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<TYPE>EX-10
<SEQUENCE>4
<FILENAME>ex10-29.txt
<DESCRIPTION>EXHIBIT 10.29
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                                                                   EXHIBIT 10.29
 
                               AQUA AMERICA, INC.
                                AND SUBSIDIARIES
                  2005 ANNUAL CASH INCENTIVE COMPENSATION PLAN
 
BACKGROUND
 
o       In 1989, the Company and its compensation consultant conducted a
        feasibility study to determine whether the Company should implement an
        incentive compensation plan. The study was prompted by the positive
        experience of other investor-owned water companies with incentive
        compensation.
 
o       The study included interviews with executives and an analysis of
        competitive compensation levels. Based on the results, the compensation
        consultant recommended that the Company's objectives and competitive
        practice supported the adoption of an annual incentive plan (the
        "Plan"). The Company has had a cash incentive compensation plan in place
        since 1990 and management and the Board of Directors believe it has had
        a positive effect on the Company's operations, aiding employees,
        shareholders (higher earnings) and customers (better service and
        controlling expenses).
 
o       The Plan has two components - a Management Incentive Program and an
        Employee Recognition ("Chairman's Award") Program.
 
o       The Plan is designed to provide an appropriate incentive to the
        officers, managers and certain other key employees of the Company. The
        2005 Management Incentive Program will cover officers, managers and
        certain key employees of Aqua America, Inc., and its subsidiaries.
 
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MANAGEMENT INCENTIVE PROGRAM
 
o       PERFORMANCE MEASURES
 
        --      Annual incentive bonus awards are calculated by multiplying an
                individual's Target Bonus by a Company Rating Factor based on
                the applicable company's performance and an Individual Rating
                Factor based on the individual employee's performance.
 
                The approach of having a plan tied to the applicable company's
                income performance is appropriate as the participants' assume
                some of the same risks and rewards as the shareholders who are
                investing in the company and making its capital construction and
                acquisition programs possible. Customers also benefit from the
                participants'. individual objectives being met, as improvements
                in performance are accomplished by controlling costs, improving
                efficiencies and enhancing customer service. For these reasons,
                future rate relief should be lessened and less frequent, which
                directly benefits all customers.
 
        --      The applicable company's actual after-tax net income from
                continuing operations or earnings before interest, taxes and
                depreciation ("EBITD") relative to its annual budget will be the
                primary measure for the company's performance. The measurement
                to be used as the Company Factor for each participant will be
                proposed by the Chairman of the Company and approved by the
                Executive Compensation Committee. Each year a "Target Net Income
                or EBITD" level will be established. Starting in 2000, portions
                of the Company Rating Factor may be tied to the financial
                targets of more than one company for some participants. For
                purposes of the Plan, the Target Net Income or EBITD may differ
                from the budgeted net income or EBITD level. For 2005, the
                Target Net Income or EBITD will exclude the impact of any
                unbudgeted extraordinary gains or losses as a result of changes
                in accounting principles.
 
        --      Based on a review of historic performance, the minimum or
                threshold level of performance is set at 90 percent of the
                Target Net Income or EBITD. That is, no bonus awards will be
                made if actual net income is less than 90 percent of the Target
                or EBITD for the year. No additional bonus will be earned for
                results exceeding 110 percent of the Target Net Income or EBITD.
 
        --      Each individual's performance and achievement of his or her
                objectives will also be evaluated and factored into the bonus
                calculation (the "Individual Factor"). Performance objectives
                for each participant are established at the beginning of the
                year and are primarily directed toward controlling costs,
                improving efficiencies and productivity, enhancing customer
                service and growing the company's customer base. Each objective
                has specific performance measures that are used to determine the
                level of achievement for each objective. A participant's target
                Individual Factor should be no more than 90 points, with the
                possibility of
 
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                additional points being awarded for measurable performance above
                the participant's targeted performance level. Participants must
                achieve at least 70 points for their Individual Factor to be
                eligible for a bonus award under the Plan.
 
o       PARTICIPATION
 
        --      Eligible participants consist of officers, managers and certain
                key employees.
 
        --      Participation in the Management Incentive Program will be
                determined each year. Each participant will be assigned a
                "Target Bonus Percentage" ranging from 5 to 70 percent depending
                on duties and responsibilities.
 
        --      For each company, the Target Bonus Percentage for all the
                participants within that company will be applied to their base
                salary.
 
        --      Actual bonuses may range from 0, if the company's financial
                results fall below the minimum threshold or the participant does
                not make sufficient progress toward achieving his or her
                objectives (i.e. performance measure points totaling less than
                70 points), to 187.5 percent if performance -- both Company and
                individual -- is rated at the maximum.
 
        --      New employees who are hired into a position that is eligible to
                participate in the Management Incentive Plan, will normally be
                eligible to receive a portion of the bonus calculated in
                accordance with this Plan that is pro-rated based on the number
                of full calendar months between the new employee's hire date and
                the end of the calendar year.
 
        --      Employees who would otherwise be eligible to participate in this
                Management Incentive Plan, but who leave employment with the
                company either voluntarily, involuntarily or as a result of
                retirement, will not receive a bonus for the year in which their
                employment terminates. If an employee who would otherwise be
                eligible to participate in this Management Incentive Plan dies,
                the company will pay the deceased employee's estate a portion of
                the bonus the deceased employee would otherwise have been
                entitled to assuming a 100% Individual Rating Factor, but
                pro-rated for the number of full calendar months the employee
                completed before his or her death.
 
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o       COMPANY PERFORMANCE
 
        --      Company performance will be measured on the following schedule:
 
                                          Percent of   Company
                                            Target      Rating
                                          ----------   -------
 
                Threshold..............          <90%        0%
                                                  90        50
                                                  92        65
                                                  95        80
                                                  96        85
                                                  97        90
                                                  98        94
                                                  99        97
                Plan...................          100       100
                                                 105       110
                                                >110       125
 
        --      The actual Company Factor should be calculated by interpolation
                between the points shown in the table above.
 
        --      Regardless of the Company rating resulting from this Schedule,
                the Executive Compensation and Employee Benefits Committee
                retains the authority to determine the final Company Rating for
                purposes of this Plan.
 
o       INDIVIDUAL PERFORMANCE
 
        --      Individual performance will be measured on the following scale:
 
                Performance Measure              Individual
                      Points                    Rating Factor
                -------------------             -------------
                      0 - 69                                0%
                        70                                 70%
                        80                                 80%
                        90                                 90%
                       100                                100%
                       110                                110%
 
        --      In addition, up to 40 additional points and additional
                percentage points may be awarded to a participant at the
                discretion of the Chief Executive Officer for exemplary
                performance. Individual performance points for the Chief
                Executive Officer are determined by the Executive Compensation
                and Employee Benefits Committee.
 
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SAMPLE CALCULATIONS
 
o       Example 1
 
                Salary or           $ 70,000
                Target Bonus                10 percent ($7,000)
                Company Rating             100 percent
                Individual Rating           90 percent
 
                Calculation:
 
                                     Company      Individual
        Target Bonus  x  Rating  x    Rating  =  Bonus Earned
        ------------     ------      -------     ------------
           $7,000     x   100%   x     90%    =      $6,300
                                                 ============
 
o       Example 2
 
        --      Using the same salary and target bonus, but assuming Company
                performance was less than 90 percent of Target EBITD, there
                would be no bonus earned.
 
                Calculation:
 
          $7,000  x   0    x    90%  =   0
 
o       Example 3
 
        --      Similarly, if the Individual Factor is rated below 70 points, no
                bonus would be earned regardless of the Company Factor.
 
                Calculation:
 
          $7,000  x   100%  x    0   =   0
 
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o       Example 4
 
        --      If the Company Rating Factor is allocated between two companies,
                the bonus will be calculated separately based on the allocation.
 
                Calculation:
 
                         Company      Company       Individual
        Target Bonus  x   Rating  x  Allocation  x    Rating    =  Bonus Earned
        ------------     -------     ----------     ----------     ------------
           $7,000     x    100%   x      20%     x      90%     =     $1,260
           $7,000     x    110%   x      80%     x      90%     =     $5,544
                                                                   ------------
           Total Bonus                                          =     $6,804
 
o       Example 5
 
        --      It is also possible that one portion of the applicable Company
                Rating Factor is zero, for which there would be no bonus,
                regardless of the participant's Individual Rating Factor.
 
                Calculation:
 
                         Company       Company      Individual
        Target Bonus  x   Rating  x  Allocation  x    Rating    =  Bonus Earned
        ------------     -------     ----------     ----------     ------------
           $7,000     x      0%   x     20%      x      90%     =         $0
           $7,000     x    110%   x     80%      x      90%     =     $5,544
                                                                   ------------
           Total Bonus                                          =     $5,544
 
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EMPLOYEE RECOGNITION ("CHAIRMAN'S AWARD") PROGRAM
 
1.      In addition to the Management Incentive Program, the Company maintains
        an Employee Recognition Program known as the Chairman's Award program to
        reward non-union employees not eligible for the management bonus plan
        for superior performance that contains costs, improves efficiency and
        productivity of the workforce and better serves our customers. Awards
        may also be made for a special action or heroic deed, or for a project
        that positively impacts the performance or image of the Company.
 
2.      Awards will be made from an annual pool designated by the Chairman of
        Aqua America with the approval of the Executive Compensation and
        Employee Benefits Committee. Unused funds will not be carried over to
        the next year. If financial performance warrants, management may request
        permission from the Executive Compensation and Employee Benefits
        Committee for special awards under the program.
 
3.      In general, Chairman's Awards will not be made to employees of a company
        that does not achieve at least 90% of its net income objective for the
        year.
 
4.      Awards may be made throughout the year, however, no more than one-third
        of a company's Chairman's Award pool may be awarded until the company's
        final net income for the year is determined.
 
5.      Nominations for employees to receive Chairman's Awards will be made to
        the applicable officer and should include documentation on the reasons
        for the recommendations. The applicable officer will review the
        nominations and forward their recommendations to the Chairman of Aqua
        America.
 
6.      The Chairman will determine the individuals to actually receive a bonus
        and the amount. The maximum award to any one employee is $5,000.
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