EXHIBIT 10.40
AQUA AMERICA, INC.
2004 EQUITY COMPENSATION PLAN
STOCK OPTION AND DIVIDEND EQUIVALENT GRANT
This Incentive Stock Option and Dividend Equivalent Grant Agreement
evidences the grant made by Aqua America, Inc., a Pennsylvania corporation (the
"Corporation"), to XX, an officer of the Corporation or one of its
subsidiaries (the "Grantee"), under the terms and provisions of the Aqua
America, Inc. 2004 Equity Compensation Plan (the "Plan").
WHEREAS, on March 18, 2004 the Executive Committee of the Board of
Directors of the Corporation (the "Board") adopted the Plan, subject to the
approval of the shareholders of the Corporation;
WHEREAS, the Plan was approved and ratified at the Corporation's 2004
Annual Meeting of the Shareholders by the vote of the holders of a majority of
the Corporation's common stock (the "Common Stock") entitled to vote thereon;
WHEREAS, the Plan has been amended or amended and restated from time to
time with the approval of the Corporation's Board of Directors and, when
required, the Corporation's shareholders;
WHEREAS, pursuant to the Plan, the Board has empowered its compensation
committee (the "Committee") to grant options to purchase Common Stock and to
grant dividend equivalents based upon the dividends earned on Common Stock
(collectively, the "Grants") to eligible persons in accordance with the terms
and provisions of the Plan; and
WHEREAS, the Committee, as required by the Plan, considers the Grantee
to be an eligible person as contemplated by the Plan and has determined that it
would be in the best interests of the Corporation to make the Grants referred to
herein;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
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1. Grant of Option.
a. Number of Shares, Option Price and Exercise Schedule. Subject to the
terms and conditions hereinafter set forth, the Corporation, with the approval
and at the direction of the Committee, hereby grants to the Grantee an option to
purchase an aggregate of XX shares of Common Stock at a price of $XX.XX per
share. This option shall become exercisable in three (3) annual installments,
the Grantee having the right hereunder to purchase from the Corporation, on and
after the following dates, the following numbers of shares of Common Stock:
________________: XX SHARES,
________________: AN ADDITIONAL XX SHARES,
________________: AN ADDITIONAL XX SHARES;
The right of the Grantee to purchase shares of Common Stock subject to any
accrued installment may be exercised in whole or in part from time to time,
subject to the restrictions set forth herein. The Committee may, in its sole
discretion, accelerate the time at which the option may be exercised in whole or
in part. Notwithstanding any determinations by the Committee regarding the
exercise period of the option or the exercise schedule set forth above, all
outstanding options shall become immediately exercisable upon a Change of
Control of the Corporation (as defined in the Plan).
b. Options as an Incentive Stock Option. It is intended that this
option shall meet the applicable requirements of, and qualify as, an incentive
stock option under the terms of Section 422 of the Internal Revenue Code as now
or hereafter constituted (the "Code") and as interpreted by relevant rulings,
regulations and other applicable authority, and shall in all respects be so
interpreted and construed. In conformance with the foregoing, the Grantee
understands and hereby acknowledges that: (i) in the event that the aggregate
fair market value (determined at the time the option is granted) of the stock
with respect to which incentive stock options are exercisable for the first time
by the Grantee during any calendar year (under all stock option plans of the
Corporation and its parents and subsidiaries, if any) exceeds $100,000, then to
the extent of such excess, all or a portion of this option shall (if, and to the
extent, required by Section 422 of the Code) not be treated as an incentive
stock option; and (ii) any exercise of this option following the termination of
employment of the Grantee which occurs more than three months from the date of
such termination (including termination of employment on account of retirement,
but excluding termination on account of death), or more than one year from the
date of such termination in the case of total disability, will not satisfy the
conditions of Section 422 of the Code for treatment as an incentive stock
option; and (iii) therefore, any such excess referred to in (i), or exercise
referred to in (ii), will be taxed in accordance with the rules of taxation
governing the exercise of nonqualified stock options. Unless the Grantee could
otherwise transfer Common Stock issued pursuant to an incentive stock option
granted hereunder without incurring liability under Section 16(b) of the
Securities Exchange Act of 1934 (the "Exchange Act"), at least six months must
elapse from the date of grant of an incentive stock option to the date of
disposition of the Common Stock issued upon exercise of such option.
c. Termination of Option. This option and all rights hereunder, to the
extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of ten (10) years from the Date of Grant (the
"option term"). The Date of Grant for the options granted hereunder is [GRANT
DATE].
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Upon the termination of the Grantee's employment for any reason (except
as a result of retirement, disability or death), this option shall terminate.
Notwithstanding the fact that, in all cases, the Grantee's employment shall be
deemed to have terminated upon the sale of a subsidiary of the Corporation that
employs the Grantee, the Committee, in its sole discretion, may extend the
period during which the option may be exercised after such sale to the earliest
of (i) a date which is not more than three years from the date of the sale of
the subsidiary, (ii) the date of the Grantee's termination of employment with
the subsidiary (or successor employer) following such sale for reasons other
than retirement, disability or death, (iii) the date which is one year from the
date of the Grantee's termination of employment with the subsidiary on account
of the Grantee's total disability (as defined in Section 22(e)(3) of the Code),
or three months from the date of such termination if on account of retirement or
a disability other than a total disability, or (iv) the expiration of the
original term of the option as established in the first paragraph of this
Section. The Committee, in its sole discretion, may similarly extend the period
of exercise of the option if the Grantee's employment with the Corporation is
terminated in connection with the sale of a subsidiary of the Corporation.
Upon termination of the Grantee's employment as a result of retirement,
disability or death, the period during which any option that is exercisable as
of the date of Grantee's termination of employment may be exercised shall not
exceed: (i) one year from the date of such termination of employment in the case
of death, (ii) two years from the date of such termination in the case of
permanent and total disability (within the meaning of Section 22(e)(3) of the
Code) or retirement; and (iii) three months from the date of such termination of
employment in the case of other disability; but in no event shall the period
extend beyond the expiration of the option term. Stock options that are not
exercisable as of the termination of the Grantee's employment as a result of
retirement, disability or death shall terminate as of the date of the Grantee's
termination of employment.
Subject to the foregoing, in the event of the Grantee's death, such
option may be exercised by the Grantee's legal representative but only to the
extent exercisable by Xxxxxxx as of the date of death. Notwithstanding the
foregoing, the Committee, in its sole discretion, may determine that
installments that are not exercisable as of the date of the Grantee's death,
termination of employment on account of permanent and total disability (within
the meaning of Section 22(e)(3) of the Code) or other termination of employment
may also be exercised by the Grantee or in the case of death, the Grantee's
legal representative or beneficiary. Grantee's transfer of employment among the
Corporation, its parent or any subsidiary shall not be deemed to be a
termination of employment.
d. Forfeiture of Option. Notwithstanding any other provisions set forth
herein or in the Plan, if the Grantee shall (i) commit any act of malfeasance or
wrongdoing affecting the Corporation, any parent or subsidiary, (ii) breach any
covenant not to compete, or employment contract, with the Corporation, any
parent or subsidiary, or (iii) engage in conduct that would warrant the
Grantee's discharge for cause (excluding general dissatisfaction with the
performance of the Grantee's duties, but including any act of disloyalty or any
conduct clearly tending to bring discredit upon the Corporation, any parent or
subsidiary) this option, or the unexercised portion thereof, shall immediately
terminate and be void.
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e. Exercise Procedures. The Grantee may exercise this option with
respect to all or any part of the whole number of shares then subject to
exercise. Such exercise shall be effected as follows: Grantee shall deliver to
the Committee written notice of intent to exercise. Such notice shall specify
the number of shares as to which this option is to be exercised and the date of
exercise thereof, which date shall be at least five (5) days after the delivery
of such notice unless an earlier time shall have been mutually agreed upon. Such
notice may instruct the Corporation to deliver shares of Common Stock due upon
the exercise of the option to any registered broker or dealer in lieu of
delivery to the Grantee. Such instructions must designate the account into which
the shares are to be deposited. The Grantee may tender this notice of exercise,
which has been properly executed by the Grantee, and the aforementioned delivery
instructions to any broker or dealer. Full payment by the Grantee of the option
price for the shares purchased shall be made on or before the date of issuance
of the shares being purchased in cash, or, with the prior written consent of the
Committee, in whole or in part through the surrender of shares of Common Stock
(including without limitation shares of Common Stock acquired pursuant to the
option then being exercised) at their fair market value as determined pursuant
to the terms of the Plan. On the exercise date specified in the Grantee's notice
or as soon thereafter as is practicable, the Corporation shall, without transfer
or issue tax or other incidental expense to the Grantee, cause to be delivered
to the Grantee a certificate or certificates for such shares out of theretofore
unissued shares or reacquired shares, as the Corporation may elect, upon payment
for the shares. The Corporation shall, without transfer or issue tax or other
incidental expense to the Grantee, cause to be delivered to the Grantee separate
certificates for those shares which will be treated as being issued pursuant to
the exercise of an incentive stock option and for those shares, if any, which
under Section 2 of the Agreement will be treated as being issued pursuant to the
exercise of an option which is not an incentive stock option. The Corporation
shall identify in its stock transfer records which shares are being issued
pursuant to the exercise of an incentive stock option and which shares are being
issued pursuant to the exercise of an option which is not an incentive stock
option.
2. Dividend Equivalents.
a. Number of Dividend Equivalents. Subject to the terms and conditions
hereinafter set forth, the Corporation, with the approval and at the direction
of the Committee, hereby grants to the Grantee XX dividend equivalents. The
amount of dividend equivalents (the "Dividend Equivalent Amount") subject to
this grant shall be equal to the number of dividend equivalents specified in
this Section 2.a. multiplied by the per-share cash dividend, or the per-share
fair market value (as determined by the Committee) of any dividend in other than
cash, paid by the Corporation on each record date for the payment of a dividend
during the period described in Section 2.b.
b. Amount of Dividend Equivalent Credited. The Corporation shall credit
to an account for the Grantee maintained by the Corporation in its books and
records on each record date, from the Date of Grant until the earlier of (i) the
date of the Grantee's termination of employment for any reason (including
retirement), other than total disability (as defined in Section 22(e)(3) of the
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Code) or the Grantee's death, or as otherwise determined by the Committee, in
its sole discretion, at the time of the Grantee's termination of employment or
(ii) four years from the Date of Grant (such period being hereinafter referred
to as the "Accumulation Period"), that portion of the Dividend Equivalent Amount
for the Grantee attributable to such record date. The Corporation shall maintain
in its books and records separate accounts which identify each grantee's
Dividend Equivalent Amount. Except as set forth in Section 2.g. below, no
interest shall be credited to any such account. The Date of Grant for the
dividend equivalents granted hereunder is <>.
c. Payment of Credited Dividend Equivalents. At the end of the
applicable performance period (the "Performance Period"), 100% of the Grantee's
Dividend Equivalent Amount shall be paid to the Grantee. The Performance Period
shall be equal to four years from the Date of Grant; provided, however, that
such Performance Period shall be:
(i) reduced by one year for each calendar year during the
applicable Performance Period ending after the Date of Grant in which
the measurable performance criteria set forth in Section 2.d. of the
Agreement for the applicable Performance Period exceeds the targets for
such criteria.
(ii) increased by one year for each calendar year during the
applicable Performance Period ending after the Date of Grant in which
the measurable performance criteria set forth in Section 2.d. for the
applicable Performance Period is less than the targets for such
criteria.
(iii) In no event shall the Performance Period be reduced to
less than two years or increased to more than eight years from the Date
of Grant.
(iv) In the event that the Performance Period is shorter than
the Accumulation Period described in Section 2.b., the Grantee shall
receive the payment of the amount credited to his account at the end of
the applicable Performance Period and any portion of the Dividend
Equivalent Amount attributable to a dividend record date between the
end of the Performance Period and the end of the Accumulation Period
shall be paid on the Corporation's normal dividend payment dates until
the Grantee's Dividend Equivalent Amount for the period described in
Section 2(b) is fully paid to the Grantee.
d. Performance Criteria. The performance criteria applicable to the
Performance Period for the dividend equivalents granted hereunder shall be as
set forth in Exhibit A attached hereto and made a part hereof.
e. Timing of Payment of Dividend Equivalents. Except as otherwise
determined by the Committee, if the Grantee terminates from employment prior to
the end of the applicable Performance Period, no payments of the Dividend
Equivalent Amount shall be made until the end of the applicable Performance
Period and no payments shall be made to the Grantee if the Grantee's employment
with the Corporation or a subsidiary terminates prior to the end of the
applicable Performance Period for any reason other than retirement under the
Corporation's or a subsidiary's retirement plan, death or total disability (as
defined in section 22(e)(3) of the Code). Subject to Section 2.c.(iv), as soon
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as practicable after the end of such Performance Period, unless the Grantee
shall have made an election under Section 2(h) to defer receipt of any portion
of such amount, the Grantee shall receive 100% of the Dividend Equivalent Amount
payable to him. Notwithstanding the foregoing, upon a Change of Control of the
Corporation (as defined in the Plan), any Dividend Equivalent Amount or portion
thereof, which has not, prior to such date, been paid to the Grantee or
forfeited shall immediately become payable to the Grantee without regard to
whether the applicable Performance Period has ended.
f. Form of Payment. The Committee shall have the sole discretion to
determine whether the Corporation's obligation in respect of the payment of a
Dividend Equivalent Amount shall be paid solely in credits to be applied toward
payment of the option price under then exercisable options, solely in cash or
partly in such credits and partly in cash.
g. Interest on Dividend Equivalents. From a date which is 45 days after
the end of the applicable Performance Period until the date that the Dividend
Equivalent Amount payable to the Grantee is paid to the Grantee, the account
maintained by the Corporation in its books and records with respect to such
dividend equivalents shall be credited with interest at a market rate determined
by the Committee.
h. Deferral of Dividend Equivalents. The Grantee shall have the right
to defer receipt of any Dividend Equivalent Amount payments if he shall elect to
do so on or prior to December 31 of the year preceding the beginning of the last
full year of the applicable Performance Period (or such other time as the
Committee shall determine is appropriate to make such deferral effective under
the applicable requirements of federal tax laws). The terms and conditions of
any such deferral (including the period of time thereof and any earnings on the
deferral) shall be subject to approval by the Committee and all deferrals shall
be made on a form provided the Grantee for this purpose.
3. Adjustment of and Changes in Common Stock of the Corporation.
In the event of a reorganization, recapitalization, change of shares,
stock split, spin-off, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of the Corporation, the Committee
may make such adjustment as it deems appropriate in the number and kind of
shares subject to the Grants, the option price or other terms and conditions
applicable to dividend equivalents.
4. No Rights of Shareholders.
Neither the Grantee nor any personal representative shall be, or have
any of the rights and privileges of, a shareholder of the Corporation with
respect to any shares related to the Grants or purchasable upon the exercise of
this option, in whole or in part, prior to the date of exercise of the option.
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5. Non-Transferability of Grants.
Except as otherwise provided in this Section, during the Grantee's
lifetime, only the Grantee or any guardian or legal representative of the
Grantee, may exercise rights under the Grants and the Grants shall not be
assigned or transferred by the Grantee (other than an assignment pursuant to a
qualified domestic order as defined under the Code or Title I of ERISA or the
rules thereunder or transfer by will or by the laws of descent or distribution
in the event of the death of the Grantee). Upon a transfer of an option granted
hereunder by will or by the laws of descent or distribution, or a family
transfer (as hereinafter provided), the person to whom the option is transferred
shall have the right to exercise the option in accordance with the Plan and this
Grant.
The Grantee may transfer all or a portion of a nonqualified stock
option granted hereunder to family members, one or more trusts for the benefit
of family members, or one or more other entities of which family members control
the management of assets or own more than 50% of the voting interests,
consistent with applicable securities laws, provided that the Grantee receives
no consideration for the transfer of the option and the transferred option shall
continue to be subject to the same terms and conditions as were applicable to
the option immediately before the transfer.
In the event of any attempt by the Grantee (or assignee) to alienate,
assign, pledge, hypothecate or otherwise dispose of a Grant or of any right
hereunder, except as provided for herein, or in the event of the levy of any
attachment, execution or similar process upon the rights or interest hereby
conferred, the Corporation may terminate the Grant by notice to the Grantee and
it shall thereupon become null and void.
6. Employment Not Affected.
Neither the making of the Grants nor the exercise of the option or the
payment of the Dividend Equivalent Amount shall be construed as granting to the
Grantee any right with respect to continuance of employment by the Corporation
or any of its subsidiaries. Except as may otherwise be limited by a written
agreement between the Corporation or any subsidiary and the Grantee, the right
of the Corporation or any parent or subsidiary to terminate at will the
Grantee's employment with it at any time (whether by dismissal, discharge, or
otherwise) is specifically reserved and acknowledged by the Grantee.
7. Withholding of Tax.
Whenever shares of Common Stock are to be delivered upon exercise of
the option, the Corporation shall be entitled to require as a condition of such
delivery that the Grantee remit to the Grantee's employer or, in appropriate
cases, agree to remit to such employer when due, an amount sufficient to satisfy
all federal, state and local withholding tax requirements relating thereto.
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8. Amendment of Grants.
The Grants may be amended by the Committee at any time (i) if it
determines, in its sole discretion, that amendment is necessary or advisable in
the light of any addition to or change in the Internal Revenue Code or
regulations issued thereunder, or any federal or state securities law or other
law or regulation, which change occurs after the grant of the option and
dividend equivalents and by its terms retroactively applies to the option or
dividend equivalent; and (ii) with the consent of the Grantee. Any such
amendment shall be in writing and signed by the Corporation and the Grantee.
9. Notice.
Any notice to the Corporation provided for in this instrument shall be
addressed to it in care of its Secretary, and any notice to the Grantee shall be
addressed to the Grantee at the current address shown on the payroll of the
Corporation or any subsidiary. Except as otherwise provided herein, any notice
shall be deemed to be duly given if and when properly addressed and posted by
registered or certified mail, postage prepaid.
10. Incorporation of Plan by Reference.
The Grants are made pursuant to the terms of the Plan, as in effect on
March 18, 2004, as approved by a majority of the Corporation's shareholders on
May 20, 2004 and as the Plan may be amended from time to time, and shall in all
respects be interpreted in accordance therewith. The Committee shall interpret
and construe the Grants, and its decision shall be conclusive and binding upon
any questions arising hereunder. By executing this Grant Agreement and by
accepting the option granted hereunder, the Grantee acknowledges and accepts the
terms of the Plan and the Committee's authority and discretion as specified in
the Plan.
11. Governing Law.
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by and determined in accordance with
the law of the Commonwealth of Pennsylvania.
AQUA AMERICA, INC.
By:______________________________ By:________________________________
Grantee
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