---

AQUA AMERICA, INC.
762 W. Lancaster Avenue
Bryn Mawr, Pennsylvania 19010

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held May 8, 2013

TO THE SHAREHOLDERS OF
AQUA AMERICA, INC.:

     Notice is hereby given that the Annual Meeting of Shareholders of AQUA AMERICA, INC. (the “Company”) will be held at the Drexelbrook Banquet Facility & Corporate Events Center, 4700 Drexelbrook Drive, Drexel Hill, PA 19026 at 8:30 A.M., local time, on Wednesday, May 8, 2013, for the following purposes:

	1.		To consider and take action on the election of six directors for terms expiring at the 2014 Annual Meeting;
	2.		To consider and take action on the ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2013 fiscal year;
	3.		To consider and take action on an advisory vote on the Company’s executive compensation programs as disclosed in this Proxy Statement;
	4.		To consider and take action on a shareholder proposal requesting that the Board of Directors create a comprehensive policy articulating the Company’s respect for and commitment to the human right to water, if properly presented at the meeting; and
	5.		To transact such other business as may properly come before the meeting or any adjournments or postponements thereof.

     Only shareholders of record at the close of business on March 11, 2013 will be entitled to notice of, and to vote at, the meeting and at any adjournments or postponements thereof.

March 25, 2013

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting To Be Held On May 8, 2013. We are mailing to many of our shareholders a notice of availability on the Internet of our proxy materials, rather than mailing a full paper set of the materials. The notice of availability contains instructions on how to access our proxy materials on the Internet, as well as instructions on how to obtain a paper copy if a shareholder elects to do so. All shareholders who do not receive such a notice of availability, including shareholders who have previously requested to receive a paper copy of the materials, will receive a full set of paper proxy materials by U.S. mail. This process will reduce our costs to print and distribute our proxy materials.

REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, AS A SHAREHOLDER YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, OR VOTE ELECTRONICALLY, THROUGH THE INTERNET OR BY TELEPHONE, BY FOLLOWING THE INSTRUCTIONS SET OUT ON THE PROXY CARD. BY USING THE INTERNET OR TELEPHONE YOU HELP THE COMPANY REDUCE POSTAGE AND PROXY TABULATION COSTS.

---

TABLE OF CONTENTS

	Page
PURPOSE OF MEETING	1
VOTING AT THE MEETING	2
PROPOSAL NO. 1 – APPROVAL OF THE ELECTION OF DIRECTORS	4
INFORMATION REGARDING NOMINEES AND DIRECTORS	6
CORPORATE GOVERNANCE	13
DIRECTOR INDEPENDENCE	13
BOARD OF DIRECTORS LEADERSHIP STRUCTURE	14
OVERSIGHT OF RISK MANAGEMENT	15
CODE OF ETHICS	16
POLICIES AND PROCEDURES FOR APPROVAL OF RELATED PERSON TRANSACTIONS	16
BOARD AND BOARD COMMITTEES	17
OWNERSHIP OF COMMON STOCK	19
EXECUTIVE COMPENSATION	21
COMPENSATION DISCUSSION AND ANALYSIS	21
COMPENSATION COMMITTEE REPORT	36
CURRENT COMPENSATION	37
RETIREMENT PLANS AND OTHER POST-EMPLOYMENT BENEFITS	44
NON-QUALIFIED DEFERRED COMPENSATION	47
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL	48
DIRECTOR COMPENSATION	56
REPORT OF THE AUDIT COMMITTEE	57
PROPOSAL NO. 2 – RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR THE 2013 FISCAL YEAR	58
PROPOSAL NO. 3 – ADVISORY VOTE ON THE COMPANY’S EXECUTIVE
COMPENSATION PROGRAMS	59
PROPOSAL NO. 4 – SHAREHOLDER PROPOSAL	59
SHAREHOLDER PROPOSALS FOR 2014 ANNUAL MEETING	64
PROCEDURES FOR NOMINATING OR RECOMMENDING FOR NOMINATION
CANDIDATES FOR DIRECTOR	64
CONSIDERATION OF DIRECTOR CANDIDATES	65
COMMUNICATIONS WTH THE COMPANY OR INDEPENDENT DIRECTORS	65
ADDITIONAL INFORMATION	66
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE	66
OTHER MATTERS	66

---

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
MAY 8, 2013

The Notice of Annual Meeting, Proxy Statement and 2012 Annual Report to Shareholders are
available at: http://ir.aquaamerica.com/

AQUA AMERICA, INC.
762 W. Lancaster Avenue
Bryn Mawr, Pennsylvania 19010

     This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board of Directors” or the “Board”) of Aqua America, Inc. (“Aqua America” or the “Company”) to be used at the Annual Meeting of Shareholders to be held Wednesday, May 8, 2013 and at any adjournments or postponements thereof (“2013 Annual Meeting” or the “meeting”).

     The cost of soliciting proxies will be paid by the Company, which has arranged for reimbursement, at the rate suggested by the New York Stock Exchange, of brokerage houses, nominees, custodians and fiduciaries for the forwarding of proxy materials to the beneficial owners of shares held of record. In addition, the Company has retained Alliance Advisors LLC to assist in the solicitation of proxies from (i) brokers, bank nominees and other institutional holders, and (ii) individual holders of record. The fee paid to Alliance Advisors LLC for normal proxy solicitation is an amount not to exceed $8,000 plus expenses, which will be paid by the Company. Directors, officers and regular employees of the Company may solicit proxies, although no compensation will be paid by the Company for such efforts.

     Under rules adopted by the U.S. Securities and Exchange Commission (“SEC”), the Company is now furnishing proxy materials to many of its shareholders on the Internet, rather than mailing printed copies of those materials to each shareholder. If you received a notice of availability over the Internet of the proxy materials (“Notice”) by mail, you will not receive a printed copy of the proxy materials unless you request one. Instead, the Notice will instruct you as to how you may access and review the proxy materials on the Internet. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice. The Notice was first sent to shareholders of record as of March 11, 2013, and proxy materials, which include the Notice of Annual Meeting of Shareholders, this proxy statement and Annual Report to Shareholders for the year ended December 31, 2012, including financial statements and other information with respect to the Company and its subsidiaries (the “Annual Report”), are first being made available to shareholders of record as of March 11, 2013, on or about March 25, 2013. Additional copies of the Annual Report may be obtained by writing to the Company at the address and in the manner set forth under “Additional Information” on page 66.

PURPOSE OF THE MEETING

     As the meeting is the Annual Meeting of Shareholders, the shareholders of the Company will be requested to:

• consider and take action on the election of six directors for terms expiring at the 2014 Annual Meeting;
   
• consider and take action on the ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2013 fiscal year;
   
• consider and take action on a non-binding advisory vote on the Company’s executive compensation programs;

---

• consider and take action on a shareholder proposal requesting that the Board of Directors create a comprehensive policy articulating the Company’s respect for and commitment to the human right to water, if properly presented at the meeting (the “Shareholder Proposal”); and
   
• transact such other business as may properly come before the meeting or any adjournments or postponements thereof.

VOTING AT THE MEETING

General

     Holders of shares of the Company’s Common Stock of record at the close of business on March 11, 2013 are entitled to vote at the meeting. As of that date, there were 140,163,766 shares of Common Stock outstanding and entitled to be voted at the meeting. Each shareholder entitled to vote shall have the right to one vote on each matter presented at the meeting for each share of Common Stock outstanding in such shareholder’s name.

     The Company’s charter and bylaws provide that the affirmative vote of a majority of the votes cast by those shareholders present in person or represented by proxy at the meeting is required to take action with respect to any matter properly brought before the meeting on the recommendation of a vote of a majority of the entire Board of Directors. The Company’s bylaws also provide that the affirmative vote of at least three quarters of the votes which all voting shareholders, voting as a single class, are entitled to cast is required to take action with respect to any other matter properly brought before the meeting.

Manner of Voting

     Shares cannot be voted at the meeting unless the holder of record is present in person or by proxy. The proxy card is a means by which a shareholder may authorize the voting of his or her shares at the meeting if he or she is unable to attend in person. Alternatively, you may vote electronically, over the Internet or by telephone, following the instructions set out on the proxy card (as outlined in the notice of availability over the Internet of the proxy materials). The shares of Common Stock represented by each properly executed proxy card or electronic proxy will be voted at the meeting in accordance with each shareholder’s direction. Shareholders are urged to specify their choices by marking the appropriate boxes on the proxy card or electronic proxy. If the proxy card or electronic proxy is signed, but no choice has been specified, the shares will be voted as recommended by the Board of Directors. If any other matters are properly presented at the meeting or any adjournment or postponement thereof for action, the proxy holders will vote the proxies (which confer discretionary authority to vote on such matters) in accordance with their judgment.

     Execution of the accompanying proxy or voting electronically or by telephone will not affect a shareholder’s right to attend the meeting and vote in person. Any shareholder giving a proxy or voting electronically or by telephone has the right to revoke the proxy or the electronic or telephonic vote by giving written notice of revocation to the Secretary of the Company at any time before the proxy is voted, by executing a proxy bearing a later date, by making a later-dated vote electronically or by telephone, or by attending the meeting and voting in person. Attendance at the meeting will not, by itself, revoke a previously granted proxy.

Quorum

     A quorum of shareholders is necessary to hold a valid meeting for the transaction of business. The holders of a majority of the shares entitled to vote, present in person or represented by proxy at the meeting, constitute a quorum. Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining a quorum.

Broker Non-Votes

     A “broker non-vote” occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power under New York Stock Exchange (“NYSE”) rules for that particular item and has not received instructions from the beneficial owner. If you are a beneficial owner, your bank, broker or other holder of record is permitted under NYSE rules to vote your shares on the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for

2

---

the 2013 fiscal year, even if the record holder does not receive voting instructions from you. The record holder may not vote on the election of directors, the Company’s executive compensation program or the Shareholder Proposal without instructions from you. Without your voting instructions on these matters, a broker non-vote will occur.

Proposal No. 1 – Election of Directors

     Under the Company’s charter and bylaws, directors are elected by a plurality of the votes cast at the meeting. A plurality means that the six director nominees receiving the most votes FOR election to a director position will be elected as directors. Votes may be cast FOR or WITHHOLD for each nominee. WITHHOLD votes and broker non-votes will be excluded entirely from the vote to elect directors and will have no effect, other than for purposes of determining the presence of a quorum. Thus, the six director nominees with the most FOR votes will be elected at the meeting. Because the shareholders at the 2012 Annual Meeting approved the amendment to the Company’s Articles of Incorporation providing for a transition to the annual election of directors, the six directors elected at the 2013 Annual Meeting will be elected for terms expiring at the 2014 Annual Meeting and three directors who were elected at the 2011 Annual Meeting for terms expiring at the 2014 Annual Meeting will continue to serve in accordance with their prior election.

     In 2011, the Board of Directors adopted a majority voting policy for the election of directors in uncontested elections. Under this policy, any incumbent director who is nominated for re-election and who receives a greater number of WITHOLD votes than FOR votes for the director’s election shall promptly tender his or her resignation to the Board of Directors, which shall evaluate the relevant facts and circumstances in connection with such director’s resignation, giving due consideration to the best interests of the Company and its shareholders. Within 90 days after the election, the independent directors shall make a decision on whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of Directors will promptly disclose publicly its decision and the reasons for its decision. The Board of Directors believes that this process enhances accountability to shareholders and responsiveness to shareholder votes, while allowing the Board of Directors appropriate discretion in considering whether a particular director’s resignation would be in the best interests of the Company and its shareholders. The Board of Directors’ policy on the majority election of directors is set forth in the Company’s Corporate Governance Guidelines. Copies of the Corporate Governance Guidelines can be obtained free of charge from the Corporate Governance portion of the Investor Relations section of the Company’s website, www.aquaamerica.com.

Proposal No. 2 – Ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2013 fiscal year

     Under the Company’s charter and bylaws, the affirmative vote of a majority of the votes cast by those shareholders present in person or by proxy at the meeting is required to ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2013 fiscal year. Abstentions will not be considered votes cast on this proposal and, therefore, will have no effect, other than for purposes of determining the presence of a quorum.

Proposal No. 3 – Advisory Vote on Executive Compensation

     Because the vote is advisory, it will not be binding upon the Company, the Board of Directors or the Executive Compensation Committee. The Board of Directors and the Executive Compensation Committee, which is comprised of independent directors, value the opinions of the Company’s shareholders and expect to take into account the outcome of the vote when considering future executive compensation decisions to the extent they can determine the cause or causes of any significant negative voting results. Abstentions and broker non-votes will not be considered votes cast on this proposal and, therefore, will have no effect, other than for purposes of determining the presence of a quorum.

3

---

Proposal No. 4 – Shareholder Proposal

     Under the Company’s charter and bylaws, the affirmative vote of at least three quarters of the votes which all voting shareholders, voting as a single class, are entitled to cast is required to approve this proposal because it is not being brought before the meeting on the recommendation of a majority of the Board of Directors. Abstentions and broker non-votes will not be considered votes cast on this proposal and, therefore, will have no effect, other than for purposes of determining the presence of a quorum.

     Since the Shareholder Proposal is presented in the form of a request to the Board of Directors, approval of the Shareholder Proposal will not have the effect of requiring the Board of Directors to prepare a comprehensive report on the human right to water, but will represent simply an expression of the wishes of the shareholders on that subject. The Board of Directors would still be required by statute to decide whether it would be in the best interests of the Company to prepare such a report and could decide in the exercise of its business judgment not to have the Company prepare such a report as requested in the Shareholder Proposal.

     Your proxy vote is important. Accordingly, you are asked to complete, sign and return the accompanying proxy card or vote electronically or telephonically regardless of whether or not you plan to attend the meeting.

(PROPOSAL NO. 1)

ELECTION OF DIRECTORS

     The Board of Directors was previously divided into three classes with one class elected each year to hold office for a three-year term. At the 2012 Annual Meeting of Shareholders, the shareholders approved an Amendment to the Company’s Articles of Incorporation (the “Amendment”) that provides for the transition to the annual election of the members of the Board of Directors. The directors elected at the 2012 Annual Meeting were elected for a one-year term expiring at the 2013 Annual Meeting, and until their successors are duly elected and qualified. The directors previously elected at the 2010 and 2011 Annual Meetings have terms expiring at the 2013 and 2014 Annual Meetings, respectively. Thus, the directors elected at the 2010 and 2012 Annual Meetings with terms expiring at the 2013 Annual Meeting and who are nominated for re-election and elected will be elected for a one-year terms expiring at the 2014 Annual Meeting, and until their successors are duly elected and qualified. The directors previously elected at the 2011 Annual Meeting for terms expiring at the 2014 Annual Meeting will continue to serve in accordance with their prior election.

     In accordance with the Company’s Corporate Governance Guidelines, the Chairman of the Corporate Governance Committee reported to the Corporate Governance Committee that Nicholas DeBenedictis, Richard H. Glanton, Lon R. Greenberg, Wendell F. Holland, William P. Hankowsky and Andrew J. Sordoni, III, the six directors with terms expiring at the 2013 Annual Meeting would be willing to serve on the Board of Directors if re-elected. The Corporate Governance Committee reviewed the qualifications of the six directors in relation to the criteria for candidates for nomination for election to the Board of Directors under the Company’s Corporate Governance Guidelines. The Corporate Governance Committee voted to recommend to the Board of Directors, and the Board of Directors approved, the nomination of Mr. DeBenedictis, Mr. Glanton, Mr. Greenberg, Mr. Holland, Mr. Hankowsky and Mr. Sordoni for election to the class of directors to be elected at the 2013 Annual Meeting, with Mr. Glanton abstaining on the vote by the Corporate Governance Committee with respect to his nomination and each other nominee abstaining from the vote by the Board of Directors with respect to his nomination.

     In June 2012, Ms. Mary C. Carroll reached the retirement age of 72 under the Company’s Corporate Governance Guidelines. Ms. Carroll, who was elected at the 2011 Annual Meeting for a term expiring at the 2014 Annual Meeting, submitted her resignation effective on her 72^nd birthday to the Board on May 10, 2012. The Board of Directors requested, and Ms. Carroll agreed, that she remain on the Board of Directors until the 2013 Annual Meeting. In February 2013, the Board requested, and Ms. Carroll agreed, that she remain on the Board of Directors until the end of 2013.

4

---

     Therefore, six directors, Mr. DeBenedictis, Mr. Glanton, Mr. Greenberg, Mr. Holland, Mr. Hankowsky and Mr. Sordoni will stand for election by a plurality of the votes cast at the 2013 Annual Meeting, and three directors having terms ending at the 2014 Annual Meeting will continue to serve on the Board of Directors in accordance with their prior election. At the 2013 Annual Meeting, proxies in the accompanying form, properly executed, will be voted for the election of the six nominees listed below, unless authority to do so has been withheld in the manner specified in the instructions on the proxy card or the record holder does not have discretionary voting power under the NYSE rules (see “Voting At The Meeting – Broker Non-Votes” on pages 2 and 3). Discretionary authority is reserved to cast votes for the election of a substitute should any nominee be unable or unwilling to serve as a director. Each nominee has stated his willingness to serve and the Company believes that the nominees will be available to serve.

     The Board of Directors unanimously recommends that the shareholders vote FOR the election of Mr. DeBenedictis, Mr. Glanton, Mr. Greenberg, Mr. Holland, Mr. Hankowsky and Mr. Sordoni as directors.

5

---

INFORMATION REGARDING NOMINEES AND DIRECTORS

     For each of the six nominees for election as directors at the 2013 Annual Meeting and the three directors whose term of office is to expire at the 2014 Annual Meeting, set forth below is information as to the positions and offices with the Company held by each, the principal occupation of each during the past five years, the directorships of public companies and other organizations held by each and the experience, qualifications, attributes or skills that, in the opinions of the Corporate Governance Committee and the Board of Directors make the individual qualified to serve as a director of the Company.

NOMINEES FOR ELECTION AT THE 2013 ANNUAL MEETING

Nicholas DeBenedictis Ardmore, PA Director since 1992		Biography: Mr. DeBenedictis has served as Chief Executive Officer of the Company since July 1992 and Chairman of the Board since May 1993. He also serves as Chairman and Chief Executive Officer of the Company’s principal subsidiaries, including Aqua Pennsylvania, Inc. Between April 1989 and June 1992, he served as Senior Vice President for Corporate Affairs of PECO Energy Company (now known as Exelon). From December 1986 to April 1989, he served as President of the Greater Philadelphia Chamber of Commerce and from 1983 to 1986 he served as the Secretary of the Pennsylvania Department of Environmental Resources. Mr. DeBenedictis is a director of Exelon Corporation and P.H. Glatfelter Company. He also serves on the Boards of Pennsylvania area non-profit, civic and business organizations. Age: 67. Qualifications: In addition to his knowledge and experience as the Company’s Chief Executive Officer since 1992 and his prior experience as a senior executive of a major electric utility, Mr. DeBenedictis has experience as the head of Pennsylvania’s environmental regulatory agency. He serves as a director of two other public companies, including as a member of the corporate governance, finance and compensation committees of those companies. Mr. DeBenedictis has also held leadership positions with various, educational, civic and charitable institutions. The Board of Directors views Mr. DeBenedictis’ experience with various aspects of the utility industry and his demonstrated leadership roles in business and community activities as important qualifications, skills and experience for the Board of Directors’ conclusion that Mr. DeBenedictis should serve as a director of the Company.
Richard H. Glanton Philadelphia, PA Director since 1995		Biography: Mr. Glanton is Chairman of the Philadelphia Television Network, a privately-held media company and Managing Member of ElectedFace LLC, an on-line service that connects people with their elected officials. Mr. Glanton was Senior Vice President of Corporate Development at Exelon Corporation from 2003 to 2008. From 1983 to 2003 he was a partner at the law firms of Wolf Block LLP (1983 to 1986) and Reed Smith LLP (1986 to 2003). Mr. Glanton is a director of The GEO Group, Inc. and Mistras Group, Inc. Age: 66.

6

---

NOMINEES FOR ELECTION AT THE 2013 ANNUAL MEETING

		Qualifications: Mr. Glanton has more than 25 years of legal experience in law firms and 13 years of executive experience as President of The Barnes Foundation for more than eight years from 1990 to 1998 and at Exelon. Mr. Glanton has approximately 29 years of continuous experience serving on boards of publicly-traded companies. He has served as a director on boards of five publicly-traded companies, four of which are traded on the NYSE and one, CGU, is traded on the United Kingdom Stock Exchange. He served as a Director of CGU of North America, a British-based Insurance Company, from 1983 to 2003 when it was sold to White Mountain Group of Exeter, New Hampshire and Berkshire Hathaway. He was a member of both its Executive and Audit Committees during his 20-year tenure on that board. From 1990 until 2003, he served as Director of PECO Energy and Exelon Corporation Boards until he resigned to assume a senior management position within the Company at the request of its Chairman. He served on the Executive, Audit and Governance Committees of PECO/Exelon. He has been a director of the GEO Group since 1998, where he serves on its three member Executive Committee, and as Chairman of the Audit and Finance Committee and a Member of its Governance and Compensation Committees. He has served as Chairman of Aqua America’s Corporate Governance Committee since 2005. The Board has determined that Mr. Glanton is an independent director. The Board of Directors views Mr. Glanton’s independence, his experience in utility acquisitions, his experience as a director of other publicly-traded companies and his demonstrated leadership roles in other business activities as important qualifications, skills and experience for the Board of Directors’ conclusion that Mr. Glanton should serve as a director of the company.
Lon R. Greenberg Wyndmoor, PA Director since 2005		Biography: Mr. Greenberg has been Chairman of the Board of Directors of UGI Corporation since August 1996 and Chief Executive Officer since August 1995. He was formerly President (July 1994 to August 2005), Vice Chairman of the Board (1995 to 1996) and Senior Vice President – Legal and Corporate Development (1989 to 1994) of UGI Corporation. Mr. Greenberg is a member of the Board of Trustees of Temple University and the Temple University Health System. Mr. Greenberg also serves as a director of Ameriprise Financial, Inc., UGI Utilities, Inc. and AmeriGas Propane, Inc. Age: 62.

7

---

NOMINEES FOR ELECTION AT THE 2013 ANNUAL MEETING

		Qualifications: Mr. Greenberg has over 20 years of experience in various executive, legal and corporate development roles with a major gas utility company and international distributor of propane. He is also Chairman of the nation’s largest retail propane marketer and he serves as a director for a NYSE-listed financial planning, products and services company. He is a member of the Board of Trustees of a major university in Philadelphia and the university’s health system. Mr. Greenberg has served as a member of the Company’s Executive Compensation Committee since 2005 and a member of the Company’s Audit Committee since 2009. Mr. Greenberg has also held leadership positions with various civic and charitable institutions. The Board of Directors has determined that Mr. Greenberg is an independent director, financially literate and an audit committee financial expert within the meaning of applicable U.S. Securities and Exchange Commission (“SEC”) rules. The Board of Directors views Mr. Greenberg’s independence, his experience with various aspects of the utility industry, his experience as an executive of a non-utility business and his demonstrated leadership roles in business and community activities as important qualifications, skills and experience for the Board of Directors’ conclusion that Mr. Greenberg should serve as a director of the Company.
William P. Hankowsky Philadelphia, PA Director since 2004		Biography: Mr. Hankowsky has been Chairman, President and Chief Executive Officer of Liberty Property Trust, a fully integrated real estate firm, since 2003. Mr. Hankowsky joined Liberty in 2001 as Executive Vice President and Chief Investment Officer. Prior to joining Liberty, he served for 11 years as President of the Philadelphia Industrial Development Corporation. Prior to that, he was Commerce Director for the City of Philadelphia. Mr. Hankowsky serves on the Board of Directors of Citizens Financial Group and on various charitable and civic boards, including the Philadelphia Convention and Visitors Bureau and the Kimmel Regional Performing Arts Center. Age: 62.
		Qualifications: Mr. Hankowsky has over 35 years of experience managing public, private and non-profit organizations, including eight years as Chairman and Chief Executive Officer of Liberty Property Trust, a publicly-traded Real Estate Investment Trust which owns 80 million square feet of office and industrial space in over 20 markets throughout the United States and the United Kingdom. He has experience in financing, acquisitions and real estate matters across the United States. Mr. Hankowsky has also held leadership positions with various cultural and civic institutions in the greater Philadelphia region. Mr. Hankowsky has served as Chairman of the Company’s Executive Compensation Committee since 2005. The Board of Directors has determined that Mr. Hankowsky is an independent director, financially literate and an audit committee financial expert within the meaning of applicable SEC rules. The Board of Directors views Hankowsky’s independence, his experience with real estate, financing and acquisitions and his demonstrated leadership roles in business and community activities as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Hankowsky should serve as a director of the Company.

8

---

NOMINEES FOR ELECTION AT THE 2013 ANNUAL MEETING

Wendell F. Holland Bryn Mawr, PA Director since 2011		Biography: Mr. Holland is a partner in the law firm of Saul Ewing, LLP. Mr. Holland served as Chairman of the Pennsylvania Public Commission from 2004 to 2008 and as a Commissioner from 1990 to 1993 and 2003 to 2004. Mr. Holland was Of Counsel to the law firm of Obermayer Rebman from 1999 to 2003, Vice President of American Water Works Company from 1996 to 1999 and a partner at the law firm of LeBoeuf Lamb Greene and McRae from 1993 to 1995. He has served as Treasurer of the National Association of Utility Regulatory Commissioners (NARUC) and also served on NARUC’s Executive Committee, Board of Directors, and as Chairman of its Audit and Investment Committees. He is a member of the Board of Bryn Mawr Trust Bank and was a member of the Allegheny Energy Board of Directors from 1994 to 2003. Age: 60.
		Qualifications: Mr. Holland has extensive knowledge and experience in the regulation of public utilities, especially water utilities. His experience as Chairman of the Public Utility Commission in Pennsylvania for four years and a Commissioner for four years enables him to provide valuable insight into the regulatory proceess. His service as a member of the Board of Directors of a large, publicly-trade energy company also enables him to play a meaningful role on the Company’s Board of Directors. As outside counsel to, and an executive at, other public utility companies, he has a valuable perspective on the various issues facing public utility companies. The Board of Directors has determined that Mr. Holland is an independent director. The Board of Directors views Mr. Holland’s independence, his experience with utility regulation and utility operations, his reputation in the utility industry and his leadership roles in business and community activities as important qualifications, skills and experience for the Board of Directors’ conclusion that Mr. Holland should serve as a director of the Company.
Andrew J. Sordoni, III Forty Fort, PA Director since 2006		Biography: Mr. Sordoni is Chairman of Sordoni Construction Services, Inc., a building construction and management services company and has been an officer of that company since 1967. Mr. Sordoni was Chairman or President of C-TEC Corporation, a diversified telecommunications company from 1979 to 1993. Since 1974 he has headed Sordoni Foundation, Inc. and has served as a director of various business and charitable organizations. He is also a director of Harsco Corporation. Age: 69.

9

---

NOMINEES FOR ELECTION AT THE 2013 ANNUAL MEETING

Qualifications: Mr. Sordoni has experience as a director and executive of various public and private companies throughout the course of his career, including experience in construction, finance, administration and acquisitions. He was Chairman and President of a regulated public utility company in Pennsylvania. He has been a director of another publicly-traded company since 1988 and is a member of that company’s nominating committee and compensation committee. Mr. Sordoni has lived and worked in northeast Pennsylvania, an important area of the Company’s operations, for over 50 years. Mr. Sordoni has served as a member of the Company’s Audit Committee since 2006. The Board of Directors has determined that Mr. Sordoni is an independent director, financially literate and an audit committee financial expert within the meaning of applicable SEC rules. The Board of Directors views Mr. Sordoni’s independence, his experience as an executive of a public utility company in Pennsylvania, his experience in construction, finance and acquisitions, his knowledge of northeast Pennsylvania, his experience as a director of another publicly-traded company and his demonstrated leadership roles in business and community activities as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Sordoni should serve as a director of the Company.

DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 2014

Mary C. Carroll Bryn Mawr, PA Director since 1981

Biography: Ms. Carroll is a retired consultant and an advisor to non-profit corporations, businesses and government agencies and is a well-recognized civic volunteer. She is the Honorary Consul of Nepal and Chairman of the Nepal Foundation. She is a founder, director or trustee of various civic and charitable organizations, including the YMCA of Philadelphia and Vicinity and the Friends of Patan Hospital. Age: 72.

10

---

DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 2014

		Qualifications: As the Company’s longest serving director, Ms. Carroll has knowledge of the Company’s history and culture. She has been a community leader for over 35 years, having served as an officer or member of the board of directors of over 30 local, regional and national non-profit organizations. She has established advisory boards which consulted and worked with the federal government. She has served as founder, President and CEO of organizations involved in economic development, conservation and self-help in Philadelphia and in Nepal, Russia and South Korea. Ms. Carroll has both a unique community-oriented and world perspective. Ms. Carroll has been a member of the Company’s Corporate Governance Committee since 1981. The Board of Directors has determined that Ms. Carroll is an independent director. The Board of Directors views Ms. Carroll’s independence, her knowledge of the company’s history and culture and her demonstrated leadership roles in community activities as important qualifications, skills and experience for the Board of Directors’ conclusion that Ms. Carroll should serve as a director of the Company.
Mario Mele Ft. Washington, PA Director since 2009		Biography: Mr. Mele is President of Fidelio Insurance Company, a health insurance company specializing in underwriting group dental insurance, and President of Dental Delivery Systems, Inc., a dental HMO with over 50,000 enrollees in Pennsylvania, New Jersey and New York. Mr. Mele served as Chairman of the Montgomery County, Pennsylvania Board of Commissioners from 1992 to 2000. He has also been a member of the Board of Directors of the Southeastern Pennsylvania Transportation Authority from 1997 to 2001 and a member of the Board of the Pennsylvania Liquor Control Board from 1980 to 1987. Age: 71.
		Qualifications: Mr. Mele has 35 years of experience as the president of a health insurance company and over 20 years of experience in various state and local governmental organizations. He has held leadership roles in various cultural and civic organizations. He also has B.A and M.A. degrees in physics. The Board of Directors has determined that Mr. Mele is an independent director. The Board of Directors views Mr. Mele’s independence, his experience with health insurance issues and state and local government, his science education and his demonstrated leadership roles in business and community activities as important qualifications, skills and experience for the Board of Directors’ conclusion that Mr. Mele should serve as a director of the Company.

11

---

DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 2014

Ellen T. Ruff Charlotte, NC Director since 2006		Biography: Ms. Ruff was President, Office of Nuclear Development, for Duke Energy Corporation, from December 2008 until her retirement in January 2011. Duke Energy Corporation is a leading energy company focused on electric power and gas distribution operations and other energy services in the Americas. From April 2006 through December 2008, Ms. Ruff was President of Duke Energy Carolinas, an electric utility that provides electricity and other services to customers in North Carolina and South Carolina. Ms. Ruff joined the Duke Energy organization in 1978 and during her career held a number of key positions, including: Vice President and General Counsel of Corporate, Gas and Electric Operations; Senior Vice President and General Counsel for Duke Energy; Senior Vice President of Asset Management for Duke Power; Senior Vice President of Power Policy and Planning; Group Vice President of Power Policy and Planning; and Group Vice President of Planning and External Affairs. Ms. Ruff is a director of Mistras Group, Inc. Age: 64.
		Qualifications: Ms. Ruff has over 30 years of experience with a major utility company in various management, operations, legal, planning and public affairs positions. Ms. Ruff has lived and worked in North Carolina, an important area of the Company’s operations, for many years. Ms. Ruff has served as a member of the Company’s Executive Compensation Committee since 2006. The Board of Directors has determined that Ms. Ruff is an independent director. The Board of Directors views Ms. Ruff’s independence, her experience with various aspects of the utility industry, her knowledge of North Carolina and her demonstrated leadership roles in business and community activities as important qualifications, skills and experience for the Board of Directors’ conclusion that Ms. Ruff should serve as a director of the Company.

12

---

CORPORATE GOVERNANCE

     The Board of Directors operates pursuant to a set of written Corporate Governance Guidelines. Copies of these Guidelines can be obtained free of charge from the Corporate Governance portion of the Investor Relations section of the Company’s website, www.aquaamerica.com.

     Our website is not part of this Proxy Statement; references to our website address in this Proxy Statement are intended to be inactive textual references only.

DIRECTOR INDEPENDENCE

     The Board of Directors is, among other things, responsible for determining whether each of the directors is independent in light of any relationship such director may have with the Company. The Board has adopted Corporate Governance Guidelines that contain categorical standards of director independence that are consistent with the listing standards of the NYSE. Under the Company’s Corporate Governance Guidelines, a director will not be deemed independent if:

• the director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years an executive officer of the Company;
   
• (A) the director or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor, (B) the director is a current employee of such a firm, (C) the director has an immediate family member who is a current employee of such a firm and personally works on the Company’s audit, or (D) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such firm and personally worked on the Company’s audit within that time;
   
• the director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serves or served on that company’s compensation committee;
   
• the director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service) and, in the case of an immediate family member who is not an executive officer, other than compensation for service as an employee of the Company;
   
• the director is an executive officer or employee, or someone in her/his immediate family is an executive officer, of another company that, during any of the other company’s past three fiscal years made payments to, or received payments from, the Company for property or services in an amount which, in any single fiscal year of the other company, exceeded the greater of $1 million or 2% of the other company’s consolidated gross revenues; or
   
• the director serves as an executive officer of a charitable organization and, during any of the charitable organization’s past three fiscal years, the Company made charitable contributions to the charitable organization in any single fiscal year of the charitable organization that exceeded the greater of $1 million or two percent of the charitable organization’s consolidated gross revenues.

     For purposes of the categorical standards set forth above, (a) a person’s immediate family includes a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone (other than domestic employees) who shares such person’s home, and (b) the term “executive officer” has the same meaning specified for the term “officer” in Rule 16a-1(f) under the Securities Exchange Act of 1934.

13

---

     In addition to these categorical standards, no director will be considered independent unless the Board of Directors affirmatively determines that the director has no material relationship with the Company (either directly, or as a partner, stockholder, director or officer, of an organization that has a relationship with the Company). When making independence determinations, the Board of Directors broadly considers all relevant facts and circumstances surrounding any relationship between a director or nominee and the Company. Transactions, relationships and arrangements between directors or members of their immediate family and the Company that are not addressed by the categorical standards may be material depending on the relevant facts and circumstances of such transactions, relationships and arrangements. The Board of Directors considered the following transactions, relationships and arrangements in connection with making the independence determinations:

	1.		The Company made contributions to charitable or civic organizations for which the following directors serve as directors, trustees or executive officers: Ms. Carroll, Mr. Glanton, Mr. Greenberg, Mr. Hankowsky, Mr. Mele and Mr. Sordoni. None of the Company’s contributions exceeded the greater of $1 million or 2% of the recipient organization’s consolidated gross revenues.
	2.		The Company purchases energy at normal tariff rates from Duke Energy Corporation and UGI Corporation or their affiliates for which Ms. Ruff and Mr. Greenberg, respectively, serve or served as executive officers. The amounts paid by the Company to these other entities are not material to these other entities.
	3.		The Company provides water service at normal tariff rates to Liberty Property Trust and UGI Corporation or their affiliates for which Mr. Hankowsky and Mr. Greenberg, respectively, serve as executive officers. The amounts paid to the Company by these other entities are not material to these other entities.
	4.		Mr. DeBenedictis serves on the board of directors of civic or charitable organizations with Mr. Greenberg, Mr. Hankowsky and Mr. Sordoni.
	5.		The Company has banking arrangements with Citizens Financial Group or its affiliates, and Mr. Hankowsky is a member of the Board of Directors of Citizens Financial Group. The amounts paid by the Company to these other entities are not material to these entities.
	6.		The Company has had a relationship with the law firm at which Mr. Holland is a partner prior to Mr. Holland joining that firm. The legal services provided by the law firm to the Company were rendered by attorneys other than Mr. Holland. The Company paid $599,455 in fees for legal services to this firm in 2012.

     Based on a review applying the categorical standards set forth in the Company’s Corporate Governance Guidelines and considering the relevant facts and circumstances of the transactions, relationships and arrangements between the directors and the Company described above, the Board of Directors has affirmatively determined that each nominee for director and each of the Company’s other directors, other than Mr. DeBenedictis, the Company’s Chief Executive Officer, is independent.

     In 2005, the Board of Directors approved share ownership guidelines for each director to own shares of Company common stock having a value equal to five times the annual cash retainer for directors. Directors have up to five years to attain this guideline share ownership level. As of December 31, 2012, each director owned sufficient shares to comply with these guidelines except Mr. Holland, who has until 2016, five years following his appointment to the Board of Directors, to meet the guidelines.

BOARD OF DIRECTORS LEADERSHIP STRUCTURE

     The Board of Director’s current policy is that the positions of Chairman and Chief Executive Officer be held by the same person. The Board of Directors believes that this leadership structure has served the Company well over the years by providing unified leadership and direction and, in combination with the Company’s other corporate governance policies and procedures, is in the best interests of the Company’s shareholders. The Board of Directors may separate these positions in the future should circumstances change, such as in connection with a transition in leadership.

14

---

     The Board of Directors annually elects a lead independent director to coordinate the activities of the other independent directors and enhance the role of the independent directors in the overall corporate governance of the Company. Unless otherwise determined by the Board, the director elected annually to serve as the Chair of the Corporate Governance Committee will also serve as the lead independent director. The duties and powers of the lead independent director include:

• presiding at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors;
   
• serving as liaison between the independent directors and the Chairman of the Board;
   
• consulting with the Chairman of the Board on meeting agendas and information provided to the Board for meetings, including the authority to add items to the agendas for any such meeting;
   
• reviewing and approving meeting schedules to assure that there is sufficient time for discussion of all agenda items;
   
• having the authority to call executive sessions of the independent directors and to prepare the agendas for such executive sessions;
   
• serving as the Board’s liaison for consultation and communications with shareholders on behalf of the independent directors;
   
• serving as a member of the Executive Committee;
   
• in the event of the death or incapacity of the Chairman and Chief Executive Officer, becoming the acting Chairman of the Board until a new Chairman is selected; and
   
• having the authority (on behalf of the independent directors) to engage such legal, financial or other advisors as the independent directors shall deem appropriate at the expense of the Company and without consultation or the need to obtain approval of any officer of the Company.

OVERSIGHT OF RISK MANAGEMENT

     The Board oversees management’s risk management activities through a combination of processes.

• Management has developed a Company-wide Enterprise Risk Management process intended to identify, prioritize and monitor key risks that may affect the Company. At least annually, the Board reviews this Enterprise Risk Management process and management presents to the Board a report on the status of the risks and the metrics used to monitor those risks. Each risk that is tracked as part of the Enterprise Risk Management process has a member of the Company’s management who serves as the owner and monitor for that risk. The risk owners and monitors report on the status of their respective risks at the quarterly meeting of management’s Compliance Committee. The information discussed at the Compliance Committee meeting is then reviewed by the Disclosure Committee composed of the Company’s Chief Executive Officer, Chief Financial Officer, General Counsel, Chief Accounting Officer and Director of Internal Audit. The results of the Disclosure Committee meetings are presented to the Audit Committee each quarter.
   
• The Audit Committee, in consultation with management, the independent registered public accountants and the internal auditors, discusses the Company’s policies and guidelines regarding risk assessment and risk management as well as the Company’s significant financial risk exposures and the steps management has taken to monitor, control and report such exposures. The Audit Committee meets in executive session with the Director of Internal Audit and with the independent registered public accountants at the end of each Audit Committee meeting. The Company’s General Counsel reports to the Audit Committee quarterly regarding any significant litigation involving the Company and his opinion of the adequacy of the Company’s reserves for such litigation.

15

---

• The Executive Compensation Committee considers the risks that may be presented by the structure of the Company’s compensation programs and the metrics used to determine individual compensation under that program. In addition, two members of the Audit Committee are also members of the Executive Compensation Committee, which allows for the sharing of information concerning the risk assessment and risk management reviewed by the Audit Committee with the Executive Compensation Committee in its consideration of the Company’s compensation policies and practices.
   
• The Corporate Governance Committee leads an annual discussion by the Board of Directors regarding the Company’s strategic plans and management’s performance with respect to such plans.
   
• The Board believes that the present leadership structure of having the same person serve as the Chairman and Chief Executive Officer of the Company, along with the important risk oversight functions performed by the Audit Committee, the Executive Compensation Committee and the full Board, permits the Board to effectively perform its role in the risk oversight of the Company.
   
• Management briefs the Board of Directors on acquisitions valued in excess of $2 million and the Board approves every acquisition valued in excess of $10 million or which involves the issuance of the Company’s common stock as part of the acquisition.
   
• In addition to updates at each Board meeting by operating management regarding any significant operational or environmental matters, management provides the Board with an annual update on environmental matters by the Company’s Chief Environmental Compliance Officer in connection with a presentation by the Company’s Senior Vice President of Engineering on the Company’s proposed capital spending plans.

CODE OF ETHICS

     The Company maintains a Code of Ethical Business Conduct for its directors, officers and employees, including the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as defined by the rules adopted by the SEC pursuant to Section 406(a) of the Sarbanes-Oxley Act of 2002. The Code of Ethical Business Conduct covers a number of important subjects, including: conflicts of interest; corporate opportunities; fair dealing; confidentiality; protection and proper use of Company assets; compliance with laws, rules and regulations (including insider trading laws); and encouraging the reporting of illegal or unethical behavior. Copies of the Company’s Code of Ethical Business Conduct can be obtained free of charge from the Corporate Governance portion of the Investor Relations section of the Company’s website, www.aquaamerica.com. The Company intends to post amendments to or waivers from the Code of Ethical Business Conduct (to the extent applicable to the Company’s executive officers, senior financial officers or directors) on its website.

POLICIES AND PROCEDURES FOR APPROVAL OF RELATED PERSON TRANSACTIONS

     The Board has a written policy with respect to Related Person Transactions to document procedures pursuant to which such transactions are reviewed, approved or ratified. The policy applies to any transaction in which (1) the Company is a participant, (2) any related person has a direct or indirect material interest and (3) the amount involved exceeds $120,000, but excludes certain types of transactions in which the related person is deemed not to have a material interest.

     Under this policy, a related person means: (a) any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director, an executive officer or a director nominee; (b) any person known to be the beneficial owner of more than 5% of any class of the Company’s voting securities; (c) any immediate family member of a person identified in items (a) or (b) above, meaning such person’s spouse, parent, stepparent, child, stepchild, sibling, mother- or father-in-law, son- or daughter-in-law, brother- or sister-in-law or any other individual (other than a tenant or employee) who shares the person’s household; or (d) any entity that employs any person identified in (a), (b) or (c) or in which any person identified in (a), (b) or (c) directly or indirectly owns or otherwise has a material interest.

16

---

     The Corporate Governance Committee, with assistance from the Company’s General Counsel, is responsible for reviewing, approving and ratifying any related person transaction. In its review and approval or ratification of related person transactions (including its determination as to whether the related person has a material interest in a transaction), the Corporate Governance Committee will consider, among other factors:

• the nature of the related person’s interest in the transaction;
   
• the material terms of the transaction, including, without limitation;
   
• the amount and type of transaction;
   
• the importance of the transaction to the related person;
   
• the importance of the transaction to the Company;
   
• whether the transaction would impair the judgment of a director or executive officer to act in the best interests of the Company; and
   
• any other matters the Corporate Governance Committee deems appropriate.

     The Corporate Governance Committee intends to approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders.

     As noted under Director Independence on page 14, the Company had a pre-existing relationship with the law firm that Mr. Holland joined as a partner in 2008 prior to Mr. Holland joining the firm. Most of the legal services provided by that law firm to the Company relate to regulatory matters for the Company’s New Jersey subsidiaries and do not involve services by Mr. Holland. Because the legal services provided to the Company exceed $120,000, the relationship between the Company and the law firm constitutes a related person transaction. Prior to nominating Mr. Holland for appointment to the Board of Directors, the Corporate Governance Committee reviewed the relationship between the Company and the law firm pursuant to the Company’s Related Person Transaction Policy and concluded that the relationship was in the best interests of the Company since the attorneys performing most of that work had been handling regulatory matters for the Corporation’s New Jersey subsidiary for several years prior to Mr. Holland joining the firm.

BOARD AND BOARD COMMITTEES

     The Board of Directors held seven meetings in 2012. The Company’s Bylaws provide that the Board of Directors, by resolution adopted by a majority of the whole Board, may designate an Executive Committee and one or more other committees, with each such committee to consist of two or more directors. The Board of Directors annually elects from its members the Executive, Audit, Executive Compensation and Corporate Governance Committees. The Board may also from time to time appoint an ad hoc Finance Committee to approve the terms of the Company’s financings. The Retirement and Employee Benefits Committee, which is comprised of senior management of the Company, reports periodically to the Board of Directors. Ms. Carroll and Mr. Holland serve as advisors to the Retirement and Employee Benefits Committee. Each director attended at least 75% of the aggregate of all meetings of the Board and the Committees on which each such director served in 2012. The Board of Directors encourages all directors to attend the Company’s Annual Meeting of Shareholders. All the directors were in attendance at the 2012 Annual Meeting of Shareholders.

     Each of the standing Committees of the Board of Directors operates pursuant to a written Committee Charter. Copies of these Charters can be obtained free of charge from the Corporate Governance portion of the Investor Relations section of the Company’s website, www.aquaamerica.com.

17

---

     The current members of the standing Committees of the Board of Directors are as follows:

Executive Committee		Executive Compensation Committee		Audit Committee
Nicholas DeBenedictis*		William P. Hankowsky*		Lon R. Greenberg*
Richard H. Glanton		Lon R. Greenberg		William P. Hankowsky
William P. Hankowsky		Ellen T. Ruff		Andrew J. Sordoni, III
Lon R. Greenberg
Corporate Governance Committee
Richard H. Glanton*
Mary C. Carroll
Mario Mele

____________________
 

*

Chairman

Executive Committee

     The Company’s Bylaws provide that the Executive Committee shall have and exercise all of the authority of the Board in the management of the business and affairs of the Company, with certain specified exceptions. The Executive Committee is intended to serve in the event that action by the Board of Directors is necessary or desirable between regular meetings of the Board, or at a time when convening a meeting of the entire Board is not practical, and to make recommendations to the entire Board with respect to various matters. The Executive Committee did not meet in 2012. The Executive Committee currently has four members, and the Chairman of the Board of Directors serves as Chairman of the Executive Committee.

Audit Committee

     The Audit Committee is composed of three directors, whom the Board of Directors has affirmatively determined meet the standards of independence required of audit committee members by the NYSE listing requirements and applicable SEC rules. 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 was required to meet at least four times during the year and met five times during 2012. The Audit Committee operates pursuant to a Board-approved charter which states its duties and responsibilities. The primary responsibilities of the Audit Committee are to monitor the integrity of the Company’s financial reporting process and systems of internal controls, including the review of the Company’s annual audited financial statements, and to monitor the independence of the Company’s independent registered public accounting firm. The Audit Committee has the exclusive authority to select, evaluate and, where appropriate, replace the Company’s independent registered public accounting firm.

     The Audit Committee has considered the extent and scope of non-audit services provided to the Company by its independent registered public accounting firm and has determined that such services are compatible with the independent registered public accounting firm maintaining its independence. For more information, see the Audit Committee Report on page 57.

Executive Compensation Committee

     The Executive Compensation Committee is composed of three directors, whom the Board of Directors has affirmatively determined are independent directors as defined by the NYSE listing requirements. The Executive Compensation Committee operates pursuant to a Board-approved charter which states its duties and responsibilities. The Executive Compensation Committee has the power to, among other things, administer and make awards under the Company’s equity compensation plans. The Executive Compensation Committee reviews the recommendations of the Company’s Chief Executive Officer as to appropriate compensation of the Company’s executive officers (other than the Chief Executive Officer) and determines the compensation of such executive officers. The Committee reviews and recommends to the Board of Directors the compensation for the Company’s Chief Executive Officer, which is subject to final approval by the Board of Directors. The Executive Compensation Committee held four meetings in 2012.

18

---

Corporate Governance Committee

     The Corporate Governance Committee is composed of three directors, whom the Board of Directors has affirmatively determined are independent directors as defined by the NYSE listing requirements. The Corporate Governance Committee operates pursuant to a Board-approved charter which states its duties and responsibilities, which include identifying and considering qualified nominees for directors, developing and periodically reviewing the Corporate Governance Guidelines by which the Board of Directors is organized and executes its responsibilities. The Corporate Governance Committee advises the Board of Directors on executive selections and succession, including ensuring that there is a succession plan for the Chief Executive Officer and such other senior executives as determined by the Corporate Governance Committee. In addition, the Chairman of the Corporate Governance Committee, as lead independent director, conducts corporate governance discussions in executive sessions with the Board of Directors. The Corporate Governance Committee also reviews and approves, ratifies or rejects related person transactions under the Company’s written policy with respect to related person transactions. The Corporate Governance Committee met two times during 2012.

OWNERSHIP OF COMMON STOCK

     The following table sets forth certain information as of March 11, 2013 with respect to shares of Common Stock of the Company beneficially owned by: (1) each person known to the Company to be the beneficial owner of more than 5% of the Common Stock of the Company; (2) each director, nominee for director and executive officer named in the Summary Compensation Table; and (3) all directors, nominees and executive officers of the Company as a group. This information has been provided by each of the directors, executive officers and nominees at the request of the Company or derived from statements filed with the SEC pursuant to Section 13(d) or 13(g) of the Exchange Act. Beneficial ownership of securities as shown below has been determined in accordance with applicable guidelines issued by the SEC. Beneficial ownership includes the possession, directly or indirectly, through any formal or informal arrangement, either individually or in a group, of voting power (which includes the power to vote, or to direct the voting of, such security) and/or investment power (which includes the power to dispose of, or to direct the disposition of, such security).

Name and Address of Beneficial Owner		Sole voting and sole investment power (1)				Shared voting and shared investment power					Amount and Nature of Beneficial Ownership				Percent of Class (2)
1) Certain beneficial owners:
BlackRock, Inc. (3)			8,895,504				—					8,895,504				6.33	%
40 East 52nd Street
New York, NY 10022
State Street Corporation (4)			0				7,973,276					7,973,276				5.67	%
One Lincoln Street
Boston, MA 02111
The Vanguard Group (5)			7,717,695				95,352					7,813,047				5.56	%
100 Vanguard Blvd.
Malvern, PA 19355
2) Directors (including nominees) and named executive officers:
Mary C. Carroll			22,479				3,891	(6)				26,370				*
Nicholas DeBenedictis			933,678				252,754	(7)				1,186,431				*
Christopher H. Franklin			105,261									105,261				*
Richard H. Glanton			10,950									10,950				*
Lon R. Greenberg			10,000				8,400	(8)				18,400				*
William P. Hankowsky			15,060									15,060				*
Wendell F. Holland			2,200									2,200				*
Karl M. Kyriss			86,061				21,885	(9)				107,947				*
Christopher P. Luning			28,923									28,923				*
Mario Mele			13,200				15,582	(10)				28,782				*
Ellen T. Ruff			11,200									11,200				*
David P. Smeltzer			143,602				33,916	(11)				177,518				*
Andrew J. Sordoni			54,886				12,536	(12)				67,422				*

19

---

Name and Address of Beneficial Owner		Sole voting and sole investment power (1)					Shared voting and shared investment power					Amount and Nature of Beneficial Ownership				Percent of Class (2)
3) All directors, nominees and executive officers as a group (15 persons)
			1,587,500	(13)				372,164	(14)				1,959,664				1.39	%

____________________
 

*		Less than 1%
(1)		Includes shares held under the Company’s 401(k) Plan as applicable. Also includes the following number of shares issuable upon exercise of outstanding stock options exercisable on or before May 11, 2013: 404,364 shares issuable to Mr. DeBenedictis; 105,577 shares issuable to Mr. Smeltzer; 75,332 shares issuable to Mr. Franklin; 83,747 shares issuable to Mr. Kyriss; and 25,000 shares issuable to Mr. Luning.
(2)		Percentage of ownership for each person or group is based on 140,613,766 shares of Common Stock outstanding as of March 11, 2013. For each beneficial owner, the shares include all shares issuable to such person or group upon exercise of outstanding stock options exercisable within 60 days of that date.
(3)		The information for BlackRock, Inc. was obtained from the Schedule 13G/A filed by BlackRock, Inc. with the SEC on February 6, 2013.
(4)		The information for State Street Corporation was obtained from the Schedule 13G filed by State Street Corporation with the SEC on February 12, 2013.
(5)		The information for The Vanguard Group was obtained from the Schedule 13 G/A filed by The Vanguard Group with the SEC on February 22, 2013.
(6)		The shareholdings indicated are owned of record by Ms. Carroll’s husband.
(7)		The shareholdings indicated also include 252,754 shares owned by Mr. DeBenedictis’ wife, including 185,160 shares in a trust for which his wife is trustee.
(8)		The shareholdings indicated are owned jointly with Mr. Greenberg’s wife.
(9)		The shareholdings indicated are owned jointly with Mr. Kyriss’ wife.
(10)		The shareholdings indicated include: 3,666 shares owned by the Fidelio Foundation, for which Mr. Mele is trustee; 7,916 shares owned by Dental Delivery Systems, Inc., of which Mr. Mele is President; and 4,000 shares owned by Mele Brothers Realty, of which Mr. Mele is partner.
(11)		The shareholdings indicated are owned jointly with Mr. Smeltzer’s wife.
(12)		The shareholdings indicated include 2,000 shares owned of record by Mr. Sordoni’s wife and 10,536 shares owned by a trust for the benefit of Mr. Sordoni’s children and with respect to which Mr. Sordoni’s wife is trustee.
(13)		The shareholdings indicated include 803,352 shares issuable to such group upon exercise of outstanding stock options exercisable on or before May 31, 2013.
(14)		The shareholdings indicated include 372,164 shares (i) held in joint ownership with spouses, (ii) held as custodian for minor children, (iii) owned by family members or (iv) in trusts for adult children.

20

---

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

     In this Compensation Discussion and Analysis (“CD&A”), we address the compensation paid or awarded to our executive officers listed in the Summary Compensation Table that immediately follows this discussion. We refer to these executive officers as our “named executive officers.” As used in this CD&A, the total of base salary and annual cash incentive compensation is referred to as “total cash compensation” and the total of base salary, annual cash incentive compensation and equity incentive compensation is referred to as “total direct compensation.” The purpose of the CD&A is to explain: the elements of compensation; why our Compensation Committee selects these elements; and how the Compensation Committee determines the relative size of each element of compensation.

Executive Summary

2012 Company Overview

     In 2012, the Company delivered positive results for our customers, our shareholders and our employees. A few of the highlights for the year include:

• Revenues increased 10.3% from $687.3 million to $757.8 million;
   
• Net income rose 38.8% from $143.1 million to $196.6 million;
   
• Earnings per share increased from $1.03 to $1.40;
   
• The Board of Directors approved a 6.1% increase to the quarterly dividend for the December 1, 2012 dividend;
   
• We invested a record $348 million in our water and wastewater systems to improve our distribution network and enhance water quality and reliability for our customers;
   
• We maintained an A+ rating from Standard & Poors for our largest subsidiary, Aqua Pennsylvania; and
   
• Our stock price increased 15.3% for 2012 versus a 13.4% increase for the S&P 500.

Executive Compensation Program Overview

     Our executive compensation program is intended to attract, retain and motivate a talented management team and appropriately reward them for their accomplishments in fulfilling our objectives with respect to our various stakeholders. Our program consists of a combination of short-term and long-term compensation vehicles and a substantial portion of the named executive officers’ total direct compensation comes from incentive compensation as shown in the table below. Based on input from the Executive Compensation Committee’s (the “Compensation Committee”) compensation consultant, we believe that the types of compensation vehicles we use and the relative proportion of the named executive officers’ total compensation represented by these vehicles is consistent with current competitive compensation practices. We measure the competitiveness of our program for our executive officers against the median compensation for comparable positions at other companies in our benchmark market composed of other investor-owned utilities. Since compensation levels are typically aligned with a company’s revenues, we adjust the Company’s revenues in the manner described below to align with the companies in the benchmark market and size-adjust the market data using regression analysis to determine the market rates for our named executive officer positions. Our goal is to provide total direct compensation that is competitive with the market rates for each named executive officer. The total target direct compensation for each of our named executive officers was at or below the median of the benchmark market for each of their positions at the beginning of 2013.

     Our executive compensation program is designed to balance a number of objectives, as detailed in this CD&A. The following is a summary of some of the compensation practices and policies that that are part of our executive compensation program:

• a substantial portion of our executives’ compensation is performance-based;
   
• a majority of the long-term equity incentives for our executives are performance-based;

21

---

• there are stock ownership guidelines for the named executive officers;
   
• the Company has ceased the practice of providing tax gross-ups in any new change-in-control agreements;
   
• the Company uses multiple metrics in its long-term equity incentives;
   
• the Company has an incentive compensation clawback policy for awards under its annual cash incentive plan; and
   
• there is no stock pledging or hedging by the Company’s named executive officers.

     The table below shows the portion of each named executive officer’s 2012 total direct compensation that is considered performance-based (i.e., annual cash incentives and performance-based equity incentives).

Name		2012 Salary		2012 Cash Incentive Paid in 2013		2012 Performance Units		2012 Restricted Stock Units					2012 Performance-based Restricted Stock Units					Total Percentage Performance-based Compensation
N. DeBenedictis		25%		36%		26%			—					12	%			75%
D. Smeltzer		39%		28%		22%			10	%				—				50%
C. Franklin		38%		30%		21%			10	%				—				51%
K. Kyriss		38%		29%		22%			10	%				—				51%
C. Luning		48%		25%		18%			9	%				—				43%

     Note: The information in the table above differs from the information in the Summary Compensation Table on page 37 in that it excludes amounts from the Changes in Pension Value and Non-qualified Deferred Compensation Earnings and All Other Compensation because these amounts are not considered in establishing the named executive officers’ annual total cash compensation and total direct compensation and some of the amounts in those columns in the Summary Compensation Table can vary significantly from year to year.

     With respect to the annual equity incentive awards, 100% of the 2012 equity incentive awards for the CEO and at least 66% of the 2012 equity incentive awards for the other named executive officers, based on grant date values, are performance-based.

     Finally, it should be noted that the Total Compensation in the Summary Compensation Table on page 37 for Mr. DeBenedictis, the Company’s Chief Executive Officer, who reached aged 65 in September 2010, includes in 2010 a one-time grant of 57,000 shares of restricted stock in 2010 in connection with Mr. DeBenedictis’ entry into an Employment Agreement to continue to serve as Chief Executive Officer beyond his normal retirement date through January 2013 and includes in 2011 a one-time grant of 50,000 shares of restricted stock made in 2011 in connection with the Company’s request that Mr. DeBenedictis further extend the term of his Employment Agreement to June 30, 2015.

Objectives of Aqua America’s Compensation Program

     Our executive compensation program is designed to motivate our executives to achieve our goals of providing our customers with quality, cost-effective and reliable water and wastewater services and providing our shareholders with a long-term, positive return on their investment.

     Toward that end, our compensation program is designed to meet the following objectives:

• provide compensation levels that are competitive with those provided by other companies with which we may compete for executive talent;
   
• motivate executives to achieve annual customer service-oriented objectives and strategic business initiatives and reward them for their performance in achieving these objectives and initiatives;
   
• create a strong link between the compensation of our executives and our financial performance and shareholder value; and
   
• retain executives of significant abilities.

22

---

Elements of Aqua America’s Compensation Program

     Our executive compensation program is composed of the following six elements, which we believe are important components of a well-designed, balanced and competitive compensation program:

• Base Salary
   
• Annual Cash Incentive Awards (referred to as Non-Equity Incentive Plan Compensation in the Summary Compensation Table on page 37)
   
• Equity Incentives and stock ownership guidelines
   
• Retirement Benefits
   
• Non-Qualified Deferred Compensation Plans
   
• Change-in-Control Agreements

     We utilize these six elements to achieve the objectives of our compensation program as follows.

• Competitively benchmarked base salaries are designed to attract and retain executives consistent with their talent and experience; market-based salary increases are designed to recognize the executives’ performance of their duties and responsibilities; and promotions and related salary increases are designed to encourage executives to assume increased job duties and responsibilities.
   
• Annual cash incentive awards are intended to reward executives and other employees for: improving the quality of service to our customers; controlling the cost of service to our customers by managing expenses and improving performance; achieving economies of scale by the acquisition of additional water and wastewater systems that can benefit from our resources and expertise; disposing of under-performing systems where appropriate; and enhancing our financial viability and performance by the achievement of annual objectives.
   
• Stock ownership guidelines are designed to focus executives on the long-term performance of the Company and align the interests of our executives with our shareholders by encouraging executives to maintain a significant ownership interest in the Company. Equity incentives are designed to reward executives and other employees for (1) enhancing our financial health, which also benefits our customers, (2) improving our long-term performance through both revenue increases and cost control, and (3) achieving increases in the Company’s equity and in absolute shareholder value and shareholder value relative to peer companies, as well as helping to retain executives due to the longer term nature of these incentives;
   
• Retirement benefits are intended to assist executives and other employees to provide income for their retirement.
   
• Our non-qualified deferred compensation plan is designed to allow eligible executives to manage their financial and tax planning and defer current income until a later date, including following retirement or other separation from employment.
   
• Change-in-control agreements with selected executive officers are designed to promote stability and dedication to shareholder value in the event of a fundamental transaction affecting the ownership of the Company and to enable the executives to evaluate such a transaction impartially.

Compensation Risk

     In administering the executive compensation program, the Compensation Committee attempts to strike an appropriate balance among the elements of our compensation program to achieve the objectives described above. Each of the elements of the program is discussed in greater detail herein. In reviewing the Company’s overall compensation program in the context of the risks identified in the Company’s enterprise risk management processes, the Compensation Committee does not believe that the risks the Company faces are materially increased by the Company’s compensation programs and, therefore, the Compensation Committee does not believe that the program creates a reasonable likelihood of a material adverse effect on the Company.

23

---

Benchmarking Competitive Compensation

     The Compensation Committee has retained Pay Governance LLC (“Pay Governance” or the “consultant”) , a nationally-recognized compensation consulting firm, as the Compensation Committee’s consultant to assist it in designing and assessing the competitiveness of our executive compensation program. Annually, the Compensation Committee has the consultant develop a market rate for base salary, total cash compensation and total direct compensation for each of the named executive officer positions, including the allocation between cash compensation and equity incentives. Each market rate represents the compensation level that would be paid to a hypothetical, seasoned performer in a position having similar responsibilities and scope, in an organization of similar size and type as the Company.

     In developing the market rates for the named executive officers, the Compensation Committee’s consultant used compensation data from all 61 investor-owned utilities in the utility industry database used by the consultant to determine the market rates for executives of utility companies. The Compensation Committee believes that utilizing the data from only utility companies and adjusting the Company’s revenues as described below, to better align the Company’s data with the data in the utility industry database, provides an appropriate comparison for determining the market rates for the Company’s named executive officers’ given that we are primarily a utility company. Also, due to the relatively limited number of investor-owned water utility companies of the Company’s size, the Compensation Committee believes that using the broader utility market data provides reasonable and reliable data for determining competitive compensation levels. All 61 companies in the utility industry database used by the consultant are listed in Appendix A to this Proxy Statement. The Company has no involvement in the selection of the companies that are included in the database used by the consultant. Each company listed in Appendix A was used in the development of the market rates for 2012, as described in this paragraph.

     The Company, the Compensation Committee and Pay Governance are mindful that compensation levels for executives of companies are typically aligned with a company’s size as defined by revenues. In other words, executives in companies with higher revenues are generally paid more than executives with comparable positions in companies with lower revenues. The Compensation Committee and Pay Governance have concluded that the Company’s revenues under-represent the complexity and scope of the Company’s business given the Company’s low cost of goods sold relative to energy-based utilities. The cost of goods sold as a percentage of revenues is significant for energy-based utilities due to their fuel, gas and other power costs. These commodity costs are subsequently recovered through the revenues of the energy-based utilities as they are ultimately passed through to the customer. The Company, like other water utilities, does not have a comparable commodity cost. The purpose of the adjusted revenue analysis is to create a consistent comparison to the compensation data in the utility database used by the consultant by estimating the revenue that the Company would earn if its cost of goods sold was in similar proportion to that of energy-based utilities. In order to determine a factor by which to adjust the Company’s annual revenues, the Compensation Committee recommended that the consultant analyze the income statements of a sample of delivery-focused (i.e., non-power generating) utilities, chosen by the consultant with no input from the Company, to develop a typical cost of goods sold factor attributable to commodity costs.

     The consultant’s analysis determined that the commodity costs of the cost of goods sold averaged 50% to 55% of revenues for these companies and calculated what the Company’s adjusted revenues would be using this factor. Since there are certain complexities associated with procuring these commodities at the energy-based utilities, the consultant recommended, and the Compensation Committee agreed, that it would be appropriate to discount the market rates generated by the adjusted revenue methodology. Thus, it was agreed that the Company average the market data produced using the Company’s adjusted revenue scope with market data generated using the Company’s actual revenue scope in determining the market rates for the Company’s executives.

     Because the companies listed in Appendix A vary widely in terms of revenues, the independent compensation consultant used regression analysis to size-adjust the benchmark data for each named executive officer’s revenue responsibility using the Company’s actual and adjusted revenues, where possible, and averaging the results to determine market rates for base salary, total cash compensation and total direct compensation for each named executive officer. Tabular data were used where regression data were unavailable due to insufficient correlation between officer positions in the Company and the companies in the database and/or limited sample size to ensure the accuracy of the regression analysis. Regression analysis is an objective calculation that identifies a relationship between one variable (in this case, total cash compensation, equity incentives and total direct compensation) and

24

---

another variable that is related to it (in this case, total company revenues). Therefore, in developing the market rates for total cash compensation, equity incentives and total direct compensation, the independent compensation consultant uses regression analysis to determine what the companies in Appendix A would pay at the median for positions comparable to those of the Company’s named executive officers.

     The Compensation Committee considers target total direct compensation levels that are within a range of 15% of the market rates developed by the consultant for each position to be competitive. Variances within this range can be a result of performance, experience and other factors. At the beginning of 2013, the average of the target total cash compensation for the Company’s five named executive officers was 14% below the competitive benchmark, and the average of the target total direct compensation for the Company’s five named executive officers was 12% below the competitive benchmark. Payouts of prior cash incentives and changes in the value of equity incentives granted in previous years are not taken into account in determining the amounts of current awards because annual incentives are intended to reward annual performance and the Compensation Committee makes grants of equity incentives based on their grant date value and the applicable competitive benchmarks for each named executive officer’s position.

Determination of Actual Compensation

     The Compensation Committee determines the actual amount of each element of annual compensation to award to the Company’s executive officers, including the named executive officers, with the goal of having the target total direct compensation opportunity for the executive officers generally within a range of 15% above or below the market rate for their position over time. We emphasize pay for performance, especially for our higher-level executives. Therefore, the named executive officers tend to receive a sizable portion of their total annual compensation from annual cash incentives and equity incentives. In addition, the percentages of total direct compensation represented by base salary, annual cash incentive opportunities and equity incentives for the named executive officers are generally in line with the percentages represented by these elements of total direct compensation for the competitive market rate benchmarks.

Base Salary

     A competitive base salary is necessary to attract and retain a talented and experienced workforce. Actual salaries for the named executive officers are determined by the Compensation Committee by considering both the market rate for the position and internal equity with both the other named executive officers and other employees in the Company. The Compensation Committee’s goal is to maintain base salaries generally within a range of 15% above or below the market rate over time for each of the named executive officers, although deviations from this goal may occur due to promotions, the executive’s performance and the time the executive has been in a particular salary grade. Base salaries are considered for adjustment annually and adjustments are based on general movement in external salary levels, changes in the market rate for the named executive officers’ positions, individual performance, internal equity and changes in individual duties and responsibilities. At the beginning of 2012, three senior vice presidents were promoted to executive vice president and their duties and responsibilities were substantially re-aligned. For 2012, the salary increases for the named executive officers reflected these promotions and averaged 12.7%. The Chief Executive Officer’s 2012 base salary increase was 3.3%.

Annual Cash Incentive Awards

     Annual cash incentives under the Annual Cash Incentive Compensation Plan are intended to motivate management to focus on the achievement of annual objectives that will, among other things, improve the level of service to our customers, control the cost of service and enhance our financial performance. The annual cash incentive portion of the compensation package is based on a target incentive award for each executive, which is stated as a percentage of their individual base salary. The Compensation Committee selects a target annual incentive percentage for each executive so that the executive’s target total cash compensation, consisting of base salary and target annual cash incentive, when combined with the executive’s target equity incentives, is generally in a range of 15% above or below the total direct compensation for the market rate for that position. The target incentive award for 2012 as a percentage of base salary for each of the named executive officers was: Nicholas DeBenedictis 75%; David P. Smeltzer 45%; Christopher H. Franklin 50%; Karl M. Kyriss 50%; and Christopher P. Luning 35%.

25

---

     Actual annual incentive awards for executive officers are calculated using the following formula:

Salary x Target Incentive Percentage x Company Factor x Individual Factor

     The Company Factor for the named executive officers is a percentage based on the performance of the Company against an annual financial target.

     The Individual Factor is a percentage based on the executive’s performance against individual objectives established separately for each executive each year.

     The Company Factor ranges from 35%, if 75% of the annual financial performance target is achieved, to 125%, if 110% or more of the annual financial target is achieved. The Company Factor will be 0% if the Company and business unit does not achieve at least 75% of the annual financial performance target. The scale for determining the Company Factors is as follows:

		Percent of Target					Company Factor
Threshold			<75	%				0	%
			75					35
			80					40
			85					45
			90					60
			95					80
			100					100
			105					110
Maximum			>110					125

     We feel that this approach strikes a reasonable balance between pay for performance and encouraging our management team to make appropriate decisions for the longer-term interest of the Company. For the period of 2009 through 2012, the Company Factors for the named executive officers have ranged from 73% to 125%.

     The financial performance target for determining the Company Factor for 2012 for the named executive officers is Aqua America’s budgeted annual net income from continuing operations. Net income is utilized as the performance metric because it is a key performance metric for management, is impacted by management’s efforts to control costs for the benefit of the Company’s customers and growth in net income forms the basis for enhancing shareholder value. Adjustments may be made to the actual net income results to reflect the impact of: changes in reporting / classification not impacting economic substance but inadvertently impacting the comparison to target; changes in accounting related to the adoption of new accounting standards; and other factors as designated by the Compensation Committee.

     For purposes of determining the Company Factor for 2012, the range of 75% to 110% of Aqua America’s net income was $103,706,000 to $152,103,000.

     For 2012, (1) the 2012 100% Company Factor Amount was $138,275,000, (2) the 2012 Actual Company Factor Amount was $184,087,000 and (3) the Resulting 2012 Company Factor for each named executive officer for purposes of calculating the 2012 annual cash incentive award paid in 2013 was 125%. The 2012 100% Company Factor Amount represents the amount of net income required for the named executive officer to achieve a Resulting Company Factor of 100%.

     The Individual Factor ranges from 0% to 150% and is determined based on the individual executive’s performance against separate objectives established for each executive each year, along with discretionary points based on the individual’s performance. Each named executive officer has approximately ten individual objectives each year. The Compensation Committee and Board of Directors approve the objectives for the Chief Executive Officer, and the Chief Executive Officer approves the objectives and point weighting for each objective for the other executive officers. The other executives must achieve objectives with a point rating of at least 70 points to be eligible to receive an annual cash incentive award and the maximum points that an executive can achieve based on the executive’s performance against his or her objectives is 110 points. Up to 40 discretionary points can be awarded for exceptional performance or for achievements on matters not covered by the executive’s original objectives, for a maximum total Individual Factor of 150%. For the Chief Executive Officer, the Individual Factor is based on the

26

---

overall assessment by the Compensation Committee and the Board of Directors of his achievements with respect to his objectives with a maximum of 150 points for all the objectives combined. Thus, the maximum Individual Factor rating he can achieve is 150% based on achieving all of his objectives for the year as determined by the Compensation Committee.

     The individual annual objectives established for the executive officers, including the named executive officers, will vary depending on their primary areas of responsibility, but the majority of the objectives can be categorized into common areas of emphasis. These common areas of emphasis are customer growth and strategy, improving customer service, cost control, performance improvement, compliance and revenue improvement. The Company considers the executive officers’ annual objectives achievable, but challenging. The individual objectives for the named executive officers in 2012 focused on the following areas:

Nicholas DeBenedictis

• Strategic planning
   
• Succession planning
   
• Customer service
   
• Customer and revenue growth / new ventures
   
• Capital planning / environmental compliance
   
• Managing controllable costs / operational efficiency
   
• Legislative / public policy initiatives
   
• Investor Relations

David P. Smeltzer

• Rate case management
   
• Debt financing
   
• Operating cost control
   
• Sarbanes-Oxley Act compliance
   
• Strategic tax initiatives
   
• Retirement plan investment management
   
• Strategic planning

Christopher H. Franklin

• Customer and revenue growth
   
• Water quality
   
• Operational efficiencies
   
• Organizational change management
   
• Operating cost control
   
• Environmental compliance

27

---

     Karl M. Kyriss

• Regulated and non-regulated capital investment
   
• Regulated and non-regulated corporate development
   
• Strategic planning
   
• Revenue improvements
   
• Cost control
   
• Procurement improvements
   
• I/S systems utilization expansion

     Christopher P. Luning

• Regulated and non-regulated corporate development
   
• Outside legal expense control
   
• Strategic planning
   
• Retirement plan investment management
   
• Healthcare and human resources management
   
• Litigation and claims management
   
• Operating cost control

     For the period of 2009 through 2012, the Individual Factors achieved by the named executive officers based on their performance against their objectives and discretionary points have ranged from 110% to 150%. In 2012, the named executive officers substantially met or exceeded their individual objectives and as a result, the Individual Factors for the named executive officers for 2012 were: Nicholas DeBenedictis – 150%; David P. Smeltzer – 126%; Christopher H. Franklin – 124%; Karl M. Kyriss – 120%; and Christopher P. Luning – 117%.

     Actual cash incentive awards under the Annual Cash Incentive Compensation Plan for the named executive officers are determined based on the applicable Company Factor, certified by the Company’s Chief Financial Officer and Director of Internal Audit, and each executive officer’s Individual Factor. For the Chief Executive Officer, the Board of Directors reviews and approves his Individual Factor based on the Compensation Committee’s assessment of the Chief Executive Officer’s performance against his objectives. For the other named executive officers, the Compensation Committee reviews and approves the Individual Factors based on the Chief Executive Officer’s assessment of the named executive officers’ performance against their objectives and possible discretionary points recommended by the Chief Executive Officer. Regardless of Aqua America’s financial performance, the Compensation Committee retains the authority to determine the final Company Factor, and the actual payment and amount of any annual cash incentive award is always subject to the discretion of the Compensation Committee. The Compensation Committee has not exercised this discretion to grant an annual cash incentive to a named executive officer outside of the provisions of the Plan or to deny a cash incentive award to a named executive officer that was otherwise earned under the Plan.

28

---

     Based on the above-described factors, the following table shows the target annual cash incentive and the actual annual cash incentive approved by the Compensation Committee for 2012 for the named executive officers. The target annual cash incentive is calculated assuming a 100% Company Factor and a 100% Individual Factor for each of the named executive officers, except the Chief Executive Officer, for whom the target assumes a 150% Individual Factor based on how the Compensation Committee assesses his overall performance as described above.

					2012 Total
		2012 Target			Actual Cash
		Cash Incentive			Incentive
		($)			($)
N. DeBenedictis		714,375			892,969
D. Smeltzer		153,000			240,975
C. Franklin		155,000			240,250
K. Kyriss		155,000			232,500
C. Luning		71,750			104,934

Equity Incentives

     Our use of equity incentives is intended to reward executives and other employees for (1) enhancing our financial health, which also benefits our customers, (2) improving our long-term performance through both revenue increases and cost control, and (3) achieving increases in the Company’s equity and shareholder value, as well as helping to retain executives due to the longer term nature of these incentives Under the terms of our 2009 Omnibus Equity Compensation Plan, the Compensation Committee and the Board of Directors may grant stock options, dividend equivalents, stock units, stock awards, stock appreciation rights and other stock-based awards to officers, directors, key employees and key consultants of Aqua America and its subsidiaries who are in a position to contribute materially to the successful operation of our business.

     As part of its review of the total compensation package for our executives, the Compensation Committee annually reviews our equity incentive compensation program. Starting in 2011, the Compensation Committee began using a combination of performance units and restricted stock units to better link the named executive officer’s long-term incentive compensation to performance enhancements that result in increased shareholder value and enhance our long-term financial stability, which also benefits our customers, and to help retain our executives.

     We aim to strike a balance between the incentive and retention goals of our equity grants. All of the equity grants to our Chief Executive Officer are subject to performance goals, as described below. For our other named executive officers, two-thirds of their equity grant is in the form of performance share units, with the performance metrics described below, and one-third are in the form of time-based restricted share units.

     Annual restricted stock or restricted stock unit grants (together referred to as restricted stock) entitle the grantee to receive the number of shares granted at the end of a given period of time, or in increments over a period of years on the anniversaries of the grant date, provided the grantee remains an employee of the Company, unless separation is due to death, disability, retirement or termination following a Change in Control. For annual restricted stock grants to the named executive officers, dividends or dividend equivalents on the restricted stock are accumulated and paid when the shares of restricted stock vest. For the 2012 annual grant of restricted stock to the Chief Executive Officer, vesting is subject to achievement of a year-over-year increase in the Company’s operating income in any of 2012, 2013 or 2014. For the 2013 annual grant of restricted stock to the Chief Executive Officer, vesting is subject to the Company’s return on equity exceeding the Company’s average return on equity for the 5-year period of 2008 through 2012 in either of 2013 or 2014. For the restricted stock grants to the other named executive officers, vesting is not subject to performance criteria. Adjustments will be made to actual operating income results to reflect the impact of unbudgeted gains or losses, certain non-cash charges arising from changes in accounting or fair value and other factors as designated by the Compensation Committee. Adjustments will be made to actual return on equity to reflect the impact of: changes in reporting / classification not impacting economic substance but inadvertently impacting the comparison to target; changes in accounting related to the adoption of new standards; and other factors as designated by the Compensation Committee.

29

---

     Performance share or performance share unit grants (together referred to as performance shares) provide the grantee with the opportunity to earn awards of shares based on performance against designated metrics. Participants are granted a target number of shares that can increase to 200% of the target or decrease to zero based on the Company’s actual performance compared to the designated metrics. For the performance share grants made by the Company in 2012, the period over which the Company’s performance will be measured will be the three-year period of 2012 through 2014. Dividends on the performance shares will accrue and be paid at the end of the performance period based on the number of shares actually earned, if any.

     The metrics for the performance shares granted in 2012 are as follows:

• For 25% of the performance shares granted, the number of shares to be paid out at the end of the performance period will be determined based on the Company’s Total Shareholder Return (“TSR”) over the performance period compared to the TSR for the companies in the S&P Midcap Utility Index, based on the following table:

• For another 25% of the performance shares granted, the number of shares to be paid out at the end of the performance period will be determined based on the Company’s TSR at the end of the performance period compared to the TSR for the six other large investor-owned water companies (American Water Works Company, American States Water Company, Connecticut Water Service, Inc., California Water Service Group, Middlesex Water Company and SJW Corporation), based on the following table:

____________________

¹       The grant provides for alternative rankings if the number of investor owned water companies decreases.

• For the remaining 50% of the performance shares granted, the number of shares to be paid out at the end of the performance period will be determined based on the Company’s compound annual growth rate in earnings per share over the performance period, based on the following table:

30

---

     Adjustments may be made to the actual earnings per share results to reflect the impact of unbudgeted gains or losses, certain non-cash charges arising from changes in accounting or fair value and other factors as designated by the Compensation Committee.

     In light of the impact of the repair tax accounting change implemented by the Company on the Company’s future results, the Compensation Committee approved a change to the performance metrics for the performance shares granted in 2013. The Compensation Committee increased the portion of the performance shares tied to the Company’s TSR to even more closely align the value realized by the executives to increases in shareholder value. The TSR metrics will remain the same, but the percentage of the performance shares that have their payout determined based on the Company’s TSR over the three-year performance period (2012 – 2015) compared to the TSR for companies in the S&P Midcap Utility Index will be increased from 25% to 30% and the percentage the performance shares that have their payout determined based on the Company’s TSR over the three-year performance period (2012 – 2015) compared to the TSR for the six other large investor-owned water companies will also be increased from 25% to 30%. The payouts on the remaining 40% of the performance shares granted in 2013 will be determined based on the metrics described below. Management and the Committee believe that, given the impact of the repair tax accounting change over the next few years, it is more appropriate to focus the remaining 40% of the metrics for the performance shares on controlling the operations and maintenance ratio at the Company’s largest subsidiary and on achieving the planned earnings before taxes at the Company’s other operations. The operations and maintenance ratio is a key metric for measuring management’s efficiency and keeps a focus on cost control for the benefit of customers and shareholders. The earnings before taxes metric for the operations other than Aqua Pennsylvania helps focus management on growth and cost control at these other smaller operations, which benefits both our customers and our shareholders. Therefore,

• For 20% of the performance shares granted, the number of shares to be paid out at the end of the performance period (2012 – 2015) will be determined based on the average of the annual ratio of operations and maintenance expense to revenues over the period of 2013 through 2015 for the Company’s Aqua Pennsylvania operations using the following scale:

     If Aqua Pennsylvania’s ratio of operations and maintenance expense to revenues is below the 31.41% level and falls between the measuring points on the foregoing schedule, the percentage vesting will be based on linear interpolation between the applicable measuring points.

• For 20% of the performance shares granted, the number of shares to be paid out at the end of the performance period (2012 – 2015) will be determined based on the Company’s total cumulative income from continuing operations before income taxes plus the Company’s income from discontinued operations before income taxes, less the corresponding amounts from Aqua Pennsylvania over the period of 2013 through 2015 using the following scale:

     If the Company’s non-Pennsylvania earnings before taxes is above $218,454 and falls between the measuring points on the foregoing schedule, the percentage vesting will be based on linear interpolation between the applicable measuring points.

31

---

     Adjustments will be made to the Aqua Pennsylvania operations and maintenance expense ratio or the non-Pennsylvania earnings before taxes to reflect changes in accounting related to new accounting standards, changes due to regulatory requirements, unbudgeted transaction costs associated with potential or completed transactions and other factors as designated by the Compensation Committee.

     The Compensation Committee bases its annual equity incentive awards for the executives on the competitive levels for these awards as described herein and does not consider any increase or decrease in the value of past equity incentive awards in making this decision. In considering the number of equity incentive awards to be granted in total to all employees each year, the Compensation Committee considers the number of equity incentive awards outstanding and the number of equity incentive awards to be awarded as a percentage of Aqua America’s total shares outstanding. The number of equity incentive awards granted annually to all employees has been less than 1.0% of Aqua America’s total shares outstanding.

     Equity incentive awards are generally all made on the same grant date. It is our policy to make the grant date of equity compensation grants the date that the Compensation Committee approves the grants, which is either the date of the Compensation Committee’s meeting or the date of the Board meeting following the Compensation Committee’s meeting. The dates for all Board and Compensation Committee meetings, including the dates for the Compensation Committee to approve the equity grants, are set in advance, subject to changes for scheduling conflicts, and is independent of the timing of our disclosure of any material non-public information other than our normal annual earnings release.

Retirement Plans

     Our qualified retirement plans are intended to provide competitive retirement benefits to help attract and retain employees. Our non-qualified retirement plans are intended to: (1) provide executives with a retirement benefit that is comparable on a percentage of salary basis to that of our other employees participating in our qualified pension plan by providing the benefits that are limited under current Internal Revenue Service regulations; and (2) provide our Chief Executive Officer with a total retirement benefit based on 25 years of service at normal retirement age. Starting in 2009, the Company began to fund the trust for the benefits under the non-qualified retirement plans using trust-owned life insurance. An executive’s retirement benefits under our qualified and non-qualified retirement plans are not taken into account in determining the executive’s current compensation.

Non-qualified Deferred Compensation Plans

     We maintain a non-qualified Executive Deferred Compensation Plan that allows eligible members of management to defer all or a portion of their salary and annual cash incentives, which enables participants to save for retirement and other life events in a tax-effective manner. Deferred amounts are deemed invested in one or more mutual funds selected by the participant under trust-owned life insurance policies on the lives of eligible executives. In addition, in order to provide executives with the full Company matching contribution available to other employees, executives who choose to defer up to six percent of their salary under one of Aqua America’s 401(k) plans, but do not receive the full Aqua America matching contribution under the plans due to the Internal Revenue Service regulations limiting the total dollar amount that can be deferred under a 401(k) plan ($16,500 for 2010 and 2011 and $17,000 for 2012), receive the portion of the Aqua America matching contribution that would otherwise be forfeited by the executive as an Aqua America contribution into the Executive Deferral Plan. Effective January 1, 2009, the Company began to fund the trust holding amounts deferred by the participants in the Executive Deferral Plan using trust-owned life insurance. An executive’s deferrals, Aqua America’s contributions and earnings on deferrals and contributions under our non-qualified deferred compensation plan are not taken into account in determining the executive’s current compensation.

Severance Plans

     All salaried employees, including the named executive officers, are covered by our severance policy. The policy provides eligible employees, subject to the terms of the policy, with a severance benefit of two weeks of the employee’s weekly base salary per credited year of service if the employee’s employment is terminated because the employee’s position is discontinued due to business conditions or a reorganization and no comparable employment is available and offered to the employee. The policy provides a minimum severance benefit of four weeks and a

32

---

maximum benefit of 26 weeks of the employee’s base weekly salary at the time of termination and a minimum of one month of continued medical benefits and a maximum of six months of continued medical benefits following termination to eligible employees. Employees must sign a general release in order to receive these severance benefits. These benefits are available to all eligible salaried employees.

     Our Chief Executive Officer will be entitled to the benefits under his Employment Agreement described on page 48 if his employment is terminated (a) by the Company without cause, (b) by the Chief Executive Officer for good reason or (c) by his death or disability as set forth in the Employment Agreement, whether or not that termination occurs after a change-in-control.

Change-in-Control Agreements

     We maintain change-in-control agreements with certain executives, including the named executive officers. These change-in-control agreements are intended to minimize the distraction and uncertainty that could affect key management in the event we become involved in a transaction that could result in a change in control of Aqua America and to enable the executives to impartially evaluate such a transaction. Under the terms of these agreements, the covered executives are entitled to certain severance payments and a payment in lieu of the continuation of benefits if they experience a termination of employment other than for cause, or in the event the executive resigns for good reason, as defined in the agreements, within two years following a change-in-control of Aqua America. (See the description of “Potential Payments Upon Termination or Change-in-Control” on pages 48 through 55.) These agreements are intended to induce the covered executives to remain with Aqua America and to reinforce and encourage their continued attention and dedication to their duties and responsibilities in the event of a possible change-in-control.

     These change-in-control agreements are referred to as “double trigger” agreements since they only provide a benefit to executives whose employment is terminated, or who have good reason to resign, following a change-in-control. These change-in-control agreements do not provide any payments or benefits to the covered executives merely as a result of a change-in-control, although other benefits, such as the vesting of equity incentives, may be triggered under our other plans as a result of a change-in-control. Only the agreement with our Chief Executive Officer signed in 1992 includes a provision allowing him to receive the benefits under the agreement if he resigns within 12 months after a change-in-control as a result of his determination that circumstances have changed with respect to Aqua America and he is no longer able to effectively perform his duties and responsibilities. Because of the unique role of a chief executive officer in a corporation, we believe that such a provision is appropriate. Each of the change-in-control agreements, except the agreement with the Chief Executive Officer, limit the amount of the payments under the agreements to the Internal Revenue Service’s limitation on the deductibility of these payments under Section 280G of the Internal Revenue Code (the “Code”). The agreement with the Chief Executive Officer does not contain this limitation and requires Aqua America to reimburse him for certain tax impacts if the payments under his agreement exceed the Section 280G limit by at least 10%. See “The Impact of Tax Considerations on Executive Compensation Decisions” on page 34. Payment under the Chief Executive Officer’s agreement is, however, contingent on his agreement to a 12-month non-compete agreement.

     The Company has determined that there will be no tax gross-ups in any new change-in-control agreements with executives in the future and that all such agreements will be subject to the limitations under Section 280G of the Code.

     We believe that the multiples of compensation and other benefits provided under the change-in-control agreements, as described on pages 48 through 50 are consistent with the multiples in the market. Executives who receive payments under their change-in-control agreements in connection with their separation from employment following a change-in-control will not be entitled to any payments under our normal severance policy, nor will our Chief Executive Officer be entitled to receive the separate severance payment under his Change in Control and Severance Agreement for a termination following a change-in-control.

33

---

The Role of Management in the Executive Compensation Process

     Our Senior Vice President and General Counsel assists the Compensation Committee by preparing schedules showing the present compensation of executives and compiling the recommended salary grade midpoints, market rates, target annual cash incentives and target range of equity compensation awards from the information provided by the Compensation Committee’s consultant. Our Chief Executive Officer compiles and presents the supporting information for the individual executives’ performance against their objectives and his recommendations for any discretionary points for the calculation of the Individual Factor under the Annual Cash Incentive Compensation Plan. He also provides the Compensation Committee with his recommendations for annual salary increases, any changes in target annual cash incentive percentages and equity incentive awards for the other executive officers. Our Chief Executive Officer also provides the Compensation Committee with a self-assessment of his performance against his objectives. Our Chief Financial Officer provides the Compensation Committee with certifications as to our financial performance for purposes of determining the Company Factor for the Annual Cash Incentive Compensation Plan, our performance against the criteria established by the Compensation Committee for the vesting of restricted stock grants and the payment of performance shares. These financial measures are also certified by our Director of Internal Audit. Our Chief Executive Officer makes recommendations to the Compensation Committee with respect to the compensation awards for the named executive officers other than himself, but the ultimate decisions regarding compensation for these officers are made by the Compensation Committee.

The Role of the Compensation Committee’s Consultant in the Executive Compensation Process

     Pay Governance, the Compensation Committee’s compensation consultant reviews the Company’s executive compensation program for the Compensation Committee and annually provides an analysis showing the market rate for base salary, total cash compensation and total direct compensation for each of the named executive officer positions, including the allocation between cash compensation and equity incentives. The compensation consultant discusses the proposed actual compensation awards for the named executive officers and provides research and input to the Compensation Committee on changes to the compensation program.

     Pay Governance provides no other services to the Company other than serving as the Compensation Committee’s compensation consultant. The Compensation Committee has concluded that Pay Governance is an independent consultant after considering the factors relevant to Pay Governance’s independence from management, including the factors set forth in the NYSE and SEC rules regarding compensation consultant independence.

The Impact of Tax Considerations on Executive Compensation Decisions

     While Aqua America’s executive compensation program is structured to be sensitive to the deductibility of compensation for federal income tax purposes, the program is principally designed to achieve our objectives as described above. Section 162(m) of the Code generally precludes the deduction for federal income tax purposes of more than $1 million in compensation (including long-term incentives) paid individually to our Chief Executive Officer and the other named executive officers in any one year, subject to certain specified exceptions. We have determined that it may be appropriate for our Chief Executive Officer’s compensation to be at a level such that a portion is not deductible for federal income tax purposes.

     As noted above, under the change-in-control agreement with our Chief Executive Officer, our payments to our Chief Executive Officer will not be subject to limitations under Section 280G of the Code if the amounts payable to him under his agreement exceed the Section 280G limit by more than 10%, and, therefore, a portion of the payments may not be deductible. If the amounts payable to our Chief Executive Officer exceed the Section 280G limit by more than 10%, he shall be paid an additional amount such that the net amount he retains after deduction of any excise tax imposed under Section 4999 of the Code, and any federal, state and local income and employment tax and excise tax imposed upon such additional amount shall be equal to the payment otherwise due under the agreement. We included these provisions in our Chief Executive Officer’s change-in-control agreement because we did not want the potential excise tax to serve as a disincentive to our Chief Executive Officer’s pursuit of a change-in-control transaction that might otherwise be in the best interests of our shareholders. We believe that, in light of our Chief Executive Officer’s record of performance, this determination is appropriate.

34

---

Equity Ownership Requirements

     In 2005, the Board of Directors established stock ownership guidelines for the named executive officers to encourage these executives to maintain a significant ownership interest in the Company and to help align the interests of these executive officers with the long-term performance of the Company. In 2012, these guidelines were modified to recognize the different levels of executives who may be among the named executive officers and to state the guidelines in terms of the number of shares to be held rather than a dollar value, in order to avoid fluctuations in the number of shares to be held based on variations in the Company’s stock price. In establishing the number of shares to be held, the Compensation Committee used a round number of shares, the value of which approximates the following multiples of the midpoint of the base salary grade for the executives:

		Approximate Multiple
Position		of Salary Midpoint		Number of Shares
Chief Executive Officer		5		150,000
Executive Vice President		3		40,000
Senior Vice President		2		20,000

     Shareholdings, as defined for ownership requirement purposes, include shares held directly or beneficially, and shares under our Employee Stock Purchase Plan or 401(k) plans. Shareholdings do not include exercisable stock options or restricted shares still subject to restrictions. The named executive officers are expected to have shareholdings consistent with these guidelines within five years after their becoming a named executive officer or after receiving a significant promotion. An executive who has not achieved the guideline within this five-year period is expected to retain one-half of any equity awards, after any required tax withholding, in Company stock and to use 10% of any annual cash incentive awards after tax to purchase shares of Company stock until the guideline is met. Each of the named executive officers other than the Chief Executive officer received a significant promotion in 2012, starting a new five-year period. It is the Company’s policy not to permit hedging or short-selling of the Company’s stock by its executive officers.

Clawback of Incentive Compensation

     In the event of a significant restatement of our financial results caused by executive fraud or willful misconduct, the Compensation Committee reserves the right to review the cash incentive compensation received by the executives with respect to the period to which the restatement relates, recalculate Aqua America’s results for the period to which the restatement relates and seek reimbursement of that portion of the cash incentive compensation that was based on the misstated financial results from the executive or executives whose fraud or willful misconduct was the cause of the restatement.

35

---

COMPENSATION COMMITTEE REPORT

     The Executive Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis on pages 21 through 35 with management. Based on this review and discussion, the Executive Compensation Committee recommended to the Company’s Board of Directors, and the Board of Directors approved, the inclusion of the Compensation Discussion and Analysis in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and proxy statement for the 2013 Annual Meeting of Shareholders.

36

---

CURRENT COMPENSATION

SUMMARY COMPENSATION TABLE

     The following Summary Compensation Table shows compensation paid or earned by the Company’s Principal Executive Officer, Principal Financial Officer and the next three most highly compensated executive officers of the Company during the fiscal years ended December 31, 2010, 2011 and 2012.

SUMMARY COMPENSATION TABLE

													Change in
													Pension
													Value and
								Grant Date Fair			Non-Equity		Non-qualified
								Value of Stock			Incentive		Deferred
								and Option			Plan		Compensation			All Other			Total
Name and				Salary		Bonus		Awards			Compensation		Earnings			Compensation			Compensation
Principal Position		Year		($)(1)		($)		($)(2)			($)(1)(3)		($)(4)			($)(5)			($)
Nicholas DeBenedictis		2012		629,231		—		969,726			892,969		884,665			181,692			3,558,283
Chief Executive Officer		2011		599,346		—		1,948,082			729,006		608,972			193,319			4,078,725
(Principal Executive Officer)		2010		554,499		—		1,525,760			682,080		543,654			219,124			3,525,117
David P. Smeltzer		2012		338,846		—		281,080			240,975		603,767			40,629			1,505,297
Executive V.P. and Chief		2011		303,952		—		220,943			182,466		367,005			50,657			1,125,023
Financial Officer		2010		284,889		—		190,300			163,548		207,357			48,971			895,065
(Principal Financial Officer)
Christopher H. Franklin		2012		307,885		—		252,972			240,250		332,989			34,840			1,168,936
Executive V.P. and President		2011		249,977		—		145,384			136,425		199,168			42,328			773,282
and Chief Operating Officer,		2010		240,943		—		138,500			121,286		91,987			33,952			626,668
Regulated Operations
Karl M. Kyriss		2012		303,092		—		252,972			232,500		478,144			37,397			1,304,105
Executive V.P. and President,		2011		256,669		—		148,239			113,568		296,186			46,357			861,019
Aqua Capital Ventures		2010		246,655		—		138,500			117,994		185,922			37,823			726,894
Christopher Luning		2012		200,153		—		112,432			104,934		88,964			24,937			531,420
Senior Vice President, General
Counsel and Secretary

____________________

Notes:

(1)		Salary and Non-equity Incentive Plan Compensation amounts include amounts deferred by the individual.
(2)		The grant date fair value of stock based compensation is based on their fair market value on the date of grant as determined in accordance with the Financial Accounting Standards Board’s (FASB) accounting guidance for stock compensation. The assumptions used in calculating the fair market value are set forth in the ‘Employee Stock and Incentive Plan’ footnote to the Company’s audited financial statements in the Company’s Annual Report on Form 10-K.
(3)		Non-Equity Plan Incentive Compensation is shown for the year in which the compensation is earned, regardless of when paid.
(4)		The change in pension value is based on the aggregate change in the actuarial present value of the named executive officer’s accumulated benefit under all defined benefit and actuarial pension plans (including supplemental plans) from the pension plan measurement date used for financial statement reporting purposes in the Company’s audited financial statements for the prior completed fiscal year to the pension plan measurement

37

---

		date used for financial statement reporting purposes in the Company’s audited financial statements for the covered fiscal year. The amounts in this column also include any changes in cash surrender value of separate life insurance policies purchased with deferred compensation. Those separate life insurance policies were eliminated prior to 2011. The amount for Mr. DeBenedictis in 2010 includes the change in cash surrender value of life insurance of $11,934.
(5)		For 2012, the amount includes: (i) dividends paid on restricted stock grants pending the vesting or forfeiture of the grants of $47,440 for Mr. DeBenedictis, $990 for Mr. Smeltzer, $825 for Mr. Franklin $825 for Mr. Kyriss and $2,505 for Mr. Luning; (ii) dividend equivalents paid to the named executives during the year of $105,600 to Mr. DeBenedictis, $30,400 to Mr. Smeltzer, $25,600 to Mr. Franklin, $25,600 to Mr. Kyriss and $16,000 to Mr. Luning; (iii) Company Matching contributions to the Company’s 401(k) plan; (iv) dividends on vested restricted stock for Mr. DeBenedictis of $8,946; and (v) the taxable value of group term life insurance of $12,206 for Mr. DeBenedictis, $1,739 for Mr. Smeltzer, $1,026 for Mr. Franklin, $4,514 for Mr. Kyriss and $422 for Mr. Luning.
		For 2011, the amount includes: (i) dividends paid on restricted stock grants pending the vesting or forfeiture of the grants of $30,833 for Mr. DeBenedictis, $4,038 for Mr. Smeltzer, $3,150 for Mr. Franklin and $3,150 for Mr. Kyriss; (ii) dividend equivalents paid to the named executives during the year of $139,975 to Mr. DeBenedictis, $40,038 to Mr. Smeltzer, $32,175 to Mr. Franklin and $32,175 to Mr. Kyriss; (iii) Company Matching contributions to the Company’s 401(k) plan; (iv) dividends on vested restricted stock for Mr. DeBenedictis of $4,327; and (v) the taxable value of group term life insurance of $11,797 for Mr. DeBenedictis, $1,573 for Mr. Smeltzer, $828 for Mr. Franklin, and $3,722 for Mr. Kyriss.
		For 2010, the amount includes: (i) dividends paid on restricted stock grants pending the vesting or forfeiture of the grants of $48,736 for Mr. DeBenedictis, $4,765 for Mr. Smeltzer, $2,950 for Mr. Franklin and $2,950 for Mr. Kyriss; (ii) amounts contributed by the Company to the Executive Deferral Plan representing the amount of the Company’s Matching Contribution under the Company’s 401(k) Plan that could not be contributed to the 401(k) Plan as a result of the Internal Revenue Code restrictions on the amount a participant can contribute as a salary deferral to the plan of $1,800 for Messrs. DeBenedictis and Smeltzer; (iii) dividend equivalents paid to the named executives during the year of $123,200 to Mr. DeBenedictis, $33,600 to Mr. Smeltzer, $25,200 to Mr. Franklin and $26,320 to Mr. Kyriss; (iv) Company Matching contributions to the Company’s 401(k) plan; (v) perquisites for Mr. DeBenedictis, which consisted of reimbursement for legal services related to his employment agreement and changes to the Company’s compensation plans and other miscellaneous expenses totaling $26,972 and $392, respectively; and (vi) the taxable value of group term life insurance of $10,674 for Mr. DeBenedictis, $1,456 for Mr. Smeltzer, $764 for Mr. Franklin and $2,296 for Mr. Kyriss.

     The 2012 base salary increases for Messrs. Smeltzer, Franklin and Kyriss, included promotional increases associated with their promotion from senior vice president to executive vice president and for Messrs. Franklin and Kyriss a substantial re-alignment of their duties and responsibilities. The 2012 base salary increase for Mr. Luning included a promotional increase associated with his promotion from vice president to senior vice president and his assumption of the position of general counsel.

     The 2010 stock award for Mr. DeBenedictis includes a special grant of 57,000 shares of restricted stock made in connection with Mr. DeBenedictis’ agreement to enter into an employment agreement in January 2010 to remain as the Company’s Chief Executive Officer beyond his normal retirement date through January 2013. The 2011 stock award for Mr. DeBenedictis includes a special stock grant of 50,000 shares of restricted stock made in connection with Mr. DeBenedictis’ agreement to extend his employment agreement at the request of the Board of Directors for an additional two and one-half years through June 2015.

     Starting with the annual restricted stock grants to the named executive officers in 2010, dividends on shares of restricted stock are accumulated and paid to the named executive officer when the shares of restricted stock are released from restrictions. For prior restricted stock grants to the named executive officers and the restricted stock grants to the Chief Executive Officer in connection with his 2010 employment agreement and the 2011 extension thereof, dividends pending the release of the stock from restrictions are paid to the grantee. In either event, the dividends are included in the All Other Compensation column of the Summary Compensation Table set forth above for the year the dividends are paid. All amounts deferred by participants in the Executive Deferral Plan and all prior deferrals under the Plan are deemed invested in a variety of mutual funds selected by each participant under trust-

38

---

owned life insurance used by the Company to fund the Executive Deferral Plan, therefore, there are no preferential or above-market earnings on these deferrals. There was a separate life insurance policy for Mr. DeBenedictis under the Plan through March 2010, so the increase in the cash value of such insurance policy is included in the Change in Pension Value and Non-Qualified Deferred Compensation Earnings through that date. Mr. DeBenedictis purchased that insurance policy from the trust holding amounts deferred under the Executive Deferral Plan for the policy’s cash surrender value in March 2010.

GRANTS OF PLAN-BASED AWARDS

     The following table sets forth information regarding equity and non-equity awards granted to the named executive officers in 2012.

Grants of Plan-Based Awards

																				All			All
																				Other			Other
																				Stock			Option
																				Awards:			Awards:				Grant Date
				Estimated Future Payouts Under							Estimated Future Payouts Under									Number			Number of		Exercise or		Fair Value of
				Non-Equity Incentive Plan							Equity Incentive Plan Awards									of Shares			Securities		Base Price		Stock and
				Awards(1)							(5)(6)									of Stock			Underlying		of Option		Option
		Grant		Threshold			Target		Maximum		Threshold			Target		Maximum				or Units			Options		Awards		Awards
Name		Date		($)(2)			($)(3)		($)(4)		(#)			(#)		(#)				(7)(#)			(#)		($/Sh)		($)(8)
N. DeBenedictis		2/24/12		116,681			714,375		892,969		13,800			41,400			55,200			—			—		—			969,726
D. Smeltzer		2/24/12		37,485			153,000		286,875		4,000			8,000			16,000			4,000			—		—			281,080
C. Franklin		2/24/12		37,975			155,000		290,625		3,600			7,200			14,400			3,600			—		—			252,972
K. Kyriss		2/24/12		37,975			155,000		290,625		3,600			7,200			14,400			3,600			—		—			252,972
C. Luning		2/24/12		17,579			71,750		134,531		1,600			3,200			6,400			1,600			—		—			112,432

____________________

Notes:

(1)		The executive's Non-Equity Incentive Plan Awards are calculated based on the executive's current annual salary multiplied by the executive's target incentive compensation percentage times an Individual Factor times a Company Factor.
(2)		The Threshold Non-Equity Incentive Plan Award is based on the minimum Individual Factor of 70% and the minimum Company Factor of 35%.
(3)		The Target Non-Equity Incentive Plan Award is based on an Individual Factor of 100% (150% for the CEO - N. DeBenedictis) and a Company Factor of 100%.
(4)		The Maximum Non-Equity Incentive Plan Award is based on the maximum Individual Factor of 150% and the maximum Company Factor of 125%.
(5)		The February 24, 2012 Equity Incentive Plan Awards in these columns are composed of restricted stock units and performance share units for the CEO, Mr. DeBenedictis, and performance share unit grants for the other named executive officers. The restricted stock unit grant for Mr. DeBenedictis vests in three annual installments on the anniversaries of the grant date, subject to performance conditions, but there are no threshold or maximum amounts related to this grant.
(6)		The performance unit grants vest on the third anniversary of the grant date.
(7)		The restricted stock unit grants for the other named executive officers in this column are not subject to performance conditions and vest on the third anniversary of the grant date.
(8)		The grant date fair value of restricted stock and option awards is based on their fair market value on the date of grant as determined under the Financial Accounting Standards Board’s ("FASB") accounting standards for stock compensation. The assumptions used in calculating the fair market value under FASB’s accounting standard for stock compensation are set forth in the 'Employee Stock and Incentive Plan' footnote to the Company's audited financial statements in the Company's Annual Report on Form 10-K.

39

---

     Equity awards in 2011 and 2012 consisted of restricted stock units and performance share units. The normal annual award of restricted stock units to the Chief Executive Officer in 2011 vests one-half each year over a period of two years, subject to the Company’s achievement of a year-over-year increase in the Company’s operating income in either 2011 or 2012. The normal annual award of restricted stock units to the Chief Executive Officer in 2012 vests one-third each year over a period of three years, subject to the Company’s achievement of a year-over-year increase in the Company’s operating income in either 2012, 2013 or 2014. In the case of both the 2011 and 2012 grant of restricted stock units to the Chief Executive Officer, the restricted stock units are not payable to the Chief Executive Officer until the end of the restricted period, notwithstanding any earlier vesting of the restricted stock unit awards. The special restricted stock award to the Chief Executive Officer in connection with the extension of his employment agreement to June 30, 2015 vests over a two-year period in 2014 and 2015, subject to a year-over-year increase in the Company’s operating income in either 2012, 2013 or 2014. The restricted stock unit grants to the other named executive officers vest at the end of three years from the grant date. The performance share unit grants to the named executive officers vest at the end of three years from the grant date, but the amount of the payout can range from zero to 200% of the target grant depending on the Company’s performance against the performance goals described on pages 30 through 32 above. The threshold level of performance share units that a grantee can earn is 50% of the target grant and the maximum level a grantee can earn is 200% of the target grant. The threshold, target and maximum payout for each of the named executive officers is shown in the Grants of Plan-Based Awards Table above. The Compensation Committee has approved a policy for certain adjustments to the calculation of the Company’s operating income for purposes of determining whether the designated performance goals for the restricted stock grants, and for the calculation of earnings per share for purposes of determining the extent to which the performance goal tied to earnings per share for the performance share units, as described on pages 29 through 32, have been met.

     If the Company does not achieve the required financial performance to meet the designated performance criteria, the shares of restricted stock that are subject to such performance criteria that would otherwise vest are forfeited. Therefore, the full number of shares of restricted stock that are subject to performance criteria is included in the Target column under the Estimated Future Payouts Under Equity Incentive Plan Awards in the Grants of Plan Based Awards Table above. Restricted stock units that are not subject to performance criteria are included in the All Other Stock Awards column in the Grants of Plan-Based Awards Table above.

40

---

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

     The following table sets forth information on outstanding stock option and stock awards held by the named executive officers at the end of 2012.

Outstanding Equity Awards at Fiscal Year-End

		Option Awards												Stock Awards
																					Equity
																					Incentive
																					Plan
																					Awards:
																		Equity			Market
							Equity											Incentive			or Payout
							Incentive							Number		Market		Plan Awards:			Value of
							Plan							of		Value of		Number of			Unearned
							Awards:							Shares		Shares		Unearned			Shares,
		Number of		Number of			Number of							or Units		or Units		Shares,			Units or
		Securities		Securities			Securities							of Stock		of Stock		Units or			Other
		Underlying		Underlying			Underlying							That		That		Other			Rights
		Unexercised		Unexercised			Unexercised		Option					Have		Have		Rights That			That
		Options		Options			Unearned		Exercise			Option		Not		Not		Have Not			Have Not
		(#)		(#)			Options		Price			Expiration		Vested		Vested		Vested			Vested
Name		Exercisable		Unexercisable			(#)		($)			Date		(#)		($)		(#)			($)
N. DeBenedictis																		196,134	(1)(7)		$	4,985,726
		36,031							$	16.1475		3/1/2014
		93,333							$	18.3338		2/28/2015
		55,000							$	29.4600		3/7/2016
		55,000							$	23.2600		2/22/2017
		55,000							$	20.1800		2/26/2018
		55,000							$	19.1200		2/26/2019
		36,666		18,334	(6)				$	17.1400		1/22/2020
D. Smeltzer																		42,885	(2)(7)		$	1,090,137
		13,532							$	16.1475		3/1/2014
		19,999							$	18.3338		2/28/2015
		15,000							$	29.4600		3/7/2016
		15,000							$	23.2600		2/22/2017
		15,000							$	20.1800		2/26/2018
		15,000							$	19.1200		2/26/2019
		11,666		5,834	(6)				$	17.1400		1/22/2020
C. Franklin																		33,124	(3)(7)		$	842,012
		1,196							$	12.4830		3/3/2013
		10,415							$	16.1475		3/1/2014
		13,332							$	18.3338		2/28/2015
		10,000							$	29.4600		3/7/2016
		10,000							$	23.2600		2/22/2017
		12,500							$	20.1800		2/26/2018
		12,500							$	19.1200		2/26/2019
		10,000		5,000	(6)				$	17.1400		1/22/2020

41

---

Option Awards

Stock Awards

Equity

Incentive

Plan

Awards:

Equity

Market

Equity

Incentive

or Payout

Incentive

Number

Market

Plan Awards:

Value of

Plan

of

Value of

Number of

Unearned

Awards:

Shares

Shares

Unearned

Shares,

Number of

Number of

Number of

or Units

or Units

Shares,

Units or

Securities

Securities

Securities

of Stock

of Stock

Units or

Other

Underlying

Underlying

Underlying

That

That

Other

Rights

Unexercised

Unexercised

Unexercised

Option

Have

Have

Rights That

That

Options

Options

Unearned

Exercise

Option

Not

Not

Have Not

Have Not

(#)

(#)

Options

Price

Expiration

Vested

Vested

Vested

Vested

Name

Exercisable

Unexercisable

(#)

($)

Date

(#)

($)

(#)

($)

K. Kyriss

33,322

(4)(7)

$

847,045

13,332

$

16.1475

3/1/2014

13,332

$

18.3338

2/28/2015

12,000

$

29.4600

3/7/2016

10,000

$

23.2600

2/22/2017

12,500

$

20.1800

2/26/2018

12,500

$

19.1200

2/26/2019

10,000

5,000

(6)

$

17.1400

1/22/2020

C. Luning

16,569

(5)(7)

$

421,184

5,000

$

29.4600

3/7/2016

5,000

$

23.2600

2/22/2017

2,500

$

20.1800

2/26/2018

5,000

$

19.1200

2/26/2019

6,666

3,334

(6)

$

17.1400

1/22/2020

____________________

Notes:

(1)		Of Mr. DeBenedictis’ 196,134 shares, 76,334 are restricted shares of common stock, 35,800 are restricted share units, and 84,000 are performance share units. Of the 76,334 shares of restricted stock: 7,333 shares vest on January 22, 2013; 19,000 shares vest on January 31, 2013; 25,000 shares vest on January 31, 2014; and 25,000 shares vest on January 31, 2015. Of the 35,800 restricted stock units: 11,000 vested on February 25, 2012, but will not be issued until February 25, 2013 and 11,000 vest on February 25, 2013; and 4,600 vest on February 24, 2013, 4,600 vest on February 24, 2014, and 4,600 vest on February 24, 2015, but these 13,800 restricted stock units will not be issued until February 24, 2015. Of the 84,000 performance share units: 28,800 vest on February 25, 2014; and 55,200 vest on February 24, 2015, and are subject to certain performance criteria.
(2)		Of Mr. Smeltzer’s 42,885 shares, 7,500 are restricted shares of common stock, 7,335 are restricted share units, and 28,050 are performance share units. Mr. Smeltzer’s 7,500 restricted shares of common stock vest on January 22, 2013. Of the 7,335 restricted share units, 3,335 vest on February 25, 2014 and 4,000 vest on February 24, 2015. Of the 28,050 performance share units: 12,050 vest on February 25, 2014; and 16,000 vest on February 24, 2015, and are subject to certain performance criteria.
(3)		Of Mr. Franklin’s 33,124 shares, 5,000 are restricted stock, 5,794 are restricted stock units, and 22,330 are performance share units. Mr. Franklin’s 5,000 restricted shares of common stock vest on January 22, 2013. Of the 5,794 restricted stock units, 2,194 vest on February 25, 2014 and 3,600 vest on February 24, 2015. Of the 22,330 performance share units: 7,930 vest on February 25, 2014; and 14,400 vest on February 24, 2015, and are subject to certain performance criteria.

42

---

(4)		Of Mr. Kyriss’ 33,322 shares, 5,000 are restricted stock, 5,838 are restricted stock units, and 22,484 are performance share units. Mr. Kyriss’ 5,000 restricted shares of common stock vest on January 22, 2013. Of the 5,838 restricted stock units, 2,238 vest on February 25, 2014 and 3,600 vest on February 24, 2015. Of the 22,484 performance share units: 8,084 vest on February 25, 2014; and 14,800 vest on February 24, 2015, and are subject to certain performance criteria.
(5)		Of Mr. Luning’s 16,569 shares, 3,000 are restricted stock, 2,807 are restricted stock units, and 10,762 are performance share units. Mr. Luning’s 5,000 restricted shares of common stock vest on January 22, 2013. Of the 2,807 restricted stock units, 1,207 vest on February 25, 2014 and 1,600 vest on February 24, 2015. Of the 10,762 performance share units: 4,362 vest on February 25, 2014; and 6,400 vest on February 24, 2015, and are subject to certain performance criteria.
(6)		100% vested on January 22, 2013.
(7)		For the purposes of this table, performance share units are calculated as follows based on the three performance criteria:
		1)		25% of the performance shares will be earned based on Aqua’s percentile ranking for Total Shareholder Return (TSR) within the S&P MidCap Utilities Index. As of 12/31/2012, Aqua’s TSR in this group is between the 30th and 50th percentile rank for the 2011 grant and above the 90th percentile rank for the 2012 grant. Therefore 75% of this 25% portion of the performance shares would be paid out for the 2011 grant and 200% of this 25% portion for the 2012 grant.
		2)		25% of the performance shares will be earned based on attainment of Aqua’s ordinal ranking for TSR compared to a specified peer group of seven investor-owned water companies. As of 12/31/2012, Aqua is ranked fourth amongst our competitors in regards to TSR for the 2011 grant and third amongst our competitors for the 2012 grant. According to the payout schedule, 100% and 130% of this 25% portion of the performance shares would be granted for 2011 and 2012 respectively.
		3)		50% of the performance shares will be earned based on attainment of a three-year compound annual growth rate in earnings per share. As of 12/31/2012 Aqua’s earnings per share is $1.40. If we assume the same growth rate at the end of the performance period as for the three-year period of 2009-2012, 200% of this 50% portion of the performance shares would be granted for both the 2011 and 2012 grants.
		These three performance criteria add up to 144% and 183% multipliers of the granted performance shares for the 2011 and 2012 grants respectively. According to SEC regulations, if the fiscal year’s performance has exceeded the threshold, as it has in this case, then the number of performance share units disclosed in this table shall be based on the next higher performance measure. In this case, that is the maximum payout of 200% of the performance shares and is recorded as such in the table above.

OPTION EXERCISES AND STOCK VESTED

     The following table sets forth (1) the number of shares of Aqua America’s common stock acquired by the named executive officers in 2012 from the exercise of stock options, (2) the value realized by those officers upon the exercise of those stock options based on the difference between the market price for our Common Stock on the date of exercise and the exercise price for the options, (3) the number of shares of restricted stock or performance shares previously granted to the named executive officers that vested in 2012, and (4) the value realized by those officers upon the vesting of such shares based on the closing market price for our shares of Common Stock on the vesting date.

Option Exercises and Stock Vested

		Option Awards								Stock Awards
		Number of								Number of
		Shares								Shares
		Acquired				Value Realized				Acquired				Value Realized
		on Exercise				on Exercise				on Vesting				on Vesting
Name		(#)				($)				(#)				($)
N. DeBenedictis			43,286				443,013				33,666				742,929
D. Smeltzer			27,299				240,355				6,000				134,940
C. Franklin			0				0				5,000				112,450
K. Kyriss			2,633				27,902				5,000				112,450
C. Luning			0				0				3,000				67,470

43

---

RETIREMENT PLANS AND OTHER POST-EMPLOYMENT BENEFITS

PENSION BENEFITS

     The following table sets forth (1) the number of years of credited service for the named executive officers under our various retirement plans as of December 31, 2012, (2) the actuarial present value of accumulated benefits under those plans as of December 31, 2012 and (3) any payments made to the named executive officers in 2012 under those plans.

Pension Benefits

				Number		Present
				of Years of		Value of				Payments
				Credited		Accumulated				During Last
				Service		Benefit				Fiscal Year
Name		Plan Name		(#)		($)				($)
N. DeBenedictis		Retirement Income Plan for Aqua America, Inc. and Subsidiaries		21			2,368,208			—
		Supplemental Pension Benefit Plan		21			3,030,431			—
		Supplemental Executive Retirement Plan		25			1,028,312			—
D. Smeltzer		Retirement Income Plan for Aqua America, Inc. and Subsidiaries		27			1,053,956			—
		Supplemental Pension Benefit Plan		27			1,029,374			—
C. Franklin		Retirement Income Plan for Aqua America, Inc. and Subsidiaries		20			624,142			—
		Supplemental Pension Benefit Plan		20			308,707			—
K. Kyriss		Retirement Income Plan for Aqua America, Inc. and Subsidiaries		18			1,008,876			—
		Supplemental Pension Benefit Plan		18			654,752			—
C. Luning		Retirement Income Plan for Aqua America, Inc. and Subsidiaries		10			211,168
		Supplemental Pension Benefit Plan		10			10,490

RETIREMENT INCOME PLAN FOR AQUA AMERICA, INC. AND SUBSIDIARIES (THE “RETIREMENT PLAN”)

     Aqua America, Inc. sponsors a qualified defined benefit Retirement Plan to provide retirement income to Aqua America’s employees hired prior to certain dates starting in 2003. For the portion of the Retirement Plan covering the named executive officers, plan compensation is defined as total compensation paid, but excludes contributions made by Aqua America to a plan of deferred compensation, distributions from a deferred compensation plan, amounts realized from the exercise of stock options or when restricted stock becomes freely transferable, fringe benefits, welfare benefits, reimbursements or other expense allowances, moving expenses and commissions. The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes maximum limitations on the annual amount of pension benefits that may be paid, and the amount of compensation that may be taken into account in calculating benefits, under a qualified, funded, defined benefit pension plan such as the Retirement Plan. The Retirement Plan complies with these ERISA limitations.

     Benefits earned under the final pay formula are equal to 1.35% of average plan compensation plus 0.45% of average plan compensation above Covered Compensation for each year of credited service up to 25 years, and 0.5% of average plan compensation for each year of credited service above 25 years. The annual benefit is further subject to a minimum benefit schedule. Average plan compensation is defined as the average of plan compensation over the highest five consecutive years out of the last ten years. Covered Compensation is defined as the average of the Social Security Wage Bases in effect for each calendar year during the 35-year period ending with the last day of the calendar year of the benefit determination.

44

---

     Under the terms of the Retirement Plan, a Company participant becomes fully vested in his or her accrued pension benefit after five years of credited service. Participants may retire as early as age 55 with 10 years of service. Unreduced benefits are available when a participant attains the earlier of age 65 with 5 years of service or age 62 with 30 years of service. Otherwise, benefits are reduced 3% for each year by which retirement precedes the attainment of age 65. Pension benefits earned are payable in the form of a lifetime annuity. Married individuals receive a reduced benefit paid in the form of a qualified joint and survivor annuity.

     Messrs. DeBenedictis and Kyriss are currently eligible to retire under the plan.

     The provisions described above cover a significant portion of the company’s non-union workforce hired prior to certain dates starting in 2003, including each of the named executive officers. Certain union employees and certain other non-union employees are covered under separate definitions of plan compensation, benefit formulas and benefit options within the Retirement Plan.

AQUA AMERICA, INC. SUPPLEMENTAL RETIREMENT PLANS

     Effective December 1, 1989, the Board of Directors adopted a supplemental benefits plan for salaried employees of the Company (the “Supplemental Pension Benefit Plan”). The Supplemental Pension Benefit Plan is a nonqualified pension benefit plan that is intended to provide an additional pension benefit to Company participants in the Retirement Plan and their beneficiaries whose benefits under the Retirement Plan are adversely affected by the ERISA limitations described above. In addition, deferred compensation is excluded from the Retirement Plan Compensation, but is included in the calculation of benefits under the Supplemental Pension Benefit Plan. The benefit under the Supplemental Pension Benefit Plan is equal to the difference between (i) the amount of the benefit the Company participant would have been entitled to under the Retirement Plan absent such ERISA limitations and including deferred compensation in the final average earnings calculation, and (ii) the amount of the benefit actually payable under the Retirement Plan.

     A non-qualified Supplemental Executive Retirement Plan, or SERP, was established for Mr. DeBenedictis in 1992 with the approval of the Board of Directors. Under the terms of the SERP, Mr. DeBenedictis will be eligible to receive a benefit at normal retirement equal to the difference between (i) the benefit to which he would otherwise be entitled under the Retirement Plan assuming he had 25 years of service and absent the ERISA limitations referred to above, and (ii) the benefit payable to him under the Retirement Plan and the Supplemental Pension Benefit Plan.

     In 2010, the Supplemental Pension Benefit Plan and Mr. DeBenedictis’ SERP were amended to provide, in the event of Mr. DeBenedictis’ separation from service due to death, that the surviving spouse benefit paid under those Plans will be an amount equal to the actuarial equivalent present value of the surviving spouse benefit that would have been paid had Mr. DeBenedictis retired on the day prior to the day of his death instead of the normal benefit of a 75% joint and survivor annuity determined as if he had retired on the day prior to his death.

     Participants may retire as early as age 55 with 10 years of service under the Supplemental Pension Benefit Plan and the SERP. Unreduced benefits are available when a participant attains the earlier of age 65 with 5 years of service or age 62 with 30 years of service. Otherwise, benefits are reduced 3% for each year by which retirement precedes the attainment of age 65. Pension benefits earned are payable in the form of a lifetime annuity. Married individuals receive a reduced benefit paid in the form of a qualified joint and survivor annuity. Pension benefits under the Supplemental Pension Benefit Plan and the SERP may be paid as a lump sum, paid in a series of installments or under certain circumstances transferred at separation from employment to up to five separation distribution accounts under the Company’s Executive Deferral Plan.

     Messrs. DeBenedictis, Franklin, Kyriss, Smeltzer and Luning are earning benefits under the Supplemental Pension Benefit Plan, and are fully vested in those benefits. Mr. DeBenedictis is also earning benefits under the SERP and is fully vested. Messrs. DeBenedictis and Kyriss are currently eligible to retire under the Supplemental Pension Benefit Plan, and Mr. DeBenedictis is currently eligible to retire under the SERP.

     In 2009, the Company began to fund the Supplemental Pension Benefit Plan and the SERP through the use of trust-owned life insurance.

45

---

ACTUARIAL ASSUMPTIONS USED TO DETERMINE VALUES IN THE PENSION BENEFITS TABLE

     The amounts shown in the Pension Benefit Table above are actuarial present values of the benefits accumulated through the date shown. An actuarial present value is calculated by estimating expected future payments starting at an assumed retirement age, weighting the estimated payments by the estimated probability of surviving to each post-retirement age, and discounting the weighted payments at an assumed discount rate to reflect the time value of money. The actuarial present value represents an estimate of the amount which, if invested today at the discount rate, would be sufficient on an average basis to provide estimated future payments based on the current accumulated benefit. Assumptions used to determine the values are the same as those disclosed on Aqua America’s financial statements as of those dates with the exception of the assumed retirement age and the assumed probabilities of leaving employment prior to retirement. Retirement was assumed to occur at the earliest possible unreduced retirement age (or current age, if later) for each plan in which the executive participates. For purposes of determining the earliest unreduced retirement age, service was assumed to be granted until the actual date of retirement. Actual benefit present values will vary from these estimates depending on many factors, including an executive’s actual retirement age. The key assumptions included in the calculations are as follows:

			December 31, 2012				December 31, 2011
Discount rate				4.175	%			5.00	%
Retirement ages:
Mr. DeBenedictis				67.25				66.25
Mr. Smeltzer				62				62
Mr. Franklin				62				62
Mr. Kyriss				62				62
Mr. Luning				65				65
Termination, pre-retirement mortality and disability rates				None				None
Post-Retirement Mortality			IRS Prescribed Male Mortality Table for 2013 (RP-2000 table; no collar adjustment, mortality improvements projected for 7 years beyond specified date)				IRS Prescribed Male Mortality Table for 2012 (RP-2000 table; no collar adjustment, mortality improvements projected for 7 years beyond specified date)
Form of payment
Retirement Plan			Single life annuity				Single life annuity
Supplemental Pension Benefit Plan and SERP			Single lump sum payment transferred to the Company’s Executive Deferral Plan				Single lump sum payment transferred to the Company’s Executive Deferral Plan

46

---

NONQUALIFIED DEFERRED COMPENSATION

     The following table sets forth information regarding contributions to, earnings on, withdrawals from and balances as of the end of 2012 for our nonqualified Executive Deferral Plan.

		Executive				Registrant		Aggregate			Aggregate		Aggregate
		Contributions				Contributions		Earnings in			Withdrawals /		Balance at
		in Last FY				in Last FY		Last FY			Distributions		Last FYE
Name		($)				($)		($)(1)			($)		($)(2)
N. DeBenedictis			—			—		250,185			—		3,350,251
D. Smeltzer			70,378			—		12,491			—		199,582
C. Franklin			12,315			—		2,173			—		36,733
K. Kyriss			95,036			—		16,413			—		262,740
C. Luning			—			—		—			—		—

____________________

Notes:

(1)		In 2012, the deferred amounts were deemed invested in mutual funds chosen by the participant under a trust-owned life insurance policy maintained by the Company to fund the Executive Deferral Plan. The earnings shown in this column include the deemed earnings on those mutual funds.
(2)		The aggregate balances include the following amounts previously reported in the Summary Compensation Table in prior years: $37,915 for Mr. DeBenedictis; $1,592 for Mr. Smeltzer; and $ -$4,112 for Mr. Franklin.

     Employees with total projected W-2 compensation for 2012 in excess of $139,500 are eligible to participate in the Company’s Executive Deferral Plan for 2013. Participants may defer up to 100% of their salary and 100% of their non-equity incentive compensation under the Company’s Annual Cash Incentive Compensation Plan. At the time the participant elects to make a deferral under the Executive Deferral Plan, the participant is also required to elect the form of payment with respect to the amounts deferred for the upcoming calendar year. If a separation distribution account is elected, the participant may choose to receive his or her distribution in either a lump sum payment or, subject to certain requirements, in annual installments over 2 to 15 years. If a flexible distribution account is elected, the participant will receive his or her distribution in a lump sum payment. The executive officers, including the named executive officers, may not commence the receipt of their account balances and the earnings on these deferrals sooner than the first day of the seventh month following the date of the executive’s separation from employment.

47

---

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL

SEVERANCE AND EMPLOYMENT AGREEMENTS

     Effective December 6, 2011, the Company and Nicholas DeBenedictis, the Company’s President and Chief Executive Officer, entered into an Amendment to Mr. DeBenedictis’ Employment Agreement (the “Amended Employment Agreement”), under which Mr. DeBenedictis has agreed to extend the term of his existing Employment Agreement from January 31, 2013 to June 30, 2015. Pursuant to the Amended Employment Agreement, Mr. DeBenedictis will continue to serve as the Chief Executive Officer of the Company and will be entitled to annual increases to his base salary and a target annual incentive bonus that is currently at 75% of base salary. Mr. DeBenedictis will continue to be eligible to participate in the Company’s incentive compensation programs and in the Company’s benefit plans.

     Pursuant to the Amended Employment Agreement, effective December 6, 2011, the Company granted Mr. DeBenedictis a performance-based restricted stock award (the “Stock Award”) under the Omnibus Equity Compensation Plan with respect to 50,000 shares of common stock of the Company. The shares will vest by 2015 based on Mr. DeBenedictis’ continued service and subject to the Company’s achievement of a year–over-year increase in operating income for 2012, 2013 or 2014 and, with respect to the shares that vest in 2015, a determination by the Executive Compensation Committee and the Board of Directors that Mr. DeBenedictis has made satisfactory efforts with respect to a plan for succession. In addition, any shares that vest are subject to restrictions on transfer by Mr. DeBenedictis for a period of two years following the applicable vesting date. If the Company terminates Mr. DeBenedictis’ employment without cause or Mr. DeBenedictis terminates employment for good reason, any unvested shares of the Stock Award will fully vest if the Company achieves a year-over-year increase in operating income for 2012, or 2013 or 2014. If Mr. DeBenedictis dies or his employment is terminated due to disability, or if a change in control of the Company occurs, any unvested shares of the Stock Award will fully vest. If Mr. DeBenedictis’ employment is terminated for cause or if he voluntarily terminates employment without good reason, any unvested shares of the Stock Award will be forfeited.

     No additional severance benefits are provided under the Employment Agreement. Mr. DeBenedictis has a separate severance agreement with the Company, which provides severance benefits under certain circumstances and is not affected by the Employment Agreement. Mr. DeBenedictis continues to be subject to the non-competition covenants set forth in his separate severance agreement.

     Under the Company’s Supplemental Pension Benefit Plan for Salaried Employees and its Supplemental Executive Retirement Plan for Nicholas DeBenedictis, in the event of Mr. DeBenedictis’ death while in the employ of the Company, the surviving spouse benefit will be equal to the benefit the surviving spouse would have received if Mr. DeBenedictis had retired on the day before his death.

CHANGE-IN-CONTROL AGREEMENTS

     The Company maintains change-in-control agreements with certain executives, including the named executive officers in the Summary Compensation Table. Payments under these agreements are triggered if the covered executive’s employment is terminated other than for cause or the executive resigns for good reason, as defined in the agreements, within two years after a change-in-control of the Company. In addition, the agreement covering Mr. DeBenedictis permits him to trigger the payments under his agreement if he terminates his employment within 12 months after a change-in-control if he determines that circumstances have so changed with respect to the Company that he is no longer able to effectively perform his duties and responsibilities. Mr. DeBenedictis’ payment is also subject to him agreeing to a twelve-month non-compete covenant.

     Payments and benefits under the change-in-control agreements consist of the payment of a multiple of 2 or 3 times the named executive officer’s “Base Compensation”, as defined in the agreements, a lump sum payment in lieu of the continuation of certain health benefits for a period of 2 or 3 years and outplacement services, which are summarized in the following table for the named executive officers.

48

---

     The following table provides a summary of the benefits to which each named executive officer would be entitled under the change-in-control agreements.

				Payment in
				lieu of
				Health
		Multiple of		Benefit
		Base		Continuation		Outplacement
Executive		Compensation		Period		Services
N. DeBenedictis		3		3 years		1 year
D. Smeltzer		2		2 years		6 months
C. Franklin		2		2 years		6 months
K. Kyriss		2		2 years		6 months
C. Luning		2		2 years		6 months

     For purposes of the change-in-control agreements, Base Compensation is defined as current base annual salary, plus the greater of the executive’s target bonus for the year in which the executive incurs a termination of employment, or the last actual bonus paid to the executive under the Annual Cash Incentive Compensation Plan (or any successor plan maintained by Aqua America), in all capacities with Aqua America and its subsidiaries or affiliates. The executive’s Base Compensation shall be determined prior to reduction for salary deferred by the executive under any deferred compensation plan of Aqua America and its subsidiaries or affiliates, or otherwise.

     The payment of the multiple of Base Compensation would be made in a lump sum within 60 days after the executive’s termination as defined under the agreements, although pursuant to the requirements of Section 409A of the Internal Revenue Code, part or all of such payment may need to be deferred until the first day of the seventh month following the date of the executive’s separation from employment. Each executive is required to execute a standard release of the Company as a condition to receiving the payment under the agreement.

     Under our 2004 Equity Compensation Plan and 2009 Omnibus Equity Compensation Plan (the “Plans”), unvested stock option and restricted stock equity incentives become immediately vested upon a change-in-control regardless of whether or not the grantee is terminated. For performance shares, if a change-in-control occurs, performance will be measured at the date of the change-in-control, and the number of earned performance shares will be determined as of the date of the change-in-control as follows:

• If a change-in-control occurs more than one year after the grant date, the number of performance shares earned as of the change-in-control date will be the greater of (i) the amount earned based on actual performance or (ii) the target number of performance shares.
   
• If a change-in-control occurs within one year after the grant date, the number of performance shares earned as of the change-in-control date will be a pro rata portion (based on the number of whole months in the applicable performance period worked from the date of grant to the change-in-control) of the greater of (i) the amount earned based on actual performance or (ii) the target number of performance shares.

     Any performance shares that are not earned at the change-in-control date will be forfeited. The vesting of these equity incentives is applicable to all grantees under the Plans. The value of vested stock options is not included in the tables below.

     For purposes of the change-in-control agreements and the vesting of unvested equity incentives as described above, a change-in-control, subject to certain exceptions, means:

(1)

any person (including any individual, firm, corporation, partnership or other entity except Aqua America, any subsidiary of Aqua America, any employee benefit plan of Aqua America or of any subsidiary, or any person or entity organized, appointed or established by Aqua America for or pursuant to the terms of any such employee benefit plan), together with all affiliates and associates of such person, shall become the beneficial owner in the aggregate of 20% or more of the common stock of Aqua America then outstanding;

49

---

	(2)		during any 24-month period, individuals who at the beginning of such period constitute the Board of Directors of Aqua America cease for any reason to constitute a majority thereof, unless the election, or the nomination for election by Aqua America’s shareholders, of at least seventy-five percent of the directors who were not directors at the beginning of such period was approved by a vote of at least seventy-five percent of the directors in office at the time of such election or nomination who were directors at the beginning of such period; or
	(3)		there occurs a sale of 50% or more of the aggregate assets or earning power of Aqua America and its subsidiaries, or its liquidation is approved by a majority of its shareholders or Aqua America is merged into or is merged with an unrelated entity such that following the merger the shareholders of Aqua America no longer own more than 50% of the resultant entity.

     Copies of these change-in-control agreements for Messrs. DeBenedictis, Smeltzer, Franklin and Kyriss and have been filed with the SEC as exhibits to Aqua America’s Annual Report on Form 10-K for the year ended December 31, 2008 and for Mr. Luning as an exhibit to Aqua America’s Annual Report on Form 10-K for the year ended December 31, 2012 or incorporated therein by reference.

RETIREMENT AND OTHER BENEFITS

     Under the terms of our qualified and non-qualified defined benefit retirement plans, eligible salaried employees, including the named executive officers, are entitled to certain pension benefits upon their termination, retirement, death or disability. In general, the terms under which benefits are payable upon these triggering events are the same for all participants under the qualified and non-qualified plans. The present value of accumulated pension benefits, assumed payable at the earliest unreduced age (or current age, if later), for the named executive officers is set forth in the Pension Benefits table on page 44. The pension benefit values included in the tables below reflect the incremental value above the amounts shown in the Pension Benefits table for benefits payable upon each triggering event from all pension plans in the aggregate.

     Aqua America, Inc. sponsors postretirement medical plans to subsidize retiree medical benefits for employees hired prior to certain dates starting in 2003. Under the postretirement medical plans, employees are generally eligible to retire upon attainment of age 55 and completion of 15 years of service. Upon retirement, eligible participants are entitled to receive subsidized medical benefits prior to attainment of age 65 where the subsidy provided is based upon age and years of service upon retirement. Upon attainment of age 65, eligible participants are entitled to receive employer contributions into a premium reimbursement account which may be used by the retiree in paying medical and prescription drug benefit premiums. The postretirement medical benefits shown are those which are payable from the Company under each of the triggering events. Assumptions used to determine the values are the same as those disclosed on Aqua America’s financial statements, except for the assumption of immediate termination, retirement, death or disablement for purposes of the tables on pages 52 through 54. Participants not eligible to receive benefits if leaving under a triggering event as of December 31, 2012 are shown with zero value in the tables.

     Upon termination for any reason, the participants in our Executive Deferral Plan, including the named executive officers, would be entitled to a distribution of their account balances as set forth in the Nonqualified Deferred Compensation table on page 47, subject to the restrictions under the Plan described on page 47. The values of these account balances are not included in the tables below. The named executive officers are also eligible for the same death and disability benefits of other eligible salaried employees. These common benefits are not included in the tables below.

     Under the terms of our 2004 Equity Compensation Plan, upon termination of a grantee’s employment as a result of retirement, disability or death, the period during which stock options that were granted prior to 2009, which are otherwise exercisable, may be exercised shall not exceed: (i) one year from the date of such termination of employment in the case of death; (ii) two years from the date of such termination in the case of permanent and total disability (within the meaning of Section 22(e)(3) of the Code) or retirement; and (iii) three months from the date of such termination of employment in the case of other disability; provided, however, that in no event shall the period extend beyond the expiration of the option term. To the extent that any option granted prior to 2009 is not otherwise exercisable as of the date on which the grantee ceases to be employed by the Company or any subsidiary, the unexercisable portion of the option shall terminate as of such date.

50

---

     Under the terms of the 2004 Equity Compensation Plan, as amended and restated as of January 1, 2009, and under the terms of the 2009 Omnibus Equity Compensation Plan, grantees of stock options in 2009 or thereafter will continue to vest in unvested stock option grants following termination of the grantee’s employment as a result of retirement, provided the grantee does not violate the covenant not to compete provisions of his/her grant, and unvested stock option grants will be immediately vested if the termination of the grantee’s employment is due to his/her disability or death. The period during which stock options may be exercised shall not exceed: (i) one year from the date of such termination of employment in the case of death; (ii) thirty-eight months from the date of such termination in the case of retirement or disability, provided, however, that in no event shall the period extend beyond the expiration of the option term. The Compensation Committee, in its sole discretion, may determine that any portion of an option that has not become exercisable as of the date of the grantee’s death, termination of employment on account of permanent and total disability or other termination of employment may be exercised by a grantee, or in the case of death, a grantee’s legal representative or beneficiary.

     For restricted stock grants made prior to 2009, if a grantee’s regular full-time employment terminates prior to the vesting of a restricted stock grant, the restricted stock grant terminates as to all unvested shares. Under the terms of the 2004 Equity Compensation Plan, as amended and restated as of January 1, 2009, and under the terms of the 2009 Omnibus Equity Compensation Plan, grantees of restricted stock in 2009 or thereafter will (i) continue to vest in their unvested grants following the grantee’s termination of employment as a result of retirement, (ii) vest in a pro-rata portion of unvested grants upon the grantee’s termination of employment as a result of early retirement, or (iii) vest immediately in unvested grants following the grantee’s termination of employment as a result of death or disability. The Compensation Committee may, however, provide for complete or partial exceptions to these provisions as it deems equitable.

     Under the terms of the 2004 Equity Compensation Plan, as amended and restated as of January 1, 2009, and under the terms of the 2009 Omnibus Equity Compensation Plan, except as otherwise determined by the Compensation Committee, no payment of any accrued dividend equivalent amount shall be made to any grantee unless the grantee is a regular full-time employee of the Company or any of its subsidiaries as of March 1 prior to the payment, unless the grantee’s termination of employment was a result of the grantee’s retirement, death or disability. The amount of accrued dividend equivalents as of December 31, 2012 is included in the tables below assuming termination due to retirement, death or disability as of December 31, 2012.

     Under the terms of the restricted stock unit grants under the 2009 Omnibus Equity Compensation Plan, grantees of restricted stock units will (i) vest in a pro-rata portion of unvested grants upon the grantee’s termination of employment as a result of retirement or (ii) vest immediately in unvested grants following the grantee’s termination of employment as a result of death or disability. Shares of Company stock equal to the applicable portion of the restricted stock units shall be issued to the grantee within sixty (60) days following the grantee’s retirement, death or disability, subject to applicable tax withholding and the values of these restricted stock units as of December 31, 2012 are included in the tables below. Under the terms of the performance share unit grants under the 2009 Omnibus Equity Compensation Plan, grantees of performance share units will (i) earn a pro-rata portion of unvested grants upon the grantee’s termination of employment as a result of retirement or (ii) earn immediately any unvested grants following the grantee’s termination of employment as a result of death or disability. Shares of Company stock equal to the applicable portion of the performance share units shall be issued to the grantee on the vesting date for such performance share units and the values of these performance share units as of December 31, 2012 are included in the tables below.

51

---

     The total estimated value of the payments that would be triggered by a termination following a change-incontrol, a termination other than for cause without a change-in-control, retirement, death or disability for the named executive officers calculated assuming that the triggering event for the payments occurred on December 31, 2012 and assuming a value for our Common Stock as of December 31, 2012 for purposes of valuing the vesting of the equity incentives are set forth below.

Nicholas DeBenedictis

		Change-in-
		Control				Termination				Retirement				Death				Disability
Payments and Benefits Upon Separation		$				$				$				$				$
Triggered Payments and Benefits
Severance Payment			4,092,018				635,000				—				—				—
Prorated current year bonus			714,375				892,969				892,969				892,969				892,969
Acceleration of option vesting			151,806				—				151,806				151,806				151,806
Payment of accrued dividend equivalents			55,550				—				55,550				55,550				55,550
Vesting of restricted stock			1,940,410				—				186,430				1,940,410				1,940,410
Vesting of restricted share units			630,416				—				306,805				630,416				630,416
Vesting of performance share units			1,062,073				—				839,826				1,811,022				1,811,022
Continuation of welfare benefits			70,109				—				—				—				—
Outplacement services			45,000				—				—				—				—
Excise tax Gross up			2,102,748				—				—				—				—
Vested Retirement Benefits
Incremental pension value above that included in the
Pension Benefits Table			—				—				—				—				—
Present value of retiree medical benefits			84,287				84,287				84,287				—				84,287
Total			10,948,792				1,612,256				2,517,673				5,482,173				5,566,460

David P. Smeltzer

		Change-in-
		Control		Termination				Retirement				Death		Disability
Payments and Benefits Upon Separation		$		$				$				$		$
Triggered Payments and Benefits
Severance Payment		1,044,932			170,000				—			—		—
Prorated current year bonus		153,000			240,975				240,975			240,975		240,975
Acceleration of option vesting		48,306			—				48,306			48,306		48,306
Payment of accrued dividend equivalents		16,413			—				16,413			16,413		16,413
Vesting of restricted stock		190,650			—				190,650			190,650		190,650
Vesting of restricted share units		186,456			—				80,052			186,456		186,456
Vesting of performance share units		323,919			—				238,152			592,693		592,693
Continuation of welfare benefits		63,697			15,924				—			—		—
Outplacement services		22,500			—				—			—		—
Vested Retirement Benefits
Incremental pension value above that included in the
Pension Benefits Table		165,560			165,560				—			—		441,901
Present value of retiree medical benefits		—			—				—			—		—
Total		2,215,433			592,459				814,548			1,275,493		1,717,394

52

---

Christopher H. Franklin

		Change-in-
		Control				Termination				Retirement				Death				Disability
Payments and Benefits Upon Separation		$				$				$				$				$
Triggered Payments and Benefits
Severance Payment			930,000				155,000				—				—				—
Prorated current year bonus			155,000				240,250				240,250				240,250				240,250
Acceleration of option vesting			41,400				—				—				—				—
Payment of accrued dividend equivalents			13,888				—				13,888				13,888				13,888
Vesting of restricted stock			127,100				—				127,100				127,100				127,100
Vesting of restricted share units			147,283				—				59,503				147,283				147,283
Vesting of performance share units			238,175				—				181,733				480,072				480,072
Continuation of welfare benefits			62,666				15,666				—				—				—
Outplacement services			22,500				—				—				—				—
Vested Retirement Benefits
Incremental pension value above that included in the
Pension Benefits Table			51,698				51,698				—				—				531,427
Present value of retiree medical benefits			—				—				—				—				—
Total			1,789,710				462,614				622,474				1,008,593				1,540,020

Karl M. Kyriss

		Change-in-
		Control				Termination				Retirement				Death				Disability
Payments and Benefits Upon Separation		$				$				$				$				$
Triggered Payments and Benefits
Severance Payment			930,000				107,308				—				—				—
Prorated current year bonus			155,000				232,500				232,500				232,500				232,500
Acceleration of option vesting			41,400				—				—				—				—
Payment of accrued dividend equivalents			13,888				—				13,888				13,888				13,888
Vesting of restricted stock			127,100				—				127,100				127,100				127,100
Vesting of restricted share units			148,402				—				60,186				148,402				148,402
Vesting of performance share units			240,994				—				183,455				482,891				482,891
Continuation of welfare benefits			47,508				8,908				—				—				—
Outplacement services			22,500				—				—				—				—
Vested Retirement Benefits
Incremental pension value above that included in the
Pension Benefits Table			—				—				—				—				424,883
Present value of retiree medical benefits			101,132				101,132				101,132				—				101,132
Total			1,827,924				449,848				718,261				1,004,781				1,530,796

53

---

Christopher P. Luning

		Change-in-
		Control				Termination				Retirement				Death				Disability
Payments and Benefits Upon Separation		$				$				$				$				$
Triggered Payments and Benefits
Severance Payment			553,500				70,962
Prorated current year bonus			71,750				104,934				104,934				104,934				104,934
Acceleration of option vesting			27,606
Payment of accrued dividend equivalents			8,838				—				8,838				8,838				8,838
Vesting of restricted stock			76,260				—				76,260				76,260				76,260
Vesting of restricted share units			71,354				—				30,048				71,354				71,354
Vesting of performance share units			121,185				—				90,138				228,694				228,694
Continuation of welfare benefits			68,333				12,812				—				—				—
Outplacement services			22,500				—				—				—				—
Vested Retirement Benefits
Incremental pension value above that included in the
Pension Benefits Table			63,548				63,548				—				—				475,283
Present value of retiree medical benefits			—				—				—				—				—
Total			1,084,874				252,256				310,218				490,080				965,363

     The amounts shown in the tables above reflect the excess of the value of pension benefits under each of the triggering events over the value included in the Pension Benefits table on page 44. The total values calculated, prior to the offset for the amount shown in the Pension Benefits table, are calculated as set forth below.

Termination

     Once vested, participants are eligible to receive qualified benefits under the Retirement Plan and nonqualified benefits from the Supplemental Pension Benefit Plan and the SERP. Benefits vest upon attaining five years of service. Pension benefits for Messrs. DeBenedictis, Smeltzer, Franklin, Kyriss and Luning are vested and payable from the Retirement Plan as well as the Supplemental Pension Benefit Plan. Additionally, Mr. DeBenedictis is eligible and vested in his benefit payable from the SERP.

     The full value of the benefits payable due to termination is determined based on the assumed timing and form of the benefits payable as follows: the benefits for Messrs. DeBenedictis and Kyriss are payable as an immediate life annuity from the Retirement Plan and an immediate lump sum payment (transferred to the Company’s Executive Deferral Plan) from the non-qualified plans; and the benefits for Messrs. Smeltzer, Franklin and Luning are payable as a life annuity beginning at age 55 from the Retirement Plan and an immediate lump sum payment at age 55 from the non-qualified plans. Benefits have been reduced for early commencement by 3% per year of commencement prior to age 65.

Retirement

     In the case of retirement, the present value of benefits is determined in the same manner as termination. Mr. Kyriss is eligible for early retirement from the qualified Retirement Plan and Supplemental Pension Benefit Plan. Mr. DeBenedictis is eligible for retirement from the qualified Retirement Plan, the Supplemental Pension Benefit Plan and the SERP. Messrs. Smeltzer, Franklin and Luning are not currently eligible to retire.

54

---

Death

     Vested benefits under the Retirement Plan are payable to the participant’s surviving spouse as a single life annuity upon the death of the participant. The benefit will be paid to the spouse as early as the deceased participant’s earliest retirement age (age 55 with ten years of service or age 65). The benefit will be equal to 75% of the benefit calculated as if the participant had separated from service on the date of death (assumed to be December 31, 2012 in the table), survived to the earliest retirement age and retired with a qualified contingent annuity. Vested benefits under the Supplemental Pension Benefit Plan and the SERP are payable to the participant’s surviving spouse as a lump sum (or in certain cases transferred to the Company’s Executive Deferral Plan) upon the death of the participant. The benefit will be equal to 75% (100% for Mr. DeBenedictis) of the benefit calculated as if the participant had separated from service on the date of death (assumed to be December 31, 2012 in the table), survived to the earliest retirement age and retired with a qualified contingent annuity. For each of the participants, the total present value of pension benefits payable upon death is less than the amount shown in the Pension Benefits Table. For purposes of the benefit calculations shown, spouses are assumed to be three years younger than the participant.

     In 2010, the Supplemental Pension Benefit Plan and Mr. DeBenedictis’ SERP were amended to provide, in the event of Mr. DeBenedictis’ separation from service due to death, that the surviving spouse benefit under those Plans will be an amount equal to the actuarial equivalent value of the surviving spouse benefit that would have been paid had Mr. DeBenedictis retired on the day prior to the day of his death, instead of the normal benefit of a 75% joint and survivor annuity determined as if he had retired on the day prior to his death.

Disability

     If an individual is terminated as a result of a disability with less than ten years of service, the benefits are payable in the same amount and form as an individual who is terminated. Individuals who terminate employment as a result of a disability with at least ten years of service are entitled to future accruals until age 65 (or earlier date if elected by the participant) assuming level future earnings and continued service. The benefits are not payable until age 65, unless elected by the participant for an earlier age. Upon the attainment of age 65, the individual would be entitled to the same options as an individual who retired from the Retirement Plan.

     Messrs. DeBenedictis, Smeltzer, Franklin, Kyriss and Luning have each completed ten years of service. Therefore, for purposes of this present value calculation, these participants are assumed to accrue additional service and earnings until age 65, at which time pension payments are assumed to commence.

Change-in-Control

     Upon a Change-in-Control, the benefits payable to each of the named executives will be the same as those described in the Termination section above.

55

---

DIRECTOR COMPENSATION

     The following table sets forth the compensation paid to the Aqua America Board of Directors in 2012.

Director Compensation

														Change in
														Pension
														Value and
		Fees										Non-Equity		Nonqualified
		Earned										Incentive		Deferred
		or Paid				Stock				Option		Plan		Compensation		All Other
		in Cash				Awards				Awards		Compensation		Earnings		Compensation		Total
Name		($)(1)				($)(2)				($)		($)		($)		($)		($)
Mary C. Carroll			49,500				50,787			—		—		—		—			100,287
Nicholas DeBenedictis (3)			—				—			—		—		—		—			—
Richard H. Glanton			60,000				50,787			—		—		—		—			110,787
Lon R. Greenberg			60,500				50,787			—		—		—		—			111,287
William P. Hankowsky			64,125				50,787			—		—		—		—			114,912
Wendell F. Holland			43,500				50,787			—		—		—		—			94,287
Mario Mele			45,000				50,787			—		—		—		—			95,787
Ellen T. Ruff			49,500				50,787			—		—		—		—			100,287
Richard L. Smoot (4)			43,250				—			—		—		—		—			43,250
Andrew J. Sordoni III			49,500				50,787			—		—		—		—			100,287

____________________

Notes:

(1)		Includes: (a) an annual cash retainer of $33,000 per year; (b) Board meeting fees of $1,500 per meeting; (c) Committee meeting fees of $1,500 per meeting; and (d) annual Committee Chair retainers of $10,000 for the Chair of the Audit Committee and Chair of the Corporate Governance Committee and $7,500 for the Chair of the Executive Compensation Committee. The amount for Ms. Carroll and Mr. Holland includes $3,000 for attendance at two meetings of the Retirement and Employee Benefits Committee as the Board's representative to this management Committee. The amounts for Messrs. Glanton, Hankowsky and Smoot include meeting fees for two Executive Committee meetings in 2011 that were paid in 2012.
(2)		Directors received an annual stock grant of $50,000 of Company stock, rounded to the nearest 100 shares on the first of the month following the Annual Meeting of Shareholders. The grant date fair value of stock and option awards is based on their fair market value on the date of grant as determined under FASB's accounting standard for stock compensation . The assumptions used in calculating the fair market value under FASB's accounting standard for stock compensation are set forth in the Employee Stock and Incentive Plan footnote to the Company's audited financial statements in the Company's Annual Report on Form 10-K.
(3)		As an officer of the Company, Mr. DeBenedictis does not receive any fees for his service on the Board of Directors.
(4)		Mr. Smoot retired as a director in May 2012 and therefore did not receive a stock grant for 2012, which is granted to directors on the first day of the month following the Annual Meeting of Shareholders.

56

---

REPORT OF THE AUDIT COMMITTEE

     The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal control. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements in the Annual Report, including: the quality of the accounting principles, practices and judgments; the reasonableness of significant judgments; the clarity of disclosures in the financial statements; and the integrity of the Company’s financial reporting processes and controls. The Committee also discussed the selection and evaluation of the independent registered public accounting firm, including the review of all relationships between the independent registered public accounting firm and the Company.

     The Audit Committee reviewed with the independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles in the United States of America, their judgments as to the quality of the Company’s accounting principles and such other matters as required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1 AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the Audit Committee has discussed with the independent registered public accounting firm the firm’s independence from management and the Company, including the matters in the written disclosures required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and considered the compatibility of non-audit services with the accountants’ independence.

     The Audit Committee discussed with the Company’s internal auditors and independent registered public accounting firm, the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.

     In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the Company’s audited financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for filing with the SEC.

	Respectfully submitted,
	Lon R. Greenberg, Chairman
	William P. Hankowsky
	Andrew J. Sordoni, III

57

---

     The foregoing reports of the Audit Committee and the Executive Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

(PROPOSAL NO. 2)

RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR THE 2013 FISCAL YEAR

     The Audit Committee of the Board of Directors appointed PricewaterhouseCoopers LLP (“PwC”) as the independent registered public accounting firm for the Company for the 2013 fiscal year. PwC has been the Company’s independent registered public accountants since 2000. The Board of Directors recommends that the Shareholders ratify the appointment.

     Although Shareholder ratification of the appointment of PwC is not required by law or the Company’s Bylaws, the Board of Directors believes that it is desirable to give our shareholders the opportunity to ratify the appointment. If the shareholders do not ratify the appointment of PwC, the Audit Committee will take this into consideration and may or may not consider the appointment of another independent registered public accounting firm for the Company for 2013 or for future years. Even if the appointment of PwC is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm during the year if the Audit Committee determines such a change would be in the best interests of the Company. Representatives of PwC are expected to be present at the 2013 Annual Meeting of Shareholders, will have the opportunity to make a statement at the meeting if they desire to do so, and will be available to respond to appropriate questions.

     PwC has informed us that they are not aware of any independence-related relationships between their firm and the Company other than the professional services discussed in “Services and Fees” below.

     Under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), the Audit Committee is responsible for the appointment, compensation and oversight of the work of the independent registered public accounting firm. As a result, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent registered public accounting firm in order to assure that such services do not impair the auditor’s independence from the Company. The Audit Committee has established a procedure to pre-approve all auditing and non-auditing fees proposed to be provided by the Company’s independent registered public accounting firm prior to engaging the accountants for that purpose. Consideration and approval of such services occurs at the Audit Committee’s regularly scheduled meetings, or by unanimous consent of all the Audit Committee members between meetings. All fees and services were approved by the Audit Committee for the 2012 fiscal year.

SERVICES AND FEES

     The following table presents the fees paid to PwC for professional services rendered with respect to the 2012 fiscal year and 2011 fiscal year:

____________________
 

(1)

Represents fees for any professional services provided in connection with the audit of the Company’s annual financial statements (including the audit of internal control over financial reporting), reviews of the Company’s interim financial statements included in Form 10-Qs, audits of the Company’s subsidiaries and services in connection with the issuance of securities.

58

---

(2)		Represents fees for any professional services in connection with the review of the Company’s federal and state tax returns and advisory services for other tax compliance, tax planning and tax advice.
(3)		Represents software licensing fees for accounting research tools and disclosure checklists.

     The Board of Directors unanimously recommends that you vote FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the 2013 fiscal year.

(PROPOSAL NO. 3)

ADVISORY VOTE ON EXECUTIVE COMPENSATION

     Even though a plurality of the shares voted at the 2011 Annual Meeting were voted in favor of having the Company present its executive compensation program to an advisory vote by the Company’s shareholders every three years, the Company has chosen to present its shareholders with an advisory (non-binding) vote on the executive compensation programs as described in this Proxy Statement for our named executive officers (sometimes referred to as “Say on Pay”) again in 2013. Accordingly, the following resolution is being presented by the Board of Directors at the 2013 Annual Meeting:

“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.”

     This vote is non-binding. The Board of Directors and the Executive Compensation Committee, which is comprised of independent directors, expect to take into account the outcome of the vote when considering future executive compensation decisions to the extent they can determine the cause or causes of any significant negative voting results.

     As described in detail under our Compensation Discussion and Analysis on pages 21 through 35 of this Proxy Statement, our executive compensation programs are designed to motivate our executives to achieve our primary goals of providing our customers with quality, cost-effective and reliable water and wastewater services and providing our shareholders with a long-term, positive return on their investment. We believe that our executive compensation program, with its balance of short-term incentives and long-term incentives, and share ownership guidelines reward sustained performance that is aligned with the interests of our customers, employees and long-term shareholders. Shareholders are encouraged to read the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure.

     The Board of Directors unanimously recommends that you vote FOR the approval, on an advisory basis, of the executive compensation programs for our named executive officers as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure in this Proxy Statement.

(PROPOSAL NO. 4)

SHAREHOLDER PROPOSAL

     NorthStar Asset Management, Inc. (“NorthStar”), which claims to beneficially own shares of the Company’s Common Stock with a value of at least $2,000 for at least one year prior to November 28, 2012, the date it submitted the shareholder proposal, submitted the following shareholder proposal:

WHEREAS, Aqua America, Inc. utilizes natural water resources for our company’s livelihood, and water quality and quantity are vital for Aqua America’s success. Three million residents throughout ten states rely on our company’s water service for survival;

At the time of writing this resolution, the U.S. Drought Monitor reports that over 52% of the U.S. is in drought, while over 20% are in “severe” or “extreme” droughts. 100% of Illinois, 90% of Ohio, 66% of Georgia, and 75% of Texas are in drought, all states our Company serves;

On September 30, 2010, the UN Human Rights Council adopted a resolution affirming that access to water and sanitation are human rights. The United States joined the consensus in voting for this resolution;

59

---

The Company has already come under scrutiny of water rights nongovernmental organizations which indicate that the Company may have failed to adhere to the human right to water. According to a 2008 report¹ by Food & Water Watch (FWW), the Company is criticized for allegedly:

• “Voraciously eating up small [public water utilities],” then raising the water rates and surcharges to such high rates that some residents can no longer afford to pay their bills,
   
• Doubling water rates for 110,000 residents in 15 Florida counties, dubbed by FWW as “unfair, discriminatory and downright unconstitutional,”
   
• Charging residents in Illinois for water they had not used – such as “270,000 gallons of water on a vacant lot,” or “water bill[s] vary[ing] the size of … waterline pipe from month to month,”
   
• Providing water to NC residents which contained carcinogens uranium and radium; uranium levels five times higher than allowed by the EPA.

According to Earth First!, Aqua America “plans to build a 3 million gallon PER DAY water withdrawal site [from the Susquehanna River] to service natural gas drilling” despite “severe drought this spring at levels that haven’t been seen since 1910 and 1946.” And since “fracking has been linked to cases of water contamination,” selling water for hydraulic fracturing raises serious corporate governance concerns pertaining to Aqua America’s commitment to “quality water”;

Our company’s continued operation without strong human right and environmental policies face serious risks to our reputation and share value if we are seen to be responsible for or complicit in human rights violations, specifically the violation or erosion of the rights to sufficient, safe, acceptable, physically accessible and affordable water;

RESOLVED, the shareholders request the Board of Directors to create a comprehensive policy articulating our company’s respect for and commitment to the human right to water.

SUPPORTING STATEMENT

¹        “Aqua America: Strategies of a Water Profiteer,” Food & Water Watch, 2008.

OUR RESPONSE TO THE SHAREHOLDER PROPOSAL

     The Board of Directors and the Corporate Governance Committee regularly review and evaluate a broad range of corporate governance issues affecting the Company. The Board of Directors has carefully considered the Shareholder Proposal and concluded that implementation of the Shareholder Proposal would not be in the best interests of the Company or its shareholders for the reasons more fully described below. Therefore, the Board of Directors recommends that you vote AGAINST the Shareholder Proposal.

     The Company opposes the Shareholder Proposal as presented for several reasons. First, we believe that the Company has effectively fulfilled the stated purpose and intent of the Shareholder Proposal through its publicly disclosed policy statements, which clearly present the Company’s positions with respect to the issues raised in the Shareholder Proposal. Although NorthStar may not agree, we believe that we have articulated a policy that reasonably balances the various rights, obligations and responsibilities we have as a regulated public utility company. We firmly believe that an overwhelming majority of our shareholders agree with us, since 90% of our shares voted at the 2012 Annual Meeting voted to reject a very similar Shareholder Proposal submitted by NorthStar at last year’s Annual Meeting. Second, the Company believes that the issues included in NorthStar’s definition of water as a human right are almost entirely determined by the laws and regulations that govern how the Company’s public utilities and numerous water and wastewater facilities operate. It is our position that these laws and regulations, with which we are strongly committed to comply, create a fair regulatory environment for companies such as Aqua to serve their customers and communities that has been developed over decades and should not be over-ridden by a broad statement of policy adopted by the United Nations.

60

---

     We believe that NorthStar’s statement contains biased and misleading statements that are inappropriate in the context of a Shareholder Proposal. NorthStar’s reference to hydraulic fracturing in its statement seems especially out of place in the context of its Proposal regarding a human right to water, particularly in light of the comments of President Obama in his February 12, 2013 State of the Union Address, where he stated, “The natural gas boom has led to cleaner power and greater energy independence. We need to encourage that.” In his 2012 State of the Union Address, President Obama stated, “The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don’t have to choose between our environment and our economy.” The Company’s support of the natural gas drilling industry by providing raw water in an environmentally-sound manner, removing the need for thousands of truck trips across rural Pennsylvania roads, is entirely consistent with the country’s national energy goals and the Company’s emphasis on environmental stewardship.

     NorthStar’s allegation that the Company is voraciously eating up small public water companies shows a clear bias and lack of understanding of how the Company operates. If a public water purveyor is interested in selling the assets of its water system, the Company will engage in good faith negotiations with the purveyor or will submit a bid to purchase the system. In some cases, the Company has been encouraged by state regulators to purchase small, underperforming water systems and almost all the purchases of public water systems are subject to a full review and approval by the applicable state utility regulators.

     Specifically with respect to NorthStar’s reference to the U.N. Human Rights Council’s resolution with respect to water as a human right, it is interesting to note that the Special Rapporteur on the human right to safe drinking water and sanitation in her report to the U.N. Human Rights Council following her visit to the United States in 2011 stated that, “People living in the United States enjoy near universal access to safe water.” The report noted the fragmented nature of the water utility sector in the United States and decreasing investment in aging water and wastewater system, which are conditions the Company has sought to address through its programs of substantial infrastructure investment and the acquisition and rehabilitation of small, under-performing water and wastewater systems.

1. The Company Already Has Policies Addressing the Issues Raised in the Shareholder Proposal

     The Shareholder Proposal requests that the Board of Directors create a comprehensive policy articulating our Company’s respect for and commitment to the human right to water. It is the Company’s position that, by its very nature as a public water utility, the Company operates under a comprehensive policy that respects and is committed to the public’s right to water. Additionally, the Company believes that its publicly available Mission Statement, Fact Sheet and Sustainability Report, all of which are available on the Company’s website already address the underlying concerns and accomplish the essential objective of the Shareholder Proposal.

     A. Mission Statement and Fact Sheet.

     The Company’s Mission Statement (available at https://www.aquaamerica.com/Pages/Mission.aspx), which has been approved by the Company’s Board of Directors, holds, in part, that Aqua America is committed to “[p] roviding quality water and wastewater service, in a manner consistent with applicable standards for public health and environmental quality standards” and “[c]ontinuing its capital investment in system improvements, including the rehabilitation and replacement of key infrastructure and plants.” The Mission Statement also states that: “Aqua is equally responsible to its customers, employees, shareholders and communities, as each represents our success and potential growth. We earn public trust through integrity, tenacity and the diligence with which we reliably deliver services that are basic to the quality of life we enjoy in the United States – potable water and the disposal of wastewater.”

     Moreover, in the Company’s Fact Sheet (available at http://ir.aquaamerica.com/ (follow “Fact Sheet” hyperlink)), the Company states: “Water is undoubtedly our greatest natural resource. Water utilities are the only utility businesses charged with delivering a product that is ingested. The core business of our regulated subsidiaries is to treat this essential natural resource to a quality to meet required drinking water standards to sustain a healthy life and, after it is consumed, re-treat and deliver it to nature at a quality that can sustain a healthy environment.”

     The Company believes that these statements clearly show the Company’s respect for and commitment to a human right to water and address the Shareholder Proposal’s underlying concerns and its essential objective.

61

---

     B. Sustainability Report.

     The Company also provides a comprehensive statement of its policies for providing quality water and wastewater service to the public in a sustainable manner through its Sustainability Report, which was prepared with the approval of the Company’s Board of Directors. A copy of the 2012 Sustainability Report is available at http://ir.aquaamerica.com (follow “Sustainability Report” hyperlink). In the Sustainability Report, the Company’s Chairman and Chief Executive Officer states:

Water is the substance of all life and the ultimate sustainable resource. It is the most recycled natural resource on the planet. At Aqua America, Inc., water is our business, and we are committed to its collection, treatment and delivery in ways that are both sustainable and beneficial for today’s society.

At Aqua, we agree that sustainability involves conducting business in ways that can be maintained for generations, while being mindful of the impacts on society and the environment over future generations. However, sustainability requires more than making efforts to reduce a carbon footprint and reducing greenhouse gas emissions. It also requires investing in needed infrastructure improvements, being stewards of natural resources and building a corporate culture and organization that will outlive current management.

     Investment in the country’s water infrastructure is critical to any assessment of an organization’s respect for and commitment to the human right to water. As stated in the Company’s Sustainability Report:

In 2009, the American Society of Civil Engineers issued a report card on America’s infrastructure giving a grade of D+ to the nation’s drinking water and wastewater systems. A 2008 Environmental Protection Agency (EPA) needs survey has stated that replacing the nation’s infrastructure is the third largest category of expenditure (behind defense spending and Social Security) that the country faces. The EPA estimates that over the next 20 years more than $335 billion will need to be invested in infrastructure to continue delivering safe drinking water.

With much of the nation’s distribution pipes nearing the end of their usable life, many of the 55,000 community water systems in the U.S. will have difficulty raising the necessary capital to invest in these projects. Aqua America is a leader among U.S. water suppliers in infrastructure replacement and rehabilitation investments and is proud to have built, rebuilt and rehabilitated much of the environmental infrastructure that continues to sustain the regions it has served throughout its 125-year history. Collectively, Aqua America’s utility subsidiaries have invested nearly $1.4 billion in water and wastewater infrastructure between 2007 and 2011.

A typical water utility rehabilitates or replaces less than half of one percent of its distribution system each year. Aqua America is a leader in infrastructure renewal. For example, in some older systems Aqua Pennsylvania Southeast is replacing more than 2 percent of the distribution system annually. Replacing aged water mains reduces damage from breaks, inconveniences to customers, water loss from leaks and costs of emergency repairs, water production at plants and water transportation in the distribution system.

     In its Sustainability Report, the Company sets forth detailed information on its policies and initiatives that the Company believes address the concerns of the Shareholder Proposal. For example, the Sustainability Report highlights the following aspects of the Company’s commitment to a human right to water:

• the Company’s investment of nearly $1.4 billion in water and wastewater infrastructure between 2007 and 2011;
   
• programs to reduce unaccounted for water and detect and repair leaks in its distribution system;
   
• remote meter reading system to make water usage easier to track, thereby increasing customers’ opportunities to find leaks in their home;
   
• programs to assist low income customers who are struggling to pay their water bill;
   
• participation in a U.S. Environmental Protection Agency-sponsored program that brings together local water utilities, governments, product manufacturers, retailers and stakeholders who share a common interest to decrease water use and practice conservation;
   
• leadership in renovating older, less efficient water facilities with state-of-the-art technology;

62

---

• wastewater recycling and reuse activities;
   
• sustainable and environmentally-friendly means for disposing of residual wastes from its treatment facilities;
   
• watershed protection activities;
   
• various awards for its environmental stewardship;
   
• recognition from Water for People for the Company’s support for the development of more efficient water systems in developing countries;
   
• efforts to reduce greenhouse gas emissions in its operations; and
   
• use of alternative energy sources, including solar energy installation to help power its treatment plants.

     In sum, the Company believes its Mission Statement, Fact Sheet, Sustainability Report and other policies and public statements regarding water on its website already address the underlying concerns and accomplish the essential objective of the Shareholder Proposal.

     The Company believes that its policies, as outlined above, address water quality, availability, sufficiency and physical accessibility by emphasizing the Company’s commitment to replacing and rehabilitating water infrastructure, by implementing programs to reduce water leakage, by practicing and promoting recycling and reuse of water resources and by participating in federal programs to decrease water use, practice conservation and save water. Regarding affordability of water, although water rates are set through the regulatory process, the Company supports and has implemented programs to assist low income customers who are struggling to pay their water bill. These are only some illustrative examples of how the Company believes that its existing policies already achieve the essential objective of the Shareholder Proposal.

     Accordingly, the Company believes that its existing policies already provide a comprehensive statement on the Company’s policies and activities regarding its respect for and commitment to providing quality, reliable water service to its customers, thereby already fulfilling the essential objective of the Shareholder Proposal.

2. The Issues Raised by the Shareholder Proposal Are Governed by Existing Laws and Regulation.

     In requesting creation of a “comprehensive policy” regarding the “human right to water,” the Shareholder Proposal articulates NorthStar’s position on the main elements of this right, namely the provision of “safe, sufficient, acceptable, physically accessible, and affordable water for personal and domestic use.” The Company believes that most, if not all, of these elements are almost entirely governed by regulations that the Company and other water and wastewater utilities must comply with on a day-to-day basis and that dictate the quality, quantity, price and availability of water, the primary product that the Company, as a public water utility, provides to its customers. In fact, government regulatory bodies, not the Company, fix specific rules and standards governing the quality, quantity, price and availability of water. The Company is regulated by state and, in some cases, local utility regulatory bodies and environmental regulatory bodies in every jurisdiction in which it operates. The U.N. Human Rights Council resolution referred to in the Shareholder Proposal calls upon “States” (i.e., governments) to adopt and implement certain policies and actions regarding human rights to safe drinking water and sanitation. The Company believes that governmental and regulatory bodies in the United States have developed a fair and comprehensive regulatory environment for public utilities like the Company to serve their customers and communities in accordance with policies that such government and regulatory bodies deem reasonable and appropriate. In general, the utility regulators determine the adequacy of the water service provided to customers and the price to be charged for the water service. The Company cannot choose or adopt policies to provide water at rates different than the rates approved by the utility regulators, nor can it provide water service to areas or individuals that are not in the Company’s approved service territory or that would violate local, state or federal environmental permits. In addition, the utility regulators govern the Company’s financing activities used to fund its operations and infrastructure investments, the Company’s levels of customer service and the Company’s billing practices. The utility regulators determine where the Company can operate and where it cannot.

     In addition to the utility regulators, the quality of water supplied by a water utility is governed by environmental regulators who establish and enforce safe drinking water standards. These standards are reviewed and updated periodically by the environmental regulators to help ensure the quality of the drinking water provided to the public.

63

---

     In presenting its position with respect to the elements of a human right to water, namely “sufficient, safe, acceptable, physically accessible and affordable water,” the Company believes that the Shareholder Proposal intervenes in management’s ongoing efforts to ensure the Company’s compliance with all of the aforementioned laws and regulations and with management’s decisions regarding production quality and quantity of water, which is closely intertwined with the Company’s compliance efforts. As our shareholders consider the Shareholder Proposal, we urge them to weigh whether the position taken by Aqua or by NorthStar is most likely to advance the interests of all the shareholders, both individually and collectively.

     The Board of Directors unanimously recommends that you vote “AGAINST” the shareholder proposal.

SHAREHOLDER PROPOSALS FOR 2014 ANNUAL MEETING

     Shareholders may submit proposals, which are proper subjects for inclusion in the Company’s proxy statement and form of proxy (“Proxy Materials”), for consideration at an Annual Meeting of Shareholders, by following the procedures prescribed by Rule 14a-8(e) of the Securities Exchange Act of 1934, as amended. To be eligible for inclusion in the Company’s Proxy Materials relating to the 2014 Annual Meeting of Shareholders, proposals must be submitted in writing and received by the Company at the address below no later than November 25, 2013.

     In addition, a shareholder of the Company may wish to propose business to be considered at an Annual Meeting of Shareholders, but not to have the proposed business included in the Company’s Proxy Materials relating to that meeting. Section 3.17 of the Company’s Bylaws requires that the Company receive written notice of business that a shareholder wishes to present for consideration at the 2014 Annual Meeting of Shareholders (other than matters included in the Company’s Proxy Materials pursuant to the preceding paragraph) no earlier than January 8, 2014 nor later than February 7, 2014. The notice must meet certain other requirements set forth in Section 3.17 of the Company’s Bylaws. Copies of the Company’s Bylaws can be obtained by submitting a written request to the Secretary of the Company at the address below.

     Proposals, notices and requests for a copy of our Bylaws should be addressed as follows:

Corporate Secretary
Aqua America, Inc.
762 W. Lancaster Avenue
Bryn Mawr, PA 19010

PROCEDURES FOR NOMINATING OR RECOMMENDING FOR
NOMINATION CANDIDATES FOR DIRECTOR

     Nominations for election of directors may be made at the 2013 Annual Meeting by any shareholder entitled to vote for the election of directors, provided that written notice (the “Notice”) of the shareholder’s intent to nominate a director at the meeting is filed with the Secretary of the Company prior to the 2013 Annual Meeting in accordance with provisions of the Company’s Articles of Incorporation and Bylaws.

     Section 4.13 of the Company’s Bylaws requires the Notice to be received by the Secretary of the Company not less than 14 days nor more than 50 days prior to any meeting of the shareholders called for the election of directors, with certain exceptions. These notice requirements do not apply to nominations for which proxies are solicited under applicable regulations of the SEC. The Notice must contain or be accompanied by the following information:

	(1)		the name and residence of the shareholder who intends to make the nomination;
	(2)		a representation that the shareholder is a holder of record of voting stock and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the Notice;
	(3)		such information regarding each nominee as would have been required to be included in a proxy statement filed pursuant to the SEC’s proxy rules had each nominee been nominated, or intended to be nominated, by the management or the Board of Directors of the Company;
	(4)		a description of all arrangements or understandings among the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; and
	(5)		the consent of each nominee to serve as a director of the Company if so elected.

64

---

     Pursuant to the above requirements, appropriate Notices in respect of nominations for directors for the 2013 Annual Meeting must be received by the Secretary of the Company no later than April 24, 2013.

     In addition, the Corporate Governance Committee of our Board of Directors will consider candidates for director recommended by shareholders under certain circumstances. Recommendations of candidates by shareholders should be submitted to the Chairman of the Corporate Governance Committee at least 120 days before the date on which the Company first mailed its Proxy Materials for the prior year’s Annual Meeting of Shareholders – that is, with respect to the 2014 Annual Meeting, no later than November 25, 2013.

CONSIDERATION OF DIRECTOR CANDIDATES

     The Corporate Governance Committee identifies, evaluates and recommends director candidates to our Board of Directors for nomination. The process followed by our Corporate Governance Committee to identify and evaluate director candidates includes requests to current directors and others for recommendations, meetings from time to time to evaluate potential candidates and interviews of selected candidates.

     In considering candidates for director, the Corporate Governance Committee will consider the candidates’ personal abilities, qualifications, independence, knowledge, judgment, character, leadership skills, education, background and their expertise and experience in fields and disciplines relevant to the Company, including financial expertise or financial literacy. When assessing a candidate, consideration will be given to the effect such candidate will have on the diversity of the Board. Diversity of the Board is evaluated by considering a broad range of attributes, such as background, both geographic and demographic (including, without limitation, race, gender and national origin), expertise and experience. Due consideration will also be given to the position the candidate holds at the time of their nomination and their capabilities to advance the Corporation’s interests with its various constituencies. The Corporate Governance Committee considers all of these qualities when selecting, subject to ratification by our Board of Directors, candidates for director.

     Shareholders may recommend individuals to our Corporate Governance Committee for consideration as potential director candidates by following the procedures set forth above under “Procedures for Nominating or Recommending for Nomination Candidates for Director.” The Corporate Governance Committee will evaluate shareholder-recommended candidates in the same manner as it evaluates candidates recommended by others.

COMMUNICATIONS WITH THE COMPANY OR INDEPENDENT DIRECTORS

     The Company receives many shareholder suggestions which are not in the form of proposals. All are given careful consideration. We welcome and encourage your comments and suggestions. Your correspondence should be addressed as follows:

Corporate Secretary
Aqua America, Inc.
762 W. Lancaster Avenue
Bryn Mawr, PA 19010

     In addition, shareholders or other interested parties may communicate directly with the independent directors or the lead independent director by writing to the address set forth below. The Company will review all such correspondence and provide any comments along with the full text of the shareholder’s or other interested party’s communication to the independent directors or the presiding independent director.

The Independent Directors or Lead Independent Director
Aqua America, Inc.
c/o Corporate Secretary
762 W. Lancaster Avenue
Bryn Mawr, PA 19010

65

---

ADDITIONAL INFORMATION

     The Company will provide without charge, upon written request, a copy of the Company’s Annual Report on Form 10-K for 2012 and 2012 Annual Report to Shareholders. Please direct your requests to Investor Relations Department, Aqua America, Inc., 762 W. Lancaster Avenue, Bryn Mawr, PA 19010. Copies of our Corporate Governance Guidelines, Committee Charters and Code of Ethical Business Conduct can be obtained free of charge from the Corporate Governance portion of the Investor Relations section of the Company’s website, www.aquaamerica.com.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities (a 10% Shareholder), to file reports of ownership and changes in ownership with the SEC. Officers, directors and 10% Shareholders are required by the SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

     Based solely on the Company’s review of the copies of such forms received by it during 2012, the Company believes that all filings required to be made by the reporting persons were made on a timely basis, except for two late Form 4 filings with respect to a stock sale by Mr. Franklin in May 2012 and stock sales under the Company’s 401(k) Plan by Mr. Luning in June and September 2012.

OTHER MATTERS

     The Board of Directors is not aware of any other matters which may come before the meeting. However, if any further business should properly come before the meeting, the persons named in the enclosed proxy will vote upon such business in accordance with their judgment.

March 25, 2013

66

---

APPENDIX A

Utility Companies Included in the Utility Industry Database used by the Executive Compensation Committee’s compensation consultant

	1.		AGL Resources		33.		Next Era Energy
	2.		Allete		34.		NSTAR
	3.		Alliant Energy		35.		NV Energy
	4.		Ameren		36.		NW Natural
	5.		American Electric Power		37.		Nicor
	6.		Avista		38.		NorthWestern Energy
	7.		Black Hills		39.		Northeast Utilities
	8.		Calpine		40.		NRG Energy
	9.		CMS Energy		41.		OGE Energy
	10.		CenterPoint Energy		42.		PNM Resources
	11.		Cleco		43.		PPL
	12.		Consolidated Edison		44.		Pacific Gas & Electric
	13.		Constellation Energy		45.		Pepco Holdings
	14.		Dominion Resources		46.		Pinnacle West Capital
	15.		DPL		47.		Portland General Electric
	16.		DTE Energy		48.		Progress Energy
	17.		Duke Energy		49.		Public Service Enterprise Group
	18.		Edison International		50.		Puget Energy
	19.		El Paso Electric		51.		SCANA
	20.		Energen		52.		Sempra Energy
	21.		Energy Future Holdings		53.		Southern Company Services
	22.		Entergy		54.		TECO Energy
	23.		EQT Corporation		55.		UIL Holdings
	24.		Exelon		56.		UNS Energy Corporation
	25.		FirstEnergy		57.		Unitil
	26.		GenOn Energy		58.		Vectren
	27.		Hawaiian Electric		59.		Westar Energy
	28.		IDACORP		60.		Wisconsin Energy
	29.		Integrys Energy Group		61.		Xcel Energy
	30.		MDU Resources
	31.		MGE Energy		Total: 61
	32.		MidAmerican Holdings

67

---

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
	M53682-P34646	KEEP THIS PORTION FOR YOUR RECORDS
		DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

---

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at http://ir.aquaamerica.com.

M53683-P34646

---