AMENDMENT OF OUR AMENDED AND RESTATED ARTICLES OF INCORPORATION TO ELIMINATE CUMULATIVE VOTING
The Board has authorized an amendment to Article VI of the Company’s Amended and Restated Articles of Incorporation to eliminate cumulative voting. The full text of our Amended and Restated Articles of Incorporation, including this amendment, is attached to the Proxy Statement as Exhibit A.
The Company’s Amended and Restated Articles of Incorporation currently provide that shareholders have the right to cumulate their votes for the election of directors of the Corporation. Cumulative voting rights permit each shareholder to cast as many votes in the election of each class of Directors to be elected as shall equal the number of such shareholder's shares of Common Stock multiplied by the number of Directors to be elected in such class of Directors, and each shareholder may cast all such votes for a single nominee or distribute such votes among two or more nominees in such class as the shareholder may see fit. In contrast, without cumulative voting, each shareholder has only one vote per share for each nominee. In uncontested elections, like the one covered by this proxy, cumulative voting makes no difference because under the plurality standard, as long as each director gets one vote, he or she is elected.
EXECUTIVE OFFICERS OF THE COMPANY |
Name | | Positions and Offices Held |
|
Joseph T. Hand Age 51 Officer since 2008 | | Mr. Hand has been Chief Operating Officer for the Company since March 2008. Prior to his current position, Mr. Hand was Chief of the Navigation Branch, Baltimore District, for the U.S. Army Corps of Engineers from September 2006 to February 2008, and Deputy Commander and Deputy District Engineer for the Corps of Engineers from June 2003 to September 2006. Prior to the Army Corps, Mr. Hand held various positions in the U.S. Army. |
|
Kathleen M. Miller Age 51 Officer since 2003 | | Ms. Miller has been Chief Financial Officer and Treasurer of the Company since January 2003. Prior to her current position, Ms. Miller was Controller and Assistant Treasurer of the Company from October 2001 to December 2002, and Accounting Manager from March 1996 to September 2001. Prior to joining the Company, Ms. Miller held a variety of accounting and financial positions with two large companies in the York County area. |
|
Vernon L. Bracey Age 52 Officer since 2003 | | Mr. Bracey has been Vice President of Customer Service of the Company since March 2003. Prior to his current position, Mr. Bracey was Customer Service Manager from January 2000 to February 2003 and Meter Reading Manager from September 1998 to December 1999. Prior to joining the Company, Mr. Bracey held various positions in economic development, energy services and public and community relations at GPU Energy, A First Energy Company, from March 1983 through August 1998. |
|
Bruce C. McIntosh Age 61 Officer since 1998 | | Mr. McIntosh has been Vice President-Human Resources, Secretary and Assistant Treasurer of the Company since March 2008. Prior to his current position, Mr. McIntosh was Vice President-Human Resources and Assistant Treasurer from January 2003 to February 2008, Vice President-Human Resources from May 1998 to December 2002 and Director of Human Resources from November 1996 to April 1998. Prior to joining the Company, Mr. McIntosh held various human resources positions in the healthcare industry. |
|
Mark S. Snyder, P.E. Age 43 Officer since 2009 | | Mr. Snyder has been Vice President-Engineering since May 2009. Prior to his current position, Mr. Snyder was Engineering Manager from October 2007 to April 2009 and Engineer from December 2006 to October 2007. Prior to joining the Company, Mr. Snyder was a project engineer with Buchart Horn, Inc., York, PA, an international engineering firm from April 2001 to December 2006, and a project engineer for Rettew Associates, York, PA, a national engineering firm, from December 1996 to April 2001. Mr. Snyder is a licensed Professional Engineer in Pennsylvania. |
|
John H. Strine Age 57 Officer since 2009 | | Mr. Strine has been Vice President-Operations since May 2009. Prior to his current position, Mr. Strine was Operations Manager from February 2008 to May 2009, Maintenance and Grounds Superintendent from August 1991 to February 2008, Assistant Superintendent from June 1985 to July 1991, and held various other positions with the Company prior to 1991. |
Pennsylvania Corporation Law provides that the shareholders of a corporation have cumulative voting rights, unless the articles of incorporation expressly provide otherwise. Our Amended and Restated Articles of Incorporation currently provide that our shareholders have the right to cumulate their votes in the election of directors. This proposal is to amend our Amended and Restated Articles of Incorporation to eliminate cumulative voting under applicable Pennsylvania Corporation Law.
In contested elections, cumulative voting could further the candidacy of minority shareholders which may have interests and goals that are not aligned with the interests of all of the Company’s shareholders. The Company believes that an effective Board must represent all of its shareholders and not a small shareholder group. In addition, cumulative voting is no longer used at many public companies, and has been used rarely, by the Company’s shareholders. For these reasons, the Company proposes to eliminate cumulative voting.CORPORATE GOVERNANCE
Adoption of this proposal requires the affirmative vote of a majority of the votes cast by all shareholders entitled to vote at the Annual Meeting.
The Board of Directors unanimously recommends a vote "FOR" operates under specific corporate governance principles and guidelines based on the proposal to amend our AmendedCompany's Bylaws and Restated Articles of Incorporation to eliminate cumulative voting.
Standing Resolutions. The Nomination and Corporate Governance Committee (“("the Committee”Committee") monitors, develops and makes recommendations to the Board of Directors concerning corporate governancebased on these principles and guidelines. Some of the principles and guidelines are listed below.
Board Selection
The bylaws of the Company provide that the Board of Directors will consist of no less than eight Directors and no more than twelve directors, who are elected to staggered three-year terms of office. There is a mandatory retirement age of 73 for all directors.
The Committee considers candidates for Board membership suggested by its members and other Board members, as well as management and shareholders. The Committee recommends to the Board the appropriate size, function and needs of the Board, so that the Board as a whole collectively possesses a broad range of skills, industry and other knowledge and business and other experience useful to the effective oversight of the Company. Some of these skills include crisis
management, accounting and finance, corporate governance, merger and acquisition, business development and risk management. The BoardCommittee also seeks Board members from diverse backgrounds with a reputation for integrity. In addition, Directors should have experience in positions with a high degree of responsibility, be leaders in the companies or institutions with which they are affiliated and be selected based upon contributions that they can make to the Company. The Committee considers all of these qualities when selecting, subject to Board ratification, candidates for Director. No distinctions are made between internally recommended candidates and those recommended by shareholders.
Director Independence
The bylawsCompany's Common Stock is listed on the NASDAQ Global Select Market. NASDAQ listing rules require that a majority of the Company's directors be "independent directors" as defined by NASDAQ corporate governance standards. Generally, a director does not qualify as an independent director if the director has, or in the past three years has had, certain material relationships or affiliations with the Company, its external or internal auditors, or, is an employee of the Company. The Board has determined that directors Dotzel, Gang, Hodges, Kain, Newcomer, Osman, Rasmussen and Waters are independent directors under the NASDAQ listing standards. Mr. Hines, who is an employee of the Company, provideis not considered an independent director.
The Board based these determinations primarily on a review of the responses of the Directors and executive officers to an annual questionnaire regarding employment history, affiliations, family and other relationships, together with an examination of those companies with whom the Company transacts business.
In making the determination that Mr. Gang is independent under the NASDAQ rules, the Board considered payments of Directors will consist of no$186,280 made to Post & Schell PC, a law firm in which Mr. Gang is a principal. Post & Schell PC is the Company's regulatory counsel. The amounts paid represent less than eight Directors0.3% of Post & Schell PC revenue in 2013. Mr. Gang is not a controlling shareholder of the firm.
In making the determination that Mr. Hodges and no more than twelve directors, whoMr. Waters are elected to staggered three-year termsindependent under the NASDAQ rules, the Board considered the Company's banking and credit arrangements with Fulton Financial Corporation and its affiliates. Mr. Hodges is lead director, and a member of office. Therethe audit, compensation and executive committees of Fulton Financial Corporation, and Mr. Waters is a mandatory retirement ageboard member, Chairman of 73 for all directors.
Directors are required under the bylawsjoint compliance committee and a member of the audit and risk committees of Fulton Financial Corporation, and a board member and Chairman of the trust committee of Fulton Bank. Payments of $107,106 made by the Company to own at least one share of stock.these entities were not material to Fulton Bank or Fulton Financial Corporation.
The Board conducts an annual evaluationIn addition to these relationships, the Company purchases from and sells services to certain directors or the organizations with which they are affiliated at rates that are either regulated or the same as those charged to the same class of its performance and the performance of other Board committees. This process is managed by the Nomination and Corporate Governance Committee.customers.
The Audit, Compensation, and Nomination and Corporate Governance committees must be composed of at least three directors all of which are considered independent directors under Nasdaq rules. Each of these three key committees has a charter which is posted on our website (www.yorkwater.com) under “Investor Relations” then “Corporate Governance”.
The Board determined that the noted relationships do not create a conflict of interest or impair any director's judgment with respect to Board member responsibilities. Directors has adoptedwho are involved with entities being discussed or voted upon at a Code of Conduct applicable to all directors and employees. The Code of Conduct is availablemeeting abstain from voting on our website under “Investor Relations” then “Corporate Governance”.that matter.
The preference of the Board, per its Standing Resolutions, is for the Chairman of the Board to be an independent director per Nasdaqthe NASDAQ rules. Generally, independent directors’ concerns are more in line withdirectors' provide oversight and protect shareholder concerns and values,interests, and they offer more objective input and leadership to the Board. Due to the current composition of the Board, with three directors that are not independent,having one director who is a current Company employee and one director who is a previous employee of the Company, the Board thoughtbelieves it was particularly appropriateis in the best interest of shareholders to have an independent director as Chairman. The Chairman at this time. The current Chairman also leads regular executive sessions of the Board’sBoard's independent directors.
Board Role in Risk Oversight
The Board and its Committees are responsible for oversight of the Company's risk management process. The Audit Committee is responsible for oversight of risks relating to the Company’sCompany's financial statements, financial reporting processes, the evaluation of the effectiveness of internal control over financial reporting and compliance with certain of the Company's ethics policies.
The Compensation Committee is responsible for monitoring risks associated with the design and administration of the Company's compensation programs and performs the annual performance review of the CEO. Other risks such as regulatory risk, management process. The entire seniorenvironmental risk, and strategic risk are monitored by the Executive Committee, the Nomination and Corporate Governance Committee, or the full Board.
Senior management of the Company is responsible for identifying risks, managing risks, and reporting and communicating risks and mitigation efforts back to the Board of Directors. ADirectors or the designated committee. While certain elements of risk are addressed at each Board meeting, management and the Board of Directors conduct a comprehensive analysis of risk on an annual basis. The Board believes a Chairman that is independent of management adds another layer of insight to the risk assessment process.
The Company has an Executive Committee, an Audit Committee, a Compensation Committee, and a Nomination and Corporate Governance Committee, all of which are composed of members of the Board of Directors. The Audit, Compensation, and Nomination and Corporate Governance committees must be composed of at least three directors all of which are considered independent directors under the NASDAQ rules. Each of these three key committees has a charter which is reviewed periodically, and which is posted on the Company's website at www.yorkwater.com under "Investor Relations" then "Corporate Governance".
The Executive Committee held three (3) meetings during the fiscal year ended December 31, 2009. The Executive Committee is empowered to function as delegated by the Board of Directors. Their main focus is on budgeting, water rates,ratemaking, and debt and equity financing. The Executive Committee is composed of the following Directors appointed by the Board: Thomas C. Norris,George W. Hodges, Chairman; William T. Morris, Michael W. Gang, Esq.; Jeffrey S. Osman; and Jeffrey R. Hines, P.E. The Executive Committee held two (2) meetings during the fiscal year ended December 31, 2013.
The Audit Committee monitors the audit functions of the independent public accountants, and reviews the Company's financial reporting process and internal controls. The Audit Committee is composed of the following independent Directors appointed by the Board: Cynthia A. Dotzel, CPA, Chairperson; Steven R. Rasmussen, CPA; and Ernest J. Waters. Based on a review of the background and experience of the members of the Audit Committee, the Board of Directors has determined that all members of the Audit Committee are financially literate and are "audit committee financial experts" within the meaning of applicable SEC rules. The Audit Committee held four (4) meetings during the fiscal year ended December 31, 2009.2013.
The AuditCompensation Committee monitorsconsiders and makes recommendations to the audit functionsBoard of our independent public accountantsDirectors concerning the appropriate compensation package for the corporate officers, Directors and internal controlsmembers of the
Committees of the Company. Board of Directors of the Company, including incentives. Compensation for corporate officers is further explained in the Compensation Discussion and Analysis section of this proxy statement. Director and committee member compensation is based on a review of fees paid by peers and other public companies.
The AuditCompensation Committee is composed of the following independent Directors appointed by the Board: John L. Finlayson,Ernest J. Waters, Chairman; George W. Hodges; Thomas C. Norris;Hay Kain, III; and Cynthia A. Dotzel, CPA, all of whom have been determined to be independent as defined by Nasdaq. The Board has adopted a written charter for the Audit Committee, which it reviews and reassesses on an annual basis. A copy of the Audit Committee Charter is available on the Company's website, on the Corporate Governance page at www.yorkwater.com.
Robert P. Newcomer. The Compensation Committee held two (2) meetings during the fiscal year ended December 31, 2009. The Compensation Committee considers and makes recommendations to the Board of Directors concerning the proposed compensation, salaries and per diems of the corporate officers, Directors and members of the Committees of the Board of Directors of the Company. The Compensation Committee is composed of the following Directors appointed by the Board: George W. Hodges, Chairman; George Hay Kain, III; and Thomas C. Norris, all of whom have been determined to be independent by the Board as defined by Nasdaq. The Board has adopted a written charter for the Compensation Committee, which it reviews and reassesses on an annual basis. A copy of the Compensation Committee Charter is available on the Company’s website, on the Corporate Governance page at www.yorkwater.com.2013.
The Compensation Committee reviewed the Company’s compensation policies and practices for all employees (including non-executive officers) covering base salaries and wages, deferred compensation, incentive plans and change in control agreements in order to assess the inherent risks involved.
Considering all of the elements of the various compensation plans and the fact that the Company has no competing segments or divisions, the Compensation Committee concluded that the Company’s compensation policies and practices did not incentivize excessive risk-taking that would have a material adverse effect on the Company.
The Nomination and Corporate Governance Committee held four (4) meetings during the fiscal year ended December 31, 2009. The Nomination and Corporate Governance Committee recommends the appropriate Board structure, reviews the Company's succession planning, oversees the Board’sBoard's annual evaluation of its performance and the performance of other Board Committees, and makes recommendations to the Board of Directors for nominations for Directors and Officers of the Company. This Committee will consider nominees recommended by shareholders of the Company. Such recommendations shall be madeCompany in writing, should include a statement of the recommended nominee’s qualifications and should be addressed to the Committee at the address of the Company. In accordance with the Company’s by-laws, actual nominations must be made in writing and must be received by the Company not less than ninety (90) days before the date of the Annual Meeting.Company's bylaws.
The Nomination and Corporate Governance Committee is composed of the following independent Directors appointed by the Board: Michael W. Gang, Chairman; John L. Finlayson;Cynthia A. Dotzel; and Ernest J. Waters, all of whom have been determined to be independent by the Board as defined by Nasdaq.Steven R. Rasmussen. The Board of Directors has adopted a written charter for the Nomination and Corporate Governance Committee which it reviews and reassesses on an annual basis. A copy ofheld four (4) meetings during the Nomination and Corporate Governance Committee charter is available on the Company's website, on the Corporate Governance page at www.yorkwater.com.fiscal year ended December 31, 2013.
The independent directors of the Board schedule regular executive sessions of independent directors in which they meet without management participation. The Chairman of the Board leads these sessions.
Our Named Executive Officers. This section discusses the compensation we paid to our named executive officers (as defined by SEC rules) in 2009. Our named executive officers are:
Name | Title |
Jeffrey R. Hines, P.E.
| President, Chief Executive Officer and Director
|
Kathleen M. Miller | Chief Financial Officer
|
Joseph T. Hand | Chief Operating Officer
|
Bruce C. McIntosh | Vice President-Human Resources
|
Vernon L. Bracey | Vice President-Customer Service |
General Philosophy. We compensate our senior management through a combination of base salary and cash incentives designed to be competitive with comparable employers and to align management's incentives with the long-term interests of our customers and shareholders. Our compensation setting process consists of establishing a base salary for each senior manager and designing an annual cash incentive (currently up to 5% of salary) for such manager to reward the achievement of specific operational goals. We only incentivize operational goals that add value for both our customers and our shareholders, such as increasing efficiency, ensuring a safe, adequate supply of water, reducing costs, improving customer service and expanding our service territory in order to gain economies of scale and spread fixed costs over a larger number of customers. Payouts for incentives that are not in the long-term interest of customers may not be considered prudent, and therefore, be recoverable through water rates granted by the Pennsylvania Public Utility Commission.
Base Salary. To assist us in establishing base salary in 2009, the Compensation Committee engaged SAJE, a nationally recognized consulting firm, to provide a survey of the compensation of senior management at York and at seven comparable investor-owned water
utilities. These comparables included Aqua America, Inc., Aquarion Water Company, Middlesex Water Company, Pennichuck Water, San Jose Water Company, Suburban Water Systems and United Water. SAJE also determined relative measures of the relationship between the size and compensation of the companies included in the survey. Outside of this survey, SAJE provided no other services, and no other compensation consultants were engaged or consulted by the Board of Directors, the Compensation Committee, or management for any purpose.
Based upon an analysis of the base salary levels and trend lines developed using regression analysis reflected in the survey, we establish base salaries for our senior management. The base salary of the President and Chief Executive Officer and other Named Executive Officers is currently below the 25th percentile of the seven comparable investor-owned water utilities. We have chosen this level due to the relatively low level of complexity of the Company’s business and operations as compared to many of the comparable investor-owned water utilities. We are a pure regulated water utility, while some of the comparables also have wastewater and other non-regulated businesses. We are a stand alone company with no subsidiaries, parent or holding company. We have one filtration plant and serve a relatively smaller number of customers in one state. Many of the comparables serve in multiple states and have many subsidiaries, and many filtration plants. In addition, there are issues specific to certain parts of the country such as water availability and regulatory environment that challenge some water utilities more than others. Finally, the cost of living in the geographic area in which our operations are located is lower than some of the comparables.
The base salary level of senior management will be reviewed annually to determine if the 25th percentile continues to be appropriate based on changes in our product line, the current regulatory environment, changes in water quality standards, competition for competent management and growth in our service territory, as well as other relevant factors.
In addition to the survey of comparable companies, the Compensation Committee also considers the value of the position to the Company, the performance of the executive and the length of service in the current position and with the Company.
Bonuses and Equity Compensation. We do not provide bonuses or equity compensation in the form of stock options to senior management. We do, however, offer an Employee Stock Purchase Plan to all employees, including senior management, on the same terms. Employees may purchase stock from the Company on a quarterly basis, at a 5% discount to market. Annual purchases under this plan may not exceed 10% of the employee’s regular salary.
Cash Incentives. Our practice is to use cash awards to incentivize our senior managers to create value for our customers and shareholders. To that end, we adopted a Cash Incentive Plan in 2005, pursuant to which our Compensation Committee sets annual performance objectives and target incentive payment amounts. All of our managers participate in the plan, including our senior managers.
The plan is administered by the Compensation Committee, which has complete and final authority to, among other things, select participants, to determine the goals and circumstances under which incentive awards are granted, to grant awards and to construe and interpret the Plan. Decisions of the Compensation Committee with respect to the administration and interpretation of the Plan are final, conclusive and binding upon all participants.
The Compensation Committee has discretion to determine all performance objectives. In addition, the Committee may specify that any incentive award be conditioned upon achievement or satisfaction of business criteria or other measures of performance. One or more of the following
business criteria or other measures of performance may be used by the Committee: (1) growth in revenues or assets; (2) earnings from operations; (3) net income or earnings per common share; (4) return on investment or return on equity; (5) stock price or shareholder return; and (6) strategic business criteria, consisting of meeting specified water quality standards, environmental or safety standards, affordability of rates and customer satisfaction standards. The Compensation Committee may exercise its discretion to eliminate, reduce or increase the amounts payable as incentive, subject to such business criteria or other measures of performance.
Under the plan, annual performance objectives are established no later than ninety (90) days after the beginning of any annual incentive period, which is usually a calendar year. Each performance objective carries with it a score of five (5) points. No points are awarded for partial achievement of performance objectives. Incentive awards are granted only if an overall score of seventy-five (75) percent of the available performance objective points are achieved. The Compensation Committee believes that achieving performance objectives should be the shared responsibility of management. Accordingly, if an overall score of seventy-five (75) percent of the available performance objective points is achieved, all participants receive their target incentive awards. If an overall score of less than seventy-five (75) percent of the available performance objectives is achieved, no participant receives any award.
The Compensation Committee set the performance objectives and target incentive awards for 2009 on January 26, 2009. For 2009, the Compensation Committee determined that the amount of the target cash incentive award would be 5% of the base salary as of December 31, 2009 for each management employee, including senior management employees. The Committee selected 5% as the target cash incentive award for 2009, and for all of the previous years since the plan’s inception in 2005, after considering various factors. One such factor was the range of other benefits already provided by the Company. Another factor was the comparison of the Company’s total salary and benefit package to the compensation packages paid by other comparable companies. A third factor was the level of motivation needed to achieve the established goals of the Company. Finally, the Compensation Committee considered how the plan would be perceived by the regulators, customers and shareholders. All of these factors together contributed to the Committee’s decision to keep the target incentive relatively low as compared to other companies.
The 2009 performance objectives as determined by the Compensation Committee were: implement on-line bill pay, implement a service line protection plan, develop a nineteen-year meter change out plan, replace or reline 33,000 feet of pipe, develop an annual hydrant inspection plan, obtain regulatory approval of municipal contract, design and permit spillway improvements, conduct a customer attitude survey, implement a customer satisfaction survey, complete an equity offering, retire debt, reduce the number of billing cycles, complete recommendations of the management audit, develop a payment agreement reconciliation process and implement identity theft procedures.
On January 25, 2010, the Compensation Committee determined that our management had achieved at least seventy-five (75) percent of the performance objectives listed above for 2009, as well as the set business criteria for 2009, which was earnings per common share of $0.60. The Committee awarded the senior managers the amounts set forth in the 2009 Grants of Plan Based Awards Table below, which was the target incentive amount for each senior manager.
On January 25, 2010, the Compensation Committee determined performance objectives and target incentive amounts to be awarded under the plan for 2010. The performance objectives are: review and implement, if beneficial, a service line protection plan, update the valve maintenance program, reline or replace infrastructure amounting to 29,000 feet of pipe, design and permit Lake Williams spillway improvements, complete a debt financing, implement a payment agreement reconciliation process, complete and successfully resolve a major rate case filing, complete phase 2
of the water treatment plant update and expansion project, implement paperless billing, implement an annual risk analysis and management plan, reach a successful bargaining unit agreement that provides for uninterrupted service, implement system-wide Scada (Supervisory Control and Data Acquisition) read-only access, develop an energy optimization protocol, implement new public notification rule, streamline the billing cycles and develop on-line policy and procedures manuals. The target incentive amounts for 2010, as determined by the Compensation Committee, are 5% of senior managers' base salary as of December 31, 2010 and the business criteria for 2010 is earnings per common share.
Severance Benefits. Other than Change in Control payments described below, we do not provide severance benefits to employees.
Retirement Plans. We provide a traditional defined benefit pension plan. Senior management is entitled to benefits under the defined benefit pension plan upon retirement after the age of 55 on the same terms as other employees. The pension benefit is based on the years of service multiplied by the sum of $19.25 and 1-1/2% of that portion of the final average monthly earnings which are in excess of $400. The final average monthly earnings are the average of the employee's earnings for the highest consecutive sixty (60) complete months during the last one hundred and twenty (120) complete months immediately prior to the date the pension benefit calculation is made. Employees who terminate their employment prior to the age of 55 may elect to collect benefits upon attaining age 55.
We also provide a supplemental retirement program, which provides senior management with a retirement benefit after the age of 55 in addition to the defined benefit pension. The supplemental retirement program is designed to encourage senior management to stay with the Company until retirement. Generally, supplemental retirement benefits are made available to senior management and are payable to the executive or his or her beneficiary over 15 years beginning no earlier than age 60. The annual benefit payable under the supplemental retirement program is calculated by multiplying the number of years of service subsequent to December 31, 1983 by a predetermined annual retirement benefit unit as shown below:
Mr. Hines | $1,441 |
Ms. Miller | 1,394 |
Mr. Hand | 1,961 |
Mr. McIntosh | 1,754 |
Mr. Bracey | 1,471 |
The estimated annual benefit payable to Mr. Hines at normal retirement age under the supplemental retirement program is $53,333. The estimated annual benefit payable to Ms. Miller, Mr. Hand, Mr. McIntosh and Mr. Bracey at normal retirement age under the supplemental retirement program is $33,333. Benefits are paid monthly. Senior managers who terminate their employment prior to the age of 55 forfeit their supplemental retirement benefits.
We also provide a deferred compensation program to management. The deferred compensation program permits senior managers to defer up to 5% of salary over an eight (8) year period, with the Company matching the deferment up to 2-1/2% of salary. Mr. Hand and Mr. Bracey are the only named senior management members currently deferring salary. In 2009, Mr. Hand received annual matching benefits of $2,188, and Mr. Bracey received annual matching benefits of $1,565. Annually, the Company credits participants’ deferred compensation balances with interest on the existing credit balance at a rate selected by the Company, currently equal to the December 31 rate of Moody’s AAA Corporate Bond Yield. This rate amounted to 5.30% for 2009. Our deferred compensation program does not provide above-market or preferential earnings.
2009 credited earnings are shown in the “2009 Nonqualified Deferred Compensation” table. Payouts from this plan on retirement, termination, disability or death are described in detail below in the narrative discussion accompanying the 2009 Nonqualified Deferred Compensation Table.
Our senior managers may participate in our 401(k) savings plan on the same terms as other employees. We provide an annual maximum matching contribution of $2,240 per employee. Mr. Bracey did not participate in the plan in 2009. All other senior managers received the maximum matching contribution of $2,240 during 2009.
Change in Control. Our senior management has built York Water into the successful business that it is today. We believe that it is important to protect them in the event of a change of control and to protect the company from the distractions senior managers often suffer as a result of the uncertainties that frequently surround changes in control. Accordingly, in 2008 we entered into amended and restated agreements with each of our senior managers that provide for certain payments upon changes of control in consideration of such senior managers agreeing not to compete with us for a period of time following the termination of their employment. Most change in control payments are only paid if the senior manager in question is terminated in connection with a change in control. In certain circumstances, however, payments may be made to senior managers who do not terminate their employment for one year following a change in control of us. These payments incentivize our senior managers to continue their employment amid the uncertainty that often follows changes in control and thereby promotes stability for the company during such times. Change in control benefits are paid lump sum and are based on a multiple of base salary and cash incentive compensation. In the event of a change of control, we also continue health and other insurance benefits for up to one year depending on circumstances. The agreements are valid for an initial term of five years, and renew automatically for one-year periods after the first five years. The agreements terminate upon the employee reaching age 65 or terminating employment with the Company. The Company must provide 90 days notice to terminate the agreements. These agreements are described in more detail below under the heading "Potential Payments upon Termination or Change in Control."
Perquisites and Other Benefits. The primary perquisite for senior management is the use of York Water's vehicles for personal use. The most common personal use of York Water's vehicles by senior management is commuting to and from work. No member of senior management receives perquisites valued in the aggregate at $10,000 or more.
Senior management also participates in York Water's other benefit plans on the same terms as other employees. These plans include medical and health insurance, life insurance and employee stock plan discount.
Board Process. The Compensation Committee of the Board of Directors approves all compensation and awards to executive officers, which include the Chief Executive, Chief Financial Officer, Chief Operating Officer and four vice presidents. The Compensation Committee reviews the performance and compensation of the Chief Executive and, following discussions with that individual, and a review of the data provided by SAJE, establishes his compensation level. For the remaining executive officers, the Chief Executive Officer makes recommendations to the Compensation Committee that generally are approved. With respect to the cash incentive awards, the Compensation Committee grants cash incentives when warranted.
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management, and based on that review and discussion, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
George W. Hodges, Chairman | George Hay Kain III, Member | Thomas C. Norris, Member |
The following table sets forth information concerning compensation paid by the Company to senior managers or accrued by the Company for the senior managers in 2009, 2008 and 2007.
| | | | | Change in | | |
| | | | | Pension Value | | |
| | | | | & Nonqualified | | |
| | | | Non-Equity | Deferred | | |
| Name and | | | Incentive Plan | Compensation | All Other | |
| Principal Position | Year | Salary ($) | Compensation ($) | Earnings ($) | Compensation ($) | Total ($) |
| | | | | | | |
| Jeffrey R. Hines, P.E. | | | | | | |
| President, Chief | | | | | | |
| Executive Officer | | | | | | |
| and Director | 2009 | 237,685 | 12,100 | 75,282 | 4,922 | 329,989 |
| | 2008 | 215,085 | 11,056 | 124,314 | 4,484 | 354,939 |
| | 2007 | 146,914 | 7,415 | 463 | 2,240 | 157,032 |
| | | | | | | |
| Kathleen M. Miller | | | | | | |
| Chief Financial | | | | | | |
| Officer | 2009 | 124,483 | 6,407 | 23,360 | 3,638 | 157,888 |
| | 2008 | 116,806 | 5,725 | 43,235 | 3,409 | 169,175 |
| | 2007 | 103,232 | 5,162 | 4,637 | 2,429 | 115,460 |
| | | | | | | |
| Joseph T. Hand | | | | | | |
| Chief Operating | | | | | | |
| Officer | 2009 | 115,708 | 5,850 | 0,000 | 4,776 | 126,334 |
| | 2008 | 91,938 | 4,545 | 0,000 | 1,913 | 98,396 |
| | | | | | | |
| Bruce C. McIntosh | | | | | | |
| Vice President- | | | | | | |
| Human Resources | 2009 | 107,825 | 5,375 | 56,586 | 3,639 | 173,425 |
| | 2008 | 105,098 | 5,118 | 109,839 | 3,411 | 223,466 |
| | 2007 | 99,412 | 4,971 | 9,080 | 2,240 | 115,703 |
| | | | | | | |
| Vernon L. Bracey | | | | | | |
| Vice President- | | | | | | |
| Customer Service | 2009 | 97,965 | 4,950 | 25,908 | 3,720 | 132,543 |
| | 2008 | 95,572 | 4,667 | 37,162 | 3,381 | 140,782 |
| | | | | | | |
Non-Equity Incentive Awards. As described in the Compensation Discussion and Analysis under the heading "Cash Incentives," our practice is to award cash incentives based upon the achievement of diverse performance objectives. The performance objectives are established annually by the Compensation Committee, and are designed to recognize and reward the achievement of our goals and the creation of value for our customers and shareholders. The following table sets forth awards granted to our senior managers in 2009 pursuant to our incentive plan.
Name and Principal Position
| | Estimated Future Payouts Under
Non-Equity Incentive
Plan Awards Target ($)
|
Jeffrey R. Hines, P.E.
President, Chief Executive Officer and Director
| | 12,100
|
Kathleen M. Miller
Chief Financial Officer
| | 6,407
|
Joseph T. Hand
Chief Operating Officer
| | 5,850
|
Bruce C. McIntosh
Vice President-Human Resources
| | 5,375
|
Vernon L. Bracey
Vice President-Customer Service
| | 4,950
|
The awards appearing in this table also appear in the Summary Compensation Table.
We do not grant equity incentive plan awards.
The table below sets forth the present value of accumulated benefits payable to each senior manager, including the number of years of credited service, under the Company's General and Administrative Pension Plan (a defined benefit pension plan) and its Supplemental Executive Retirement Plan. Detailed information on these plans can be found in the Compensation Discussion and Analysis above, under the heading "Retirement Plans."
| | | Years of | Present Value |
| Name and | | Credited | of Accumulated |
| Principal Position | Plan Name | Service | Benefit ($) |
| | | | |
| Jeffrey R. Hines, P.E. | | | |
| President, Chief Executive Officer | General and Administrative | | |
| and Director | Pension Plan | 19 | 197,023 |
| | | | |
| Jeffrey R. Hines, P.E. | | | |
| President, Chief Executive Officer | Supplemental Executive | | |
| and Director | Retirement Plan | 20 | 172,687 |
| | | | |
| Kathleen M. Miller | General and Administrative | | |
| Chief Financial Officer | Pension Plan | 13 | 85,833 |
| | | | |
| Kathleen M. Miller | Supplemental Executive | | |
| Chief Financial Officer | Retirement Plan | 6 | 45,294 |
| | | | |
| Bruce C. McIntosh | General and Administrative | | |
| Vice President-Human Resources | Pension Plan | 13 | 136,262 |
| | | | |
| Bruce C. McIntosh | Supplemental Executive | | |
| Vice President-Human Resources | Retirement Plan | 11 | 188,069 |
| | | | |
| Vernon L. Bracey | General and Administrative | | |
| Vice President-Customer Service | Pension Plan | 11 | 61,075 |
| | | | |
| Vernon L. Bracey | Supplemental Executive | | |
| Vice President-Customer Service | Retirement Plan | 6 | 51,758 |
All assumptions made in quantifying the present value of the accumulated benefits to the senior managers under these plans are described in Note 6 to the Company's Financial Statements included in our 2009 Annual Report to Shareholders. The present values are based upon a 6.00% discount rate. Mr. Hand was not vested in the General and Administrative Pension Plan and had no complete years of service under the Supplemental Executive Retirement Plan as of December 31, 2009. There were no payments made under these plans during the last fiscal year.
The table set forth below presents contributions, earnings and the balance at year-end (including tax savings) for the accounts of our senior managers under our deferred compensation program that is described in more detail in the Compensation Discussion and Analysis under the heading "Deferred Compensation."
Name and Principal Position | Executive Contribution | Company Contribution | Earnings | Distributions | Balance at Year-End |
Jeffrey R. Hines, P.E. President, Chief Executive Officer and Director | | | 2,682 | | 89,697 |
Kathleen M. Miller, Chief Financial Officer | | | 1,398 | | 46,742 |
Joseph T. Hand, Chief Operating Officer | 4,376 | 2,188 | 348 | | 11,634 |
Bruce C. McIntosh, Vice President-Human Resources | | | 1,399 | | 46,799 |
Vernon L. Bracey Vice President-Customer Service | 3,129 | 1,565 | 2,155 | | 72,069 |
Payouts upon Retirement. Following a senior manager's retirement, a monthly retirement benefit will be paid to him or her for 120 months. This benefit will be equal to a percentage of his or her deferred income account immediately prior to retirement divided by the following factor (1 minus the corporate federal and state income tax rate for the Company immediately prior to retirement). Assuming a federal income tax rate of 34% and a state income tax rate of 9.99% for 2009, and assuming all senior managers were eligible for retirement as of December 31, 2009, the senior managers would receive the monthly benefits in the table that follows the next paragraph. The Company does not gross up the deferred compensation payout, but rather passes on the tax benefit the Company will realize when death benefit proceeds are received under corporate-owned life insurance policies which are in place in order to recoup the costs of the plan.
Payouts upon Disability. If a senior manager becomes disabled before his or her deferred income account has been distributed, a monthly retirement benefit will be paid to him or her for 120 months. This benefit will be equal to a percentage of his or her deferred income account immediately prior to the date he or she became disabled divided by the following factor (1 minus the corporate federal and state income tax rate for the Company immediately prior to the date he or she became disabled). Assuming a federal income tax rate of 34% and a state income tax rate of 9.99% for 2008, and assuming each senior manager became disabled as of December 31, 2009, such senior managers would receive the monthly benefits in the table that follows. Once again, the Company is not grossing up the benefit, but rather passing on tax savings it will realize in the future.
Name and Principal Position | | Deferred Income Account Percentage (%) | | Monthly Retirement Amount ($) |
Jeffrey R. Hines, P.E., President, Chief Executive Officer and Director | | 1.110 | | 996 | |
Kathleen M. Miller, Chief Financial Officer | | 0.833 | | 390 | |
Joseph T. Hand, Chief Operating Officer | | 0.833 | | 97 | |
Bruce C. McIntosh, Vice President-Human Resources | | 0.833 | | 390 | |
Vernon L. Bracey, Vice President-Customer Service | | 0.833 | | 601 | |
Payouts upon Termination of Employment. If a senior manager's employment with the Company is terminated other than by death or disability before he or she is eligible for retirement, the amount of his or her contributions, without the Company's matching contribution and without accumulated interest credited to the deferred income account shall be distributed to such senior manager immediately upon his or her termination in a lump sum. Assuming each senior manager were terminated as of December 31, 2009, such senior managers would be entitled to receive the following lump sum payments:
Name and
Principal Position
| | Lump Sum Payment Upon Termination ($)
|
Jeffrey R. Hines, P.E., President, Chief Executive Officer and Director
| | 18,238
|
Kathleen M. Miller,
Chief Financial Officer
| | 10,216
|
Joseph T. Hand
Chief Operating Officer
| | 4,376
|
Bruce C. McIntosh, Vice
President-Human Resources
| | 10,021
|
Vernon L. Bracey, Vice President-Customer Service
| | 24,369
|
The senior management deferrals have previously been reported in the salary column of the Summary Compensation Table in the year in which they were earned.
Payouts upon Death. If a senior manager were to die before distribution of his or her deferred income account has commenced, his or her beneficiary would receive a death benefit in an amount equal to the higher of $150,000 or the senior manager’s deferred income account immediately prior to his or her death divided by the following factor (1 minus the corporate federal and state income tax rate for the Company immediately prior to the date of death). The death benefit determined as above will be paid to beneficiaries in a lump sum. Assuming death benefits for each senior manager became payable as of December 31, 2009, such senior manager’s respective beneficiaries would be entitled to receive the following lump sum payments:
Name and
Principal Position
| | Beneficiary Death Benefit ($)
|
Jeffrey R. Hines, P.E., President, Chief Executive Officer and Director
| | 150,000
|
Kathleen M. Miller,
Chief Financial Officer
| | 150,000
|
Joseph T. Hand
Chief Operating Officer
| | 150,000
|
Bruce C. McIntosh, Vice
President-Human Resources
| | 150,000
|
Vernon L. Bracey, Vice
President-Customer Service
| | 150,000
|
Description of Change in Control Agreements. We have entered into Amended and Restated Change in Control Agreements with each member of senior management that provide for payments to them under certain circumstances in connection with a change in control in consideration of such senior managers agreeing not to compete with us for a period of time following the termination of their employment.
Under all agreements, generally a “change in control” will occur if:
· | Any person or affiliated group (with limited exceptions) becomes the beneficial owner in the aggregate of 50 percent or more of all of our voting securities; |
· | A majority of our Board of Directors is involuntarily removed or defeated for re-election to our Board of Directors (for example, as a result of a proxy contest); |
· | We are party to a merger or reorganization pursuant to which the holders of our voting securities prior to such transaction become the holders of 50 percent or less of the voting securities of the new merged or reorganized company; or |
· | The Company is liquidated or dissolved, or all of its assets are sold to a third party; |
In each circumstance described above, our Board of Directors may make a determination that the circumstances do not warrant the implementation of the provisions of the agreement, and in such case, the change in control will not trigger any payments under the agreements.
All payments under the agreements are triggered by the occurrence of a change in control of us, and most payments also require that the relevant senior manager’s employment also be terminated. The amounts of payments to our senior managers under these agreements vary depending on the timing of the change in control and the timing and manner of the termination of employment. Generally, the manner of termination is divided into four categories.
A “for cause” termination results from:
· | misappropriation of funds or any act of common law fraud; |
· | habitual insobriety or substance abuse; |
· | conviction of a felony or any crime involving moral turpitude; |
· | willful misconduct or gross negligence by the senior manager in the performance of his duties; |
· | the willful failure of the senior manager to perform a material function of his duties; or |
· | the senior manager engaging in a conflict of interest or other breach of fiduciary duty. |
A “good reason” termination occurs when the senior manager terminates his own employment following a change in control and after one or more of the following has occurred:
· | the Company has breached the change in control agreement; |
· | the Company has significantly reduced the authority, duties or responsibilities of the senior manager or reduced his base compensation or annual bonus compensation opportunity; |
· | the Company has reduced the senior manager from the employment grade or officer positions which he or she holds; or |
· | the Company has transferred the senior manager, without his or her express written consent, to a location that is more than 50 miles from his or her principal place of business immediately preceding the change of control. |
A voluntary termination is the termination by the senior manager of his or her own employment under circumstances that would not be a “good reason” termination. Examples are ordinary retirement or leaving the Company to seek other job opportunities.
An involuntary termination is a termination in connection with a change in control that is not a “for cause” termination, a good reason termination or a voluntary termination.
Payouts under Change in Control Agreements. Under the agreements, all senior managers are entitled to payment in the case of an involuntary termination or a good reason termination within some time period surrounding a change in control of us (generally six months prior to or one year following a change in control). Payments are paid in lump sums and are based on a multiple of base salary and cash incentive compensation earned by the senior manager in the preceding 12 months. We call this amount “base pay.” Additionally, Messrs. Hines, Hand, Bracey, and McIntosh, and Ms. Miller are entitled to payment of “stay bonuses” if they remain employed by
us for one year following a change in control, and smaller stay bonuses if they remain employed for at least three months following a change in control and then voluntarily terminate their employment more than three months but less than one year following a change in control. Finally, our senior managers are entitled to have their health and welfare benefits continue for periods of up to one year following the termination of their employment (subject to such benefits terminating or such senior manager becoming covered by the benefit plans of another employer).
The table below sets forth the relevant base pay multiples, lump sum payout amounts and the value of continued benefits our senior managers would receive under various circumstances under their change in control agreements. For the purposes of this table, we have assumed that a change in control occurred on December 31, 2009.
| | | | Health | |
| | | | and Other | |
| | | Lump Sum | Insurance | |
| | Multiple of | Payment | Benefits | Total |
| Name | Base Pay | Amount ($) | ($) (1) | ($) |
| | | | | |
| Jeffrey R. Hines, P.E. | | | | |
| | | | | |
| Involuntary termination or | 2.99 times | 746,857 | 3,588 | 750,454 |
| good reason termination. | | | | |
| | | | | |
| Voluntary termination more | .25 times | 62,446 | 3,588 | 66,043 |
| than 3 months but less than | | | | |
| one year after a change in | | | | |
| control. | | | | |
| | | | | |
| Continuing employment for | .5 times | 124,893 | 3,588 | 128,490 |
| one year after a change in | | | | |
| control. | | | | |
| | | | | |
| Kathleen M. Miller | | | | |
| | | | | |
| Involuntary termination or | .5 times | 65,445 | 6,177 | 71,314 |
| good reason termination. | | | | |
| | | | | |
| Voluntary termination more | .25 times | 32,723 | 6,177 | 38,592 |
| than 3 months but less than | | | | |
| one year after a change in | | | | |
| control. | | | | |
| | | | | |
| Continuing employment for | .5 times | 65,445 | 6,177 | 71,314 |
| one year after a change in | | | | |
| control. | | | | |
| | | | Health | |
| | | | and Other | |
| | | Lump Sum | Insurance | |
| | Multiple of | Payment | Benefits | Total |
| Name | Base Pay | Amount ($) | ($) (1) | ($) |
| | | | | |
| Joseph T. Hand | | | | |
| | | | | |
| Involuntary termination or | .5 times | 60,779 | 342 | 61,131 |
| good reason termination. | | | | |
| | | | | |
| Voluntary termination more | .25 times | 30,390 | 342 | 30,742 |
| than 3 months but less than | | | | |
| one year after a change in | | | | |
| control. | | | | |
| | | | | |
| Continuing employment for | .5 times | 60,779 | 342 | 61,131 |
| one year after a change in | | | | |
| control. | | | | |
| | | | | |
| Bruce C. McIntosh | | | | |
| | | | | |
| Involuntary termination or | .5 times | 56,600 | 7,644 | 64,254 |
| good reason termination. | | | | |
| | | | | |
| Voluntary termination more | .25 times | 28,300 | 7,644 | 35,954 |
| than 3 months but less than | | | | |
| one year after a change in | | | | |
| control. | | | | |
| | | | | |
| Continuing employment for | .5 times | 56,600 | 7,644 | 64,254 |
| one year after a change in | | | | |
| control. | | | | |
| | | | | |
| Vernon L. Bracey | | | | |
| | | | | |
| Involuntary termination or | .5 times | 51,458 | 9,754 | 61,222 |
| good reason termination. | | | | |
| | | | | |
| Voluntary termination more | .25 times | 25,729 | 9,754 | 35,493 |
| than 3 months but less than | | | | |
| one year after a change in | | | | |
| control. | | | | |
| | | | | |
| Continuing employment for | .5 times | 51,458 | 9,754 | 61,222 |
| one year after a change in | | | | |
| control. | | | | |
| | | | | |
| (1) The value of health benefits was determined using the estimated rates applicable under the Comprehensive |
| Omnibus Budget Reconciliation Act (COBRA) for terminated employees. |
Payment of the lump sum payments under the change in control agreements is contingent upon the senior manager executing a standard release. The change in control agreements also contain non-competition provisions that generally require that, a senior manager will not, while he or she is employed by us and for one year following the termination of his or her employment by us:
· | participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with or use or permit his or her name to be used in connection with, any business or enterprise engaged in by us within our franchised territory; |
· | solicit or attempt to convert any account or customer of the Company to another supplier; or |
· | solicit or attempt to hire any employee of the Company. |
Any breach of this non-competition agreement can result in damages being awarded to the Company, including the amount of one-half of any lump sum payments described above.
Other Payouts. The senior managers will also be entitled to the payouts of their pension and supplemental retirement accounts upon retirement and payout of their deferred compensation accounts upon termination of their employment with us.
Using the assumptions described in Note 6 to the Company’s Financial Statements included in our 2009 Annual Report to Shareholders, and assuming that all of our senior managers remain with the Company until reaching age 55 (or, for those who are currently older than age 55, assuming they retired as of December 31, 2009) our senior managers have earned monthly benefits under the pension plan and supplemental retirement plan as follows:
Name
| Plan Name
| Monthly Benefit ($)
|
Jeffrey R. Hines, P.E. | General and Administrative Pension Plan | 4,396
|
Jeffrey R. Hines, P.E.
| Supplemental Executive Retirement Plan | 2,402 |
Kathleen M. Miller
| General and Administrative Pension Plan | 1,964 |
Kathleen M. Miller
| Supplemental Executive Retirement Plan | 697 |
Bruce C. McIntosh
| General and Administrative Pension Plan | 1,864 |
Bruce C. McIntosh
| Supplemental Executive Retirement Plan | 1,608 |
Vernon L. Bracey
| General and Administrative Pension Plan | 1,447 |
Vernon L. Bracey
| Supplemental Executive Retirement Plan | 735 |
Joseph T. Hand has not vested in the General and Administrative Pension Plan, and he has not yet completed a full year of service under the Supplemental Executive Retirement Plan.
Our senior managers will also be entitled to be paid the amounts described in the narrative discussion accompanying the 2009 Nonqualified Deferred Compensation Table above in the manner described in that section.
| Director | Fees Earned Paid in Cash | All Other Compensation | Total Compensation |
| | | | |
| Thomas C. Norris, | | | |
| Chairman of the Board | 35,700 | | 35,700 |
| | | | |
| Cynthia A. Dotzel, CPA | 20,100 | | 20,100 |
| | | | |
| John L. Finlayson | 28,300 | | 28,300 |
| | | | |
| Michael W. Gang. Esq. | 25,350 | | 25,350 |
| | | | |
| George W. Hodges | 23,800 | | 23,800 |
| | | | |
| George Hay Kain III | 20,900 | | 20,900 |
| | | | |
| William T. Morris, P.E. | 21,750 | | 21,750 |
| | | | |
| Jeffrey S. Osman | 23,150 | 21,938 | 45,088 |
| | | | |
| Ernest J. Waters | 22,300 | | 22,300 |
Director Fees Earned. In consideration of the services they provide to us, directors who are not regular full-time employees are entitled to receive $13,200 per year plus $700 for attendance at each regular and special meeting of the Board of Directors. Audit Committee members are entitled to receive $800 for attendance at each regular or special meeting of the Audit Committee. The chairperson of the Audit Committee receives $1,500 for attendance at each Audit Committee meeting. All other committee members (excluding the Executive Committee) who are not regular full-time employees are entitled to receive $700 for attendance at each Committee meeting. The chairperson of each Committee (excluding the Executive and Audit Committees) receives $900 for attendance at Committee meetings. Executive Committee members are entitled to receive $750 for attendance at each Committee meeting, and the Chairperson of the Executive Committee receives $1,000 for attendance at Committee meetings. Directors who are also current employees of the Company receive no additional compensation for Board service.
Mr. Osman provided regulatory and other consulting services to the Company in 2009 in the amount of $21,938 which is shown in the All Other Compensation column of the above table.
No perquisites are provided to Directors.
There were 9 Board of Directors' Meetings during calendar year 2009. All Directors attended at least 89% of the scheduled Board of Directors and committee meetings.
The Board has adopted a written policy setting forth procedures for the review, approval and monitoring of transactions involving the Company and any related persons (directors, nominees for directors, 5% security holders, and executive officers or their immediate family members). Under the policy (and ourthe Audit Committee Charter), the Audit Committee is responsible for reviewing and approving all transactions involving the Company in which any related person has a direct or indirect interest, regardless of amount. The Audit Committee intends to approve only those related party transactions that are on terms no less favorable to the Company than could be obtained from independent third parties and are otherwise in, or are not inconsistent with, the best interests of the Company and its shareholders.
In furtherance of this policy, the Company’sCompany's Board of Directors has adopted a Code of Conduct applicable to all Directors, officers and employees, which generally requires the reportingthat any transaction or opportunity that may constitute a conflict of interest, be reported to management of transactions or opportunities that constitute conflicts of interest so that theyit may be avoided. Ourreviewed and avoided, if possible. The Code of Conduct is available on ourthe Company's web site on the Corporate Governance page at www.yorkwater.com under "Investor Relations", then "Corporate Governance".
As noted on page 9 under Director Independence, the Company has a relationship with the law firm in which Mr. Gang is a principal. Because the legal services provided by the law firm in 2013 were greater than the SEC threshold of $120,000, this is a reportable related party transaction. The Company primarily deals with attorneys other than Mr. Gang on regulatory matters. Mr. Gang does not have any material related party transactions in which a related person has a direct ormaterial interest in the payment of such fees, but has an indirect benefit.
The Audit Committee reviewed the related party transaction between Director Michael W. Gang, Esq., an attorney of Post & Schell PC, and the Company. The Company paid Post & Schell PC $46,600 for regulatory legal services during 2009 and plans to continue to use Post & Schell PC in 2010. The amount paid represents less than 1% of Post & Schell PC revenue. Mr. Gang is notinterest as a controlling shareholder of the firm. The Committee determined that the relationship does not create a conflict of interest or impair Mr. Gang’s judgment with respect to Board member responsibilities.
The Company’s Audit Committee (the “Committee”) consists of four non-employee Directors who are "independent Directors" as defined by Nasdaq. The Board of Directors has determined that each member of the Audit Committeelaw firm. His indirect interest is financially literate. In January 2003,also immaterial.
Communication with the Board of Directors adopted an amended and restated written charter for the Audit Committee. A copy of the Audit Committee Charter is available on the Company’s website, on the Corporate Governance page at www.yorkwater.com.
The Audit Committee reviews the Company’s financial reporting process on behalf of the Board, reports to the Securities and Exchange Commission on Forms 10-Q and 10-K and releases of earnings. In addition, the Committee selects, subject to shareholder ratification, the Company’s independent registered public accounting firm.
The Board of Directors has determined that John L. Finlayson, Chairman of the Audit Committee, is an Audit Committee financial expert within the meaning of the applicable SEC rules. Mr. Finlayson is a former Certified Public Accountant, and has an understanding of generally accepted accounting principles and financial statements, as well as the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves. Mr. Finlayson is experienced in the preparation and auditing of financial statements of public companies, and has an understanding of accounting estimates, internal control over financial reporting, and audit committee functions. He is independent of management.
On October 1, 2009 the Company was notified that the audit practice of Beard Miller Company LLP (“Beard”) an independent registered public accounting firm, was combined with ParenteBeard LLC ("ParenteBeard") in a transaction pursuant to which Beard combined its operations with ParenteBeard and certain of the professional staff and partners of Beard joined either as employees or partners of ParenteBeard. On October 1, 2009, Beard resigned as the auditors of the Company and with the approval of the Audit Committee of the Company’s Board of Directors, ParenteBeard was engaged as its independent registered public accounting firm for the year ended December 31, 2009.
Prior to engaging ParenteBeard, the Company did not consult with ParenteBeard regarding the application of accounting principles to a specific completed or contemplated transaction or regarding the type of audit opinions that might be rendered by ParenteBeard on the Company’s financial statements, and ParenteBeard did not provide any written or oral advice that was an important factor considered by the Company in reaching a decision as to any such accounting, auditing or financial reporting issue.
There are no disagreements with ParenteBeard or Beard, on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures. The audit reports of ParenteBeard and Beard do not contain any adverse opinion or disclaimer of opinion, nor are they qualified or modified as to uncertainty, audit scope or accounting principles.
Management is responsible for the Company’s internal controls and the financial reporting process. The independent registered public accounting firm is responsible for performing an integrated audit of the Company’s financial statements in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB)(United States) and to issue reports thereon. The Committee’s responsibility is to monitor and oversee these processes.
In this context, the Committee has met and held discussions with management and the independent registered public accounting firm (ParenteBeard). Management represented to the Committee that the Company’s audited financial statements were prepared in accordance with generally accepted accounting principles, and the Committee has reviewed and discussed the audited financial statements with management and ParenteBeard. The Committee also reviewed with ParenteBeard the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), and auditor independence from the Company and its management, and has received the written disclosures and the letter required by the PCAOB.
The Committee met with ParenteBeard, with and without management present, to discuss the overall scope and plans for their audits, the results of their examinations, the evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.
Based upon the Committee’s discussions with management and ParenteBeard and the Committee’s review of the representations of management and ParenteBeard’s report to the Committee, the Committee recommended that the Board include the audited financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 for filing with the SEC.
John L. Finlayson, Chairman
|
Cynthia A. Dotzel, Member | George W. Hodges, Member | Thomas C. Norris, Member |
RATIFICATION OF
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has approved the appointment of ParenteBeard LLC, as the independent public registered accounting firm to audit the financial statements of the Company for the year 2010. ParenteBeard LLC audited the Company’s financial statements for the year ended December 31, 2009, and Beard Miller Company LLP audited the 2008 and 2007 statements. There have been no disagreements between the Company and ParenteBeard LLC concerning the Company’s financial statements. It is intended that, unless otherwise specified by the shareholders, votes will be cast pursuant to the proxy hereby solicited in favor of the appointment of ParenteBeard LLC.
Audit fees and all professional services to be rendered by ParenteBeard LLC are approved by the Company’s Audit Committee. The Board considers the possible effect on auditors' independence of providing non-audit services prior to the service being rendered, but the Board does not anticipate significant non-audit services will be rendered during 2010.
The following table presents fees for services provided by ParenteBeard LLC (Beard Miller Company LLP) were as follows for 2009 and 2008:
| | | 2009 | | 2008 |
| Audit Fees (1) | | 152,512 | | 144,664 |
| Audit Related Fees (2) | | 21,083 | | 13,633 |
| Tax Fees (3) | | 8,400 | | 9,710 |
| All Other Fees (4) | | | | 100 |
| | | 181,995 | | 168,107 |
(1) Professional services rendered for 2009 include (a) the audit of the Company's annual financial statements, (b) the review of the financial statements included in the Company's Quarterly Reports on Form 10-Q, (c) the audit of the effectiveness of internal control over financial reporting, and (d) consent and comfort letters in connection with registration and equity offering statements. Professional services rendered for 2008 include (a) the audit of the Company's annual financial statements, (b) the review of the financial statements included in the Company's Quarterly Reports on Form 10-Q, (c) the audit of the effectiveness of internal control over financial reporting, and (d) consent and comfort letters in connection with registration and debt offering statements.
(2) Audit related fees include research on accounting issues, limited scope audits of the Company’s 401(k) and general and administrative pension plans in 2009, and accounting research and a limited scope audit of the Company’s 401(k) plan in 2008.
(3) Tax fees include preparation of the federal income tax return and other tax matters.
(4) Other fees (2008) include two educational seminars conducted by ParenteBeard LLC (Beard Miller Company LLP) and attended by Company personnel.
The Audit Committee approves in advance any audit or non-audit services provided by outside auditors. During 2009 and 2008, there were no exceptions to the Audit Committee's pre-approval requirements.
Representatives of ParenteBeard LLC are expected to be present at the Annual Meeting. Representatives of ParenteBeard LLC will have an opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.
Adoption of this proposal requires the affirmative vote of a majority of the votes cast by all shareholders entitled to vote at the Annual Meeting. The Board of Directors unanimously recommends a vote "FOR" this proposal. It is understood that even if the selection of ParenteBeard LLC is ratified by the shareholders, the Audit Committee, in its discretion, may direct the appointment of a new independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of the Company and its shareholders.
The notice of Annual Meeting of Shareholders calls for the transaction of such other business as may properly come before the meeting. The Board of Directors has no knowledge of any matters to be presented for action by the shareholders at the meeting other than is hereinbefore set forth. In the event additional matters should be presented, however, the proxies will exercise their discretion in voting on such matters.
A shareholder who wisheswish to communicate with the Board of Directors or specific individual Directors may do so by directing a written request addressed to such Directors or Director in care of the Secretary of The York Water Company, at the address appearing on the first page of this proxy statement. Communication(s) directed to members of the Board of Directors who are not non-management Directors will be relayed to the intended Board member(s) except to the extent that it is deemed unnecessary or inappropriate to do so pursuant to the procedures established by a majority of the independent Directors. Communications directed to non-management Directors will be relayed to the intended Board member(s) except to the extent that doing so would be contrary to the instructions of the non-management Directors. Any communication so withheld will nevertheless be made available to any non-management Director who wishes to review it.
Executive Sessions of the Board
In accordance withThe independent directors of the Board schedule regular executive sessions of independent directors in which they meet without management participation. The Chairman of the Board leads these sessions.
Stock Ownership
Directors are required under the bylaws of the Company to own at least one share of stock. As part of the Company's bylaws, shareholder's proposalsSecurities Trades Policy, directors, officers and nominations for Directors for consideration at the 2011 Annual Meetingselected employees are prohibited from trading in Company securities on a short-term basis, engaging in short sales, purchasing Company stock on margin, buying or selling puts or calls, pledging securities, or otherwise engaging in any type of Shareholders must be received by thehedging transactions involving Company in writing prior to February 1, 2011.securities.
The Company’sCompany's Board of Directors has adopted a Code of Conduct applicable to all Directors, officers and employees. OurThe Code of Conduct constitutes a “code"code of ethics”ethics" as required by Item 406 of Regulation S-K. There were no waivers of the Code made for any Director, officer or employee during 2009.2013. A copy of the Code of Conduct was filed with the Securities and Exchange Commission as Exhibit 14 to the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 2002. The Code of Conduct is also available, free of charge, on ourthe Company's website, on the Corporate Governance page at www.yorkwater.com, under "Investor Relations: then "Corporate Governance". The Company intends to disclose material amendments to, or Director, officer and employee waivers from, the Code of Conduct, if any, on its website, or by Form 8-K to the extent required.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reviews the Company's financial reporting process on behalf of the Board, including reports to the Securities and Exchange Commission on Forms 10-Q and 10-K, the Company's internal control process and releases of earnings. In addition, the Committee selects, subject to shareholder ratification, the Company's independent registered public accounting firm and evaluates the performance of the firm.
Management is responsible for the Company's internal controls and the financial reporting process. The independent registered public accounting firm is responsible for performing an integrated audit of the Company's financial statements in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB) (United States) and to issue reports thereon. The Committee's responsibility is to monitor and oversee these processes.
In this context, the Committee has reviewed and discussed the audited financial statements with management; has discussed with the independent registered public accounting firm (ParenteBeard) the matters required to be discussed by Auditing Standards No. 16, as adopted by the Public Company Accounting Oversight Board; has received the written disclosures and the letter required by the PCAOB regarding independence communications; and has discussed ParenteBeard's independence with the firm and management.
Based upon the Committee's discussions with management and ParenteBeard and the Committee's review of the representations of management and ParenteBeard's report to the Committee, the Committee recommended that the Board include the audited financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for filing with the SEC.
Cynthia A. Dotzel, CPA Chairperson |
Ernest J. Waters Member | Steven R. Rasmussen, CPA Member |
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has approved the appointment of ParenteBeard LLC, as the independent registered public accounting firm to audit the financial statements of the Company for the year 2014. ParenteBeard LLC audited the Company's financial statements for the years ended December 31, 2013 and 2012. There have been no disagreements between the Company and ParenteBeard LLC concerning the Company's financial statements. It is intended that, unless otherwise specified by the shareholders, votes will be cast pursuant to the proxy hereby solicited in favor of the appointment of ParenteBeard LLC.
Audit fees and all professional services to be rendered by ParenteBeard LLC are approved by the Company's Audit Committee. The Board considers the possible effect on auditors' independence of providing non-audit services prior to the service being rendered, but the Board does not anticipate significant non-audit services will be rendered during 2014.
The following table presents fees for services provided by ParenteBeard LLC for 2013 and 2012:
| | 2013 | | 2012 |
| Audit Fees (1) | | 135,264 | | 127,693 |
| Audit Related Fees (2) | | 16,000 | | 19,600 |
| Tax Fees (3) | | 10,436 | | 9,515 |
| All Other Fees | | - | | - |
| | 161,700 | | 156,808 |
| (1) | Professional services rendered for 2013 and 2012 include (a) the audit of the Company's annual financial statements, (b) the review of the financial statements included in the Company's Quarterly Reports on Form 10-Q, and (c) the audit of the effectiveness of internal control over financial reporting. In addition, 2013 fees include consent procedures in connection with registration statements relating to the Company's stock plans. |
| (2) | Audit related fees include limited scope audits of the Company's 401(k) and general and administrative pension plans in 2013 and 2012. |
| (3) | Tax fees include preparation of the federal income tax return and other tax matters. |
The Audit Committee approves in advance any audit or non-audit services provided by outside auditors. During 2013 and 2012, there were no exceptions to the Audit Committee's pre-approval requirements.
Representatives of ParenteBeard LLC are expected to be present at the Annual Meeting. Representatives of ParenteBeard LLC will have an opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.
Adoption of this proposal requires the affirmative vote of a majority of the votes cast by all shareholders entitled to vote at the Annual Meeting. It is understood that even if the selection of ParenteBeard LLC is ratified by the shareholders, the Audit Committee, in its discretion, may direct the appointment of a new independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of the Company and its shareholders.
The Board of Directors unanimously recommends a vote "FOR" this proposal.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Our Named Executive Officers. This section discusses the compensation we paid to our named executive officers (as defined by SEC rules) in 2013. Our named executive officers are:
Name | Title |
| |
| Jeffrey R. Hines, P.E. | President, Chief Executive Officer |
| Kathleen M. Miller | Chief Financial Officer |
| Joseph T. Hand | Chief Operating Officer |
| Bruce C. McIntosh | Vice President-Human Resources |
| John H. Strine | Vice President-Operations |
COMPENSATION DISCUSSION AND ANALYSIS
General Philosophy. The goal of our compensation program is to attract, motivate and retain our executive officers who are key to the success of our Company. We compensate our named executive officers through a combination of base salary and cash incentives designed to be competitive with comparable employers and to align management's incentives with the long-term interests of our customers and shareholders. Our compensation setting process consists of establishing a base salary for each named executive officer and designing an annual cash incentive (currently up to 5% of salary) for such executive to reward the achievement of specific operational goals. We only incentivize operational goals that add value for both our customers and our shareholders, such as increasing efficiency, ensuring a safe, adequate supply of water, reducing costs, improving customer service and expanding our service territory in order to gain economies of scale and spread fixed costs over a larger number of customers. Payouts for incentives that are not in the long-term interest of customers may not be considered prudent, and therefore, may not be recoverable through water rates granted by the Pennsylvania Public Utility Commission.
Base Salary. To assist us in establishing base salary in 2013, the Compensation Committee participated in a survey conducted by SAJE, a nationally recognized consulting firm, to provide data regarding the compensation of senior management at York and at seven comparable water utilities. These comparables included Aqua America, Inc., Aquarion Water Company, Beckley Water Company, Middlesex Water Company, Pennichuck Corporation, San Jose Water Company and United Water. SAJE also determined relative measures of the relationship between the size and compensation of the companies included in the survey. SAJE provided no opinions or recommendations regarding our compensation package. Outside of the survey, SAJE provided no other services, and no other compensation consultants were engaged or consulted by the Board of Directors, the Compensation Committee, or management for any purpose.
Based upon an analysis of the base salary levels and trend lines developed using regression analysis reflected in the survey, we establish base salaries for our named executive officers. The average base salary of the President and Chief Executive Officer and other Named Executive Officers is currently below the 25th percentile of the seven comparable investor-owned water utilities. We have chosen this level based on our relative revenues, customer connections, employees and utility plant, and due to the relatively low level of complexity of the Company's business and operations as compared to many of the comparable investor-owned water utilities. We are mainly a pure regulated water utility, with a small contract billing operation and a small wastewater operation, while some of the comparables also have a number of wastewater and other more significant non-regulated businesses. We are a stand-alone company with no subsidiaries, parent or holding company. We have one filtration plant and serve a relatively smaller number of customers in one state. Many of the comparables serve in multiple states and have many subsidiaries, and many filtration plants. In addition, there are issues specific to certain parts of the country such as water availability and regulatory environment that challenge some water utilities more than others. Finally, the cost of living in the geographic area in which our operations are located is lower than some of the comparables.
The base salary level of named executive officers will be reviewed annually to determine if the 25th percentile continues to be appropriate based on changes in our statistics relative to comparable companies, our product line, the current regulatory environment, changes in water quality standards, competition for competent management and growth in our service territory, as well as other relevant factors.
In addition to the SAJE survey, the Compensation Committee considered available compensation information on other investor-owned water companies that did not take part in the survey including American Water, California Water, Connecticut Water, American States Water and Artesian Water, as well as local public companies where information was available. The Compensation Committee also considers subjective factors such as the value of the position to the Company, the performance of the executive and the length of service in the current position and with the Company when determining base salary levels.
Bonuses and Equity Compensation. We do not provide bonuses or equity compensation in the form of stock options to senior management. We do, however, offer an Employee Stock Purchase Plan to all employees, including senior management, on the same terms. Employees may purchase stock from the Company on a quarterly basis, at a 5% discount to market. Annual purchases under this plan may not exceed 10% of the employee's regular salary.
Cash Incentives. Our practice is to use cash awards to incentivize our senior managers to create value for our customers and shareholders. To that end, we adopted a Cash Incentive Plan in 2005, pursuant to which our Compensation Committee sets annual performance objectives and target incentive payment amounts. All of our supervisors and managers participate in the plan, including our named executive officers.
The plan is administered by the Compensation Committee, which has complete and final authority to, among other things, select participants, to determine the goals and circumstances under which incentive awards are granted, to grant awards and to construe and interpret the Plan. Decisions of the Compensation Committee with respect to the administration and interpretation of the Plan are final, conclusive and binding upon all participants.
The Compensation Committee has discretion to determine all performance objectives. In addition, the Committee may specify that any incentive award be conditioned upon achievement or satisfaction of business criteria or other measures of performance. One or more of the following business criteria or other measures of performance may be used by the Committee: (1) growth in revenues or assets; (2) earnings from operations; (3) net income or earnings per common share; (4) return on investment or return on equity; (5) stock price or shareholder return; and (6) strategic business criteria, consisting of meeting specified water quality standards, environmental or safety standards, affordability of rates and customer satisfaction standards. The Compensation Committee may exercise its discretion to eliminate, reduce or increase the amounts payable as incentive, subject to such business criteria or other measures of performance.
Under the plan, annual performance objectives are established no later than ninety (90) days after the beginning of any annual incentive period, which is usually a calendar year. Each performance objective carries with it a score of five (5) points. No points are awarded for partial achievement of performance objectives. Incentive awards are granted only if an overall score of seventy-five (75) percent of the available performance objective points are achieved. The Compensation Committee believes that achieving performance objectives should be the shared responsibility of management. Accordingly, if an overall score of seventy-five (75) percent of the available performance objective points is achieved, all participants receive their target incentive awards. If an overall score of less than seventy-five (75) percent of the available performance objectives is achieved, no participant receives an award.
The Compensation Committee set the performance objectives and target incentive awards for 2013 on January 28, 2013. For 2013, the Compensation Committee determined that the amount of the target cash incentive award would be 5% of the base salary as of December 31, 2013 for each management employee, including named executive officers. The Committee selected 5% as the target cash incentive award for 2013, and for all of the previous years since the plan's inception in 2005, after considering various factors. One such factor was the range of other benefits already provided by the Company. Another factor was the comparison of the Company's total salary and benefit package to the compensation packages paid by other comparable companies. A third factor was the level of motivation needed to achieve the established goals of the
Company. Finally, the Compensation Committee considered how the plan would be perceived by the regulators, customers and shareholders. All of these factors together contributed to the Committee's decision to keep the target incentive relatively low as compared to other companies.
The 2013 performance objectives as determined by the Compensation Committee were, among other things: replace and reline pipe; refinance debt; improve customer online access; improve the payment agreement process; initiate an improved customer service line inspection program; expand the service line protection program; implement an improved stream crossing monitoring program; complete and successfully resolve a major rate filing; implement source water protection plans; upgrade filters at the water treatment plant; review insurance coverage options; increase paperless billing customers; and develop improved labor-management and safety training programs.
On January 27, 2014, the Compensation Committee determined that our management had achieved eighty-one (81) percent of the performance objectives listed above for 2013, as well as the set business criterion for 2013, which was, earnings per common share of $0.73. The Committee awarded the named executive officers the amounts set forth in the 2013 Grants of Plan Based Awards Table below, which was the target incentive amount for each named executive officer.
On January 27, 2014, the Compensation Committee determined performance objectives and target incentive amounts to be awarded under the plan for 2014. The performance objectives are, among other things: replace and reline pipe; enroll in the Partnership for Safe Water Program; implement tax repair methodology; implement distribution system efficiencies; promote the service line protection program; improve water treatment efficiencies ; review insurance coverage options; implement source water protection plans; improve safety processes and procedures; and increase paperless billing customers. The target incentive amounts for 2014, as determined by the Compensation Committee, are 5% of named executive officers' base salary as of December 31, 2014 and the business criterion for 2014 is earnings per common share.
Clawback Policy. In the event of a material misstatement of financial results requiring restatement, the Board, or appropriate committee thereof, will review all incentive compensation paid to senior executives on the basis of having met specific performance targets during the restatement period. If the material misstatement resulted from fraud, negligence or intentional misconduct, the Board or committee will take, in its discretion, such action as it deems necessary to recover the compensation paid, remedy the misconduct, and prevent its recurrence. The Board will, to the extent permitted by applicable law, to the extent it is reasonable to do so (e.g. the expense of recovering the compensation does not exceed the amount recovered), and to the extent that the amount earned under restated financial results is lower than the amount originally awarded, require reimbursement from the senior executive engaged in the misconduct that caused the need for the restatement. The required reimbursement will be the amount paid in excess of the amount earned under restated financial results. In addition, the Board may dismiss the senior executive, authorize legal action, or take such other action to enforce the officer's obligations to the Company as it deems appropriate.
Severance Benefits. Other than Change in Control payments described below, we do not provide severance benefits to employees as part of our compensation program.
Retirement Plans. We provide a traditional defined benefit pension plan covering employees hired before May 1, 2010. Named executive officers are entitled to benefits under the defined benefit pension plan upon retirement after the age of 55 on the same terms as other employees. The pension benefit is based on the years of service multiplied by the sum of $19.25 and 1.50% of that portion of the final average monthly earnings which are in excess of $400. The final average monthly earnings are the average of the employee's earnings for the highest consecutive sixty (60) complete months during the last one hundred and twenty (120) complete months immediately prior to the date the pension benefit calculation is made. Normal (full) retirement benefits are payable at age 65, or at age 62 with twenty-five years of service. Employees who terminate their employment prior to the age of 55 may elect to collect reduced benefits upon attaining age 55, or full benefits at age 62 or 65 as applicable. Early retirement benefits are reduced by 5/9of a percent for each of the first 60 months by which the early retirement date precedes the normal retirement date, and 5/18 of a percent for each month in excess of 60 months by which the early retirement date precedes the normal retirement date.
We also provide a supplemental retirement program, which provides senior management with a retirement benefit after the age of 55 in addition to the defined benefit pension. The supplemental retirement program is designed to encourage senior management to stay with the Company until retirement. Generally, supplemental retirement benefits are made available to senior management and are payable to the executive or his or her beneficiary, after retirement, over 15 years beginning no earlier than age 60. The annual benefit payable under the supplemental retirement program is calculated by multiplying the number of years of eligible service subsequent to December 31, 1983 (plan commencement date) by a predetermined annual retirement benefit unit as shown below:
| Mr. Hines | $1,441 |
| Ms. Miller | 1,394 |
| Mr. Hand | 1,961 |
| Mr. McIntosh | 1,754 |
| Mr. Strine | 2,778 |
The estimated annual benefit payable to Mr. Hines at normal retirement age under the supplemental retirement program is $53,333. The estimated annual benefit payable to Ms. Miller, Mr. Hand, Mr. McIntosh and Mr. Strine at normal retirement age under the supplemental retirement program is $33,333. Benefits are paid monthly. Named executive officers who terminate their employment prior to the age of 55 forfeit their supplemental retirement benefits. If a named executive officer were to die before distribution of his or her supplemental retirement benefit has commenced, his or her beneficiary would receive a death benefit of $500,000, with the exception of Mr. Hines' beneficiary, who would receive $800,000.
Deferred Compensation. We also provide a deferred compensation program to management. The deferred compensation program permits managers and executives to defer up to 5% of salary over an eight (8) year period, with the Company matching the deferment up to 2.50% of salary. Mr. Hand is the only named executive officer currently deferring salary. All other named executive officers have completed their deferrals. In 2013, Mr. Hand received an annual matching benefit of $2,775. Annually, the Company credits participants' deferred compensation balances with interest on the existing credit balance at a rate selected by the Company, currently equal to the December 31 rate of Moody's AAA Corporate Bond Yield. This rate amounted to 4.57% for 2013. Our deferred compensation program does not provide above-market or preferential earnings. 2013 credited earnings are shown in the "2013 Nonqualified Deferred Compensation" table. Payouts from this plan on retirement, termination, disability or death are described in detail below in the narrative discussion accompanying the 2013 Nonqualified Deferred Compensation Table.
401(k). Our named executive officers may participate in our 401(k) savings plan on the same terms as other employees. We provide an annual maximum matching contribution of $2,800 per employee, for participating employees hired before May 1, 2010. All named executives received the maximum matching contribution during 2013. Employees hired after May 1, 2010 are eligible for an enhanced 401(k) plan. None of our named executive officers are benefiting under the enhanced plan.
Change in Control. Our senior management has built York Water into the successful business that it is today. We believe that it is important to protect them in the event of a change of control and to protect the Company from the distractions senior managers often suffer as a result of the uncertainties that frequently surround changes in control. Accordingly, we entered into amended and restated agreements with each of our senior managers that provide for certain payments upon changes of control in consideration of such senior managers agreeing not to compete with us for a period of time following the termination of their employment. Most change in control payments are only paid if the senior manager in question is terminated in connection with a change in control. In certain circumstances, however, payments may be made to senior managers who do not terminate their employment for one year following a change in control. These payments incentivize our senior managers to continue their employment amid the uncertainty that often follows changes in control and thereby promotes stability for the Company during such times. Change in control benefits are paid in lump sum and are based on a multiple of base salary and cash incentive compensation. In the event of a change of control, we also continue health and other insurance benefits for up to one year depending on circumstances. The agreements are valid for an initial term of five years, and renew automatically for one-year periods after the first five years. The agreements terminate upon the employee reaching age 65 or terminating employment
with the Company. The Company must provide 90 days notice to terminate the agreements. These agreements are described in more detail below under the heading "Potential Payments upon Termination or Change in Control."
Perquisites and Other Benefits. The primary perquisite for named executive officers is the use of company vehicles for personal benefit. The most common personal use of company vehicles by senior management is commuting to and from work. No named executive officer receives perquisites valued in the aggregate at $10,000 or more. Named executive officers also participate in York Water's other benefit plans on the same terms as other employees. These plans include medical and health insurance, life insurance and employee stock purchase plan (ESPP). Under the ESPP, full-time employees with at least 90 days of service are eligible to purchase company stock through payroll deduction, up to 10% of their regular salary, at a 5% discount from fair market value. The Compensation Committee considers the ESPP as a contributing factor to hiring and retaining employees, and as a way of aligning employee interests with those of shareholders.
Board Process. The Compensation Committee of the Board of Directors approves all compensation and awards to executive officers, which include the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and four vice presidents. The Compensation Committee reviews the performance and compensation of the Chief Executive and, following discussions with that individual, and a review of the data provided by SAJE and other available data, establishes his compensation level. For the remaining executive officers, the Chief Executive Officer makes recommendations to the Compensation Committee, based on SAJE and other available data, which are subject to final approval by the committee. With respect to the cash incentive awards, the Compensation Committee grants cash incentives when warranted.
Shareholder Say-on-Pay Votes. The Company provides its shareholders with the opportunity to cast an advisory vote on executive compensation (a "say-on-pay proposal") every three years. At the Company's annual meeting of shareholders held in May 2011, a substantial majority of the votes cast on the three-year say-on-pay proposal at that meeting were voted in favor of the proposal. The Compensation Committee believes this affirms shareholders' support of the Company's executive compensation program, and did not change its program in 2013. Executive compensation will be voted upon by shareholders during this proxy season. The Compensation Committee will consider the outcome of the Company's say-on-pay vote when making future compensation decisions for the named executive officers.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management, and based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Ernest J. Waters Chairman | George Hay Kain III Member | Robert P. Newcomer Member |
COMPENSATION RISK ASSESSMENT
The Compensation Committee reviewed the Company's compensation policies and practices for all employees (including non-executive officers) covering base salaries and wages, deferred compensation, incentive plans and change in control agreements in order to assess the inherent risks involved.
Considering all of the elements of the various compensation plans and the fact that the Company has no competing segments or divisions, the Compensation Committee concluded that the Company's compensation policies and practices did not incentivize excessive risk-taking that would have a material adverse effect on the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our Compensation Committee are named in the "Board Committees and Functions" section of this proxy statement. None of the members of the Compensation Committee is or has ever been an officer or employee of the Company. In addition, during the last fiscal year, none of our executive officers served as a member of the board of directors or the compensation committee of any other entity that has one or more executive officers serving on our Board of Directors or Compensation Committee.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation paid by the Company to named executive officers or accrued by the Company for the named executive officers in 2013, 2012 and 2011.
| | | | Change in | | |
| | | | Pension Value | | |
| | | | & Nonqualified | | |
| | | Non-Equity | Deferred | All Other | |
| Name and | | | Incentive Plan | Compensation | Compensation | |
Principal Position | Year | Salary | Compensation | Earnings (1) | (2) | Total |
| | | | | | |
| Jeffrey R. Hines, P.E. | 2013 | $269,325 | | $13,595 | | $(66,179) | | $10,906 | | $227,647 |
| President, Chief | 2012 | 261,768 | | 13,200 | | 251,434 | | 7,702 | | 534,104 |
| Executive Officer | 2011 | 253,757 | | 12,850 | | 296,192 | | 6,197 | | 568,996 |
| | | | | | |
| | | | | | |
| Kathleen M. Miller | 2013 | 152.626 | | 7,700 | | (15,672) | | 4,779 | | 149,433 |
| Chief Financial | 2012 | 148,144 | | 7,475 | | 113,772 | | 4,251 | | 273,642 |
| Officer | 2011 | 142,794 | | 7,250 | | 125,641 | | 4,103 | | 279,788 |
| | | | | | |
| | | | | | |
| Joseph T. Hand | 2013 | 147,033 | | 7,500 | | 89,655 | | 8,956 | | 253,144 |
| Chief Operating | 2012 | 138,417 | | 7,050 | | 19,308 | | 7,728 | | 172,503 |
| Officer | 2011 | 130,794 | | 6,650 | | 16,796 | | 7,269 | | 161,509 |
| | | | | | |
| | | | | | |
| Bruce C. McIntosh | 2013 | 116,828 | | 5,875 | | (7,042) | | 5,668 | | 121,329 |
| Vice President- | 2012 | 114,164 | | 5,750 | | 112,977 | | 5,222 | | 238,113 |
| Human Resources | 2011 | 111,383 | | 5,600 | | 134,623 | | 5,376 | | 256,982 |
| | | | | | |
| | | | | | |
| John H. Strine | 2013 | 114,900 | | 5,808 | | 11,546 | | 6,880 | | 139,134 |
| Vice President- | 2012 | 110,469 | | 5,600 | | 170,939 | | 6,597 | | 293,605 |
| Operations | 2011 | 105,682 | | 5,350 | | 189,366 | | 6,109 | | 306,507 |
| (1) | Amounts presented represent the sum of the change in the actuarial present value of the named executive officer's accumulated benefit under the Company's defined benefit pension plan and the change in the present value of the named executive officer's benefit under the Company's supplemental executive retirement plan. No above-market or preferential earnings are paid on deferred compensation. |
| (2) | Includes Company contributions to the named executive officer's 401(k) account, credited earnings and Company contributions for non-qualified deferred compensation, personal use of company vehicles, and a 5% discount on stock purchased through the Employee Stock Purchase Plan. |
2013 GRANTS OF PLAN BASED AWARDS
Non-Equity Incentive Awards. As described in the Compensation Discussion and Analysis under the heading "Cash Incentives," our practice is to award cash incentives based upon the achievement of diverse performance objectives. The performance objectives are established annually by the Compensation Committee, and are designed to recognize and reward the achievement of our goals and the creation of value for our customers and shareholders. The following table sets forth awards granted to our named executive officers in 2013 pursuant to our incentive plan.
Name and Principal Position | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards Target |
Jeffrey R. Hines, P.E. President, Chief Executive Officer | | $13,595 | |
Kathleen M. Miller Chief Financial Officer | | 7,700 | |
Joseph T. Hand Chief Operating Officer | | 7,500 | |
Bruce C. McIntosh Vice President-Human Resources | | 5,875 | |
John H. Strine Vice President-Operations | | 5,808 | |
The awards appearing in this table also appear in the Summary Compensation Table.
Awards are subject to the Company's clawback policy.
We do not grant equity incentive plan awards.
2013 PENSION BENEFITS
The table below sets forth the present value of accumulated benefits payable to each named executive officer, including the number of years of credited service, under the Company's General and Administrative Pension Plan (a defined benefit pension plan) and its Supplemental Executive Retirement Plan. Detailed information on these plans can be found in the Compensation Discussion and Analysis above, under the heading "Retirement Plans."
| | | Years of | Present Value |
| Name and | | Credited | of Accumulated |
Principal Position | Plan Name | Service | Benefit |
| | | |
| Jeffrey R. Hines, P.E. | General and Administrative | 24 | | $793,949 | |
| President, Chief Executive Officer | Pension Plan | | |
| | | |
| Jeffrey R. Hines, P.E. | Supplemental Executive | 24 | | 325,708 | |
| President, Chief Executive Officer | Retirement Plan | | |
| | | |
| Kathleen M. Miller | General and Administrative | 18 | | 340,914 | |
| Chief Financial Officer | Pension Plan | | |
| | | |
| Kathleen M. Miller | Supplemental Executive | 10 | | 120,595 | |
| Chief Financial Officer | Retirement Plan | | |
| | | |
| Joseph T. Hand | General and Administrative | 6 | | 80,017 | |
| Chief Operating Officer | Pension Plan | | |
| | | |
| Joseph T. Hand | Supplemental Executive | 4 | | 56,575 | |
| Chief Operating Officer | Retirement Plan | | | | |
| | | | | |
| Bruce C. McIntosh | General and Administrative | 17 | | 328,043 | |
| Vice President-Human Resources | Pension Plan | | |
| | | |
| Bruce C. McIntosh | Supplemental Executive | 15 | | 343,568 | |
| Vice President-Human Resources | Retirement Plan | | |
| | | |
| John H. Strine | General and Administrative | 37 | | 700,619 | |
| Vice President-Operations | Pension Plan | | |
| | | |
| John H. Strine | Supplemental Executive | 4 | | 103,855 | |
| Vice President-Operations | Retirement Plan | | |
All assumptions made in quantifying the present value of the accumulated benefits to the named executive officers under these plans are described in Note 6 to the Company's Financial Statements included in our 2013 Annual Report on Form 10-K. The present values are based upon a 4.65% discount rate. There were no payments to named executives made under these plans during the last fiscal year. Future payouts under these plans are described in more detail in the Compensation Discussion and Analysis under the heading "Retirement Plans".
2013 NONQUALIFIED DEFERRED COMPENSATION
The table set forth below presents contributions, earnings and the balance at year-end (including future tax savings) for the accounts of our named executive officers under our deferred compensation program that is described in more detail in the Compensation Discussion and Analysis under the heading "Deferred Compensation." Company contributions and earnings are reported in the "All Other Compensation" column of the Summary Compensation Table. The future tax savings amounts included in the balance column below have not been included in the Summary Compensation Table in any year.
Name and Principal Position | Executive Contributions in Last Fiscal Year | Company Contributions in Last Fiscal Year | Aggregate Earnings in Last Fiscal Year | Aggregate Balance at Last Fiscal Year-End |
Jeffrey R. Hines, P.E., President, Chief Executive Officer | | | $2,748 | | $105,828 | |
Kathleen M. Miller, Chief Financial Officer | | | 1,432 | | 55,149 | |
Joseph T. Hand, Chief Operating Officer | $5,550 | $2,775 | 1,970 | | 75,869 | |
Bruce C. McIntosh, Vice President-Human Resources | | | 1,434 | | 55,215 | |
John H. Strine, Vice President-Operations | | | 2,523 | | 97,179 | |
PAYOUT OF DEFERRED COMPENSATION ACCOUNTS
Payouts upon Retirement. Following a named executive officer's retirement, a monthly retirement benefit will be paid to him or her for 120 months. This benefit will be equal to a percentage of his or her deferred income account immediately prior to retirement divided by the following factor (1 minus the corporate federal and state income tax rate for the Company immediately prior to retirement). Assuming a federal income tax rate of 34% and a state income tax rate of 9.99% for 2013, and assuming all named executive officers were eligible for retirement as of December 31, 2013, the named executive officers would receive the monthly benefits in the table that follows the next paragraph. The Company does not gross up the deferred compensation payout, but rather passes on the tax benefit the Company will realize when death benefit proceeds are received under corporate-owned life insurance policies which are in place in order to reimburse the Company for the costs of the plan.
Payouts upon Disability. If a named executive officer becomes disabled before his or her deferred income account has been distributed, a monthly retirement benefit will be paid to him or her for 120 months. This benefit will be equal to a percentage of his or her deferred income account immediately prior to the date he or she became disabled divided by the following factor (1 minus the corporate federal and state income tax rate for the Company immediately prior to the date he or she became disabled). Assuming a federal income tax rate of 34% and a state income tax rate of 9.99% for 2013, and assuming each named executive officer became disabled as of December 31, 2013, such named executive officer would receive the monthly benefits in the table that follows. Once again, the Company is not grossing up the benefit, but rather passing on tax savings it will realize in the future.
Name and Principal Position | | Deferred Income Account Percentage | | Monthly Retirement Amount |
| | | | | |
Jeffrey R. Hines, P.E., President, Chief Executive Officer | | 1.110% | | $1,175 | |
Kathleen M. Miller, Chief Financial Officer | | 0.833% | | 460 | |
Joseph T. Hand, Chief Operating Officer | | 0.833% | | 632 | |
Bruce C. McIntosh, Vice President-Human Resources | | 0.833% | | 460 | |
John H. Strine, Vice President-Operations | | 2.036% | | 1,979 | |
Payouts upon Termination of Employment. If a named executive officer's employment with the Company is terminated other than by death or disability before he or she is eligible for retirement, the amount of his or her contributions, without the Company's matching contribution, without accumulated interest credited to the deferred income account, and without the tax benefit, shall be distributed to such named executive officer immediately upon his or her termination in a lump sum. Assuming each named executive officer were terminated as of December 31, 2013, such named executive officer would be entitled to receive the following lump sum payment:
Name and Principal Position | | Lump Sum Payment Upon Termination |
Jeffrey R. Hines, P.E., President, Chief Executive Officer | | $18,238 | |
Kathleen M. Miller, Chief Financial Officer | | 10,216 | |
Joseph T. Hand, Chief Operating Officer | | 26,576 | |
Bruce C. McIntosh, Vice President-Human Resources | | 55,215 | (1) |
John H. Strine, Vice President-Operations | | 19,156 | |
| (1) | Assumes Mr. McIntosh was not terminated for cause. If he were terminated for cause as of December 31, 2013, Mr. McIntosh would have been entitled to receive a lump sum payment of $10,021. |
The named executive officer deferrals have previously been reported in the salary column of the Summary Compensation Table in the year in which they were earned.
Payouts upon Death. If a named executive officer were to die before distribution of his or her deferred income account has commenced, his or her beneficiary would receive a death benefit in an amount equal to the higher of $150,000, or the named executive officer's deferred income account immediately prior to his or her death divided by the following factor (1 minus the corporate federal and state income tax rate for the Company immediately prior to the date of death). The death benefit determined as above will be paid to beneficiaries in a lump sum. Assuming death benefits for each named executive officer became payable as of December 31, 2013, such named executive officer's respective beneficiaries would be entitled to receive the following lump sum payments:
Name and Principal Position | | Beneficiary Death Benefit ($) |
Jeffrey R. Hines, P.E., President, Chief Executive Officer | | 150,000 |
Kathleen M. Miller, Chief Financial Officer | | 150,000 |
Joseph T. Hand, Chief Operating Officer | | 150,000 |
Bruce C. McIntosh, Vice President-Human Resources | | 150,000 |
John H. Strine, Vice President-Operations | | 150,000 |
POTENTIAL PAYMENTS UPON TERMINATION OR A CHANGE IN CONTROL
Description of Change in Control Agreements. We have entered into Amended and Restated Change in Control Agreements with each named executive officer that provides for payments to them under certain circumstances in connection with a change in control in consideration of such named executive officers agreeing not to compete with us for a period of time following the termination of their employment.
Under all agreements, generally a "change in control" will occur if:
| · | Any person or affiliated group (with limited exceptions) becomes the beneficial owner in the aggregate of 50 percent or more of all of our voting securities; |
| · | A majority of our Board of Directors is involuntarily removed or defeated for re-election to our Board of Directors (for example, as a result of a proxy contest); |
| · | We are party to a merger or reorganization pursuant to which the holders of our voting securities prior to such transaction become the holders of 50 percent or less of the voting securities of the new merged or reorganized company; or |
| · | The Company is liquidated or dissolved, or all of its assets are sold to a third party. |
In each circumstance described above, our Board of Directors may make a determination that the circumstances do not warrant the implementation of the provisions of the agreement, and in such case, the change in control will not trigger any payments under the agreements.
All payments under the agreements are triggered by the occurrence of a change in control, and most payments also require that the relevant senior manager's employment also be terminated. The amounts of payments to our named executive officers under these agreements vary depending on the timing of the change in control and the timing and manner of the termination of employment. Generally, the manner of termination is divided into four categories.
A "for cause" termination results from:
| · | misappropriation of funds or any act of common law fraud; |
| · | habitual insobriety or substance abuse; |
| · | conviction of a felony or any crime involving moral turpitude; |
| · | willful misconduct or gross negligence by the senior manager in the performance of his duties; |
| · | the willful failure of the senior manager to perform a material function of his duties; or |
| · | the senior manager engaging in a conflict of interest or other breach of fiduciary duty. |
A "good reason" termination occurs when the senior manager terminates his own employment following a change in control and after one or more of the following has occurred:
| · | the Company has breached the change in control agreement; |
| · | the Company has significantly reduced the authority, duties or responsibilities of the senior manager or reduced his base compensation or annual bonus compensation opportunity; |
| · | the Company has reduced the senior manager from the employment grade or officer positions which he or she holds; or |
| · | the Company has transferred the senior manager, without his or her express written consent, to a location that is more than 50 miles from his or her principal place of business immediately preceding the change of control. |
A voluntary termination is the termination by the senior manager of his or her own employment under circumstances that would not be a "good reason" termination. Examples are ordinary retirement or leaving the Company to seek other job opportunities.
An involuntary termination is a termination in connection with a change in control that is not a "for cause" termination, a good reason termination or a voluntary termination.
Payouts under Change in Control Agreements. Under the agreements, all named executive officers are entitled to payment in the case of an involuntary termination or a good reason termination within some time period surrounding a change in control (generally six months prior to or one year following a change in control). Payments are paid in lump sum and are based on a multiple of base salary and cash incentive compensation earned by the named executive officer in the preceding 12 months. We call this amount "base pay." Additionally, Messrs. Hines, Hand, McIntosh, and Strine, and Ms. Miller are entitled to payment of "stay bonuses" if they remain employed by us for one year following a change in control, and smaller stay bonuses if they remain employed for at least three months following a change in control and then voluntarily terminate their employment more than three months but less than one year following a change in control. Finally, our named executive officers are entitled to have their health and welfare benefits continue for periods of up to one year following the termination of their employment (subject to such benefits terminating or such named executive officer becoming covered by the benefit plans of another employer).
The table below sets forth the relevant base pay multiples, lump sum payout amounts and the value of continued benefits our named executive officers would receive under various circumstances under their change in control agreements. For the purposes of this table, we have assumed that a change in control occurred on December 31, 2013.
| | | Health | |
| | | and Other | |
| | Lump Sum | Insurance | |
| Multiple of | Payment | Benefits | |
Name | Base Pay | Amount | (1) | Total |
| | | | |
| Jeffrey R. Hines, P.E. | | | | |
| | | | |
| Involuntary termination or | 2.99 times | | $853,629 | | $8,361 | | $861,990 | |
| good reason termination. | | | | |
| | | | |
| Voluntary termination more | .25 times | | 71,374 | | 8,361 | | 79,735 | |
| than 3 months but less than | | | | |
| one year after a change in | | | | |
| control. | | | | |
| | | | |
| Continuing employment for | .5 times | | 142,747 | | 8,361 | | 151,108 | |
| one year after a change in | | | | |
| control. | | | | |
| | | | |
| Kathleen M. Miller | | | | |
| | | | |
| Involuntary termination or | .5 times | | 80,850 | | 9,706 | | 90,556 | |
| good reason termination. | | | | |
| | | | |
| Voluntary termination more | .25 times | | 40,425 | | 9,706 | | 50,131 | |
| than 3 months but less than | | | | |
| one year after a change in | | | | |
| control. | | | | |
| | | | |
| Continuing employment for | .5 times | | 80,850 | | 9,706 | | 90,556 | |
| one year after a change in | | | | |
| control. | | | | |
| | | | |
| Joseph T. Hand | | | | |
| | | | |
| Involuntary termination or | .5 times | | 78,750 | | 396 | | 79,146 | |
| good reason termination. | | | | |
| | | | |
| Voluntary termination more | .25 times | | 39,375 | | 396 | | 39,771 | |
| than 3 months but less than | | | | |
| one year after a change in | | | | |
| control. | | | | |
| | | | |
| Continuing employment for | .5 times | | 78,750 | | 396 | | 79,146 | |
| one year after a change in | | | | |
| control. | | | | |
| | | Health | |
| | | and Other | |
| | Lump Sum | Insurance | |
| Multiple of | Payment | Benefits | |
Name | Base Pay | Amount | (1) | Total |
| | | | |
| Bruce C. McIntosh | | | | |
| | | | |
| Involuntary termination or | .5 times | | $61,685 | | $8,361 | | $70,046 | |
| good reason termination. | | | | |
| | | | |
| Voluntary termination more | .25 times | | 30,843 | | 8,361 | | 39,204 | |
| than 3 months but less than | | | | |
| one year after a change in | | | | |
| control. | | | | |
| | | | |
| Continuing employment for | .5 times | | 61,685 | | 8,361 | | 70,046 | |
| one year after a change in | | | | |
| control. | | | | |
| | | | |
| John H. Strine | | | | |
| | | | |
| Involuntary termination or | .5 times | | 60,980 | | 3,936 | | 64,916 | |
| good reason termination. | | | | |
| | | | |
| Voluntary termination more | .25 times | | 30,490 | | 3,936 | | 34,426 | |
| than 3 months but less than | | | | |
| one year after a change in | | | | |
| control. | | | | |
| | | | |
| Continuing employment for | .5 times | | 60,980 | | 3,936 | | 64,916 | |
| one year after a change in | | | | |
| control. | | | | |
| | | | |
| (1) The value of health benefits was determined using the estimated rates applicable under the Comprehensive |
| Omnibus Budget Reconciliation Act (COBRA) for terminated employees. |
Payment of the lump sum payments under the change in control agreements is contingent upon the named executive officer executing a standard release. The change in control agreements also contain non-competition provisions that generally require that, a named executive officer will not, while he or she is employed by us and for one year following the termination of his or her employment by us:
| · | participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with or use or permit his or her name to be used in connection with, any business or enterprise engaged in by us within our franchised territory; |
| · | solicit or attempt to convert any account or customer of the Company to another supplier; or |
| · | solicit or attempt to hire any employee of the Company. |
Any breach of this non-competition agreement can result in damages being awarded to the Company, including the amount of one-half of any lump sum payments described above.
Other Payouts. The named executive officers will also be entitled to the payouts of their pension and supplemental retirement accounts upon retirement and payout of their deferred compensation accounts upon termination of their employment with us.
Using the assumptions described in Note 6 to the Company's Financial Statements included in the 2013 Annual Report on Form 10-K, and assuming that all of our named executive officers remain with the Company until reaching age 55 (or, for those who are currently older than age 55, assuming they retired as of December 31, 2013) our named executive officers have earned monthly benefits under the pension plan and supplemental retirement plan as follows:
Name | Plan Name | Monthly Benefit |
| | | |
| Jeffrey R. Hines, P.E. | General and Administrative Pension Plan | $7,731 | |
Jeffrey R. Hines, P.E. | Supplemental Executive Retirement Plan | 2,883 | |
Kathleen M. Miller | General and Administrative Pension Plan | 3,507 | |
Kathleen M. Miller | Supplemental Executive Retirement Plan | 1,161 | |
Joseph T. Hand | General and Administrative Pension Plan | 1,072 | |
Joseph T. Hand | Supplemental Executive Retirement Plan | 654 | |
Bruce C. McIntosh | General and Administrative Pension Plan | 2,735 | |
Bruce C. McIntosh | Supplemental Executive Retirement Plan | 2,193 | |
John H. Strine | General and Administrative Pension Plan | 5,650 | |
John H. Strine | Supplemental Executive Retirement Plan | 926 | |
Our named executive officers will also be entitled to be paid the amounts described in the narrative discussion accompanying the 2013 Nonqualified Deferred Compensation Table above in the manner described in that section.
2013 DIRECTOR COMPENSATION
Director | Fees Earned Paid in Cash |
| |
| Cynthia A. Dotzel, CPA | $29,673 | |
| |
| John L. Finlayson | 28,033 | |
| |
| Michael W. Gang, Esq. | 26,388 | |
| |
George W. Hodges, Chairman of the Board | 31,368 | |
| |
| George Hay Kain III | 22,953 | |
| |
| Robert P. Newcomer | 1,292 | |
| | |
| Jeffrey S. Osman | 23,078 | |
| |
| Steven R. Rasmussen, CPA | 26,553 | |
| |
| Ernest J. Waters | 26,753 | |
Director Fees Earned. In consideration of the services they provide to us, directors who are not regular full-time employees are entitled to receive a retainer of $15,500 per year, payable quarterly. In addition to the annual retainer, Board and Committee members are entitled to the fees in the table below for each meeting they attend. Directors who are also current employees of the Company receive no additional compensation for Board service.
| Board | Executive Committee | Audit Committee | Nomination & Corporate Governance Committee | Compensation Committee |
| Chairperson | $1,750 | | $1,135 | | $1,690 | | $1,030 | | $1,030 | |
| Directors/Members | $770 | | $845 | | $900 | | $795 | | $795 | |
No perquisites are provided to Directors.
Mr. Finlayson retired under the Company's mandatory retirement policy for directors on March 14, 2014. Mr. Newcomer was elected to the Board of Directors on November 25, 2013, effective December 1, 2013, to fill a vacancy due to the 2012 mandatory retirement of Thomas C. Norris, and in anticipation of Mr. Finlayson's retirement.
There were 8 Board of Directors' Meetings during calendar year 2013. All Directors attended at least 88% of the scheduled Board of Directors and committee meetings. In addition, all Directors other than Mr. Gang attended the 2013 Annual Meeting of Shareholders.
PROPOSAL 3
TO APPROVE, BY NON-BINDING VOTE,
THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS
In accordance with Section 14A of the Securities Exchange Act of 1934, we are asking shareholders to approve the following advisory resolution at the 2014 Annual Meeting of Shareholders:
"RESOLVED, that the compensation paid to the Company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED."
As described in the "Compensation Discussion and Analysis" section above, the goal of our executive compensation programs is to attract, motivate and retain our senior management. We believe that our combination of base salary, incentive and deferred compensation programs as detailed above, properly support this goal while also providing increased value to our customers and shareholders. In addition, our executive compensation compares favorably with that of our peers as discussed in detail in the "Compensation Discussion and Analysis" section contained in this proxy statement.
We encourage shareholders to read the Compensation Discussion and Analysis beginning on page 14 of the proxy statement and related compensation tables and narrative beginning on page 19, which provide detailed information on the Company's compensation policies and practices and the compensation of our named executives.
As an advisory vote, this proposal, commonly referred to as a "say-on-pay" vote, is not binding upon the Company. However, the Compensation Committee, which is responsible for designing and administering the Company's executive compensation program, values the opinions expressed by shareholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions.
The Board has adopted a policy providing for triennial say-on-pay advisory votes, as agreed to by shareholders at our 2011 Annual Meeting of Shareholders. Unless the Board modifies this policy, the next say-on-pay advisory vote will be held at our 2017 Annual Meeting of Shareholders.
The Board of Directors unanimously recommends a vote "FOR" the approval of the compensation of our named executive officers, as disclosed in this proxy statement.
30
PROPOSAL 4
TO APPROVE THE YORK WATER COMPANY
EMPLOYEES' STOCK PURCHASE PLAN
In September 2013, our Board adopted, subject to stockholder approval, an amendment to The York Water Company Employees' Stock Purchase Plan (the "ESPP"). The amended ESPP is being submitted to shareholders to increase the number of shares reserved for use under the ESPP by 80,000 shares, and to cause the ESPP to qualify under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). Capitalized terms used in this Proposal 4 and not otherwise defined have the meanings set forth in the ESPP, attached hereto as Appendix A.
Our Board believes that the ESPP assists the Company in hiring and retaining employees, and helps to align employee interests with those of its shareholders. Our Board recommends that shareholders approve the amended ESPP.
Summary of Material Terms
The following is a summary of the material terms of the ESPP. The complete text of the ESPP is set forth in Appendix A to this proxy statement.
The purpose of the ESPP is to provide an opportunity for eligible employees of The York Water Company to obtain an ownership interest in the Company through purchases of common stock by payroll deductions. All full-time employees are eligible to participate after ninety days of service, but they are not required to participate. Employees may specify up to 10% of their regular straight time earnings or gross salary during each offering period. Employees may enter and exit the ESPP at any time. As of December 31, 2013, approximately 103 employees were eligible to participate, including all of our named executive officers, and 72 employees were actually participating in the ESPP, including all of our named executive officers.
The ESPP provides for four consecutive three-month offering periods commencing on the first day of a calendar quarter and ending on the last day of a calendar quarter. Employees fund their stock purchases through payroll deductions or cash payments which accumulate, with interest, over each offering period. At the end of the offering period, the Company will transmit to its agent (American Stock Transfer & Trust Co. LLC), the aggregate amount for each individual. The agent will then allocate shares, based upon the applicable purchase price, to each individual's account. The purchase price of our common stock under the ESPP is equal to ninety-five percent (95%) of the fair market value of a share of Company common stock on the Grant Date (last business day of the offering period). The fair market value is equal to the mean between the high and the low prices for the Company's common shares as quoted on Nasdaq on such date. If such price is not available, the purchase price will be determined by the Board based on the latest available market quotations or on such other basis as the Board shall deem lawful and appropriate. Shares purchased under the ESPP have the same voting, dividend and other rights as all other shares of our common stock. No fees are charged to employees for this plan.
Authorized and unissued shares are subject to purchase under the ESPP. There are no transfer restrictions to employees under the ESPP, although the tax consequences differ depending on how long the stock is held. Any participating employee who, for any reason, ceases to be a full-time employee of the Company shall be deemed to have withdrawn from the ESPP on the date employment ceases. Upon such an event, monies credited to such individual's account shall be refunded.
The Human Resources Director (currently Vice President) is the administrator of the ESPP.
Proposed Amendments
Proposal 4 requests shareholder approval of the amended ESPP, previously approved by our Board. The amended ESPP increases the number of shares reserved for use under the ESPP by 80,000, and qualifies the ESPP under Section 423 of the Code. Without shareholder approval of the ESPP, there are 15,558 shares remaining for future purchases by employees under the ESPP as of December 31, 2013. Once those remaining available shares are issued, we would effectively be required to terminate the ESPP and any
employee contributions that remain would be refunded to employees. If shareholders approve this Proposal 4, the total number of shares reserved under the ESPP will increase from 270,000 to 350,000, leaving 95,558 shares available for future issuance (based on shares issued under the plan as of December 31, 2013). We anticipate these additional shares will provide our ESPP with adequate shares for approximately ten years.
In addition, the amended ESPP is intended to qualify as an ESPP under Section 423 of the Code, which imposes restrictions on stock ownership by employees, and dictates the tax consequences associated with various holding periods. Employees who are 5% or more shareholders must be excluded from the plan, and purchases are limited to $25,000 fair market value of stock during an annual period. Summarized tax information is provided below.
New Plan Benefits
Because benefits under the ESPP depend on the fair market value of our common stock at various future dates, it is not possible to determine the benefits that will be received by employees if they participate in the ESPP. During the fiscal year 2013, all of our named executive officers participated in the ESPP.
For the year ended December 31, 2013, the aggregate number of shares issued to each named executive officer and the various indicated groups under the ESPP are:
Name: | Number of Shares Issued Under ESPP In 2013 |
| |
Jeffrey R. Hines, P.E. President, Chief Executive Officer | 1,189 |
| |
Kathleen M. Miller Chief Financial Officer | 551 |
| |
Joseph T. Hand Chief Operating Officer | 463 |
| |
Bruce C. McIntosh Vice President – Human Resources | 522 |
| |
John H. Strine Vice President - Operations | 167 |
| |
| All current executive officers as a group (7 persons) | 3,063 |
| |
| All employees, excluding current executive officers | 3,648 |
Tax Information
The ESPP is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended, but is not intended to constitute a qualified pension, profit-sharing or stock bonus plan under Section 401(a) of the Code. The principal federal income tax consequences of the ESPP under the Code as currently in effect are outlined below. It is advisable for participating employees to obtain competent professional advice regarding the precise tax consequences of participation in the Plan.
Taxation on Sale of Stock: A participating employee will not recognize income on the grant of the option or on the exercise of the option. A participant's taxation with respect to the shares purchased pursuant to the option will depend on how long the participant holds the shares. If the participant holds the shares of stock until the later of two years from the Grant Date or one year from the Exercise Date (or in the event of the participant's death), the participant will be required to recognize ordinary income upon disposition equal to the lesser of (i) the excess of the fair market value of the stock on the Grant Date over the Purchase Price and (ii) the excess of the fair market value of the stock on the date of disposition of the stock over the Purchase Price. Any additional gain or loss will be short-term or long-term capital gain or loss, as applicable.
If the participant does not hold the shares of stock for the holding period described above, the participant will be taxed upon disposition on the excess of the fair market value of a share of stock on the Exercise Date over the Purchase Price, at ordinary income rates, and the participant will be taxed on any additional realized gain at long-term or short-term capital gains rates, as applicable.
The Board of Directors unanimously recommends a vote "FOR" the approval of The York Water Company Employees' Stock Purchase Plan as amended October 1, 2013.
DISCRETIONARY AUTHORITY
The notice of Annual Meeting of Shareholders calls for the transaction of such other business as may properly come before the meeting. The Board of Directors has no knowledge of any matters to be presented for action by the shareholders at the meeting other than is hereinbefore set forth. In the event additional matters should be presented, however, the proxies will exercise their discretion in voting on such matters.
SHAREHOLDER PROPOSALS AND NOMINATIONS FOR DIRECTORS
Shareholder proposals to be considered for inclusion in the proxy statement and form of proxy relating to the 2015 Annual Meeting of Shareholders must be received by the Company in writing no later than November 24, 2014. In addition, all proposals will need to comply with Rule 14a-8 of the Securities Exchange Act of 1934 (the "Exchange Act"), which lists the requirements for the inclusion of shareholder proposals in company-sponsored proxy materials.
For a proposal to be timely for consideration at the annual meeting, but not included in the proxy statement and form of proxy relating to the 2015 Annual Meeting of Shareholders, the Company's bylaws provide that we must have received the shareholder proposal or director nomination not less than ninety days nor more than one hundred and twenty days prior to the anniversary of our annual meeting, meaning between January 5, 2015 and February 4, 2015 for the 2015 annual meeting. In the event that the 2015 annual meeting of shareholders is advanced by more than thirty days or delayed by more than sixty days from the anniversary date of the Annual Meeting, proposals or nominations for the 2015 annual meeting must be received by us no earlier than the ninetieth day prior to the date of the 2015 annual meeting of shareholders or, if later, the date which is ten days after the day on which public announcement of the date of such meeting is first made. All shareholder proposals and director nominations must also comply with the other requirements set forth in the Company's bylaws.
OTHER MATTERS
Further information regarding the Company is set forth in the Company’sCompany's Annual Report on Form 10-K for the fiscal year ended December 31, 2009,2013, which has been filed with the Securities and Exchange Commission. The Form 10-K (including financial statements and schedules) may be obtained free of charge upon written or oral request by writing to: Bonnie Rexroth, The York Water Company, 130 East Market Street, York, Pennsylvania 17401.17401; or by telephone to Ms. Rexroth at (717) 718-2942. Copies of exhibits to the Form 10-K will be furnished upon request and the payment of a reasonable fee. The Form 10-K is also available, free of charge, on the Investor Relations page of the Company’sCompany's website at www.yorkwater.com.
A copy of the Company’sCompany's Annual Report to Shareholders, which includes financial statements, does not form part of the proxy solicitation materials. The Annual Report to Shareholders is also available, free of charge, on the Investor Relations page of the Company’sCompany's website at www.yorkwater.com.
AMENDED AND RESTATEDDecember 15, 1980
ARTICLES OF INCORPORATIONAmended January 12, 1981
OFAmended August 12, 1982
Amended November 28, 1988
Amended December 23, 1996
Amended May 27, 1997
Amended October 1, 2013
THE YORK WATER COMPANY
Article I.EMPLOYEES' STOCK PURCHASE PLAN
1.PURPOSE OF THE PLAN
The namepurpose of the CorporationEmployees' Stock Purchase Plan (the "Plan") is to provide an opportunity for eligible employees of The York Water Company.
Article II.
The addressCompany (the "Company") to obtain an ownership interest in the Company through purchases of common stock by payroll deductions. It is the intention of the registered officeCompany that the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Corporation in this Commonwealth is 130 East Market Street, York, Pennsylvania 17401.
Article III.
The purpose or purposes for which the corporation is incorporated are:
(a)To engage in, and do any lawful act concerning, any or all lawful business for which a corporation may be incorporated under the Business Corporation Law.
(b)To supply water to the public in the following municipalities or portions thereof in the CommonwealthInternal Revenue Code of Pennsylvania, and to such persons residing therein or adjacent thereto1986, as may desire the same:
All of the City of York, the Boroughs of East Prospect, Glen Rock, Hellam, Jacobus, Jefferson, Longanville, Manchester, Mount Wolf, New Freedom, New Salem, North York, Railroad, Seven Valleys, Shrewsbury, Spring Grove, West York, Wrightsville, York Haven and Yorkannaamended (the "Code") and the Townships of East Manchester, Hellam, Manchester, Shrewsbury, Springfield, Spring Garden, Springettsbury and West Manchester, and parts of the Townships of Codorus, Conewago, Hopewell, Jackson, Lower Windsor, Newberry, North Codorus, North Hopewell, Windsor and York, all in the County of York and Commonwealth of Pennsylvania.
(c)To divert, develop, pump, impound, distribute or furnish water from either surface or subsurface sources to or for the public in the territory described in clause (b) of this Article III and also in such additional territory within the Commonwealth of Pennsylvania as may be specifically described in Application Docket proceedings hereafter voluntarily commenced by the corporation (pursuant to appropriate resolutions of the Board of Directors duly entered upon the minutes of the corporation) before the Pennsylvania Public Utility Commission or its successor in office for the purpose of enlarging the territory in which the corporation may lawfully offer, render, furnish or supply water to the public.
(d)To engage in all other matters incidental to any or all of such purposes.
Article IV.
The term for which the Corporation is to exist is perpetual.
Article V.
The aggregate number of shares which the Corporation shall have authority to issue is 47,000,000 shares, divided into 46,500,000 shares of Common Stock, without par value, and 500,000 shares of Series Preferred Stock without par value. At any meeting of the shareholders, each holder of Common StockPlan shall be entitled to one vote per share. Holdersadministered in accordance with this intent. The Plan is effective as of Common Stock shall not have the right to cumulate their votes for the election of directors of the Corporation. The board of directors shall have the full authority permitted by law to determine the voting rights, if any, and designations, preferences, qualifications, limitations, restrictions, and the special or relative rights of any class or any series of any class of the Series Preferred Stock that may be desired.
Any or all classes and series of shares, or any part thereof, may be represented by uncertificated shares to the extent determinedits approval by the Board of Directors exceptof the Company (the "Board") on September 30, 2013 (the "Effective Date"), subject to the approval of the shareholders of the Company within 12 months of the Effective Date.
Pursuant to the Plan, 350,000 shares of the Company's Common Stock, no par value, are reserved for issuance thereunder (subject to adjustment upon changes in capitalization of the Company as provided in Section 20 hereof).
2.TERM OF THE PLAN
The operation of this Plan shall commence on the Effective Date and shall be automatically renewed from year to year unless terminated by action of the Board, provided that the Plan shall terminate automatically if it is not approved by shareholders within 12 months of the Effective Date. If less than five employees elect to participate or the participation drops to less than five employees, the Plan may be terminated.
3.CUSTODIAN
The Company shall be the Custodian for the Plan, unless the Company shall in its discretion select a bank or other similar type institution or organization to be the Custodian. The duties of the Custodian shall be performed in a reasonable manner, but the Custodian shall not be personally responsible for any shares representederrors in judgment or performance which are not the result of willful misconduct or gross negligence.
4.ADMINISTRATION OF THE PLAN
Except to the extent that responsibilities may be delegated to and assumed by a certificate that are issued and outstandingCustodian other than the Company, the Board of the Company shall continueappoint an administrator (the "Administrator") annually to oversee the Plan's operation. The Administrator's term shall be one year, to be represented thereby untilrenewed at the certificate is surrendereddiscretion of the Board. The Board may remove the Administrator during his or her term, if appropriate. The Board appointed the Human Resources Director to the Corporation.this position.
The Administrator's address is:
THE YORK WATER COMPANYThe York Water Company
130 E. MARKET STREETEast Market Street
BOX 15089York, Pennsylvania 17401-1219
YORK, PA 17405Phone: 717-845-3601
The Company's Human Resources Director shall receive no additional compensation for serving as Administrator of the Plan.
5.ELIGIBILITY REQUIREMENTS
Any full-time employee who has been a full-time employee continuously for ninety days shall be eligible to participate in the Plan. An eligible employee may join the Plan at any time, provided that the employee has submitted to the Administrator of the Plan a properly completed and executed Stock Purchase and Payroll Deduction Agreement (the "Purchase Agreement").
Notwithstanding any provisions of the Plan to the contrary, no employee may participate in the Plan if such employee (or any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code) owns capital stock of the Company and/or holds outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any parent or subsidiary corporation.
All employees who participate in the Plan shall have the same rights and privileges under the Plan, except for differences that may be mandated by local law and that are consistent with Section 423(b)(5) of the Code.
6.OFFERING PERIODS
The Plan shall be implemented by consecutive three month offering periods commencing on the first day of a calendar quarter and ending on the last day of a calendar quarter (an "Offering Period"), provided that the Board may, in its sole discretion, extend or shorten any Offering Period.
7.STOCK PURCHASE AND PAYROLL DEDUCTION AGREEMENT
Each eligible employee wishing to purchase common stock of the Company pursuant to the Plan shall complete and execute a Purchase Agreement.
An eligible employee may specify as the dollar deduction from his or her gross compensation any dollar amount up to 10% of the periodic straight time earnings or gross salary during the Offering Period, such dollar amount to be deducted from each salary check as designated by the employee; provided, however, that each payroll deduction shall be a whole dollar amount, and further provided that the minimum amount that may be deducted is $2. Any employee participating in the Plan may increase or decrease the dollar amount to be deducted from his or her compensation at any time during an Offering Period by submitting a revised Purchase Agreement. Purchase Agreement forms may be obtained from the Administrator of the Plan.
8.PAYROLL DEDUCTIONS
In accordance with each participating employee's Purchase Agreement, payroll deductions shall be made from each of the employee's paychecks commencing with the first pay during an Offering Period after submission of a Purchase Agreement to the Plan Administrator.
The Company shall remit the amounts deducted from the paychecks issued to an interest bearing savings account within 10 days after the pay date.
9.ADDITIONAL CONTRIBUTIONS
An employee participating in the Plan may make an additional lump sum contribution, provided that the maximum dollar amount in Section 7 above is not exceeded.
10.STOCK PURCHASE ACCOUNTS
The Administrator shall establish and maintain a stock purchase account in the name of each participating employee. Each amount deducted from a participant's paycheck shall be credited to such participant's stock purchase account. The effective date of each credit to any participant's account shall be the date on which the participant is issued his or her paycheck from which the deduction is made, without regard to the date on which the check is actually received. Interest will be paid on any amounts in any stock purchase accounts at the then current rate paid by the institution holding the account. The interest will be prorated to each participant's account as of the first of each calendar quarter. At the end of each Offering Period that the Plan is in effect, the Company shall prepare and transmit to the Administrator the aggregate amount in each individual account. No fees, commissions or other charges shall be deducted from the participants' accounts.
11.GRANT OF OPTION
On the last day of an Offering Period (the "Grant Date"), each employee participating in the Plan during such Offering Period shall be granted an option to purchase on the Exercise Date (as defined in Section 12), at the applicable Purchase Price (as defined in Section 13) a number of shares of Company common stock determined by dividing the amount credited to such participant's stock purchase account on such Grant Date by the applicable Purchase Price.
Notwithstanding the foregoing, (i) no option shall be granted to a participant that entitles the participant to purchase a number of shares of Company common stock that is greater than $25,000 divided by the closing price of a share of Company common stock on the Grant Date, and (ii) no participant may accrue the right to purchase Company common stock (under this Plan and any other employee stock purchase plan of the Company and any parent or subsidiary corporation) at a rate that exceeds $25,000 of the fair market value of such stock (determined as of the applicable Grant Date) during any calendar year.
12.EXERCISE OF OPTION
The option granted to a participant pursuant to Section 11 above shall be exercised automatically on the Exercise Date. The Exercise Date shall be the sixteenth day of the month immediately following the Grant Date (provided that if such day is not a business day, the Exercise Date shall be the first business day immediately following such day). Immediately following the Exercise Date, the funds credited to a participant's stock purchase account will be used by the Administrator to purchase from the Company the stock subject to the option and each participant will have allocated to his or her account the number of shares of Company common stock purchased pursuant to the option. The participant's account will be debited for the price of said shares. Any monies left over in a participant's account after the Exercise Date due to the application of the limits set forth in Section 11 above shall be returned to the participant.
Shares which have been allocated to the account of a participating employee shall remain in the custody of the Company or its agent, as Custodian, unless otherwise directed as provided in Section 14.
All dividends and other distributions and all voting rights with respect to shares which have been allocated to the account of a participant but not yet distributed to the participant shall belong to and be vested in such participant, except that, at the written request of the participant, such dividends, distributions and voting rights may belong to and be vested in him or her jointly with another person or persons, or in the name or names of any other person or persons, jointly or severally.
13.DETERMINATION OF PURCHASE PRICE
The Purchase Price will be ninety-five percent (95%) of the fair market value of a share of Company common stock on the Grant Date. Such fair market value will equal the mean between the high and the low prices for the Company's common shares as quoted on Nasdaq on such date. If such price is not available, the Purchase Price will be determined by the Board based on the latest available market quotations or on such other basis as the Board shall deem lawful and appropriate.
14.DISTRIBUTION OF SHARES
Upon written request to the Administrator, a certificate for shares shall be issued and delivered to the employee as soon as practicable. Such shares shall be registered in the name of the participating employee except that, at the written request of the employee, they may be registered jointly in his or her name and the name of another person or persons or in the name or names of any other person or persons, jointly or severally. However, all shares allocated to the participating employee must be registered in one stock account only and may not be divided into more than one stock account.
15.WITHDRAWAL FROM THE PLAN
Any participating employee who, for any reason, ceases to be a full-time employee of the Company shall be deemed to have withdrawn from the Plan on the date employment ceases. Upon a participant's ceasing to be an employee, the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to such participant's beneficiaries, and any unexercised option held by such participant shall be automatically terminated.
In addition, any other participating employee may voluntarily withdraw from the Plan at any time by written termination of the Purchase Agreement. The participant will receive an option on the next Grant Date, as set forth above, relating to payroll deductions and unallocated interest until the time of withdrawal, and such option will be exercised on the next Exercise Date and any remaining amount in the participant's account shall be returned to such participant.
Upon withdrawal from the Plan, an employee, subject to any allocation of shares to his or her nominee or nominees (as referred to in Sections 11 and 14 hereof), shall be entitled to receive any shares held by the Company or its agent, as Custodian, which have been allocated or credited to the employee's account.
16.EXPENSES
The charges of a Custodian other than the Company and all costs of maintaining records and executing transfers will be borne by the Company.
VOTE BY INTERNET –17. www.proxyvote.comSTATEMENT OF ACCOUNT
Use
As soon as practicable after the interneteach Grant Date, the Company or its agent, as Custodian, shall distribute to transmit your voting instructioneach participating employee, a quarterly statement of his or her account. The statement shall set forth as of the last day of each Offering Period during the year (i) the total number of shares allocated to the participating employee's account which is in the custody of the Custodian; (ii) the amount in the account at the beginning of the quarter and the amount of participant contributions for electronic deliverythe quarter; (iii) dividend and interest income allocated to said participant's account; (iv) the amount debited to the account for the purchase of information up until 11:59 P.M. Eastern Timeshares, the day beforenumber of shares purchased for the cut-off date or meeting date. Have your proxy card in hand when you accessaccount for the web sitequarter and follow the instructionspurchase price; and (v) all other pertinent data relating to obtain your recordssuch account.
18.GOVERNMENT REGULATIONS
The Plan and the transactions with respect to the Company's common stock pursuant thereto are subject to all applicable rules and regulations of state and federal law as may from time to time be effective and to create an electronic voting instruction form.such approval of governmental agencies as may be required.
ELECTRONIC DELIVERY19.TERMINATION OR AMENDMENT OF FUTURE PROXY MATERIALSTHE PLAN
If you would like to reduce
The Company may terminate or amend the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mailPlan effective as of the first day of any quarter provided that no such termination or amendment shall impair the Internet. To sign up for electronic delivery, please followrights of any participating employee under the instructions above to vote using the Internet and, when prompted, indicate that you agreePlan, or nominee or nominees of such employee, to receive any shares which have been allocated or access proxy materials electronicallycredited to or for his or her account, and each such employee shall receive the amount of any payroll deductions and any prorated interest or dividends which should properly be credited to his or her account but which have not been applied to the purchase of shares. Upon termination of the Plan, in future years.the event of any cash or shares remaining in the possession of the Custodian after satisfaction of all of the rights of participating employees, the same shall belong to the Company.
VOTE BY PHONE – 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.20.CHANGES IN CAPITALIZATION
VOTE BY MAIL
Mark, signSubject to any required action by the stockholders of the Company, the number of shares reserved for issuance under the Plan, as well as the price per share and date your proxy card and return itthe number of shares of Company common stock covered by each option under the Plan which have not yet been exercised, shall be proportionately adjusted for any increase or decrease in the postage-paid envelope we have providednumber of issued shares of Company common stock resulting from a stock split, reverse stock split, stock dividend, extraordinary cash dividend, combination or return itreclassification of Company common stock, or any other increase or decrease in the number of shares of Company common stock effected without receipt of consideration by the Company. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.
21.TRANSFERABILITY
Neither payroll deductions credited to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect.
22.MISCELLANEOUS
A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, shares of Company common stock subject to an option unless and until the participant's shares of Company common stock acquired upon exercise of an option are recorded in the books of the Company (or its transfer agent).
The Plan does not constitute an employment contract. Nothing in the Plan or in the Offering shall in any way alter the at will nature of a participant's employment or be deemed to create in any way whatsoever any obligation on the part of any participant to continue in the employ of the Company, or on the part of the Company to continue the employment of a participant.
The provisions of the Plan shall be governed by the laws of the Commonwealth of Pennsylvania without resort to that state's conflicts of laws rules.
23.TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDSTAX INFORMATION
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DETATCH AND RETURN THIS PORTION ONLYIn General: The Plan is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), but is not intended to constitute a qualified pension, profit-sharing or stock bonus plan under Section 401(a) of the Code. The principal federal income tax consequences of the Plan under the Code as currently in effect are outlined below. It is advisable for participating employees to obtain competent professional advice regarding the precise tax consequences of participation in the Plan.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
THE YORK WATER COMPANY | | | | | |
Directors recommend a vote "FOR" Items 1, 2 and 3. | | | |
Vote On Directors | | | | | | |
1. | ELECTION OF DIRECTORS | | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. |
| Nominees: | | | O | O | O | |
| 01) | William T. Morris | | | | | | |
| 02) | Jeffrey S. Osman | | | | | |
| 03) | Cynthia A. Dotzel, CPA | | | | | |
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Vote On Proposals | | | | For | Against | Abstain | |
2 | ELIMINATE CUMULATIVE VOTING | | O | O | O | |
| To approve an amendment of our Amended and Restated | | | | |
| Articles of Incorporation to eliminate cumulative voting. | | | | |
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3. | APPOINT PARENTEBEARD LLC AS AUDITORS | O | O | O | |
| To ratify the appointment of ParenteBeard LLC as auditors | | | |
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4. | DISCRETIONARY AUTHORITY |
| To transact such other business as may properly come before the Meeting and any adjournment thereof according to the proxies’ discretion and in their discretion. |
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To cumulate votes as to a particular nominee as explained in the Proxy Statement, check box to the right then indicate the name(s) and the number of votes to be given to such nominee(s) on the reverse side of this card. Please do not check box unless you want to exercise cumulative voting. | O | | |
NOTE: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. | |
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Please indicate if you plan to attend this meeting. | O | O | | |
| | | | Yes | No | | |
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| Signature (PLEASE SIGN WITHIN BOX) | Date | | Signature (Joint Owners) | Date | |
Taxation on Sale of Stock: A participating employee will not recognize income on the grant of the option or on the exercise of the option. A participant's taxation with respect to the shares purchased pursuant to the option will depend on how long the participant holds the shares. If the participant holds the shares of stock until the later of two years from the Grant Date or one year from the Exercise Date (or in the event of the participant's death), the participant will be required to recognize ordinary income upon disposition equal to the lesser of (i) the excess of the fair market value of the stock on the Grant Date over the Purchase Price and (ii) the excess of the fair market value of the stock on the date of disposition of the stock over the Purchase Price. Any additional gain or loss will be short-term or long-term capital gain or loss, as applicable.
If the participant does not hold the shares of stock for the holding period described above, the participant will be taxed upon disposition on the excess of the fair market value of a share of stock on the Exercise Date over the Purchase Price, at ordinary income rates, and the participant will be taxed on any additional realized gain at long-term or short-term capital gains rates, as applicable.
Earnings on Stock Purchase Account: The participating employee must report the amount of earnings credited to his or her stock purchase account as taxable income in the year in which that interest is accrued. The Company will report to each participant the amount of interest earned yearly on an IRS Form 1099, when required, and may require certain other information from each participant to insure that there need be no federal income tax withholding on the interest earned.
Employees' Stock Purchase Plan
| 1. | Payroll Deduction and Purchase of Stock. I authorize The York Water Company to change my withheld contribution for my plan account as follows: |
| From: | $ | | Weekly Amount | | To: | $ | | Weekly Amount |
Each such dollar amount shall be deducted from my paycheck; provided, however, that each payroll deduction shall be a whole dollar amount, and further provided that the minimum amount that may be deducted is $2.00 and the maximum amount is less than or equal to 10% of my regular straight time gross salary, subject to the limits set forth in the Plan. Such payroll deductions shall continue to be made until I execute a revised Purchase Agreement, I withdraw from the Plan or the Plan terminates. Each payroll deduction shall be credited to my stock purchase account and shall be used to purchase common stock from The York Water Company pursuant to the The York Water Company Employees' Stock Purchase Plan.
| 2. | Ownership of Stock. All dividends and other distributions and all voting rights with respect to shares which have been allocated to my account but not yet distributed to me or to my nominee or nominees shall belong to and be vested in me or my nominee or nominees, and upon distribution such shares shall be registered accordingly. At my written request, such dividends, distributions and voting rights may belong to and be vested in me jointly with another person or persons or in the name or names of any other person or persons, jointly or severally, and such shares shall then be registered accordingly. |
| 3. | Rights Under The Plan. I acknowledge receipt of a copy of the Description relating to the Plan October 1, 2013. The rights under this Purchase Agreement shall be governed by The York Water Company Employees' Stock Purchase Plan as set forth in full in the Description. |
| 4. | Original Designation. I hereby designate the following as the name / names in which all shares due me under the provisions of this Plan shall be registered, and such designation shall remain in full force and effect until changed by me in writing (only one such designation may be made): |
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| (Exact name / names) |
| Social Security Number | |
| Address | |
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| | | | By | | | |
| Employee's Signature | | Date | | | Administrator | | Date |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement, Annual Report and Shareholder Letter are available at www.proxyvote.com.
A-7
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The York Water Company
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE YORK WATER COMPANY
Proxy – Annual Meeting of Shareholders
May 3, 2010
The undersigned, a Shareholder of The York Water Company, a Pennsylvania corporation (the “Company”), does hereby appoint John L. Finlayson, Thomas C. Norris, and Ernest J. Waters, and each of them, the true and lawful attorneys and proxies with full power of substitution, for and in the name, place and stead of the undersigned, to vote all of the shares of Common Stock of the Company which the undersigned would be entitled to vote if personally present at the Annual Meeting of Shareholders of the Company to be held Monday, May 3, 2010 at 1:00 p.m. local time at the Strand-Capitol Performing Arts Center, 50 North George Street, York, Pennsylvania or at any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 THROUGH 3.
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| Cumulative voting | | | | | | |
| | | | NAME OF CANDIDATE | | # OF VOTES CAST | |
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| | | 1.1 | | | | |
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| | | 1.2 | | | | |
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| | | 1.3 | | | | |
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(If you exercised cumulative voting, please mark corresponding box on the reverse side)
(Continued and to be signed on reverse side)
