exercise period for the option or stock appreciation right.
Performance Units
Performance units under the Incentive Plan are contingent rights to receive
future payments. The amount paid, which may be subject to a prescribed maximum,
will be based on actual performance over a period from two to five years
measured against performance objectives established in advance by the Committee
using such criteria as it deems appropriate, including earnings per share and
return on equity. In the event an employee terminates employment during such a
performance period, the employee will not be entitled to any payment unless the
Committee, in its sole discretion, provides otherwise. However, in the case of
retirement, total disability, death, or in cases of special circumstances, as
determined by the Committee, the employee may be entitled to an Award prorated
for the portion of the performance period during which the recipient was
employed by the Company.
Restricted Stock
Restricted stock awarded under the Incentive Plan or issued in connection
with another Award granted under the Plan shall be issued subject to a
restricted period set by the Committee during which time the shares may not be
sold, transferred, assigned or pledged. The Committee may provide for the lapse
of restrictions in installments where deemed appropriate. The recipient, as
owner of the awarded shares, shall have all other rights of a shareholder,
including the right to vote the shares and receive dividends and other
distributions during the restriction period. In the event an employee
terminates employment, all such shares still subject to restrictions will be
forfeited by the employee and reacquired by the Company unless the Committee, in
its discretion, determines otherwise. However, in the case of retirement, total
disability,death, or in cases of special circumstances, as determined by the
Committee, all remaining restrictions are waived.
Unrestricted Stock
The Incentive Plan also permits the Committee, in its sole and absolute
discretion, to make Awards in the form of shares of Stock which are not
restricted in the hands of the participants who receive such Awards. Such
Awards may be made either in connection with any annual or longer term bonus
program sponsored by the Company or an affiliate or in any other circumstances
that the Committee deems appropriate.
Change of Control
The Committee, in its discretion, may provide under the terms of any Award
Agreement that upon the occurrence of a Change of Control (as defined below),
all outstanding options and stock appreciation rights which are not then
exercisable shall become immediately exercisable in full and all restricted
stock shall become immediately vested. Each option shall, to the extent
exercisable, have a limited right allowing the optionee to surrender that option
within the 30-day period following a Change of Control and to receive cash, in
lieu of exercising the option, in the amount by which the highest fair market
value (as defined in the Incentive Plan) of the number of shares of Stock
covered by the option during the 60 days preceding the date on which the Change
of Control occurs exceeds the option price for the shares covered by the option.
16
For purposes of the preceding paragraph, a Change of Control means any of
the following: (i) certain acquisitions by any individual, entity, or group of
beneficial ownership of 20 percent or more of either (a) the then outstanding
shares of the common stock of the Company or (b) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors; (ii) subject to certain conditions, individuals
who, as of the date of the Incentive Plan, constitute the Board cease to
constitute at least a majority of the Board; (iii) consummation of a
reorganization, merger, or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of assets of
another corporation unless certain conditions regarding ownership of the Company
and membership of the Board of Directors following such transaction are met;
and, (iv) approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
Plan Administration
If the Incentive Plan is approved by the shareholders, the Committee, none
of whose members may receive any Award under the Plan, will administer the Plan,
including, but not limited to, the designation of those employees who shall
receive Awards, the number of shares to be covered by options, stock
appreciation rights and restricted stock awards, the exercise price and other
terms of options, the base amount to determine the subsequent value of a stock
appreciation right and other terms of stock appreciation rights, the number of
performance units to be granted and the performance objectives and amounts of
contingent payments for such units. The Committee also has the discretion to
grant supplemental cash payments or provide for loans in connection with the
grant of an Award. Further, the Committee may specify additional terms and
conditions which may be placed upon receiving an Award and the Committee's
decisions in the administration of the Plan shall be binding on all persons for
all purposes.
Federal Income Tax Consequences of Awards
The following describes the general federal income tax consequences of the
various Awards. An employee will not realize any income at the time an
incentive stock option is granted nor upon the exercise of an incentive stock
option. Upon the disposition of shares of Stock acquired by the exercise of an
incentive stock option more than (i) two years after the incentive stock option
is granted and (ii) one year after the transfer of shares of Stock upon the
exercise of such option, the employee's basis for determining the long-term
capital gain or loss realized upon such disposition will be the option price and
such employee will be entitled to a long term gain or loss based on the
difference between the option price and the amount realized upon such
disposition. However, if the disposition occurs before these special holding
requirements are met (a "disqualifying disposition"), the employee will
recognize ordinary income upon such disposition equal to the excess of the fair
market value of the shares on the date either the option was exercised or the
shares were disposed of, whichever is less, over the optionee's basis in the
shares. The Company will receive no deduction with respect to incentive stock
options unless a disqualifying disposition occurs, in which case the Company may
deduct the amount included in an employee's income in the applicable year.
An employee will not realize any income at the time a non-qualified stock
option or stock appreciation right is granted. Upon the employee's exercise of
a non-qualified stock option, the difference between the fair market value of
the Stock at the time of exercise and the option price will be ordinary income
to the employee and can be deducted at such time by the Company.
The amount of cash and the fair market value of the Stock received upon an
employee's exercise of a stock appreciation right or in payment of a performance
unit or otherwise, will be ordinary income to the employee at the time of
exercise or payment. However, any employee who receives restricted stock,
either as an Award or upon exercise of an option or a stock appreciation right
or in payment of a performance unit, will realize as ordinary income at the time
of the lapse of the restrictions an amount equal to the fair market value of the
Stock at the time of such lapse (less the option price for such shares if
purchased by exercising an option) unless an appropriate election pursuant to
Section 83(b) of the Code is made. In such case, the employee will recognize
ordinary income as if the Stock had not been restricted. Unrestricted Stock
will be ordinary income to the employee at the time it is granted. Tax
consequences similar to those described above with respect to restricted stock
and Section 83 (b) election would apply to an Award subject to the restrictions
of Section 16(b) of the Exchange Act. At the time the employee realizes
ordinary income, the Company will be entitled to a deduction in the same amount
as the ordinary income realized by the employee.
17
Amendment or Termination
If the Incentive Plan is approved by the shareholders, the Board may at any
time, or from time to time, suspend or terminate the Incentive Plan in whole or
in part or amend it in such respects as the Board may deem appropriate.
Approval of proposal 3 will require the affirmative vote of the holders of
a majority of the Common Stock present or represented at the meeting provided
that a majority of the outstanding shares of the Common Stock votes on the
proposal. Abstentions will have the effect of votes in opposition to proposal
3, and broker non-votes will not have the effect of votes in opposition.
The Board of Directors recommends a vote "FOR" the approval of the proposed
Stock Incentive Plan.
ANNUAL REPORT
Beginning on or about March 16, 1999, the Company is mailing to its
shareholders of record copies of its Annual Report for the year ended December
31, 1998. Such Report is not a part of the proxy materials.
The Company will furnish to any beneficial owner of its Common Stock upon
written request, without charge, a copy of the Company's Annual Report on Form
10-K for 1998 filed with the Securities and Exchange Commission. Requests
should be addressed to Corporate Communications, Aquarion Company, 835 Main
Street, Bridgeport, Connecticut 06604.
SHAREHOLDER PROPOSALS FOR THE YEAR 2000 ANNUAL MEETING
Any proposal that a shareholder intends to present at the Year 2000 Annual
Meeting must be received at the Company's principal executive offices by
November 17, 1999, to be included in the proxy statement and form of proxy
relating to the meeting. In addition, under the SEC's proxy rules, if a
stockholder wishes to bring a proposal before the Year 2000 Annual Meeting
outside the proxy inclusion process but does not provide written notice of the
proposal to the Company on or before January 31, 2000, such notice will be
untimely and any proxies received by the Board of Directors from stockholders in
response to its proxy solicitation will be voted by the Company's designated
proxies in their discretion on such matter, regardless of whether specific
authority to vote on such matter has been received from the stockholders
submitting such proxies.
OTHER MATTERS
Other Business
Management knows of no other matters to be presented to the 1999 Annual
Meeting of Shareholders. If any additional matters should be properly presented,
it is the intention of the persons named in the proxy to vote with respect to
such matters in accordance with their best judgment.
By Order of the Board of Directors
Larry L. Bingaman
Secretary
18
EXHIBIT A
AQUARION COMPANY
1999 STOCK INCENTIVE PLAN
Effective as of April 20, 1999
1. Purpose
The purpose of the Aquarion Company 1999 Stock Incentive Plan is to attract
and retain persons of ability as employees of Aquarion Company and its
subsidiaries, motivate and reward good performance, encourage such
employees to continue to exert their best efforts on behalf of the Company
and its subsidiaries and provide further opportunities for stock ownership
by such employees in order to increase their proprietary interest in
Aquarion Company by providing incentive awards to Key Employees (including
officers and directors who are also employees), whose responsibilities and
decisions directly affect the performance of the Company and its
subsidiaries. Such incentive awards may consist of Common Stock of Aquarion
Company, or at the discretion of the Committee, other shares of stock of
the Company convertible into such Common Stock, subject to such
restrictions as the Committee may determine or as provided herein,
performance units or stock appreciation rights payable in such stock or
cash, or incentive or non-qualified stock options to purchase such stock,
or any combination of the foregoing, as the Committee may determine.
2. Definitions
When used herein, the following terms shall have the following meanings:
"Award" means an award granted to any Key Employee in accordance with the
provisions of the Plan in the form of Options, Rights, Restricted Stock,
Stock or Performance Units, or any combination of the foregoing.
"Award Agreement" means the written agreement evidencing each Award granted
to a Key Employee under the Plan.
"Beneficiary" means the beneficiary or beneficiaries designated pursuant to
Section 11 to receive the amount, if any, payable under the Plan upon the
death of a Key Employee.
"Board" means the Board of Directors of the Company.
"Change of Control" means the occurrence of any of the following events
shall be:
(a) the acquisition by any individual, entity, or group (within the meaning
of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of
1934, as amended (hereinafter referred to as the "Exchange Act"))
(hereinafter referred to as a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or
more of either (i) the then outstanding shares of common stock of the
Company (hereinafter referred to as the "Outstanding Company Common
Stock"), or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (hereinafter referred to as the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subparagraph
(a), the following acquisitions shall not constitute a Change of Control:
(i) any acquisition directly from the Company; (ii) any acquisition by the
Company; (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled
by the Company; or (iv) any acquisition by any corporation pursuant to a
transaction which complies with subparagraphs (i), (ii), and (iii) of
subparagraph (c) below;
(b) individuals who, as of the date of this Plan, constitute the Board
(hereinafter referred to as the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date of this Plan whose
election, or nomination for election by the Company's shareholders, was
approved by
A-1
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board;
(c) consummation of a reorganization, merger, or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
or the acquisition of assets of another corporation (hereinafter referred
to as a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 80 percent of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20 percent or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination, and (iii) at least a
majority of the members of the Board of Directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
(d) approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.)
"Committee" means the Compensation Committee of the Board.
"Company" means Aquarion Company, and its successors and assigns.
"Continuing Director" means any director of the Company who either is a
member of the Board of Directors on February 26, 1999, or is recommended or
elected to the Company's Board of Directors by a majority of the continuing
directors.
"Fair Market Value" means, as of any date, the closing price for one share
of Stock on the New York Stock Exchange Composite Tape or, if no sales of
Stock have taken place on such date, the closing price on the most recent
date on which selling prices were quoted. If the Stock is not listed or
admitted to trading on the New York Stock Exchange, the fair market value
of the Stock shall be the closing price of one share of Stock on the
principal national securities exchange which the Stock is listed or
admitted to trading, or, if the Stock is not listed or admitted to trading
on any national securities exchange, the closing price of one share of
Stock as furnished by the National Association of Securities Dealers, Inc.
through the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or similar organization if NASDAQ is no longer reporting
that information. If the Stock is not quoted by any such organization, the
fair market value of the Stock shall be determined in good faith by the
Committee, or in the event of a Change of Control, the continuing
directors.
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"Key Employee" means those employees (including any officer or director who
is also an employee) of any Participating Company who, in the judgment of
the Committee, are considered especially important to the future of the
Company.
"Option" means an option to purchase Stock, including Restricted Stock if
the Committee so determines, subject to the appropriate requirements under
Section 5 and awarded in accordance with the terms of the Plan and may be
an incentive stock option qualified under Section 422 of the Code or a non-
qualified stock option.
"Participating Company" means the Company or any subsidiary or other
affiliate of the Company; provided, however, for incentive stock options
only, "Participating Company" means the Company or any corporation which at
the time such option is granted under the Plan qualifies as a subsidiary of
the Company under the definition of "subsidiary corporation" contained in
Section 424(f) of the Code.
"Performance Unit" means a performance unit subject to the requirements of
Section 6 and awarded in accordance with the terms of the Plan.
"Plan" means Aquarion Company Stock Incentive Plan, as the same may be
amended, administered or interpreted from time to time.
"Restricted Stock" means Stock delivered under the Plan subject to the
requirements of Section 7 and such other restrictions as the Committee
deems appropriate or desirable.
"Right" means a stock appreciation right subject to the appropriate
requirements under Section 5 and awarded in accordance with the terms of
the Plan.
"Stock" means the Common Stock (no par value) of the Company.
"Total Disability" means the complete and permanent inability of a Key
Employee to perform all his or her duties under the terms of his or her
employment with any Participating Company, as determined by the Committee
upon the basis of such evidence, including independent medical reports and
data, as the Committee deems appropriate or necessary.
3. Shares Subject to the Plan
The aggregate number of shares of Stock which may be awarded under the Plan
or subject to purchase by exercising an Option shall not exceed 750,000
shares. Such shares shall be made available either from authorized and
unissued shares or shares held by the Company in its treasury. The
Committee may, in its discretion, decide to award other shares issued by
the Company that are convertible into Stock or make such shares subject to
purchase by an Option, in which event the maximum number of shares of Stock
into which such stock may be converted shall be used in applying the
aggregate share limit under this Section 3 and all provisions of the Plan
relating to Stock shall apply with full force and effect with respect to
such convertible shares. Shares subject to Options or Rights which are
cancelled, forfeited or expire unexercised, or shares subject to Rights
payable in Stock which are paid in cash shall again become available for
award under the Plan.
4. Grant of Awards and Award Agreements
(a) Subject to the provisions of the Plan, the Committee shall (i)
determine and designate from time to time those Key Employees or groups of
Key Employees to whom Awards are to be granted; (ii) determine the form or
forms of Award to be granted to any Key Employee; (iii) determine the
amount or number of shares of Stock, including Restricted Stock if the
Committee so determines, subject to each Award; and (iv) determine the
terms and conditions of each Award.
(b) Each Award granted under the Plan shall be evidenced by a written
Award Agreement, in a form approved by the Committee. Such agreement shall
be subject to and incorporate the express terms and conditions, if any,
required under the Plan or as required by the Committee for the form of
Award granted and to such other terms and conditions as the Committee may
specify.
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5. Stock Options and Stock Appreciation Rights
(a) With respect to Options and Rights, the Committee shall (i) authorize
the granting of incentive stock options (within the meaning of Section 422
of the Code), nonqualified stock options, Rights or a combination of
incentive stock options, nonqualified stock options and Rights; (ii)
determine the number of shares of Stock subject to each Option or the
number of shares of Stock that shall be used to determine the value of a
Right; (iii) determine whether such Stock shall be Restricted Stock; (iv)
determine the time or times when and the manner in which each Option shall
be exercisable and the duration of the exercise period; and (v) determine
whether or not all or part of each Option may be canceled by the exercise
of a Right; provided, however, that (A) no Option shall be granted after
the expiration of five years from the effective date of the Plan, (B) the
aggregate Fair Market Value (determined as of the date an incentive stock
option is granted) of the Stock, disregarding any restrictions in the case
of Restricted Stock, for which any Key Employee may be granted incentive
stock options which are exercisable for the first time by such Key Employee
in any calendar year under this Plan or any other plans of any
Participating Company in any calendar year shall not exceed $100,000 (or
such other limitation as may be required by Section 422(d) of the Code or
any successor provision thereto), and (C) the number of shares of Stock
which may be issued under Options or Rights granted under this Plan to any
one individual in any fiscal year shall not exceed 100,000.
(b) The exercise period for a non-qualified stock option shall be ten
years and one day from the date of grant, and the exercise period for an
incentive stock option or Right, including any extension which the
Committee may from time to time decide to grant, shall not exceed ten years
from the date of grant; provided, however, that in the case of an incentive
stock option granted to a Key Employee who at the time of grant owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company (a "Ten Percent Shareholder"), such period,
including extensions, shall not exceed five years from the date of grant
(to the extent such period is required under Section 422 of the Code for an
incentive stock option).
(c) The Option or Right price per share shall be determined by the
Committee at the time any Option is granted and shall be not less than (i)
the Fair Market Value, or (ii) in the case of an incentive stock option
granted to a Ten Percent Shareholder, 110 percent of the Fair Market Value
(to the extent such limitation is required under Section 422 of the Code
for an incentive stock option but in neither event less than the par or
stated value, if any) of one share of Stock, disregarding any restrictions
in the case of Restricted Stock, on the date the Option is granted, as
determined by the Committee.
(d) No part of any Option or Right may be exercised until the Key Employee
who has been granted the Award shall have remained in the employ of a
Participating Company for such period after the date on which the Option or
Right is granted as the Committee may specify, if any, and the Committee
may further require exercisability in installments.
(e) Subject to Section 10(c), except as otherwise provided in the Plan,
the purchase price of the shares as to which an Option shall be exercised
shall be paid to the Company at the time of exercise either in cash or in
such other consideration as the Committee deems appropriate, including
Stock already owned by the optionee having a total fair market value, as
determined by the Committee, equal to the purchase price or a combination
of cash and such other consideration having a total fair market value, as
so determined, equal to the purchase price.
(f) (i) If a Key Employee has been granted an incentive stock option, and
his or her employment terminates by reason of death or Total
Disability while an employee of a Participating Company, then any such
incentive stock options granted to such Key Employee may be exercised,
(in the case of death by his or her estate or the person who acquires
the incentive stock option by will or intestate succession and in the
case of Total Disability by the Key Employee), to the extent that the
incentive stock option was exercisable at the date of such
termination, at any time, or from time to time, within twelve months
after the date of the termination of his or her employment.
(ii) If the Key Employee's employment terminates for any other reason,
he or she may exercise his or her incentive stock options, to the
extent that the incentive stock option was
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exercisable at the date of such termination, at any time, or from time
to time, within three months after the date of the termination of his
or her employment.
(g) If a Key Employee has been granted an Option other than an incentive
stock option or a Right, and his or her employment with a Participating
Company terminates, he or she may exercise his or her Option or Right in
accordance with the following:
(i) If the termination occurs for any reason (including, without
limitation, the sale of a subsidiary) other than death, retirement
with consent of the Company or by reason of Total Disability, such
Option or Right may be exercised, to the extent exercisable on the
date of such termination on the earlier of (a) the date which is three
months from the date of the Key Employee's termination of employment
(even if such Key Employee is subsequently reemployed) or (b) the end
of the exercise period specified in the Option or Right;
(ii) If the termination occurs due to the Key Employee's retirement
with the consent of the Company, the installments of such Key
Employee's Option or Right shall continue to mature in the normal
course as otherwise provided in the Option or Right and the Key
Employee (or in the event of his or her death after the date of
retirement, his or her estate or the person who acquires the Option or
Right by will or intestate succession) shall have the right to
exercise the Option or Right until the later of (a) three years after
the date of such retirement or (b) in the event that death occurs
during such three-year period, twelve months after the death of the
Key Employee, but in no event later than the end of the exercise
period specified in the Option or Right;
(iii) If the termination occurs due to a Key Employee's retirement due
to Total Disability, the Key Employee (or in the event of his or her
death after the date of retirement, his or her estate or the person
who acquires the Option or Right by will or intestate succession)
shall have the right to exercise the Option or Right, to the extent it
was exercisable on the date of such retirement due to Total
Disability, until the later of (a) twelve months after the date of
such retirement or (b) in the event that death occurs during such
twelve-month period, twelve months after the death of the Key
Employee, but in no event later than the end of the exercise period
specified in the Option or Right; or
(iv) If the termination occurs due to a Key Employee's death, any
Option or Right held by such Key Employee may thereafter be
immediately exercised, to the extent then exercisable by his or her
estate or the person who acquires the Option or Right by will or
intestate succession until the earlier of (a) one year from the date
of such death or (b) the end of the exercise period specified in the
Option or Right.
(h) Except as expressly allowed by the applicable Award Agreement, no
Option or Right granted under the Plan shall be transferable other than by
will or by the laws of descent and distribution, and, during the lifetime
of the optionee, an Option or Right shall be exercisable only by him or
her.
(i) With respect to an incentive stock option, the Committee shall specify
such terms and provisions as the Committee may determine to be necessary or
desirable in order to qualify such Option as an incentive stock option
within the meaning of Section 422 of the Code and shall take all necessary
steps to preserve such qualifications to the extent practicable.
(j) Upon exercise of a Right, the Key Employee shall be entitled, subject
to such terms and conditions the Committee may specify, to receive upon
exercise thereof all or a portion of the excess of (i) the Fair Market
Value of a specified number of shares of Stock, disregarding any
restrictions in the case of Restricted Stock, at the time of exercise, as
determined by the Committee, over (ii) a specified amount which shall not,
subject to Section 5 (k), be less than the Fair Market Value of such
specified number of shares of Stock, disregarding any restrictions in the
case of Restricted Stock, at the time the Right is granted. Upon exercise
of a Right, payment of such excess shall be made as the Committee shall
specify (A) in cash, (B) by the issuance or transfer of the Key Employee of
whole shares of Stock, including Restricted Stock, with a Fair Market
Value, disregarding any restrictions in the case of Restricted Stock, at
such time equal to any such excess, or (C) in a combination of cash and
shares of Stock with a combined fair market value at such time equal to any
such excess,
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all as determined by the Committee; provided, however, a fractional share
of Stock shall be paid in cash equal to the Fair Market Value of the
fractional share of Stock, disregarding any restrictions in the case of
Restricted Stock, at such time. If and to the extent a Right is payable in
Stock and the full amount of such value is not paid in Stock, then the
shares of Stock representing such portion of the value of the Right not
paid in Stock shall again become available for award under the Plan.
(k) If under the terms of an Award the exercise of a Right will result in
the cancellation of all or any portion of an unexercised Option, then the
Option price per share of Stock must be used as the specified price in
Section 5(j) to determine the value of the Right upon such exercise, and,
in the event of the exercise of such Right, the Company's obligation in
respect of such Option or such portion thereof will be discharged by
payment of the Right so exercised. In the event of such a cancellation,
the number of shares as to which such Option was canceled shall become
available for use under the Plan less the number of shares received by the
optionee upon such cancellation.
(l) No share of Stock acquired by an exercise of an incentive stock option
shall be transferable other than by will or by the laws of descent and
distribution within two years of the date such Option was granted or within
one year after the transfer of such share pursuant to such exercise.
6. Performance Units
(a) The Committee shall determine a performance period (the "Performance
Period") of not less than two nor more than five years and shall determine
the performance objectives for Awards of Performance Units. Performance
objectives may vary from Key Employee to Key Employee and between groups of
Key Employees and shall be based upon such performance criteria or
combination of factors as the Committee may deem appropriate. Performance
Periods may overlap and Key Employees may participate simultaneously with
respect to Performance Units for which different Performance Periods are
prescribed.
(b) At the beginning of a Performance Period, the Committee shall
determine for each Key Employee or group of Key Employees eligible for
Performance Units with respect to that Award period the range of dollar
values, if any, which may be fixed or may vary in accordance with criteria
specified by the Committee, which shall be paid to a Key Employee as an
Award if the relevant measure of Company performance for the Award period
is met.
(c) If during the course of a Performance Period there shall occur
significant events as determined by the Committee, including, but not
limited to, a reorganization of the Company or a Change of Control of the
Company, which the Committee expects to have a substantial effect on a
performance objective during such period, the Committee may revise such
objective; provided, however, that no such change may increase the amount
of an Award that would otherwise be payable to any "covered employee" as
defined in Section 162(m) of the Code.
(d) If a Key Employee terminates service with all Participating Companies
during a Performance Period because of death, Total Disability, retirement
at age 65, or if at an earlier age, with the consent of the Company, or
upon a significant event, as determined by the Committee, that Key Employee
shall be entitled to an Award of Performance Units at the end of the
Performance Period (i) based upon the performance objectives satisfied at
the end of such period and (ii) prorated for the portion of the Performance
Period during which the Key Employee was employed by any Participating
Company; provided, however, the Committee may provide for an earlier
payment in settlement of such Performance Units in such amount and under
such terms and conditions as the Committee deems appropriate or desirable
with the consent of the Key Employee. If a Key Employee terminates service
with all Participating Companies during a Performance Period for any other
reason, then such Key Employee shall not be entitled to any Award with
respect to that Performance Period, but the Committee, in its sole and
absolute discretion, may provide otherwise.
(e) Each Performance Unit may be paid in whole shares of Stock, including
Restricted Stock (together with any cash representing fractional shares of
Stock), or cash, or a combination of Stock and cash either as a lump sum
payment or in annual installments, all as the Committee shall determine,
commencing as soon as practicable after the end of the relevant Performance
Period.
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7. Restricted Stock
(a) Restricted Stock may be received by a Key Employee either as an Award
or as the result of an exercise of an Option or Right or as payment for a
Performance Unit. Restricted Stock shall be subject to a restriction
period (after which restrictions will lapse) which shall mean a period
commencing on the date the Award is granted or on the date of exercise of
the Option or Right and ending on such date as the Committee shall
determine (the "Restriction Period").
(b) Except as otherwise provided in this Section 7, no shares of
Restricted Stock received by a Key Employee shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period; provided, however, the Restriction Period for any Key
Employee shall be deemed to end and all restrictions on shares of
Restricted Stock shall lapse upon the Key Employee's death, Total
Disability or retirement after attaining age 65 (or an earlier age with the
consent of the Company, or upon a reorganization of the Company) or a
Change of Control, or, some significant event, as determined by the
Committee.
(c) Unless the Committee in its discretion determines otherwise, if a Key
Employee terminates employment with all Participating Companies for any
reason before the expiration of the Restriction Period (other than as
provided in Section 7(b)), all shares of Restricted Stock still subject to
restriction shall be forfeited by the Key Employee and shall be reacquired
by the Company, and, in the case of Restricted Stock purchased through the
exercise of an Option, the Company shall refund the purchase price paid on
the exercise of the Option.
(d) The Committee may require under such terms and conditions as it deems
appropriate or desirable that the certificates for Stock delivered under
the Plan may be held in custody by a bank or other institution, or that the
Company may itself hold such shares in custody until the Restriction Period
expires or until restrictions thereon otherwise lapse, and may require as a
condition of any receipt of Restricted Stock that the Key Employee shall
have delivered a stock power endorsed in blank relating to the Restricted
Stock.
(e) Nothing in this Section 7 shall preclude a Key Employee from
exchanging any shares of Restricted Stock subject to the restrictions
contained herein for any other shares of Stock that are similarly
restricted.
8. Unrestricted Stock
The Committee, in its sole and absolute discretion, may make Awards in the
form of shares of stock which are not restricted in the hands of the
participants who receive such Awards. Such Awards may be made either in
connection with any annual or longer term bonus program sponsored by the
Company or an affiliate or in any other circumstances that the Committee
deems appropriate.
9. Certificates for Awards of Stock
(a) Subject to Section 7(d), each Key Employee entitled to receive Stock
under the Plan shall be issued a certificate for the shares of Stock. Such
certificate shall be registered in the name of the Key Employee, and shall
bear an appropriate legend reciting the terms, conditions and restrictions
applicable to such Award as described in Section 9(c) hereof.
(b) The Company shall not be required to issue or deliver any certificates
for shares of Stock prior to (i) the listing of such shares on any stock
exchange on which the Stock may then be listed and (ii) the completion of
any registration or qualification of such shares under any federal or state
law, or any ruling or regulation of any government body which the Company
shall, in its sole discretion, determine to be necessary or advisable.
(c) All certificates for shares of Stock delivered under the Plan also
shall be subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed and any applicable federal or state
securities laws, and the Committee may cause a legend or legends to be
placed on any such certificates to make
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appropriate reference to such restrictions. The foregoing provisions of
this Section 9(c) shall not be effective if and to the extent that the
shares of Stock delivered under the Plan are covered by an effective and
current registration statement under the Securities Act of 1933, or if and
so long as the Committee determines that application of such provisions is
no longer required or desirable. In making such a determination, the
Committee may rely upon an opinion of counsel for the Company.
(d) Except for the restrictions on Restricted Stock under Section 7, each
Key Employee who receives an Award of Stock shall have all of the rights of
a shareholder with respect to such shares, including the right to vote the
shares and receive dividends and other distributions. No Key Employee
awarded an Option, a Right, a Performance Unit payable in Stock, including
Restricted Stock, or selected by the Committee to participate during a
Performance Period for a Performance Unit payable in Stock, including
Restricted Stock, shall have any right as a shareholder with respect to any
shares subject to his or her Option Right or Performance Unit prior to the
date of issuance to him or her of a certificate or certificates for such
shares.
10. Loans and Supplemental Cash Payments
(a) The Committee may provide for supplemental cash payments or loans to
Key Employees at such time and in such manner as the Committee may
determine in connection with Awards granted under the Plan.
(b) Supplemental cash payments shall be subject to such terms and
conditions as the Committee may specify; provided, however, in no event
shall the amount of such payment exceed (i) in the case of an Option, the
excess of the Fair Market Value of the shares of Stock, disregarding any
restrictions in the case of Restricted Stock, purchased through the Option
on the date of exercise over the option price, or (ii) in the case of an
Award of a Right, Performance Unit, or Restricted Stock, the value of the
shares of Stock and other consideration issued in payment of such Award.
(c) In the case of loans, any such loan shall be evidenced by a written
loan agreement or other instruments in such form and shall contain such
terms and conditions, including without limitation, provisions for
interest, payment schedules, collateral, forgiveness, events of default or
acceleration of such loans or parts thereof, as the Committee shall
specify; provided, however, that the interest rate set by the Committee
under such an arrangement shall be no lower than that required to avoid the
imputation of unstated interest under Section 483 of the Code.
11. Beneficiary
(a) Each Key Employee shall file with the Committee a written designation
of one or more persons as the Beneficiary who shall be entitled to receive
the Award, if any, payable under the Plan upon his or her death. A Key
Employee may from time to time revoke or change his or her Beneficiary
designation without the consent of any prior Beneficiary by filing a new
designation with the Committee. The last such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Key Employee's death, and in no event shall it be
effective as of a date prior to such receipt.
(b) If no such Beneficiary designation is in effect at the time of a Key
Employee's death, or if no designated Beneficiary survives the Key Employee
or if such designation conflicts with law, the Key Employee's estate shall
be entitled to receive the Award, if any, payable under the Plan upon his
or her death. If the Committee is in doubt as to the right of any person
to receive such Award, the Company may retain such Award, without liability
for any interest thereon, until the Committee determines the rights
thereto, or the Company may pay such Award into any court of appropriate
jurisdiction and such payment shall be a complete discharge of the
liability of the Company therefor.
12. Effect of Change of Control
The Committee, in its discretion, may provide under the terms of any Award
Agreement, either at the time of grant or at any time thereafter, that upon
the occurrence of a Change of Control, all outstanding Options or Rights
which are not then exercisable shall become immediately exercisable
A-8
in full and all Restricted Stock shall become immediately vested. Each
Option shall, to the extent exercisable after giving effect to the prior
sentence, have a limited right of surrender allowing the optionee to
surrender that Option within the 30-day period following a Change of
Control and to receive cash, in lieu of exercising the Option, in the
amount by which the highest fair market value during the 60 days preceding
the date on which the Change of Control occurs of the number of shares of
Stock covered by the option exceeds the option price for the shares of
Stock covered by the Option.
13. Withholding Taxes
As a condition to exercise of any Option or Right, the vesting of
Restricted Stock or payment of a Performance Unit hereunder (collectively,
a "Realization Event"), the Company may, in its discretion, require a Key
Employee to pay to the Company at the time of exercise the amount that the
Company deems necessary to satisfy its obligation to withhold federal,
state or local income or other taxes (which for purposes of this Section 13
includes a Key Employee's FICA obligation) incurred by reason of the
Realization Event. Upon the occurrence of a Realization Event requiring
tax withholding, a Key Employee may make a written election to have shares
of Stock withheld by the Company from the shares otherwise to be received.
The number of shares so withheld shall have an aggregate Fair Market Value
on the date of exercise sufficient to satisfy the applicable withholding
taxes. The acceptance of any such election by a Key Employee shall be at
the sole discretion of the Committee. In addition, subject to acceptance by
the Committee, in its sole discretion, a Key Employee may make a written
election to deliver to the Company previously owned shares, in either case
to satisfy any additional federal, state or local income or other taxes
applicable to the Key Employee and the particular transaction, up to the
maximum marginal tax rates, whether in the case of a Realization Event in
which taxability is immediate or in which taxability is deferred. The
number of shares so withheld and/or delivered shall have an aggregate Fair
Market Value on the date withholding is required sufficient to satisfy the
applicable withholding taxes or to satisfy taxes up to maximum marginal tax
rate as and to the extent elected by a Key Employee. Withholding
provisions may be instituted by the Company to the extent withholding is
required in the future on the disposition of shares of Stock acquired upon
the exercise of an incentive stock option.
14. Administration of the Plan
(a) The Plan shall be administered by the Committee, as appointed by the
Board and serving at the Board's pleasure. The Committee shall have at
least two members, and each member of the Committee shall be a member of
the Board, a "Non-Employee Director", within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended, or any successor
rule or regulation, and an "Outside Director" as that term is defined in
Section 162(m) of the Code.
(b) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and, all decisions,
determinations or actions of the Committee made or taken pursuant to grants
of authority under the Plan shall be made or taken in the sole discretion
of the Committee and shall be final, conclusive and binding on all persons
for all purposes.
(c) The Committee's decisions and determinations under the Plan need not
be uniform and may be made selectively among Key Employees, whether or not
such Key Employees are similarly situated.
(d) The Committee may employ such legal counsel, including without
limitation independent legal counsel and counsel regularly employed by the
Company, consultants and agents as the Committee may deem appropriate for
the administration of the Plan and may rely upon any opinion received from
any such counsel or consultant and any computations received from any such
consultant or agent.
(e) All expenses incurred by the Committee in interpreting and
administering the Plan, including without limitation, meeting fees and
expenses and professional fees, shall be paid by the Company.
(f) No member or former member of the Committee or the Board shall be
liable for any action or determination made in good faith with respect to
the Plan or any Award granted under it. Each member or former member of
the Committee or the Board shall be indemnified and held harmless by the
Company against all cost or expense (including counsel fees) or liability
(including any sum
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paid in settlement of a claim with the approval of the Board) arising out
of any act or omission to act in connection with the Plan unless such cost
or liability arises out of such member's or former member's own fraud or
bad faith. Such indemnification shall be in addition to any rights of
indemnification the members or former members may have as directors or
under the by-laws of the Company.
(g) All elections, designations, requests, notices, instructions and other
communications from a Key Employee, Beneficiary or other person to the
Committee, required or permitted under the Plan, shall be in such form as
is prescribed from time to time by the Committee and shall be mailed by
first class mail or delivered to such location as shall be specified by the
Committee.
15. Amendment or Discontinuance
(a) The Board may at any time, or from time to time, suspend or terminate
the Plan in whole or in part or amend it in such respects as the Board may
deem appropriate.
(b) No amendment, suspension or termination of this Plan or any Award
shall, without the Key Employee's consent, alter or impair any of the
rights or obligations under any Award theretofore granted to a Key Employee
under the Plan.
(c) The Board may amend this Plan, subject to the limitations cited above,
in such manner as it deems necessary to permit the granting of Awards
meeting the requirements of future amendments to the Code or regulations
promulgated thereunder.
16. Adjustments in Event of Change in Stock
In the event of any recapitalization, reclassification, split-up or
consolidation of shares of Stock, merger or consolidation of the Company or
sale by the Company of all or a portion of its assets, or any other major
change in the Company's overall cost of equity or of capital or allowable
rate of return on Stock equity, as prescribed by the appropriate
governmental authority, or other event which could distort the
implementation of the Plan or the realization of its objectives, the
Company may make such adjustments in the Stock subject to Awards, including
Stock subject to purchase by an Option, or the terms, conditions or
restrictions on Stock or Awards as the Committee deems equitable.
17. Miscellaneous
(a) Nothing in this Plan or any Award granted hereunder shall confer upon
any employee any right to continue in the employ of any Participating
Company or interfere in any way with the right of any Participating Company
to terminate his or her employment at any time. No Award payable under the
Plan shall be deemed salary or compensation for the purpose of computing
benefits under any employee benefit plan or other arrangement of any
Participating Company for the benefit of its employees except as otherwise
required by law, unless the Committee shall determine otherwise. No Key
Employee shall have any claim to an Award until it is actually granted
under the Plan. To the extent that any person acquires a right to receive
payments from the Company under this Plan, such right shall be no greater
than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of the
Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such amounts
except as provided in Section 7(d) with respect to Restricted Stock.
(b) Absence on leave approved by a duly constituted officer of the Company
shall not be considered interruption or termination of employment for any
purposes of the Plan; provided, however, that, unless otherwise determined
by the Committee, no Award may be granted to an employee while he or she is
absent on leave.
(c) If the Committee shall find that any person to whom any Award, or
portion thereof, is payable under the Plan is unable to care for his or her
affairs because of illness or accident, or is a minor, then any payment due
him or her (unless a prior claim therefor has been made by a duly appointed
legal representative) may, if the Committee so directs the Company, be paid
to his or her spouse, a child, a relative, an institution maintaining or
having custody of such person, or any other person deemed
A-10
by the Committee be a proper recipient on behalf of such person otherwise
entitled to payment. Any such payment shall be a complete discharge of the
liability of the Company therefor.
(d) The right of any Key Employee or other person to any Award payable
under the Plan may not be assigned, transferred, pledged or encumbered,
either voluntarily or by operation of law, except as provided in Section 11
with respect to the designation of a Beneficiary, as expressly allowed by
the applicable Award Agreement or as may otherwise be required by law. If,
by reason of any attempted assignment, transfer, pledge, or encumbrance,
except as expressly allowed by the related Award Agreement, or by reason of
any bankruptcy or other event happening at any time, any amount payable
under the Plan would be made subject to the debts or liabilities of the Key
Employee or his or her Beneficiary or would otherwise devolve upon anyone
else and not be enjoyed by the Key Employee or his or her Beneficiary, then
the Committee may determine such person's interest in any such payment and
direct that the same be held and applied to or for the benefit of the Key
Employee, his or her Beneficiary or any other persons deemed to be the
natural objects of his or her bounty, taking into account the expressed
wishes of the Key Employee (or, in the event of his or her death, those of
his or her Beneficiary) in such manner as the Committee may deem proper.
(e) The Plan and the granting of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required.
(f) The terms of the Plan shall be binding upon the Company and its
successors and assigns.
(g) Captions preceding the sections hereof are inserted solely as a matter
of convenience in no way define or limit the scope or intent of any
provision hereof.
18. Effective Date, Term of Plan and Shareholder Approval
The effective date of the Plan shall be April 20, 1999, subject to approval
by a majority of the Company's shareholders present at their 1999 Annual
Meeting. No Awards shall be granted under the Plan more than five years
after the date the Plan is adopted by the Company.
A-11
AQUARION COMPANY
835 Main Street
Bridgeport, Connecticut 06604
(203) 335-2333 . http:// www.aquarion.com
[LOGO] Printed on recycled paper.
AQUARION COMPANY COMMON STOCK PROXY
Annual Meeting of Shareholders--April 20, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
George W. Edwards, Jr., Edgar G. Hotard and G. Jackson Ratcliffe, or any
of them, with power of substitution, are hereby appointed proxies of the
undersigned to vote all common stock of Aquarion Company owned by the
undersigned at the Annual Meeting of Shareholders to be held at People's Bank,
Multi-Purpose Room (Second Floor), 850 Main Street, Bridgeport, Connecticut, on
April 20, 1999, or any adjournment thereof, upon such business as may properly
come before the meeting, including the following items, as set forth in the
Notice of Meeting and Proxy Statement:
1. Election of Class II Directors 2. Ratification of selection of 3. Approval of a Stock
independent public accountants Incentive Plan
The shares represented hereby will be voted in accordance with the
directions given by the shareholder. If not otherwise directed, the shares
represented by this proxy will be voted for Proposals 1, 2 and 3.
(Continued and to be signed, on reverse side)
FOLD AND DETACH HERE
AQUARION COMPANY
Annual Meeting of Shareholders
Tuesday, April 20, 1999
9:30 a.m.
People's Bank
Multi-Purpose Room (Second Floor)
850 Main Street
Bridgeport, Connecticut 06604
IF YOU PLAN TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS,
PLEASE CHECK THE BOX ON THE REVERSE SIDE.
Please Mark
your choice as X
indicated in
this sample
The Board of Directors recommends a vote FOR Proposals 1, 2 and 3:
1. Election of Class II Directors.
FOR WITHHOLD
[ ] [ ]
NOMINEES: 01 Janet D. Greenwood and 02 John A. Urquhart
(To withhold authority to vote for any individual nominee, write that
nominee's name on space provided below.)
- -----------------------------------------------------------------------
2. Ratification of selection of PricewaterhouseCoopers
LLP as independent public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the Aquarion Company 1999 Stock Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
I plan to attend [ ]
the meeting.
Dated: , 1999
-----------------------------------------
-----------------------------------------------------
Signature of shareholder
-----------------------------------------------------
Signature (if held jointly)
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting. Please mark, date, sign and return
promptly in the enclosed envelope, which requires no postage if mailed in the
U.S.A. When signing as attorney, executor, trustee or guardian or in other
representative capacities, please give full title as such.
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
[graphic] VOTE BY TELEPHONE [graphic]
QUICK***EASY***IMMEDIATE
YOUR VOTE IS IMPORTANT!--YOU CAN USE THIS CARD TO VOTE IN ONE OF TWO WAYS:
1. TO VOTE BY PHONE: Call toll-free 1-800-840-1208 on a touch tone telephone
24 hours a day, 7 days a week.
There is NO CHARGE to you for this call. Have your proxy card in hand.
You will be asked to enter a Control Number, which is located in the box in the
lower right hand corner of this form.
OPTION 1: To vote as the Board of Directors recommends on ALL proposals, press 1
When asked, please confirm by Pressing 1.
OPTION 2: If you choose a vote on each Proposal separately, press 0. You will
hear these instructions.
Proposal 1-To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees,
press 9. To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and listen to the
instructions
Proposal 2-To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
When asked, please confirm by Pressing 1.
The instructions are the same for Proposal 3.
or
2. VOTE BY PROXY: Mark, sign and date your proxy card and return promptly in the
enclosed envelope.
NOTE: If you vote by telephone, THERE IS NO NEED TO MAIL your Proxy Card.
THANK YOU FOR VOTING.