-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VxFiF8O2xtZP9eCZ6BpykzQ1DjrX7Usa7SbsurmkKa1EUrmoSo337K4hwx9MDtT4 cn/6H2vOSZ41qPQCXa+0hA== /in/edgar/work/20000814/0000318819-00-000022/0000318819-00-000022.txt : 20000921 0000318819-00-000022.hdr.sgml : 20000921 ACCESSION NUMBER: 0000318819-00-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN WATER WORKS CO INC CENTRAL INDEX KEY: 0000318819 STANDARD INDUSTRIAL CLASSIFICATION: [4941 ] IRS NUMBER: 510063696 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03437 FILM NUMBER: 699178 BUSINESS ADDRESS: STREET 1: 1025 LAUREL OAK RD CITY: VOORHEES STATE: NJ ZIP: 08043 BUSINESS PHONE: 6093468200 MAIL ADDRESS: STREET 1: 1025 LAUREL OAK ROAD CITY: VOORHEES STATE: NJ ZIP: 08043 10-Q 1 0001.txt FORM 10-Q Page 1 of 18 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 --------------------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------------- ----------------- Commission File Number 1-3437-2 -------------------------------------------------- AMERICAN WATER WORKS COMPANY, INC. - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 51-0063696 - ------------------------------- ----------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1025 Laurel Oak Road, Voorhees, New Jersey 08043 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (856) 346-8200 - --------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - --------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- At August 1, 2000, the number of shares of common stock, $1.25 par value, outstanding was 98,051,178 shares. Page 2 FORM 10-Q PART I FINANCIAL INFORMATION ---------------------------- Item 1. Financial Statements ----------------------------- AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES ----------------------------------------------------------- Consolidated Statements of Income and Comprehensive Income and of Retained Earnings (Unaudited) (In thousands, except per share amounts) Three Months Ended June 30, 2000 1999 -------- -------- CONSOLIDATED INCOME AND COMPREHENSIVE INCOME Operating revenues $346,409 $318,975 -------- -------- Operating expenses Operation and maintenance 154,270 139,714 Depreciation and amortization 40,589 37,195 General taxes 31,539 30,768 -------- -------- Total operating expenses 226,398 207,677 -------- -------- Operating income 120,011 111,298 -------- -------- Other income (deductions) Interest (47,728) (44,581) Allowance for other funds used during construction 1,800 2,656 Allowance for borrowed funds used during construction 1,397 2,706 Amortization of debt expense (708) (716) Preferred dividends of subsidiaries (795) (825) Merger related costs -- (13,836) Other, net 234 (733) -------- -------- Total other income (deductions) (45,800) (55,329) -------- -------- Income before income taxes 74,211 55,969 Provision for income taxes 29,072 22,847 -------- -------- Net income 45,139 33,122 Dividends on preferred stocks 996 996 -------- -------- Net income to common stock 44,143 32,126 -------- -------- Other comprehensive income Unrealized gain (loss) on securities (52,414) 34,368 Income taxes on other comprehensive income 21,412 (13,194) -------- -------- Other comprehensive income(loss), net (31,002) 21,174 -------- -------- Comprehensive income $ 13,141 $53,300 ======== ======== Page 3 FORM 10-Q Three Months Ended June 30, 2000 1999 ---------- ---------- Average shares of basic common stock outstanding 97,816 96,341 Basic and diluted earnings per common share on average shares outstanding $ 0.45 $ 0.33 ========== ========== CONSOLIDATED RETAINED EARNINGS Balance at April 1 $1,005,216 $ 946,058 Add - net income 45,139 33,122 Less - treasury stock issuances 944 -- ---------- ---------- 1,049,411 979,180 ---------- ---------- Deduct - dividends paid Preferred stock 882 882 Preference stock 114 114 Common stock - $.225 per share in 2000; $.215 per share in 1999 21,998 17,488 National Enterprises Inc. common stock -- 1,475 ---------- ---------- 22,994 19,959 ---------- ---------- Balance at June 30 $1,026,417 $ 959,221 ========== ========== The accompanying information and notes are an integral part of these financial statements.
Page 4 FORM 10-Q AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES ----------------------------------------------------------- Consolidated Statements of Income and Comprehensive Income and of Retained Earnings (Unaudited) (In thousands, except per share amounts) Six Months Ended June 30, 2000 1999 -------- -------- CONSOLIDATED INCOME AND COMPREHENSIVE INCOME Operating revenues $654,168 $596,391 -------- -------- Operating expenses Operation and maintenance 298,628 274,258 Depreciation and amortization 80,413 73,734 General taxes 64,668 62,173 -------- -------- Total operating expenses 443,709 410,165 -------- -------- Operating income 210,459 186,226 -------- -------- Other income(deductions) Interest (94,474) (88,312) Allowance for other funds used during construction 4,506 5,841 Allowance for borrowed funds used during construction 3,279 5,413 Amortization of debt expense (1,390) (1,360) Preferred dividends of subsidiaries (1,593) (1,646) Merger related costs -- (14,014) Other, net (1,074) (1,605) -------- -------- Total other income (deductions) (90,746) (95,683) -------- -------- Income before income taxes 119,713 90,543 Provision for income taxes 47,491 36,999 -------- -------- Net income 72,222 53,544 Dividends on preferred stocks 1,992 1,992 -------- -------- Net income to common stock 70,230 51,552 -------- -------- Other comprehensive income Unrealized gain(loss)on securities (39,233) 61,130 Income taxes on other comprehensive income 16,027 (23,468) - -------- -------- Other comprehensive income (loss), net (23,206) 37,662 -------- -------- Comprehensive income $ 47,024 $ 89,214 ======== ======== Page 5 FORM 10-Q Six Months Ended June 30, 2000 1999 -------- -------- Average shares of basic common stock outstanding 97,647 96,125 Basic and diluted earnings per common share on average shares outstanding $ 0.72 $ 0.54 ======== ======== CONSOLIDATED RETAINED EARNINGS Balance at January 1 $1,001,029 $945,434 Add - net income 72,222 53,544 Less - treasury stock issuances 944 -- ---------- -------- 1,072,307 998,978 ---------- -------- Deduct - dividends paid Preferred stock 1,764 1,764 Preference stock 228 228 Common stock - $.45 per share in 2000; $.43 per share in 1999 43,898 34,874 National Enterprises Inc. common stock -- 2,891 ---------- -------- 45,890 39,757 ---------- -------- Balance at June 30 $1,026,417 $959,221 ========== ======== The accompanying information and notes are an integral part of these financial statements.
Page 6 FORM 10-Q AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES ----------------------------------------------------------- Consolidated Balance Sheet (Unaudited) (In thousands) June 30 December 31 2000 1999 ----------- ----------- ASSETS Property, plant and equipment Utility plant - at original cost less accumulated depreciation $ 5,065,047 $ 4,939,408 Utility plant acquisition adjustments, net 74,695 51,697 Non-utility property, net of accumulated depreciation 36,570 36,265 Excess of cost of investments in subsidiaries over book equity at acquisition, net 54,797 57,118 ----------- ----------- Total property, plant and equipment 5,231,109 5,084,488 ----------- ----------- Current assets Cash and cash equivalents 43,148 43,100 Customer accounts receivable 100,970 91,353 Allowance for uncollectible accounts (2,645) (2,346) Unbilled revenues 93,753 78,205 Miscellaneous receivables 16,316 10,936 Materials and supplies 20,708 20,058 Deferred vacation pay 14,255 10,902 Restricted funds 2,029 14,558 Other 18,625 11,915 ----------- ----------- Total current assets 307,159 278,681 ----------- ----------- Regulatory and other long-term assets Regulatory asset - income taxes recoverable through rates 216,235 214,349 Other investments 142,345 181,579 Debt and preferred stock expense 48,498 48,289 Deferred pension expense 32,810 32,872 Deferred postretirement benefit expense 10,605 10,264 Deferred treatment plant costs 5,280 5,811 Deferred tank painting costs 15,555 14,178 Restricted funds 7,366 6,557 Other 87,139 75,138 ----------- ----------- Total regulatory and other long-term assets 565,833 589,037 ----------- ----------- TOTAL ASSETS $ 6,104,101 $ 5,952,206 =========== =========== Page 7 FORM 10-Q June 30 December 31 2000 1999 ------------ ------------ CAPITALIZATION AND LIABILITIES Capitalization Common stockholders' equity $1,652,548 $1,634,798 Preferred stocks with mandatory redemption requirements 40,000 40,000 Preferred stocks without mandatory redemption requirements 11,673 11,673 Preferred stocks of subsidiaries with mandatory redemption requirements 33,470 34,020 Preferred stocks of subsidiaries without mandatory redemption requirements 8,118 8,118 Long-term debt American Water Works Company, Inc. 211,000 211,000 Subsidiaries 2,180,710 2,182,097 ----------- ----------- Total capitalization 4,137,519 4,121,706 ----------- ----------- Current liabilities Bank debt 332,186 239,864 Current portion of long-term debt 65,746 38,355 Accounts payable 37,851 67,064 Taxes accrued, including federal income 36,022 16,030 Interest accrued 42,786 43,672 Accrued vacation pay 14,763 11,532 Other 52,709 75,191 ----------- ----------- Total current liabilities 582,063 491,708 ----------- ----------- Regulatory and other long-term liabilities Advances for construction 211,873 207,891 Deferred income taxes 617,452 610,460 Deferred investment tax credits 40,284 40,585 Accrued pension expense 65,187 63,095 Accrued postretirement benefit expense 19,474 12,471 Other 35,193 29,453 ----------- ----------- Total regulatory and other long-term liabilities 989,463 963,955 ----------- ----------- Contributions in aid of construction 395,056 374,837 ----------- ----------- Commitments and contingencies -- -- ----------- ----------- TOTAL CAPITALIZATION AND LIABILITIES $ 6,104,101 $ 5,952,206 =========== =========== The accompanying information and notes are an integral part of these financial statements.
Page 8 FORM 10-Q AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES ----------------------------------------------------------- Consolidated Statement of Cash Flows (Unaudited) (In thousands) Six Months Ended June 30, 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 72,222 $ 53,544 Adjustments Depreciation and amortization 80,413 73,734 Provision for deferred income taxes 10,637 11,101 Provision for losses on accounts receivable 4,174 3,027 Allowance for other funds used during construction (4,506) (5,841) Employee benefit expenses greater (less) than funding 8,615 (1,072) Employee stock plan expenses (47) 3,379 Deferred tank painting costs (945) (695) Deferred rate case expense (904) (747) Amortization of deferred charges 6,358 8,403 Other, net (6,955) (4,351) Changes in assets and liabilities, net Accounts receivable (17,859) (10,653) Unbilled revenues (14,989) (15,543) Other current assets (7,120) (10,124) Accounts payable (29,240) (18,739) Taxes accrued, including federal income 19,485 6,907 Interest accrued (886) 1,524 Other current liabilities (22,505) 4,646 -------- -------- Net cash from operating activities 95,948 98,500 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Construction expenditures (161,306) (185,707) Allowance for other funds used during construction 4,506 5,841 Acquisitions (48,951) (6,366) Proceeds from the disposition of property, plant and equipment 1,758 2,215 Removal costs from property, plant and equipment retirements (2,905) (1,624) Restricted funds 11,720 (19,469) -------- -------- Net cash used in investing activities (195,178) (205,110) -------- -------- Page 9 FORM 10-Q Six Months Ended June 30, 2000 1999 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt $ 43,706 $ 96,436 Proceeds from common stock 18,291 19,395 Purchase of common stock for treasury (4,616) (1,190) Net borrowings under line-of-credit agreements 92,322 62,361 Advances and contributions for construction, net of refunds 15,477 16,230 Debt issuance costs (1,760) (5,546) Repayment of long-term debt (17,702) (42,967) Redemption of preferred stocks (550) (2,629) Dividends paid (45,890) (39,757) -------- -------- Net cash from financing activities 99,278 102,333 -------- -------- Net increase (decrease) in cash and cash equivalents 48 (4,277) Cash and cash equivalents at January 1 43,100 51,794 -------- -------- Cash and cash equivalents at June 30 $43,148 $ 47,517 ======== ======== Cash paid during the period for: Interest, net of capitalized amount $ 97,392 $ 88,598 ======== ======== Income taxes $ 21,814 $ 24,783 ======== ======== Common stock issued in lieu of cash in connection with the Employees' Stock Ownership Plan, the Savings Plan for Employees and the Long-Term Performance-Based Incentive Plan totaled $1,488 in 2000 and $4,037 in 1999. Common stock placed into treasury in connection with the Employees Stock Ownership Plan and Long-Term Performance-Based Incentive Plan totaled $4,871 in 2000 and $3,675 in 1999. The accompanying information and notes are an integral part of these financial statements.
Page 10 FORM 10-Q AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES ----------------------------------------------------------- Information Accompanying Financial Statements (Unaudited) (In thousands, except share and per share amounts) June 30 December 31 2000 1999 ---------- ----------- Preferred stocks with mandatory redemption requirements Cumulative preferred stock - $25 par value Authorized - 1,770,000 shares 8.50% series (non-voting) - 1,600,000 shares outstanding $ 40,000 $ 40,000 ========== =========== Preferred stocks without mandatory redemption requirements Cumulative preferred stock - $25 par value 5% series (one-tenth of a vote per share) - 101,777 shares outstanding $ 2,544 $ 2,544 Cumulative preference stock - $25 par value Authorized - 750,000 shares 5% series (non-voting) - 365,158 shares outstanding 9,129 9,129 Cumulative preferential stock - $35 par value Authorized - 3,000,000 shares (one-tenth of a vote per share)- no outstanding shares -- -- ---------- ----------- $ 11,673 $ 11,673 ========== =========== The terms of the 8.50% preferred stock provide that all shares of the series shall be redeemed on December 1, 2000. Common stockholders' equity Common stock - $1.25 par value Authorized - 300,000,000 shares Issued - 98,211,082 shares in 2000; 97,303,759 shares in 1999 $ 122,764 $ 121,630 Paid-in capital 440,316 424,434 Retained earnings 1,026,417 1,001,029 Accumulated other comprehensive income 69,252 92,461 Unearned compensation (477) (1,056) Treasury stock at cost - 246,787 shares in 2000; 109,675 shares in 1999 (5,724) (3,700) ---------- ----------- $1,652,548 $ 1,634,798 ========== =========== At June 30, 2000, common shares authorized but not issued, reserved for issuance in connection with the Company's stock plans were 80,865,863 shares for the Stockholder Rights Plan, 3,404,859 shares for the Dividend Reinvestment and Stock Purchase Plan, 565,493 shares for the Employees' Stock Ownership Plan, 532,381 shares for the Savings Plan for Employees and 296,347 shares for the Long-Term Performance-Based Incentive Plan. Page 11 FORM 10-Q AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES ----------------------------------------------------------- Notes to Consolidated Financial Statements (Unaudited) NOTE 1 -- Financial Statement Presentation The information presented in this Form 10-Q is unaudited. In the opinion of management the information reported reflects all adjustments, consisting of normal recurring adjustments, which were necessary to a fair statement of the results for the periods reported. Certain reclassifications have been made to conform previously reported data to the current presentation. NOTE 2 -- Acquisitions NATIONAL ENTERPRISES INC. On June 25, 1999, the Company completed the acquisition of National Enterprises Inc. (NEI), a privately owned company, in a transaction valued at $700 million. The transaction was accomplished through a tax free exchange of 14,937,000 shares of the Company's stock for all of the outstanding shares of NEI and the assumption of $241 million of debt. Subsidiaries of NEI provided water service to approximately 504,000 customers in Missouri, Illinois, Indiana and New York. NEI also had passive investments in the telecommunications industry owning 4,000,000 shares of ITC Deltacom and 600,000 shares of Powertel, as well as an interest in privately held ITC Holdings. This business combination has been accounted for as a pooling of interests and, accordingly, the consolidated financial statements for periods prior to the combination have been restated to include the accounts and results of operations of NEI. During the second quarter of 1999, the Company recorded a charge of $13.8 million, and related tax benefits of $5.2 million, for one-time merger related costs consisting primarily of severance costs as well as vesting of certain benefits, professional fees and other costs. Merger costs of $.2 million were incurred in the first quarter of 1999. The merger related costs have been reported on separate lines in the consolidated statement of income and comprehensive income. WATER UTILITY SUBSIDIARIES OF UNITED WATER RESOURCES INC. On May 31, 2000, the Company completed its acquisition of five water utilities in Missouri, Indiana, Illinois and Virginia from United Water Resources Inc. for approximately $49 million in cash. These water utilities provide service to 35,000 customers. CONTRACT MANAGEMENT BUSINESS On December 31, 1999, the Company finalized the purchase of its joint venture partner Anglian Water's interest in AmericanAnglian Environmental Technologies for $32 million. This business, which now operates as American Water Services (AWS), manages and operates 175 water and wastewater facilities in seven states. Effective January 1, 2000 the results of operations of AWS are being reported on a consolidated basis. Previously, the results of the joint venture were being accounted for under the equity method. Note 3 -- Pending Acquisitions WATER AND WASTEWATER ASSETS OF CITIZENS UTILITIES On October 18, 1999, the Company announced it had agreed to purchase the water and wastewater utility assets of Citizens Utilities Company (NYSE:CZN) for $835 million in cash and debt. Citizens Utilities provides water and wastewater service to 305,000 customers in Arizona, California, Illinois, Indiana, Ohio and Pennsylvania. For the fiscal year ended December 31, 1999, Page 12 FORM 10-Q the operations being acquired had revenues of $102 million. Requests for regulatory approval are pending with the public service commissions in all six states impacted by this acquisition. Recent decisions by the Illinois and California commissions have moved the potential close date until March and April 2001, respectively, from a previously anticipated close date in the year 2000. It is expected that the transaction will be completed as soon as regulatory approvals are obtained. SJW CORP. On October 29, 1999, the Company announced an agreement had been reached to acquire all the common stock of SJW Corp. (SJW) for approximately $390 million in cash, or $128 per share, and the assumption of $90 million in debt. SJW is a publicly traded holding company (AMEX:SJW) headquartered in San Jose, California. SJW, through its subsidiary San Jose Water Company, provides water service to 216,000 customers in San Jose and nearby communities. SJW also owns 1,100,000 shares of California Water Service Group (NYSE:CWT) and SJW Land Company, which owns a parking facility, commercial property and undeveloped real estate in San Jose. For the fiscal year ended December 31, 1999, SJW had revenues of $117 million, net income of $16 million and total assets of $372 million. A request for regulatory approval of the merger of the Company and SJW Corp. is currently pending with the California Public Utilities Commission (CPUC). A recent decision by the CPUC has moved the potential close date to April of 2001, from a previously anticipated close date in the year 2000. It is expected that the transaction, which will be accounted for as a purchase, will be completed as soon as regulatory approval is obtained. As specified in the merger agreement, the Company is required to offer to acquire all 3,045,000 outstanding shares of SJW Corp. common stock. As of August 4, 2000 the Company had purchased 48,700 shares of SJW Corp. on the open market for an average price of $119.38 per share. CITY OF COATESVILLE PENNSYLVANIA WATER AND WASTEWATER SYSTEMS On February 15, 2000 one of the Company's subsidiaries agreed to purchase the City of Coatesville Authority's water and wastewater utility systems for $48 million. These systems provide water service to more than 8,000 customers and wastewater service to more than 4,000 customers. It is expected that the transaction will be completed later this year or in the first quarter of 2001, following regulatory approvals and completion of other requirements. NOTE 4 - New Financing Subsidiary On June 26, 2000 the Company announced the formation of a wholly-owned subsidiary, American Water Capital Corp. (AWCC), a special purpose corporation that will serve as the primary funding vehicle for the Company and its twenty-five (25) utility subsidiaries. AWCC was assigned an A- corporate rating by Standard & Poor's (S&P) and Baa1 by Moody's Investors Service. At the same time, S&P lifted a negative credit watch that previously had been assigned to three of American Water Works Company's operating subsidiaries. The credit outlook for these three subsidiaries is now listed as stable by S&P. On June 29, 2000 AWCC successfully completed a $600 million bank credit facility. The bank syndication was oversubscribed and included participation from twelve banks. Initially, the credit facility was used to consolidate existing bilateral credit lines of the utility subsidiaries. Page 13 FORM 10-Q NOTE 5 - 2000 Stock Award and Incentive Plan The 2000 Stock Award and Incentive Plan approved at the Company's annual meeting of shareholders on May 4, 2000 provides for the granting of stock options to executives and other key associates of the Company. On May 4, 2000 the Company awarded options to purchase 769,000 shares of the Company's common stock to participants at an exercise price of $22.56 per share. The options will vest and become exercisable in three equal installments on the first, second, and third anniversaries of the award date. The options will expire on the tenth anniversary of the award date. The Company has not recorded any compensation expense associated with these options in accordance with APB Opinion No. 25. NOTE 6 - Shareholder Rights Agreement On June 1, 2000 the Company announced that it had amended its Shareholder Rights Agreement. The Agreement provides for certain consequences if more than a stated percentage of the Company's common stock is acquired by any person or group of persons without prior consent of the Company's Board of Directors. The amendment lowered that percentage, and the percentage of ownership that triggers the dilutive effect of the rights issued under the Agreement, to 10% of the Company's outstanding common shares. The Company is not aware of any efforts to acquire control at this time. NOTE 7 -- New Accounting Standards In 2001, the Company will adopt Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). This statement establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 was issued by the Financial Accounting Standards Board (FASB)in June of 1998 and requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 137, "Accounting for Derivative Instruments and Hedging Activities- Deferral of the Effective Date of FASB Statement No. 133," requires the adoption of SFAS 133 on January 1, 2001. In June 2000, the FASB issued SFAS 138, "Accounting For Certain Derivative Instruments and Certain Hedging Activities - an Amendment of SFAS 133" that amends certain provisions of SFAS 133 and addresses a limited number of implementation issues related to SFAS 133. The adoption of these new accounting standards are not expected to have a significant effect on the Company's financial position or results of operations as the Company has no significant derivative instruments or hedging activities. Page 14 FORM 10-Q PART I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------- Results of Operations - --------------------- Operating revenues for the second quarter and the first six months of 2000 were higher than for the same periods of 1999 by 9% and 10%, respectively. The increased revenues were due to increased water sales and rate increases authorized by regulatory agencies. In addition, the management fees from the contract management business that are included in the consolidated results in 2000 increased revenues by 4% for the second quarter and first six months of 2000. Water sales volume during the second quarter of 2000 increased 3% to 82.5 billion gallons from 80.0 billion gallons in the second quarter of 1999. The 158.5 billion gallons of sales volume for the first six months of 2000 was 3% greater than the 154.4 billion gallons sold in the same period of 1999. The increase in sales volume reflects the addition of more than 67,000 customers over the last 12 months. During the first seven months of 2000, five utility subsidiaries received rate orders which are expected to provide approximately $6.2 million in additional annual revenues. Eight subsidiaries have rate increase applications on file before regulatory agencies which, if granted in full, would provide approximately $53 million in additional annual revenues. The largest portion of this total is $34 million from two separate requests filed by Missouri subsidiaries. Illinois-American at $9 million and Kentucky-American at $5 million comprise the majority of the remaining requests. A decision in one of the pending cases in Missouri, requesting an additional $16.5 million, is expected by the end of the third quarter. A decision in the Kentucky case is expected in the fourth quarter of this year. The Illinois case should be decided in the first quarter, and the second Missouri case in the second quarter of 2001. Operating expenses in the second quarter and the first six months of 2000 were higher compared to the same periods in 1999 by 9% and 8%, respectively. Excluding the expenses of the contract management business, operation and maintenance expenses were up 3% for the quarter and 2% for the first six months. The increases in depreciation expense for the quarter and first six months were related to the Company's ongoing program of utility plant construction. Interest expense rose by 7% in the second quarter and first six months of 2000 compared to the same periods in 1999, primarily due to an increase in total debt to fund construction of new water service assets. The total allowance for funds used (equity and borrowed) during construction ("AFUDC") recorded in the second quarter of 2000 was $3.2 million, compared to $5.4 million in the second quarter of 1999. AFUDC for the first six months of 2000 was $7.8 million compared to $11.3 million for the same period in 1999. The utility subsidiaries record AFUDC to the extent permitted by the regulatory authorities. Income taxes increased in the second quarter and first six months of 2000 when compared to the comparable periods in 1999, as a result of increased earnings in 1999. Page 15 FORM 10-Q Net income to common stock was $44.1 million for the second quarter of 2000 compared with $32.1 million for the same period in 1999. Net income to common stock for the first six months of 2000 was $70.2 million compared with $51.6 million for the first six months of 1999. Net income to common stock for the second quarter of 2000 was $44.1 million compared to $40.8 million before one-time merger costs of $8.6 million after taxes, for the same period in 1999. For the first six months of 2000, net income to common stock was $70.2 million compared with $60.4 million excluding $8.8 million of merger costs after taxes for the first six months of 1999. Capital Resources and Liquidity - ------------------------------- During the first six months of 2000, 809,645 shares of common stock were issued in connection with the Dividend Reinvestment and Stock Purchase Plan, 32,134 shares were issued in connection with the Employees' Stock Ownership Plan and 65,544 shares were issued in connection with the Savings Plan for Employees. During the balance of 2000, the Company plans to issue shares of common stock through its Dividend Reinvestment and Stock Purchase Plan. Proceeds from the issuance of common stock will fund additional equity investments in subsidiaries. The Company placed 220,727 shares of common stock into and issued 83,615 shares out of treasury in connection with the Long-Term Performance-Based Incentive Plan, Employees' Stock Ownership Plan, and Savings Plan for Employees in the first six months of 2000. As noted above in Note 4, on June 29, 2000 American Water Capital Corp., the Company's finance subsidiary, successfully completed a $600 million bank credit facility. Initially used to consolidate existing bilateral credit lines of the Company's utility subsidiaries, it will provide the Company with an additional source of liquidity. Six subsidiaries issued $43.7 million of long-term debt during the first six months of 2000. In addition, in the first six months of 2000, the Company invested $39.9 million in the common stock of five subsidiaries. The proceeds were used to fund construction programs, continue acquisitions and repay bank loans. It is anticipated that some subsidiaries will obtain approximately $120 million of long-term debt financing through American Water Capital Corp. and issue common stock to the Company during the remainder of 2000, with the proceeds used to fund construction programs, continue acquisitions and repay bank loans. Management intends to fund the acquisition of SJW Corp. and the water and wastewater related assets of Citizens Utilities Company through a combination of long-term debt and preferred equity securities. Excluding any short-term borrowings incurred in connection with these pending transactions, the combined amount of bank borrowings and bonds maturing within one year is expected to remain at approximately the current level in 2000. Page 16 FORM 10-Q New Accounting Standards - ------------------------ In 2001, the Company will adopt Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). This statement establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 was issued by the Financial Accounting Standards Board (FASB)in June of 1998 and requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 137, "Accounting for Derivative Instruments and Hedging Activities- Deferral of the Effective Date of FASB Statement No. 133," requires the adoption of SFAS 133 on January 1, 2001. In June 2000, the FASB issued SFAS 138, "Accounting For Certain Derivative Instruments and Certain Hedging Activities - an Amendment of SFAS 133" that amends certain provisions of SFAS 133 and addresses a limited number of implementation issues related to SFAS 133. The adoption of these new accounting standards are not expected to have a significant effect on the Company's financial position or results of operations as the Company has no significant derivative instruments or hedging activities. Forward Looking Information - --------------------------- Forward looking statements in this report, including, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. These factors include, among others, the following: the success of pending applications for rate increases; inability to obtain, or to meet conditions imposed for, regulatory approval of pending acquisitions; general economic and business conditions; competition; success of operating initiatives, advertising and promotional efforts; existence of adverse publicity or litigation; changes in business strategy or plans; quality of management; availability, terms and development of capital; business abilities and judgment of personnel; changes in, or the failure to comply with governmental regulations, particularly those affecting the environment and water quality; and other factors described in filings of the Company with the SEC. The Company undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise. Page 17 FORM 10-Q PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- A. Exhibits -------- Exhibit Number Description - -------------- ----------- 10 Material Contracts (a) 2000 Stock Award and Incentive Plan of the registrant is incorporated by reference as Appendix A of the definitive Proxy statement relating to the Registrant's Annual Meeting of shareholders on May 4, 2000. (b) Non-Qualified Stock Option Agreement between the registrant and its executives and other key associates is filed herewith. (c) Change in Control Agreement, and summary thereof, between the registrant and certain executives is filed herewith. (d) Employees' Stock Ownership Plan of the Registrant as amended and restated effective August 1, 1999 is filed herewith. 27 Financial Data Schedule Financial Data Schedule, is filed herewith electronically. B. Reports on Form 8-K ------------------- A current report on Form 8-K was filed on June 1, 2000 by the Company describing the amendment of the Shareholder Rights Agreement. Page 18 FORM 10-Q SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN WATER WORKS COMPANY, INC. Date August 11, 2000 \s\Ellen C. Wolf - ---------------------- ------------------------------------------ Vice President and Chief Financial Officer (Authorized Officer) Date August 11, 2000 \s\Robert D. Sievers - ---------------------- ------------------------------------------ Comptroller (Chief Accounting Officer) EX-27 2 0002.txt
OPUR1 6-MOS DEC-31-2000 JUN-30-2000 PER-BOOK 5,065,047 166,062 307,159 336,349 229,484 6,104,101 117,040 439,839 1,026,417 1,652,548 73,470 19,791 2,319,710 332,186 0 0 65,746 0 0 0 1,568,650 6,104,101 654,168 47,491 443,709 491,200 162,968 3,728 166,696 94,474 72,222 1,992 70,230 43,898 87,323 95,948 0.72 0.72
EX-10 3 0003.txt Exhibit 10 (b) AMERICAN WATER WORKS COMPANY, INC. NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made as of May 4, 2000, between American Water Works Company, Inc., a Delaware corporation (the "Company") and (the "Employee") pursuant to the terms and conditions of the American Water Works Company, Inc. 2000 Stock Award and Incentive Plan (the "Plan"). Capitalized terms not defined in this Agreement shall have the meanings set forth in the Plan. THE PARTIES AGREE AS FOLLOWS: 1. Award of Options. Pursuant to the Plan, the Company hereby awards to Employee options (the "Options") to acquire shares of Company common stock (the "Stock") at the exercise price of $22.56 per share (the "Exercise Price"), subject to the terms and conditions set forth in this Agreement and the Plan. A copy of the Plan has been delivered to Employee. By signing below, Employee agrees to be bound by all the provisions of the Plan. The Options granted hereunder are nonqualified stock options. 2. Vesting Schedule. Subject to Sections 6 and 7 hereof, the Options shall vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of May 4, 2000. 3. Expiration Date. Unless terminated earlier in accordance with this Agreement or the provisions of the Plan, the Options subject to this Agreement shall expire on May 4, 2010 (the "Expiration Date"). 4. Payment of Exercise Price. The Exercise Price of the shares as to which Options are exercised may be paid to the Company at the time of exercise in cash or in Stock or in such other consideration or such combination thereof as the Committee shall permit at the time of exercise, in each case (a) pursuant to rules and procedures established by the Committee and (b) having a total Fair Market Value determined as of the date of exercise equal to the Exercise Price. 5. Non-transferability. Except to the extent otherwise determined by the Committee, Options granted hereunder shall not be assignable or otherwise transferable other than by will or the laws of descent and distribution. Unless otherwise provided by the Committee, during the lifetime of Employee the Options shall be exercisable and elections with respect to the Options may be made only by Employee or Employee's guardian or legal representative. 6. Termination of Employment. (a) Except to the extent provided in Section 7 hereof or any employment agreement or severance agreement between Employee and the Company, the provisions of this Section 6 shall apply to the Options upon a termination of Employee's employment with the Company and all its subsidiaries ("Termination") for any reason. (b) In the event of Employee's voluntary Termination (other than "Retirement", as defined) or a Termination of Employee by the Company for Cause (as defined), all vested and unvested Options shall be canceled on the Termination date. (c) In the event of Employee's Termination by reason of death or Disability (as defined), all Options shall become immediately vested and shall be exercisable in whole or in part at any time prior to the earlier of the Expiration Date and the date one year after the Termination date. (d) In the event of Employee's Termination by reason of Retirement, all Options shall become immediately vested and shall be exercisable in whole or in part at any time prior to the earlier of the Expiration Date and the date three years after the Termination date. (e) In the event of Employee's Termination for any reason other than as provided in Section 6(b), 6(c), or 6(d), Options which are unvested shall be canceled and Options which are vested and exercisable may be exercised in whole or in part at any time prior to the earlier of the Expiration Date and the date 90 days after the Termination date. 7. Change in Control. In the event of a Change in Control, any Option that was not previously vested and exercisable shall become fully vested and exercisable at the time of the Change in Control, subject to the applicable restrictions set forth in the Plan. 8. Grant of Reload Options. (a) Reload Options. To the extent that (i) the Exercise Price of the Options or any Reload Options (as defined) related thereto is paid through the delivery of Mature Shares (as defined) in accordance with Section 4 ("Payment Shares") and/or (ii) Stock is paid or surrendered in satisfaction of any withholding taxes incurred in connection with the exercise of the Option or any related Reload Option ("Withholding Tax Shares"), Employee shall receive additional non-qualified stock options to purchase a number of shares of Stock equal to the sum of the Payment Shares and the Withholding Tax Shares ("Reload Options"), provided that (A) Employee is then employed by the Company or any of its subsidiaries, and (B) at the time of payment of the Exercise Price relating to such Options (or Reload Options), the aggregate Fair Market Value of the Stock purchased pursuant to the exercise of such Options (or Reload Options) exceeds the aggregate Exercise Price of such Options (or Reload Options) by 25% or more. The exercise price per share of Reload Options shall be the Fair Market Value of the Stock on the date the Reload Options are granted to Employee, and the Reload Options shall thereafter become vested and exercisable at the earliest to occur of (w) one year after the grant date (if Employee has been continuously employed through such date), (x) upon a Termination of Employee due to death, Disability or Retirement, (y) a Change in Control, or (z) 90 days prior to the expiration of the Maximum Term (as defined). The "Maximum Term" of any Reload Option shall be equal to the remaining term of the Options to which it relates, measured from the date upon which the Option was exercised but subject to the same post-employment termination provisions of the Options described in Section 6. Any Reload Option granted in connection with the exercise of a Reload Option shall have a Maximum Term equal to the remaining term of the Reload Option to which it relates, measured from the date on which the prior Reload Option was exercised but subject to the same post-employment termination provisions of the Options described in Section 6. (b) Penalties for Premature Transfers. If Employee sells, transfers, assigns or otherwise disposes of more than 50% of the number of Profit Shares (as defined) acquired upon exercise of any Options (or Reload Options), during the one-year period following such exercise (or such lesser period as corresponds with the shorter of (i) the remaining term of the Reload Options, or (ii) the vesting of the Reload Options), the Committee may, in its discretion, preclude Employee from exercising any Reload Options then held by Employee; provided, however, that this provision shall not proscribe transfers by will or the laws of descent and distribution; and provided further, however, that if any shares subject to this Section 8(b) are delivered in payment of the exercise price of Options, in addition to the shares of Stock otherwise subject to this Section 8(b), an equivalent number of shares issued upon exercise of such Options shall remain subject to this Section 8(b). Employee agrees that any action taken by the Committee hereunder shall not constitute any breach of any obligation or duty owed by the Company to Employee. Notwithstanding the foregoing, Employee may waive all rights to a grant of Reload Options by filing a written waiver with the Company within ten days following the date of such grant, in which case the restriction period described above shall not apply with respect to any shares issued in connection with the exercise of an Option as to which Employee's Reload Option rights have been waived. 9. Definitions. For purposes of this Agreement: (a) "Cause" shall have the meaning given to such term in any employment agreement or severance agreement between the Company and Employee in effect at the date of Termination and, in the absence of any such agreement, shall mean Employee's deliberate, willful or gross misconduct. (b) "Disability" shall mean that Employee has become eligible to receive benefits under the Company's long term disability plan or policy. (c) "Mature Shares" shall mean any of the following: (i) Stock purchased by Employee in the open market, (ii) Stock acquired by Employee upon exercise of any option that has been held by Employee for no less than six months after the exercise date, or (iii) any restricted stock of the Company that is held by Employee for no less than six months after the vesting date of such restricted stock. (d) "Profit Shares" shall mean the number of shares of Stock acquired pursuant to the exercise of an Option (or Reload Option) having a Fair Market Value on the date of exercise equal to the excess of the aggregate Fair Market Value of the Stock purchased upon exercise of such Option (or Reload Option) over the aggregate Exercise Price of such Option (or Reload Option). (e) "Retirement" shall mean Employee's Termination following the date on which Employee is eligible promptly thereafter to commence receiving retirement benefits from the Company. 10. Withholding Tax. Employee may be subject to withholding taxes as a result of the exercise or settlement of an Option or other payment in respect of an Option. Unless the Committee permits otherwise, Employee shall pay to the Company in cash, promptly when the amount of such obligations become determinable, all applicable federal, state, local and foreign withholding taxes that the Company in its discretion determines result from each such exercise, settlement or payment. Unless the Committee otherwise determines and subject to such rules and procedures as the Committee may establish, Employee may make an election to have shares of Stock withheld by the Company or to tender shares of Stock to the Company to pay the amount of tax that the Company in its discretion determines to be required so to be withheld by the Company upon exercise of an Option, subject to satisfying any applicable requirements for compliance with Section 16(b) of the Exchange Act. Any shares of Stock so withheld or tendered will be valued as of the date they are withheld or tendered, provided that Stock shall be valued at Fair Market Value on such date. Unless otherwise permitted by the Committee, the value of shares withheld or tendered may not exceed the required federal, state, local and foreign withholding tax obligations as computed by the Company. 11. Governing Law. This Agreement shall be governed by the laws of the State of Delaware, without regard to conflict of law principles. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. AMERICAN WATER WORKS COMPANY, INC. By: ____________________________ Name: Title: Employee hereby accepts and agrees to be bound by all the terms and conditions of this Agreement and the Plan. _______________________________ Employee Title Options J. James Barr President and CEO 143,200 Ellen C. Wolf Vice President and CFO 60,650 W. Timothy Pohl General Counsel and Secretary 38,225 Joseph F. Hartnett, Jr. Treasurer 26,450 Robert D. Sievers Comptroller 26,450 EX-10 4 0004.txt I EXHIBIT 10(c) AMERICAN WATER WORKS COMPANY, INC. Change in Control Agreement for The "Executive" (See Summary on Page 17) AMERICAN WATER WORKS COMPANY, INC. Change in Control Agreement for The "Executive" (See Summary on Page 17) Page 1. Definitions 2 2. Term of Agreement 6 3. Extension of Term Upon Change in Control 6 4. Entitlement to Severance Benefit 7 5. Confidentiality; Cooperation with Regard to Litigation; Non- disparagement 9 6. Non-solicitation 11 7. Remedies 11 8. Resolution of Disputes 11 9. Effect of Agreement on Other Benefits 11 10. Not an Employment Agreement 12 11. Excise Tax Gross-Up 12 12. Assignability; Binding Nature 14 13. Representation 14 14. Entire Agreement 14 15. Amendment or Waiver 15 16. Severability 15 17. Survivorship 15 18. Beneficiaries/References 15 19. Governing Law/Jurisdiction 15 20. Notices 15 21. Headings 16 22. Counterparts 16 23. Summary 17 CHANGE IN CONTROL AGREEMENT AGREEMENT, made and entered into as of the 1st day of January, 2000 by and between American Water Works Company, Inc., a Delaware corporation (together with its successors and assigns, the "Company"), and (the "Executive"). W I T N E S S E T H: WHEREAS, Executive is an employee of the Company serving in an executive capacity; and WHEREAS, the Board of Directors of the Company (the "Board") believes it is necessary and desirable that the Company be able to rely upon Executive to continue serving in his position in the event of a pending or actual change in control of the Company. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and Executive (individually a "Party" and together the "Parties") agree as follows: 1. Definitions (a)"Base Salary" shall mean Executive's annual base salary. (b)"Cause" shall exist if: (i) Executive willfully and materially breaches any provision of Sections 5 or 6 of this Agreement; (ii) Executive is convicted of, or pleads nolo contendere to, a felony; (iii) Executive's willful failure to attempt in good faith to perform the duties of Executive's employment after receipt of written notice from the Board and an opportunity to cure such failure; or iv) Executive's willful failure to attempt in good faith to follow any legal and proper Board directive, after receipt of written notice from the Board and a reasonable opportunity to cure such non-adherence or failure to act. For purposes of this Agreement, an act or failure to act on Executive's part shall be considered "willful" if it was done or omitted to be done by him not in good faith, and shall not include any act or failure to act resulting from any incapacity of Executive. A termination for Cause shall not take effect unless the provisions of this paragraph are complied with. Executive shall be given written notice by the Company of its intention to terminate him for Cause, such notice (A) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) to be given within 15 days of the Company's learning of such act or acts or failure or failures to act. Executive shall have 20 days after the date that such written notice has been given to Executive in which to cure such conduct, to the extent such cure is possible. If Executive fails to cure such conduct, Executive shall then be entitled to a hearing before the Board at which Executive is entitled to appear. Such hearing shall be held within 25 days of such notice to Executive, provided Executive requests such hearing within 10 days of receipt of the written notice from the Company of the intention to terminate him for Cause. If, within five days following such hearing, Executive is furnished written notice by the Board confirming that, in its judgment, grounds for Cause on the basis of the original notice exist, Executive shall thereupon be terminated for Cause; provided that if Executive has commenced an expedited arbitration in the manner prescribed below and in accordance with Section 8 within 15 days after his receipt of the written notice from the Board, disputing the Board's determination that Cause exists, Executive shall not be deemed to have been terminated for Cause in accordance with the provisions hereof unless and until the arbitrator shall have determined otherwise. If Executive or his representative either fails to file a demand for arbitration in accordance with Section 8 and pay the requisite fees to commence that arbitration within 15 days of receiving the final notice from the Board or fails to diligently pursue that arbitration proceeding, the Board's finding of Cause shall be conclusively presumed to be accurate. (c) A "Change in Control" shall be deemed to have occurred if: (i)any Person other than (A) the Company or any Ware Family Member, (B) any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or (C) any company owned, directly or indirectly, by the stockholders of the Company immediately prior to the occurrence with respect to which the evaluation is being made in substantially the same proportions as their ownership of the common stock of the Company, becomes the Beneficial Owner (except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants or options or otherwise, without regard to the sixty day period referred to in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company or any Significant Subsidiary (as defined below), representing 35% of the combined voting power of the Company's or such subsidiary's then outstanding securities; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii), or (iv) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved but excluding for this purpose any such new director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or Person other than the Board, cease for any reason to constitute at least a majority of the Board; (iii) the consummation of a merger or consolidation of the Company or any subsidiary owning directly or indirectly all or substantially all of the consolidated assets of the Company (a "Significant Subsidiary") with any other entity, other than a merger or consolidation which would result in the voting securities of the Company or a Significant Subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such merger or consolidation; (iv) the stockholders of the Company approve a plan or agreement for the sale or disposition of all or substantially all of the consolidated assets of the Company (other than such a sale or disposition immediately after which such assets will be owned directly or indirectly by the Company's stockholders in substantially the same proportions as their ownership of the Company's common stock immediately prior to such sale or disposition) in which case the Board shall determine the effective date of the Change in Control resulting therefrom, or (v) any Triggering Event occurs for purposes of the Rights Agreement. For purposes of this definition: (A) The term "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 under the Exchange Act (including any successor to such Rule). (B) The term "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. (C) The term "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including "group" as defined in Section 13(d) thereof. (d)"Confidential Information" shall have the meaning set forth in Section 5 below. (e) "Code" shall have the meaning set forth in Section 11 below. (f) "Disability" shall mean disability as that term is defined in the Company's long-term disability plan. (g) "Effective Date" shall have the meaning set forth in Section 2 below. (h) "Excise Tax" shall have the meaning set forth in Section 11 below. (i) "Good Reason" shall mean a termination of Executive's employment at his initiative following the occurrence, without Executive's written consent, of one or more of the following events (except as a result of a prior termination): (i) the assignment of any duties or responsibilities inconsistent in any material and adverse respect with Executive's position or which represent a material diminution of Executive's duties or responsibilities; (ii) a decrease in Executive's annual Base Salary or target annual incentive award opportunity; (iii) any failure to secure the agreement of any successor corporation or other entity to the Company to fully assume the Company's obligations to Executive under this Agreement; (iv) a relocation of Executive's principal place of employment to a location that increases the distance the Executive is required to commute from his primary residence immediately prior to the Change in Control, by more than 50 miles; (v) any significant increase (as compared to the amount of travel conducted by Executive prior to the Change in Control) in the amount of travel necessary for Executive to perform his job responsibilities hereunder; or (vi) any material unremedied breach by the Company of the terms and conditions of Executive's employment, including without limitation, the terms and conditions of any employment agreement. (j) "Gross-Up Payment" shall have the meaning set forth in Section 11 below. (k) "Independent Advisors" shall have the meaning set forth in Section 11 below. (l) "Original Term" shall have the meaning set forth in Section 2 below. (m) "Renewal Term" shall have the meaning set forth in Section 2 below. (n) "Rights Agreement" shall mean that certain Rights Agreement by and between American Water Works Company, Inc. and BankBoston N.A., dated as of February 18, 1999, as amended from time to time. (o) "Severance Period" shall mean the period of 18 months following the termination of Executive's employment. (p) "Subsidiary" shall have the meaning set forth in Section 5 below. (q) "Term" shall have the meaning set forth in Section 2 below. (r) "Total Payments" shall have the meaning set forth in Section 11 below. (s)"Triggering Event" shall have the meaning ascribed to it in the Rights Agreement. (t) "Ware Family Member" shall mean any of the following (either individually or in combination): Marian S. Ware, Marilyn Ware, Paul W. Ware, Nancy Ware Wainwright, Rhoda Cobb, Rhoda Ware, John Ware IV, Carol Gaites and their respective spouses, siblings, descendants, or controlled legal entities. 2. Term of Agreement The term of this Agreement shall commence on the date of this Agreement (the "Effective Date") and end on the third anniversary of such date (the "Original Term"). The Original Term shall be automatically renewed for successive one-year terms (the "Renewal Terms") unless at least 180 days prior to the expiration of the Original Term or any Renewal Term, either Party notifies the other Party in writing that he or it is electing to terminate this Agreement at the expiration of the then current Term. "Term" shall mean the Original Term and all Renewal Terms. 3. Extension of Term Upon Change in Control If a Change in Control shall have occurred during the Term, notwithstanding any other provision of Section 2, the Term shall not expire earlier than three years after such Change in Control. 4. Entitlement to Severance Benefit (a) Severance Benefit. In the event Executive's employment with the Company is involuntarily terminated by the Company without Cause (other than due to death or Disability), or voluntarily by Executive for Good Reason, in either case within three years after a Change in Control has occurred (or any such termination in contemplation of such Change in Control), Executive shall be entitled to receive: (i) Base Salary through the date of termination of Executive's employment, which shall be paid in a cash lump sum not later than 15 days following Executive's termination of employment; (ii) an amount equal to a multiple (see summary on page 17) times the sum of (A) Executive's Base Salary at the annualized rate in effect on the date of termination of Executive's employment (or in the event a reduction in Base Salary is a basis for Executive's termination of employment for Good Reason, then the Base Salary in effect immediately prior to such reduction), and (B) Executive's target annual incentive opportunity for the year in which the termination of employment occurs, such amount payable in a cash lump sum promptly (but in no event later than 15 days) following Executive's termination of employment; (iii) pro rata annual incentive award for the year in which termination occurs assuming that Executive would have received his target annual incentive for such year, payable in a cash lump sum promptly (but in no event later than 15 days) following Executive's termination of employment; (iv) elimination of all restrictions on any restricted or deferred stock awards outstanding at the time of termination of employment; (v) immediate vesting of all outstanding stock options and the right to exercise such stock options for 18 months or the remainder of the exercise period, if less; (vi) additional age and service credit of a number of (see summary on page 17) months for purposes of calculating both Executive's eligibility for, and the amount of, his supplemental retirement benefits and retiree medical benefits, immediate vesting of all such benefits, and the Board's approval of any applicable early retirement; (vii) settlement of all deferred compensation arrangements in accordance with any then applicable deferred compensation plan and/or applicable deferral election form duly executed by Executive; (viii) continued participation in all medical, health and life insurance plans at the same benefit level at which Executive was participating on the date of termination of Executive's employment until the earlier of: (A) a number of (see summary on page 17) months following the termination of Executive's employment; (B) the date, or dates, Executive receives equivalent coverage and benefits under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit, basis); provided that (1) if Executive is precluded from continuing his participation in any employee benefit plan or program as provided in this clause (viii) of this Section 4(a), Executive shall receive cash payments equal on an after-tax basis to the cost to Executive of obtaining the benefits provided under the plan or program in which he is unable to participate for the period specified in this clause (viii) of this Section 4(a), (2) such cost shall be deemed to be the lowest reasonable cost that would be incurred by Executive in obtaining such benefit himself/herself on an individual basis, and (3) payment of such amounts shall be made quarterly in advance; or (C) upon Executive's death (provided that this subsection (B) shall not operate to diminish or eliminate the rights of Executive's spouse or other beneficiaries to any benefit to which they would otherwise be entitled pursuant to any Company plan or program); (ix) continued indemnification in accordance with Company's charter and by-laws as in effect on the date of the Change in Control or on the date of the Executive's termination, whichever provides the greater protection to the Executive; (x) notwithstanding Sections 4(a)(vi) and (viii) hereof, if the Executive is, or would be if still employed, eligible to retire at any time during which the Executive is entitled to benefits under Section 4(a)(viii), the Company shall provide the Executive and if applicable the Executive's spouse with retiree medical benefits at least equal to those that would be provided under the Company's applicable retiree medical plan if that plan remained unamended for the remainder of the life of the Executive and if applicable the Executive's spouse. For purposes of this Section 4(a)(x), "retire" shall mean a termination of service by reason of which the Executive is entitled to immediate commencement of benefits under the Pension Plan for Employees of American Water Works Company, Inc. and its Designated Subsidiaries, or any successor plan; and (xi) other or additional benefits then due or earned in accordance with applicable plans and programs of the Company. For purposes of this Section 4(a), a termination in contemplation of a Change in Control means a termination within 12 months prior to an actual Change in Control at the request or direction of a Person who enters, or has entered, into an agreement the consummation of which would cause a Change in Control. A termination by the Executive for Good Reason shall not constitute a termination in contemplation of a Change in Control unless the actions giving rise to Good Reason were taken at the direction of a Person who has entered into an agreement the consummation of which would cause a Change in Control. (b) No Mitigation; No Offset In the event of any termination of employment under this Section 4, Executive shall be under no obligation to seek other employment; amounts due Executive under this Agreement shall not be offset by any remuneration attributable to any subsequent employment that Executive may obtain. (c) Nature of Payments Any amounts due under this Section 4 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty. (d) Exclusivity of Severance Payments Upon termination of Executive's employment during the Term, Executive shall not be entitled to any severance payments or severance benefits from the Company or any payments by the Company on account of any claim by Executive of wrongful termination, including claims under any federal, state or local human and civil rights or labor laws, other than the payments and benefits provided in this Section 4. (e) Release of Employment Claims As a condition to receipt of the termination payments and benefits provided for in this Section 4, Executive agrees to execute a release agreement, in a form reasonably satisfactory to the Company, releasing any and all claims arising out of Executive's employment (other than enforcement of this Agreement or any indemnity right to which Executive may be entitled, Executive's rights under any of the Company's incentive compensation and employee benefit plans and programs to which Executive is entitled under this Agreement or under the terms of any such plan or program, and any claim for any tort for personal injury not arising out of or related to the termination of Executive's employment). 5. Confidentiality; Cooperation with Regard to Litigation; Non- disparagement. (a) During the Term and thereafter, Executive shall not, without the Company's prior written consent, disclose to anyone (except in good faith in the ordinary course of business to a person who will be advised by Executive to keep such information confidential) or make use of any Confidential Information except in the performance of his duties hereunder or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires him to divulge, disclose or make accessible such information. In the event that Executive is so ordered, he shall give the Company prompt written notice to allow the Company the opportunity to object to or otherwise resist such order. (b) During the Term and thereafter, Executive shall not disclose the existence or contents of this Agreement beyond what is disclosed in the proxy statement or documents filed with the government unless and to the extent such disclosure is required by law, by a governmental agency, or in a document required by law to be filed with a governmental agency or in connection with enforcement of Executive's rights under this Agreement. In the event that disclosure is so required, Executive shall give prompt written notice to the Company to allow the Company the opportunity to object to or otherwise resist such requirement. This restriction shall not apply to such disclosure by Executive to members of his immediate family, his tax, legal or financial advisors, any lender, or tax authorities, or to potential future employers to the extent necessary, each of whom shall be advised not to disclose such information. (c) "Confidential Information" shall mean all information concerning the business of the Company or any Subsidiary relating to any of their products, product development, trade secrets, customers, suppliers, finances, and business plans and strategies. Excluded from the definition of Confidential Information is information (i) that is or becomes part of the public domain, other than through the breach of this Agreement by Executive or (ii) regarding the Company's business or industry properly acquired by Executive in the course of his career as an executive in the Company's industry and independent of Executive's employment by the Company. For this purpose, information known or available generally within the trade or industry of the Company or any Subsidiary shall be deemed to be known or available to the public. (d) "Subsidiary" shall mean any corporation controlled directly or indirectly by the Company. (e) Executive agrees to cooperate with the Company, during the Term and thereafter (including following Executive's termination of employment for any reason), by making himself/herself reasonably available to testify on behalf of the Company or any Subsidiary in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any Subsidiary, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, or any Subsidiary as requested; provided, however that the same does not materially interfere with his then current professional activities. The Company agrees to reimburse Executive, on an after-tax basis, for all expenses actually incurred in connection with his provision of testimony or assistance. (f) Executive agrees that, during the Term and thereafter (including following Executive's termination of employment for any reason) he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company or any Subsidiary or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing in this Agreement shall preclude Executive from making truthful statements or disclosures that are required by applicable law, regulation or legal process. 6 Non-solicitation During the period beginning with Effective Date and ending 18 months following the termination of Executive's employment, Executive shall not induce employees of the Company or any Subsidiary to terminate their employment. During such period, Executive shall not hire, either directly or through any employee, agent or representative, any employee of the Company or any Subsidiary or any person who was employed by the Company or any Subsidiary within 180 days of such hiring. 7. Remedies In addition to whatever other rights and remedies the Company may have at equity or in law, if Executive breaches any of the provisions contained in Sections 5 or 6 above, the Company (a) shall have the right to immediately terminate all payments and benefits due under this Agreement and (b) shall have the right to seek injunctive relief. Executive acknowledges that such a breach would cause irreparable injury and that money damages would not provide an adequate remedy for the Company; provided, however, the foregoing shall not prevent Executive from contesting the issuance of any such injunction on the ground that no violation or threatened violation of Sections 5 or 6 has occurred. 8. Resolution of Disputes Any controversy or claim arising out of or relating to this Agreement or any breach or asserted breach hereof or questioning the validity and binding effect hereof arising under or in connection with this Agreement, other than seeking injunctive relief under Section 7, shall be resolved by binding arbitration, to be held at the American Arbitration Association's office closest to the Company's principal offices in accordance with the rules and procedures of the American Arbitration Association or any other mutually agreed location. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Pending the resolution of any arbitration or court proceeding, the Company shall continue payment of all amounts and benefits due Executive under this Agreement. Executive shall be entitled to reimbursement of reasonable costs and expenses of any arbitration or court proceeding (including reasonable fees and disbursements of counsel) as follows: (a) if the dispute arises prior to a Change in Control, Executive must prevail in the litigation or dispute, and (b) if the dispute arises after a Change in Control, Executive shall be reimbursed so long as no determination is made that Executive's litigation assertions or defenses were asserted in bad faith or frivolous. 9. Effect of Agreement on Other Benefits Except as specifically provided in this Agreement, the existence of this Agreement shall not be interpreted to preclude, prohibit or restrict Executive's participation in any other employee benefit or other plans or programs in which he currently participates or for which he may become eligible under the terms of each plan or program after the date of this Agreement. 10. Not an Employment Agreement This Agreement is not, and nothing herein shall be deemed to create, a contract of employment between Executive and the Company. The Company may terminate Executive's employment at any time, subject to the terms of any employment agreement between the Company and Executive that may then be in effect. 11.Excise Tax Gross-Up If Executive becomes entitled to one or more payments (with a "payment" including, without limitation, the vesting of an option or other non-cash benefit or property), whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company or any affiliated company (the "Total Payments"), which are or become subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company shall pay to Executive at the time specified below an additional amount (the "Gross-Up Payment") (which shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax) such that the net amount retained by Executive, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-Up Payment provided for by this Section 11, but before reduction for any federal, state, or local income or employment tax on the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount equal to the product of any deductions disallowed for federal, state, or local income tax purposes because of the inclusion of the Gross-Up Payment in Executive's adjusted gross income multiplied by the highest applicable marginal rate of federal, state, or local income taxation, respectively, for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax: (a) The Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the written opinion of independent compensation consultants, counsel or auditors of nationally recognized standing ("Independent Advisors") selected by the Company and reasonably acceptable to Executive, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax; (b) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Total Payments or (ii) the total amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (a) above); and (c) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed (i) to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made; (ii) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of Executive's adjusted gross income); and (iii) to have otherwise allowable deductions for federal, state, and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-Up Payment in Executive's adjusted gross income. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-Up Payment is made, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Executive or otherwise realized as a benefit by the Executive) the portion of the Gross-Up Payment that would not have been paid if such Excise Tax had been applied in initially calculating the Gross-Up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-Up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-Up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-Up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to Executive on such day an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-Up Payment is made, the amount of each Gross-Up Payment shall be computed so as not to duplicate any prior Gross-Up Payment. The Company shall have the right to control all proceedings with the Internal Revenue Service that may arise in connection with the determination and assessment of any Excise Tax and, at its sole option, the Company may pursue or forego any and all administrative appeals, proceedings, hearings, and conferences with any taxing authority in respect of such Excise Tax (including any interest or penalties thereon); provided, however, that the Company's control over any such proceedings shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and Executive shall be entitled to settle or contest any other issue raised by the Internal Revenue Service or any other taxing authority. Executive shall cooperate with the Company in any proceedings relating to the determination and assessment of any Excise Tax and shall not take any position or action that would materially increase the amount of any Gross-Up Payment hereunder. 12. Assignability; Binding Nature This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs (in the case of Executive) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall take whatever action it legally can to cause such assignee or transferee to expressly assume the Company's liabilities, obligations and duties hereunder. No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than his rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in Section 18 below. 13. Representation The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 14. Entire Agreement This Agreement contains the entire understanding and agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties with respect thereto. 15. Amendment or Waiver No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by Executive and an authorized officer of the Company. No waiver by either Party of any breach by the other Party of any condition or provision contained in this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by Executive or an authorized officer of the Company, as the case may be. 16. Severability In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 17. Survivorship The respective rights and obligations of the Parties hereunder shall survive any termination of Executive's employment to the extent necessary to preserve such rights and obligations. 18. Beneficiaries/References Executive shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, references in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. 19. Governing Law/Jurisdiction This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New Jersey without reference to principles of conflict of laws. Subject to Section 8, the Company and Executive hereby consent to the jurisdiction of any or all of the following courts for purposes of resolving any dispute under this Agreement: (i) the United States District Court for New Jersey or (ii) any of the courts of the State of New Jersey. The Company and Executive further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and Executive hereby waive, to the fullest extent permitted by applicable law, any objection which it or he may now or hereafter have to such jurisdiction and any defense of inconvenient forum. 20. Notices Any notice given to a Party shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give such notice of: If to the Company: American Water WorksCompany, Inc. 1025 Laurel Oak Road Voorhees, New Jersey 08043 If to Executive: Executive's Home Address 21. Headings The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 22. Counterparts This Agreement may be executed in two or more counterparts. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. AMERICAN WATER WORKS COMPANY, INC. By: Name: Title: Executive Agreement between Agreement Agreement The registrant and Section Section The "Executive" 4(a) (ii) 4 (a) (vi) Lump Sum Retirement Executive Multiple Benefit Months President and CEO of Registrant 3 36 Vice President and CFO of Registrant 2 24 General Counsel and Secretary of Registrant 2 24 Treasurer of Registrant 1.5 18 Comptroller of Registrant 1.5 18 Subsidiary Presidents 2 24 Subsidiary Senior Vice President 2 24 Subsidiary Vice President- Human Resources 1.5 18 EX-10 5 0005.txt - 27 - Exhibit 10 (d) EMPLOYEES' STOCK OWNERSHIP PLAN OF AMERICAN WATER WORKS COMPANY, INC. AND ITS DESIGNATED SUBSIDIARIES (As Amended and Restated Effective August 1, 1999) EMPLOYEES' STOCK OWNERSHIP PLAN OF AMERICAN WATER WORKS COMPANY, INC. AND ITS DESIGNATED SUBSIDIARIES (As Amended and Restated Effective August 1, 1999) Table of Contents Page ARTICLE I DEFINITIONS. 1 1.1 Account 1 1.2 Annual Addition 2 1.3 Beneficiary 2 1.4 Board of Directors 2 1.5 Break-in-Service 2 1.6 Code 3 1.7 Committee 3 1.8 Company 3 1.9 Compensation 3 1.10 Defined Benefit Plan 4 1.11 Defined Contribution Plan 4 1.12 Designated Subsidary 4 1.13 Dividend Reinvestment Plan 4 1.14 Effective Date 4 1.15 Employee 4 1.16 Employer 5 1.17 Employment Commencement Date 5 1.18 Employment Recommencement Date 5 1.19 ERISA 5 1.20 Excess Aggregate Contributions 5 1.21 Five-Percent Owner 5 1.22 Fund 5 1.23 Highly Compensated Employee 5 1.24 Hour of Service 6 1.25 Limitation Year 7 1.26 Non-Highly Compensated Employee 7 1.27 Normal Retirement Date 7 1.28 Participant 7 1.29 Participant Contributions 7 1.30 Pension Plan 7 1.31 Period of Service 7 1.32 Plan 7 1.33 Plan Year 7 1.34 Prior Plan 7 1.35 Qualified Matching Contribution 7 1.36 Required Beginning Date 7 1.37 Severance from Service Date 8 1.38 Stock 8 1.39 Subsidiary 8 1.40 Trust 8 1.41 Trustee 8 1.42 Valuation Date 8 1.43 Year of Service 8 ARTICLE II PARTICIPATION. 9 2.1. Eligibility Requirements. 9 2.2. Ineligible Employees. 9 2.3. Time of Participation - Excluded Employees. 10 ARTICLE III CONTRIBUTIONS BY THE COMPANY AND ITS DESIGNATED SUBSIDIARIES. 10 3.1. Amount of Contributions. 10 3.2. Payment of Company and Designated Subsidiary Contributions. 10 ARTICLE IV PARTICIPANT CONTRIBUTIONS. 11 4.1. Amount of Participant Contributions. 11 4.2. Election to Change Rate of Participant Contributions. 11 4.3. Suspension and Resumption of Participant Contributions. 11 ARTICLE V LIMITATION ON MATCHING AND PARTICIPANT CONTRIBUTIONS. 12 5.1. Limitation - Code Section 401(m) 12 5.2. Plan Aggregation; Special Rule. 13 ARTICLE VI PURCHASE OF STOCK 14 6.1. Investment in Stock. 14 6.2. Purchase of Shares. 14 6.3. Timing of Purchase. 14 6.4. Cash Balance. 14 ARTICLE VII CREDITS TO ACCOUNTS. 14 7.1. Maintenance of Accounts. 14 7.2. Payment and Allocation of Contributions and Forfeitures. 15 7.3. Valuation of the Stock. 16 7.4. Limitations on Annual Additions to Participants' Accounts - Code Section 415. 16 7.5. Elimination of Excess Annual Additions. 17 ARTICLE VIII VESTING. 18 8.1. Rate of Vesting in ESOP, Participant Contribution and Qualified Matching Accounts. 18 8.2. Rate of Vesting in Basic and Matching Accounts. 18 ARTICLE IX VOTING OF STOCK. 18 9.1. Direction of Participant. 18 9.2. Procedures Requirement. 18 9.3. Voting of Non-Directed or Unallocated Shares. 18 ARTICLE X AMOUNT AND DISTRIBUTION OF BENEFITS. 18 10.1. Distribution of Dividends. 18 10.2. Distributions Upon Termination of Service. 19 10.3. Distribution Upon Death 19 10.4. Death After Termination. 19 10.5. Deferred Distribution. 20 10.6. Form of Distribution. 20 10.7. Purchase of Stock. 20 10.8. Restrictions. 20 10.9. Limitation on Distributions. 20 10.10. Direct Rollovers. 20 10.11. Distributions Pursuant to a Qualified Domestic Relations Order ("QDRO"). 21 ARTICLE XI WITHDRAWALS BY PARTICIPANTS. 22 11.1. Participant Withdrawals. 22 ARTICLE XII PLAN ADMINISTRATION. 22 12.1. Fiduciary Responsibility. 22 12.2. Appointment and Removal of Committee. 22 12.3. Compensation and Expenses of Committee. 22 12.4. Committee Procedures. 23 12.5. Plan Interpretation. 23 12.6. Exclusive Benefit Rule. 23 12.7. Consultants. 23 12.8. Delegation and Allocation of Responsibility. 23 12.9. Claims Procedure. 23 ARTICLE XIII AMENDMENTS, DISCONTINUANCE AND LIABILITIES. 24 13.1. Amendment. 24 13.2. Termination. 24 13.3. Merger, Consolidation or Transfer of Assets or Liabilities. 24 13.4. Change in Designated Subsidiary Status. 25 ARTICLE XIV VETERANS' REEMPLOYMENT RIGHTS. 25 ARTICLE XV MISCELLANEOUS. 25 15.1. Limited Purpose of Plan. 25 15.2. Non-alienation. 25 15.3. Facility of Payment. 25 15.4. Impossibility of Diversion. 26 15.5. Provisions Relating to Top-Heavy Plan. 26 15.6. Electronic or Telephonic Means. 26 15.7. Unclaimed Benefits. 26 15.8. Contingent Effectiveness of Plan Amendment and Restatement. 26 APPENDIX A - Top Heavy Provisions APPENDIX B - Listing of Designated Subsidiaries EMPLOYEES' STOCK OWNERSHIP PLAN OF AMERICAN WATER WORKS COMPANY, INC. AND ITS DESIGNATED SUBSIDIARIES This is the Employees' Stock Ownership Plan Of American Water Works Company, Inc. And Its Designated Subsidiaries ("Plan"), amended and restated effective August 1, 1999, except as otherwise provided, covering the eligible employees of American Water Works and such of its affiliated entities as have adopted the Plan for their eligible employees. The rights and obligations under the Plan with respect to an employee who terminated employment before the applicable effective date of this amendment and restatement shall be governed by the terms of the Plan as in effect on the date of his termination of employment. This amendment and restatement of the Plan is effective August 1, 1999. However, any provision of the Plan that is required to have an effective date prior to the date indicated above in order to comply with the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997 or other legislation shall be effective on the earliest date required by law. The Plan is intended to be an "employee stock ownership plan" as defined in section 4975(e)(7) of the Code. As such, the Plan is designed to invest primarily in qualifying employer securities. ARTICLE I DEFINITIONS. The following words and phrases as used herein have the following meanings unless a different meaning is plainly required by the context: 1.1. "Account" means a Participant's Account in the Plan, including the following sub-Accounts: 1.1.1. "Participant ESOP Account" to hold the amounts allocated to the Participant's Account through December 31, 1986; 1.1.2. "Participant Contribution Account" to hold the amounts contributed by the Participant pursuant to Section 4.1 of the Plan; 1.1.3. "Company Basic Contribution Account" to hold the Company and Designated Subsidiary basic contributions made pursuant to Section 3.1(a); 1.1.4. "Company Matching Contribution Account" to hold the Company and Designated Subsidiary matching contributions made pursuant to Section 3.1(b); and 1.1.5. "Qualified Matching Contribution Account" to hold Qualified Matching Contributions, if any, made pursuant to Section 3.1(c). 1.2. "Annual Addition" means the sum credited to the Participant under each Defined Contribution Plan for any Limitation Year, of: 1.2.1. Employer contributions, 1.2.2. Employee contributions (other than Rollover Contributions), and 1.2.3. forfeitures. The term "Annual Addition" shall also include the amount allocated to a separate account of the Participant to provide post-retirement medical benefits (a) under a Defined Benefit Plan, as described in section 415(l)(1) of the Code, and (b) with respect to a Participant who is, or was, a Key Employee for any Plan Year, under a welfare benefit fund, as described in section 419A(d)(2) of the Code. 1.3. "Beneficiary" means: 1.3.1. the Participant's spouse, 1.3.2. the person, persons or trust designated by the Participant, with the consent of the Participant's spouse if the Participant is married, as direct or contingent beneficiary in a manner prescribed by the Committee, or 1.3.3. if the Participant has no spouse and has made no effective beneficiary designation, the Participant's heirs under the intestate law of the state of the Participant's domicile at his death. A married Participant may designate a person, persons or trust as beneficiary other than his spouse provided that such spouse consents to such designation in writing in a manner prescribed by the Committee. Such consent shall not be required if the Participant establishes to the satisfaction of the Committee that the consent cannot be obtained because the spouse cannot be located. No subsequent spouse of the Participant shall be bound by any such consent. 1.4. "Board of Directors" means the Board of Directors of American Water Works Company, Inc. 1.5. "Break-in-Service" means each 12 month period included in a Period of Severance during which an Employee fails to perform one Hour of Service. An individual who is absent from work for maternity or paternity reasons shall not incur a Break In Service for the 12 consecutive month period beginning on the first anniversary of the first day of such absence. For purposes of this section, an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of a birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. 1.6. "Code" means the Internal Revenue Code of 1986, as amended. 1.7. "Committee" means the Retirement Plan Committee appointed under Article XII as administrator of the Plan. 1.8. "Company" means American Water Works Company, Inc. 1.9. "Compensation." 1.9.1. General Rule. Compensation means, except as otherwise provided in this Section 1.9, all amounts of regular cash compensation that are treated as wages for Federal income tax withholding under section 3401(a) of the Code (determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed) for the Plan Year, plus amounts that would be paid to the Employee during the year but for the Employee's election under a cash or deferred arrangement described in section 401(k) of the Code, a cafeteria plan described in section 125 of the Code, a simplified employee pension described in section 402(h) of the Code or an annuity program described in section 403(b) of the Code. Notwithstanding the preceding sentence, Compensation shall not include contributions by the Employer to this or any other plan or plans for the benefit of its employees, benefits under any long-term disability plan, except as otherwise expressly provided in this Section 1.9, or amounts identified by the Employer as expense allowances or reimbursements regardless of whether such amounts are treated as wages under the Code. 1.9.2. Limitations on Annual Additions. For the purpose of Section 7.3 and Appendix A, Compensation shall include all amounts that are treated as wages for Federal income tax withholding under section 3401(a) of the Code (determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed) and actually paid to the Participant during the Limitation Year, excluding the following: (i) contributions of the Company or a Designated Subsidiary to a plan of deferred compensation that are not includable in the Employee's gross income for the taxable year in which contributed, or employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distribution from a plan of deferred compensation; (ii) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (iii) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (iv) other amounts that received special tax benefits, or contributions made by the Company or a Designated Subsidiary (whether or not under a salary reduction agreement) towards the purchase of an annuity described in section 403(b) of the Code, (whether or not the amounts are actually excludable from the gross income of the Employee). 1.9.3. Highly Compensated Employee, Key Employee. For the purpose of Section 1.24, defining the term "Highly Compensated Employee," and for the purpose of the definition of "Key Employee" in Appendix A, Compensation shall include the amount determined under Section 1.9.2, plus amounts that would be paid to the Employee during the year but for the Employee's election under a cash or deferred arrangement described in section 401(k) of the Code, a cafeteria plan described in section 125 of the Code, a simplified employee pension described in section 402(h) of the Code or an annuity program described in section 403(b) of the Code. 1.9.4. Maximum Annual Dollar Limit. The annual Compensation of each Employee taken into account for any purpose under the Plan, other than those described below in this subsection, shall not exceed $160,000 (as adjusted under section 401(a)(17) of the Code). This subsection shall not apply for purposes of determining which individuals are Key Employees or for purposes of the limitations on Annual Additions to Accounts under section 415 of the Code. 1.10. "Defined Benefit Plan" means any employee pension plan maintained by the Employer that is a qualified plan under section 401(a) of the Code and is not a Defined Contribution Plan. 1.11. "Defined Contribution Plan" means an employee pension plan maintained by the Employer that is a qualified plan under section 401(a) of the Code and is described in section 414(l) of the Code. 1.12. "Designated Subsidiary" means any Subsidiary named from time to time by the Board of Directors as such under this Plan, or any Subsidiary which, prior to September 15, 1977, was a Designated Subsidiary under the Pension Plan (as defined therein). A Subsidiary's status as a Designated Subsidiary may be changed by the Board of Directors from time to time. Set forth on Appendix B is the list of Designated Subsidiaries. 1.13. "Dividend Reinvestment Plan" means the American Water Works Company, Inc. Dividend Reinvestment and Stock Purchase Plan, as set forth in the prospectus of the Company dated April 16, 1998 filed with the Securities and Exchange the Commission, and as such Plan may be amended, interpreted or regulated by the Company from time to time. 1.14. "Effective Date" means January 1, 1976, except as otherwise specified. The effective date of this amendment and restatement is August 1, 1999, except as otherwise specified. 1.15. "Employee" means: 1.15.1. an individual who is employed by the Employer; 1.15.2. an individual who is not employed by the Employer but is a leased employee within the meaning of section 414(n)(2) of the Code; provided that, if the total number of leased employees constitutes 20% or less of the Employer's nonhighly compensated work force, within the meaning of section 414(n)(5)(C)(ii) of the Code, the term "Employee" shall not include those leased employees covered by a "safe harbor" plan described in section 414(n)(5)(B) of the Code; and 1.15.3. when required under Section 1.25 for purposes of crediting Hours of Service, a former Employee. 1.16. "Employer" means the Company and: 1.16.1. any other employer included with the Company in a controlled group of corporations or trades or businesses within the meaning of section 414(b) or section (c) of the Code, or an affiliated service group within the meaning of section 414(m) of the Code; and 1.16.2. any other entity required to be aggregated with the Company pursuant to regulations under section 414(o) of the Code; provided that any such employer shall be included within the term "Employer" only while a member of such a group including the Company. 1.17. "Employment Commencement Date" means the date upon which an individual was first credited with an Hour of Service, as defined in Section 1.24.1. 1.18. "Employment Recommencement Date" means the date upon which an individual was first credited with an Hour of Service, as defined in Section 1.24.1 after a Severance from Service Date. 1.19. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 1.20. "Excess Aggregate Contributions" means that amount of Matching and Participant Contributions made by or on behalf of a Participant for a Plan Year that exceeds the limitation on Matching and Participant Contributions set forth in Article V. 1.21. "Five-Percent Owner" means any Employee who owns (or is considered as owning within the meaning of section 318 of the Code) more than 5% of the outstanding stock of any Participating Employer or stock possessing more than 5% of the total combined voting power of all stock of any Participating Employer. For purposes of this Section 1.22, section 318(a)(2)(C) of the Code shall be applied by substituting "5%" for "50%" each time it appears therein. 1.22. "Fund" means the assets and all earnings, appreciation or additions thereto held by the Trustee under the Trust for the exclusive benefit of Participants or their Beneficiaries. 1.23. "Highly Compensated Employee" means any Employee who: 1.23.1. was a Five-Percent Owner at any time during the year or the preceding year; or 1.23.2. for the preceding year: 1.23.2.1. had Compensation from the Employer in excess of $80,000 (as adjusted under section 414(q) of the Code) and 1.23.2.2. if the Employer elects, was in the "top-paid group" (within the meaning of section 414(q) of the Code) for such preceding year. 1.24. "Hour of Service" means: 1.24.1. each hour for which an Employee is paid, or entitled to payment for the performance of duties for the Employer; 1.24.2. each hour for which an Employee is paid or entitled to payment by the Employer with respect to a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military leave or leave of absence, provided that no more than 501 Hours of Service shall be credited to an Employee on account of any single continuous period during which that Employee performs no duties; 1.24.3. each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer; 1.24.4. if an Employee is absent from employment for any period because of: 1.24.4.1. the pregnancy of the individual, 1.24.4.2. the birth of a child of the individual, 1.24.4.3. the placement of a child with the individual in connection with the adoption of such child by the individual, or 1.24.4.4. the provision of care for such child for a period beginning immediately following such birth or placement, each hour that normally would have been credited to such Employee but for such absence; provided that an Employee shall be credited with no more than 501 Hours of Service on account of any single period of absence described in this Section 1.24.4. 1.24.5. any other hour required to be credited pursuant to applicable regulations of the Department of Labor. Hours of Service shall be credited to the Employee for the applicable 12 month period or periods in which the duties are performed, for which the payment is made, or to which the award, agreement or leave pertains, except that in the case of hours credited under Section 1.24.4 relating to maternity or paternity leave such hours shall be credited if the year in which the absence from work begins if necessary to avoid a Break-in-Service in that year, or in any other case, in the following year. Hours of Service under this Section 1.24 shall be calculated and credited under the provisions of 29 CFR Section 2530.200b-2 issued by the United States Department of Labor, which regulations are incorporated herein by reference. 1.25. "Limitation Year" means the Plan Year. 1.26. "Non-Highly Compensated Employee" means an Employee who is not a Highly Compensated Employee. 1.27. "Normal Retirement Date" means the date a Participant reaches age 65. 1.28. "Participant" means an Employee who has satisfied the eligibility requirements of Article II. 1.29. "Participant Contributions" means a Participant's after-tax contributions that he elects to make pursuant to Section 4.1. 1.30. "Pension Plan" means the Pension Plan for Employees of American Water Works Company, Inc. and its Designated Subsidiaries as amended from time to time. 1.31. "Period of Service" means the period between the later of (a) the Employee's Employment Commencement Date or (b) the Employee's Employment Recommencement Date, and the Employee's Severance from Service Date. 1.32. "Plan" means the Employees' Stock Ownership Plan of American Water Works Company, Inc. and its Designated Subsidiaries, as set forth in this document and the related trust agreement pursuant to which the Trust is established. 1.33. "Plan Year" means the year ending December 31. 1.34. "Prior Plan" means the version of the Plan in effect on December 31, 1986. 1.35. "Qualified Matching Contribution" means a Matching Contribution made by a Participating Employer pursuant to Section 3.1(c) and allocated to a Participant's Qualified Matching Contribution Account that: 1.35.1. is 100% vested and nonforfeitable when made; and 1.35.2. may not be distributed earlier than the Participant's separation from service 1.36. "Required Beginning Date" means April 1 of the calendar year following the later of: 1.36.1. the calendar year in which the Active Participant reaches age 70 1/2; or 1.36.2. the calendar year in which the Participant retires; provided, that this Section 1.36 shall not apply in the case of a Participant who is a Five-Percent Owner with respect to the Plan Year ending in the calendar year in which the Participant attains age 70 1/2. 1.37. "Severance from Service Date" means the date upon which an Employee severs his service with the Company or an Affiliated Company, which date shall be the earlier of: 1.37.1. the date upon which the employee quits, is discharged, dies, or retires; or 1.37.2. the first anniversary of the first date of such Employee's absence from service for any other reason; provided that an Employee who is absent from service beyond that first anniversary by reason of a maternity or paternity leave resulting from the Employee's pregnancy, the birth of the Employee's child, the placement with the Employee of a child for adoption, or the need to provide care for such a child following its birth or adoption, that Employee's Severance From Service Date shall be the second anniversary of the first date of such absence. The period between the first and second anniversaries of the first date of such absence shall be considered neither a Period of Service nor a period of severance. 1.38. "Stock" means voting common stock of the Company of the same class and having the same voting and dividend rights as that common stock of the Company which from time to time is listed for trading on the New York Stock Exchange. 1.39. "Subsidiary" means any corporation, association or business trust, 50% or more of whose voting stock (not including shares have voting power only upon the happening of an event of default) is or was owned, directly or indirectly, by American Water Works Company, Inc., or by any corporation which was a constituent in a merger, consolidation, liquidation, transfer or substantially all of its assets in exchange for stock, or similar combination of corporations with or into the Company. 1.40. "Trust" means the legal entity created by the trust agreement between the Company and the Trustee, fixing the rights and liabilities with respect to controlling and managing the Fund for the purposes of the Plan. 1.41. "Trustee" means the trustee or trustees hereafter designated by the Board of Directors and named in the trust agreement or any amendment thereto. 1.42. "Valuation Date" means any day that the New York Stock Exchange is open for business or any other date chosen by the Committee. 1.43. "Year of Service" means a 12 consecutive month period included within a Period of Service; provided that the following special rules apply: 1.43.1. If an Employee quits, is discharged or retires and within 12 months thereafter returns to service and is credited with an Hour of Service, his Years of Service shall be computed as though his service had not been severed. 1.43.2. If an Employee who is absent from service for any reason other than those specified in subparagraph (a) above, while so absent, quits, is discharged, is placed on indefinite layoff or retires, within 12 months after the first date upon which he was absent from service, returns to service and is credited with an Hour of Service, his Years of Service shall be computed as though his service has not been severed. 1.43.3. An Employee who is absent by reason of service in the armed forces of the United States or on a leave of absence authorized by the Employer and who returns to service with the Employer within the time during which his reemployment rights are protected by federal law or at the expiration of his authorized leave of absence, as applicable, shall be treated as though he had been actively performing services for the Employer during such period of absence. ARTICLE II PARTICIPATION. 2.1. Eligibility Requirements. Except as provided in Section 2.2, an Employee shall be eligible to participate in the Plan beginning on the January 1 following his date of hire. Effective as of January 1, 2000, each new Employee shall be eligible to participate in the Plan on his date of hire. 2.2. Ineligible Employees. Each of the following Employees shall be ineligible to participate in the Plan: 2.2.1. an Employee who is employed by an Employer that is not the Company or a Designated Subsidiary; 2.2.2. an Employee included within a unit of Employees covered by a collective bargaining agreement, unless that collective bargaining agreement provides for their participation in the Plan; 2.2.3. a leased employee, within the meaning of section 414(n)(2) of the Code; 2.2.4. an Employee who is a non-resident alien and who has no income from sources within the United States; 2.2.5. an individual who has been classified by the Company as an independent contractor, notwithstanding a contrary determination by any court or governmental agency; and 2.2.6. an individual who is employed in an ineligible category, such as a division of the Company or Designated Subsidiary to which this Plan has not been extended. 2.3. Time of Participation - Excluded Employees. An Employee otherwise eligible to be a Participant in the Plan, but excluded under Section 2.2, shall be eligible to become a Participant beginning on the first day of the month coincident with or next following the date upon which the applicable provision of Section 2.2 ceases to apply. A Participant who becomes subject to any provision of Section 2.2 shall cease to be eligible to make or receive contributions under the Plan as of the last day of the payroll period coincident with, or within which, any such provision becomes applicable. ARTICLE III CONTRIBUTIONS BY THE COMPANY AND ITS DESIGNATED SUBSIDIARIES. 3.1. Amount of Contributions. 3.1.1. Basic Contributions. The Company and its Designated Subsidiaries shall contribute to the Fund, for each Plan Year, an amount equal to 0.5% of the Compensation for the immediately preceding Plan Year of each Participant who was an Employee on the preceding December 31. For Plan Years beginning on or after January 1, 2000, Basic Contributions for the Plan Year will be made monthly in an amount equal to 0.5% of a Participant's current Compensation. 3.1.2. Matching Contributions. The Company and its Designated Subsidiaries shall contribute to the Fund, for each Plan Year, on behalf of each Participant who was an Employee on the preceding December 31, an amount equal to 100% of each Participant's Contributions made pursuant to Section 4.1. For Plan Years beginning on or after January 1, 2000, Matching Contributions for the Plan Year will be made monthly in an amount equal to 100% of each Participant's Contribution, made during the month pursuant to Section 4.1. 3.1.3. Qualified Matching Contributions. If the limitation on Matching and Participant Contributions set forth in Article V is exceeded, at the direction of the Committee, the Company and its Designated Subsidiaries shall make Qualified Matching Contributions to the Qualified Matching Contribution Account of each Participant who is a Non-Highly Compensated Employee in the amount necessary to meet the limitation set forth in such Section. Qualified Matching Contributions shall be treated as Matching Contributions for all purposes of the Plan. 3.1.4. Form of Contributions. Contributions under Section 3.1 shall be made in cash, in Stock, or a combination thereof. 3.2. Payment of Company and Designated Subsidiary Contributions. Contributions under Section 3.1 shall be made no earlier than the first day of the Plan Year to which they relate and no later than the due date (including extensions) for the Company's federal income tax return for the Plan Year to which those contributions relate. ARTICLE IV PARTICIPANT CONTRIBUTIONS. 4.1. Amount of Participant Contributions. Each Participant who was an Employee on the preceding December 31 may elect to contribute to the Plan for each Plan Year an amount that does not exceed 2% of his Compensation for the immediately preceding Plan Year. Such contributions shall be made at such time and in such manner as the Committee, in its discretion, may permit. The Committee shall have the right to vary the time and manner of Participant contributions from year to year, so long as all such changes are applied in a nondiscriminatory manner. For Plan Years beginning on or after January 1, 2000, each Participant may for any Plan Year elect to have Contributions withheld from his pay in increments of one percent (1%) or two percent (2%) of his current Compensation, and the amount paid into his Participant Contribution Account monthly. Contributions may only be made by payroll withholding. Notwithstanding the above, any former Participant who terminated due to retirement, death, reorganization, or office closing during the period January 1, 1999 through December 31, 1999 and who would be eligible to participate in the plan in all other respects, shall be permitted to contribute to the Plan at such time and in such manner as provided immediately prior to the effective date of this amendment and restatement. Any Participant who retires during 2000 but on or before June 30, 2000, or the beneficiary of a Participant who dies during that same period, shall be permitted to make a one time supplemental contribution sufficient to bring the total of that Participant's Contributions for the 2000 Plan Year up to 2% of compensation received for the immediately preceding Plan Year while an active Participant. 4.2. Election to Change Rate of Participant Contributions. The percentage designated by a Participant as a rate of contribution with respect to Participant Contributions shall automatically apply to increases and decreases in his rate of Compensation. Except as provided in Section 4.3, a Participant may elect to change the rate of his Participant Contributions to any other permissible rate any time during the year. Any such election shall be effective not later than the first payroll of the next following month, provided the Participant makes a timely election to do so in accordance with procedures established by the Committee. 4.3. Suspension and Resumption of Participant Contributions. A Participant may suspend his Participant Contributions as of the first day of any payroll period of the next following month, provided the Participant makes a timely election to do so in accordance with procedures established by the Committee. Such Participant may not resume Participant Contributions until the first payroll period of the next following month. Such Participant may elect to resume Participant Contributions by following the procedures established by the Committee, and making a timely election to do so. ARTICLE V LIMITATION ON MATCHING AND PARTICIPANT CONTRIBUTIONS. 5.1. Limitation - Code Section 401(m) 5.1.1. Notwithstanding any provision of this Plan to the contrary, Matching and Participant Contributions shall be limited as provided in section 401(m) of the Code, so that the "average contribution percentage," as defined below, for the eligible Highly Compensated Employees for the current Plan Year shall bear a relationship to the "average contribution percentage" for the eligible Non-Highly Compensated Employees that meets one of the alternative tests described in section 401(m) of the Code and summarized below, as the Committee shall determine: 5.1.1.1. the average contribution percentage for the eligible Highly Compensated Employees for such Plan Year shall not exceed 125% of the average contribution percentage for the eligible Non-Highly Compensated Employees for the preceding Plan Year; or 5.1.1.2. the average contribution percentage for the eligible Highly Compensated Employees for such Plan Year shall not exceed the lesser of: (i) 200% of the average contribution percentage for the eligible Non-Highly Compensated Employees for the preceding Plan Year, or (ii) the average contribution percentage for the eligible Non-Highly Compensated Employees for the preceding Plan Year plus two percentage points. 5.1.1.3. At the election of the Sponsor, Section 5.1.1.1 may be applied by substituting "for the Plan Year" in place of "for the preceding Plan Year" in Section 5.1.1.1; provided, however, such an election, once made, may not be changed except in accordance with procedures established by the Internal Revenue Service. 5.1.2. The term "average contribution percentage" means the average of each eligible Employee's actual contribution percentage that is equal to the following ratio: 5.1.2.1. the amount of the Matching and Participant Contribution allocated on behalf of each eligible Employee for the Plan Year, to 5.1.2.2. the Employee's Compensation for the Plan Year. 5.1.3. Treatment of Excess Aggregate Contributions. If neither test described in Section 5.1.1 is met, or in the Committee's opinion will be met, the Committee, at its discretion, shall: 5.1.3.1. cause the Participating Employer to make Qualified Matching Contributions to the Qualified Matching Contribution Account of each Participant who is a Non-Highly Compensated Employee to the extent necessary to meet one of the tests, provided such Participating Employer authorizes such contribution; or 5.1.3.2. cause Excess Aggregate Contributions, adjusted for income or loss thereon, to be forfeited, if otherwise forfeitable under the terms of the Plan, or if not forfeitable, distributed as additional compensation to Participants on whose behalf the Excess Aggregate Contributions were contributed within two and one-half months after the end of the Plan Year for which they were contributed. 5.1.4. Determination of Amount of Excess Aggregate Contributions. The amount of a Highly Compensated Employee's Excess Aggregate Contributions for a Plan Year is the amount necessary to reduce the amount of his Matching and Participant Contributions to a maximum adjusted percentage, which shall be the highest percentage that would cause one of the tests in Section 5.1.1 to be met if each such Highly Compensated Employee who had an actual contribution percentage greater than the maximum adjusted percentage had, instead, such lower percentage. The aggregate amount of Excess Aggregate Contributions on behalf of all Highly Compensated Employees shall be distributed as follows: 5.1.4.1. the Matching and Participant Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Matching and Participant Contributions are reduced by the amount required to cause that Highly Compensated Employee's Matching and Participant Contributions to equal the dollar amount of Matching and Participant Contributions of the Highly Compensated Employee(s) with the next highest dollar amount of Matching and Participant Contributions; provided, however, if a lesser reduction, when added to the total dollar amount already distributed under this Section, would equal the aggregate Excess Aggregate Contributions the lesser reduction amount shall be distributed; and 5.1.4.2. if the total amount adjusted under Section 5.1.5.1 is less than the aggregate Excess Aggregate Contributions, the process set forth in Section 5.1.5.1 shall be repeated. 5.1.5. Determination of Income or Loss. The Committee shall determine the income or loss allocable to Excess Aggregate Contributions by using any reasonable method it selects, provided that the method does not violate section 401(a)(4) of the Code, is used consistently for all Participants and all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to Participant Accounts. 5.2. Plan Aggregation; Special Rule. 5.2.1. The actual contribution percentage under Section 5.1.2 for an eligible Employee who is a Highly Compensated Employee for the Plan Year and who is eligible to have Matching Contributions or Participant Contributions allocated to his accounts under two or more plans described in section 401(a) or arrangements described in section 401(m) of the Code that are maintained by the Employer, shall be determined as if all such Matching Contributions and Participant Contributions were made under a single arrangement. 5.2.2. For purposes of satisfying the limitation on Matching and Participant Contributions of Section 5.1, in the event that this Plan satisfies the requirements of section 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of section 410(b) of the Code only if aggregated with this Plan, then actual contribution percentages of eligible Employees shall be determined as if all such plans were a single plan. 5.2.3. The determination and treatment of the actual contribution percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. ARTICLE VI PURCHASE OF STOCK 6.1. Investment in Stock. The Trustee shall invest and reinvest all contributions to the Fund in Stock in accordance with this Article VI and the terms of the Trust Agreement. 6.2. Purchase of Shares. All contributions to the Fund shall be used by the Trustee to purchase shares of Stock, at the time specified by Section 6.3, from the Company, on the open market, or in a private transaction from a shareholder of the Company who is neither a "disqualified person" within the meaning of section 4975 of the Code nor a "party in interest" within the meaning of section 3(14) of ERISA. 6.3. Timing of Purchase. Purchases of Stock with contributions made pursuant to Section 3.1 and Section 4.1 shall be made by the Trustee on or before the 30th day following the receipt of such contributions. 6.4. Cash Balance. Notwithstanding any other provision of the Plan, the Trustee may at all times maintain a balance of cash in an amount not in excess of the amount which it reasonably anticipates will be necessary to make cash distributions to Participants in lieu of shares or fractional shares over the next 12 months. The Company may advance to the Trustee, in any Plan Year, the amount which the Company anticipates will be necessary for the purposes of this Section 6.4. All advances made under this Section 6.4 shall be credited against the contribution required under Section 3.1 for the Plan Year during which the advance is made. ARTICLE VII CREDITS TO ACCOUNTS. 7.1. Maintenance of Accounts. The Committee shall maintain, or cause to be maintained, for each Participant a Participant Contribution Account, a Matching Contribution Account, and a Qualified Matching Contribution Account. 7.2. Payment and Allocation of Contributions and Forfeitures. 7.2.1. Participant Contributions. Participant Contributions shall be paid over by the Employer to the Trustee as of the earliest date on which such Participant Contributions can reasonably be segregated from the Employer's general assets. Participant Contributions shall be allocated to Participants' Accounts as soon as administratively feasible after they are received by the Trustee. 7.2.2. Company Basic Contributions. Company Basic Contributions shall be paid to the Trustee at the same time that Company Matching Contributions are paid. Such Contributions shall be allocated to Participants' Accounts as soon as administratively feasible after they are received by the Trustee, but in no event later than the last Valuation Date of the Plan Year to which such contributions relate. 7.2.3. Company Matching Contributions. Company Matching Contributions shall be paid to the Trustee at the same time that Participant Contributions to which they relate are paid. Such Contributions shall be allocated to Participants' Accounts as soon as administratively feasible after they are received by the Trustee, but in no event later than the last Valuation Date of the Plan Year to which such contributions relate. 7.2.4. Qualified Matching Contributions. Payment of the Company's Qualified Matching Contributions shall be made within the time prescribed by the Code as the time within which contributions must be made in order to constitute an allowable Federal income tax deduction for the Employer's taxable year for which the contribution is made. Such contributions shall be allocated to Participants' Accounts no later than the last Valuation Date of the Plan Year to which they relate. 7.2.5. Fractional Shares of Stock. Subject to 7.3, all shares of Stock purchased by the Trustee shall be allocated to Participants' Accounts even though the result may be the allocation of fractional shares, computed to at least the nearest two decimal places. 7.2.6. Disposition of Forfeitures. Any amounts released from a Participant's Basic, Matching and Qualified Matching Accounts upon a termination of employment before January 1, 2000 before the Participant has been credited with a 100% vested interest in those Accounts shall be placed in a suspense account and held for five complete calendar years, at which time the amounts shall be forfeited. During that five year period, dividends paid on Stock held in the suspense account shall be accumulated in that account and held in cash. If the Participant again becomes an Employee before he incurs five consecutive Breaks-in-Service, the amounts held in the suspense account shall be restored to him. After the Participant has incurred five consecutive Breaks-in-Service amounts held in the suspense account shall be released and used to reduce Basic and then Matching Contributions of the Company or Designated Subsidiary employing such Participant at the time of his termination of employment for the Plan Year in which such amounts are released from the suspense account or any succeeding Plan Year. 7.3. Valuation of the Stock. 7.3.1. General Rule. As of each Valuation Date, any increase or decrease in the fair market value of the Stock since the preceding Valuation Date shall be computed by the Trustee and credited to or deducted from the Accounts of all Participants. Each such Account's share of any increase or decrease shall be that portion which bears the same ratio to the total as the portion of: 7.3.1.1. the Participant's Account invested as of the preceding Valuation Date bears to 7.3.1.2. the total of all Participants' Accounts invested as of the preceding Valuation Date. For the purpose of determining such increase or decrease, the balance at the preceding Valuation Date shall be reduced by amounts since properly paid from the Fund, and, in any case where a distribution falls due on a Valuation Date it shall not be regarded as due until the next day. The Committee shall provide for the establishment of accounting procedures for the purpose of making the allocations, valuations and adjustments to Participants' Accounts provided for in this Article. From time to time, such procedures may be modified for the purpose of achieving equitable and nondiscriminatory allocations among the Participants' Accounts in accordance with the provisions of this Article. The fair market value of investments held in the Fund shall be conclusively determined by the Trustee in accordance with any reasonable method permitted under regulations issued by the Secretary of the Treasury and such reasonable and uniform rules as the Trustee may adopt. 7.4. Limitations on Annual Additions to Participants' Accounts - Code Section 415. 7.4.1. Primary Limit. The maximum Annual Addition to any Participant's Account for any Limitation Year shall be the lesser of: 7.4.1.1. $30,000; or 7.4.1.2. 25% of the Participant's Compensation for such Limitation Year. 7.4.2. Combined Limit. Effective until December 31, 1999 (for calendar year plans), if a Participant participates in one or more Defined Contribution Plans and one or more Defined Benefit Plans to which the Employer contributes on his behalf, the sum of the defined benefit fraction and the defined contribution fraction shall not exceed 1.0. 7.4.2.1. Defined Benefit Fraction. The defined benefit fraction for any Limitation Year is a fraction (i) the numerator of which is the Participant's projected annual benefit (determined as of the close of the Limitation Year) under all such Defined Benefit Plans (whether or not terminated), and (ii) the denominator of which is the lesser of (A) $90,000 or the applicable dollar limit for such Limitation Year multiplied by 1.25 (1.0 if the Plan is a Super Top-Heavy Plan), or (B) the Participant's average Compensation for the three consecutive calendar years of active participation, that produces the highest average, multiplied by 1.4. 7.4.2.2. Defined Contribution Fraction. The defined contribution fraction for any Limitation Year is a fraction (i) the numerator of which is the total of the Participant's Annual Additions as of the close of the Limitation Year, and (ii) the denominator of which is the lesser of the following amounts determined for the Limitation Year and for each prior Limitation Year for which the Participant was an Employee (regardless of whether any Plan was in existence during such year): (i) $30,000 or the applicable dollar limit for each such Limitation Year multiplied by 1.25 (1.0 if the Plan is a Super Top-Heavy Plan), or (ii) 35% of the Participant's Compensation for each such Limitation Year. 7.4.3. Aggregation Requirement. For purposes of applying the limitations of this Section 7.4: 7.4.3.1. all Defined Benefit Plans (without regard to whether such Defined Benefit Plan has been terminated) ever maintained by the Employer will be treated as one Defined Benefit Plan; and 7.4.3.2. all Defined Contribution Plans (without regard to whether such Defined Contribution Plan has been terminated) ever maintained by the Employer will be treated as one Defined Contribution Plan. 7.5. Elimination of Excess Annual Additions. If, as a result of the allocation of forfeitures, a reasonable error in estimating a Participant's Annual Compensation, or under such other circumstances as the Internal Revenue Service may prescribe, the limitations described in Section 7.4.1 would be exceeded for any Participant, such Participant's excess Annual Addition shall be eliminated as follows: 7.5.1. any Participant Contributions (plus the earnings attributable thereto), to the extent they would reduce the Annual Addition to the maximum permitted amount, shall be returned to the Participant; 7.5.2. any reallocated forfeitures, to the extent they would reduce the Annual Addition to the maximum permitted amount shall be placed in an unallocated suspense account and used to reduce Employer contributions for all Participants in the next Plan Year and each succeeding Plan Year, if necessary; 7.5.3. if after applying Section 7.5.1 and 7.5.2, any amount remains in excess of the maximum permitted Annual Addition, such amount shall be paced in an unallocated suspense account and used to reduce Employer contributions for all Participants in the next Plan Year and each succeeding Plan Year, if necessary. 7.5.4. If in accordance with this Section 7.5, a suspense account is in existence during any Plan Year, such account shall not share in the investment gains and losses of the Fund. ARTICLE VIII VESTING. 8.1. Rate of Vesting in ESOP, Participant Contribution and Qualified Matching Accounts. A Participant shall have a 100% vested interest, at all times, in all shares of Stock or other assets standing to the credit of his ESOP Account, his Participant Contribution Account and his Qualified Matching Contribution Account. 8.2. Rate of Vesting in Basic and Matching Accounts. A Participant shall have no vested interest in his Basic and Matching Accounts until he has been credited with five Years of Service at which time he shall have a 100% vested interest in all shares of stock or other assets standing to the credit of those Accounts. In any event, a Participant shall be 100% vested in his Basic and Matching Accounts on (i) his Normal Retirement Date if he is employed by the employer on that date, or (ii) upon his death while employed by the Employer. Notwithstanding this above, effective January 1, 2000, active Participants shall be 100% vested in the Basic and Matching Accounts at all times. ARTICLE IX VOTING OF STOCK. 9.1. Direction of Participant. The Trustee shall vote all shares of Stock, including fractional shares, allocated to a Participant's Account, in the manner directed by the Participant to whose Account such shares are allocated. 9.2. Procedures Requirement. The Committee shall establish and maintain a procedure by which Participants will be timely notified of their right to direct the voting of Stock allocated to their Accounts and the manner in which any such directions are to be conveyed to the Trustee. 9.3. Voting of Non-Directed or Unallocated Shares. If a Participant fails to direct the voting of shares of Stock allocated to his Account, or if shares of Stock are being held unallocated, the Trustee shall exercise such voting rights in accordance with recommendations of the Company as made to all Shareholders of the Company. ARTICLE X AMOUNT AND DISTRIBUTION OF BENEFITS. 10.1. Distribution of Dividends. At the election of the Participant on a form provided by the Committee (until such election is amended or revoked) any cash dividends received by the Trustee shall be: 10.1.1. distributed to such Participant as soon as practical after those amounts are received by the Trustee, less any taxes required to be withheld under federal or state laws; or 10.1.2. reinvested by the Trustee in Stock pursuant to the Dividend Reinvestment and Stock Purchase Plan. If no election is made by the Participant pursuant to this Section 10.1, dividends will be distributed in accordance with Section 10.1.1. The amount to be distributed or reinvested shall be that portion of the total cash dividend which bears the same ratio to that total dividend as the number of shares of Stock allocated to the Participant's Account as of the preceding Valuation Date bears to the number of shares of Stock allocated to all Participants' Accounts as of that date. Shares of Stock acquired through the Dividend Reinvestment Plan pursuant to a Participant's election under this Section 10.1 shall not be considered assets of this Plan, but rather shall be governed by the terms of the Dividend Reinvestment Plan. 10.2. Distributions Upon Termination of Service. Upon termination of service for reasons other than his death, a Participant shall be entitled to receive the balance of his account, plus any amount subsequently allocated to his Account under Section 7.2, as soon as administratively feasible after the Valuation Date coinciding with or next following the date upon which the Participant becomes entitled to such benefit. Notwithstanding the foregoing, if the value of a Participant's Account exceeds $5,000, payment to such Participant shall not be made unless the Participant consents in writing to the distribution. Consent to such distribution shall not be valid unless the Participant is informed of his right to defer receipt of the distribution. The consent of the Participant's spouse, if any, to such distribution shall not be required. A Participant must have his Account distribution as of the close of the Plan Year in which he reaches age 65. For the purpose of this Section 10.2 a Participant's service shall not be deemed to have terminated by reason of his transfer to an employment status with the Company or a Designated Subsidiary which is not covered by this Plan. Notwithstanding the foregoing, the entire value of a Participant's Accounts must be distributed beginning no later than the Participant's Required Beginning Date. 10.3. Distribution Upon Death Upon termination of a Participant's service by reason of his death, the balance of his Account as of the Valuation date coincident with or next following the Participant's date of death, plus any amounts subsequently allocated to his Account under Section 7.2, shall be distributed to the Participant's Beneficiary, as soon as administratively feasible following the occurrence of such event. To the extent practicable, the Committee shall insure that any distribution pursuant to this Section 10.3 is completed within the recipient's taxable year in which it begins. 10.4. Death After Termination. If a Participant dies following his termination of service, but before any distribution is made pursuant to Section 10.2, the balance of his Account, as of the Valuation Date coincident with or next following his termination of service plus any amounts subsequently allocated to his Account under Section 7.2, shall be distributed to the Participant's Beneficiary, as soon as administratively feasible following the occurrence of such event. To the extent practicable, the Committee shall insure that any distribution pursuant to this Section 10.4 is completed within the recipient's taxable year in which it begins. 10.5. Deferred Distribution. A Participant who elected to defer distribution of his Account pursuant to Section 10.2 may subsequently elect a distribution of his Account upon providing notice of his election in accordance with procedures established by the Committee. A Participant may not elect a partial distribution of his Account pursuant to this Section 10.5. 10.6. Form of Distribution. A Participant, or in the case of a distribution under Section 10.3 or 10.4 as to which the Participant has made no election, a Participant's Beneficiary, may elect to receive distribution pursuant to this Article X in cash or in Stock. If the Participant or beneficiary elects distribution in cash, the Trustee shall convert all shares of Stock allocated to the Participant's Account, including fractional shares, to cash, at the price at which such Stock is traded on the New York Stock Exchange on the conversion date and shall distribute the proceeds to the Participant or Beneficiary. 10.7. Purchase of Stock. Before a distribution of a Participant's Account pursuant to this Article X is made to a Participant or Beneficiary who has elected to receive the distribution in Stock, any cash, or assets other than Stock, allocated to such Account shall be applied to the purchase of Stock, either in the manner and at the price specified in Section 6.2 or from an unallocated account established pursuant to Section 7.3 at the price at which such Stock could currently be purchased on the New York Stock Exchange, so that all distributions will be made in shares of Stock, except that cash shall be distributed in lieu of fractional shares of Stock. For the purpose of this Article X, a fractional share of Stock allocated to a Participant's Account shall be valued at its pro rata share of the closing price of a whole share of Stock on the New York Stock Exchange on the deemed distribution date preceding the date upon which the Participant's Account is to be distributed. 10.8. Restrictions. Any shares of Stock distributed pursuant to the terms of this Plan shall be subject to such restrictions on their transfer as shall be necessary or appropriate, in the opinion of counsel for the Company and the Trust, to comply with applicable federal and state securities laws. 10.9. Limitation on Distributions. No distribution of all or any part of any Participant's Account under this Plan shall be made except in accordance with this Article X, or the withdrawal provisions of Article XI. 10.10. Direct Rollovers. This Section 10.10 will apply to distributions from a Participant's Account made after December 31, 1992. If one or more distributions from a Participant's Account constitutes an "eligible rollover distribution," within the meaning of sections 402(c)(2) and (4) of the Code and regulations thereunder, the Participant may elect to have all or a portion of the distribution paid directly to an individual retirement account or annuity (an "IRA") or a plan qualified under Code Section 401(a) or 403(a) (collectively, an "eligible retirement plan"). The Participant may not elect to have portions of an eligible rollover distribution paid directly to more than one eligible retirement plan. In addition, the Participant will not be permitted to elect a direct rollover with respect to eligible rollover distributions that are reasonably expected to total less than $200 during the year. The Committee shall make such payment upon receipt from the Participant of the name of the eligible retirement plan to which such payment is to be made, a representation that the eligible retirement plan is an IRA or a plan qualified under section 401(a) or 403(a) of the Code, and such other information and/or documentation as the Committee may reasonably require to make such payment. If the Participant fails to elect whether or not a distribution is to be paid in a direct rollover, the Participant will be deemed to have elected not to have any portion of the distribution paid in a direct rollover. This Section shall apply, to the extent required by law, to a Beneficiary who is the Participant's surviving spouse and to a spouse or former spouse who is an alternate payee under a qualified domestic relations order as defined in section 414(p) of the Code, except that only an IRA will be deemed to be an eligible retirement plan with respect to a surviving spouse or a deceased Participant. 10.11. Distributions Pursuant to a Qualified Domestic Relations Order ("QDRO"). Any benefit payable from a Participant's Account to an Alternate Payee pursuant to the terms of a Qualified Domestic Relations Order ("QDRO"), as those terms are defined in section 414(p) of the Code, shall, at the Alternate Payee's election, provided such election is consistent with the terms of the QDRO, be paid: 10.11.1. in a lump sum as soon as administratively reasonable after the determination that the QDRO satisfies the provisions of section 414(p) of the Code, without regard to whether the Participant is then eligible to receive benefits under the Plan; or 10.11.2. at any other time and in any manner permitted by the Plan and the terms of the QDRO, provided that such benefit must be paid, or begin to be paid, no later than the Participant's Normal Retirement Date. 10.11.3. If a QDRO requires the division of an Account balance as of a date earlier than the date of payment to or establishment of a separate account for an Alternate Payee, with earnings credit from such date, the amount to be paid to, or set aside for, the Alternate Payee shall be: 10.11.3.1. the percentage of the Account as of the Valuation Date nearest such earlier determination date awarded to the Alternate Payee by the QDRO, plus an amount of gain or loss determined by: (i) reducing the current date balance of the Account by the sum of the earlier determination date balance and any contributions made since that date; (ii) multiplying the result by the percentage determined by dividing the earlier determination date balance by the sum of the earlier determination date balance and the contributions since that date; and (iii) multiplying the result obtained in (ii) by the percentage of the earlier determination date balance awarded to the Alternate Payee by the QDRO. 10.11.3.2. Determination under this section 10.11.3 will be made on the basis of the cash value of the Participant's account based on the number of shares as of the relevant dates and the amount distributed will be made in cash and or shares in accordance with Sections 10.6 and 10.7 ARTICLE XI WITHDRAWALS BY PARTICIPANTS. 11.1. Participant Withdrawals. Effective September 1, 1999, a Participant who has completed five (5) or more Years of Service may, by written election, in the form prescribed by the Committee and filed with the Committee, elect to withdraw any of the shares of Stock (except Stock attributable to Qualified Matching Contributions) which have been allocated to his Account. Such withdrawal may be made in cash or shares as elected by the Participant. Cash shall be paid in lieu of fractional shares. ARTICLE XII PLAN ADMINISTRATION. 12.1. Fiduciary Responsibility. The Plan shall be administered by the Committee, which shall be deemed to be the Plan's "named fiduciary" and "administrator", as those terms are defined by the Employee Retirement Income Security Act of 1974, as amended. All matters relating to the administration of the Plan, including the duties imposed upon the Plan administrator by law, except those duties relating to the control or management of Plan assets, shall be the responsibility of the Committee. All matters relating to the control or management of Plan assets shall, except to the extent delegated in accordance with the trust agreement, be the sole exclusive responsibility of the Trustee. 12.2. Appointment and Removal of Committee. The Committee shall consist of not less than three persons who shall be appointed and may be removed by the Board of Directors. Persons appointed to the Committee may be, but need not be, employees of the Company or a Designated Subsidiary. Any Committee member may resign by giving written notice to the Board of Directors, which notice shall be effective 30 days after delivery. A Committee member may be removed by the Board of Directors by written notice to such Committee member, which notice shall be effective upon delivery. The Board of Directors shall promptly select a successor following the resignation or removal of any Committee member. 12.3. Compensation and Expenses of Committee. Members of the Committee who are employees of the Company shall serve without compensation. Members of the Committee who are not employees of the Company or a Designated Subsidiary may be paid reasonable compensation for services rendered to the Plan. Such compensation, if any, and all ordinary and necessary expenses of the Committee shall be paid by the Company. 12.4. Committee Procedures. The Committee may enact such rules and regulations for the conduct of its business and for the administration of the Plan as it may deem desirable. The Committee may act either at meetings at which a majority of its members are present or by a writing signed by a majority of its members without the holding of a meeting. Records shall be kept of the meetings and actions of the Committee. No member of the Committee who is a Participant in the Plan shall vote upon any matter affecting only his Account. 12.5. Plan Interpretation. The Committee shall have the authority and responsibility to interpret and construe the Plan and to decide all questions arising thereunder, including without limitation, questions of eligibility for participation, eligibility for benefits, Account balance, and the timing of the distribution thereof, and shall have the authority to deviate from the literal terms of the Plan to the extent the Committee shall determine to be necessary or appropriate to operate the Plan in compliance with the provisions of applicable law. 12.6. Exclusive Benefit Rule. The Committee shall administer and interpret the Plan for the exclusive benefit of Participants and their Beneficiaries. 12.7. Consultants. The Committee may, and to the extent required for the preparation of reports shall, employ such accountants, actuaries, attorneys, consultants and other advisors or agents, as necessary. The fees charged by such accountants, actuaries, attorneys, consultants or other advisors and agents shall be paid by the Company. 12.8. Delegation and Allocation of Responsibility. The Committee may delegate any of its responsibilities to any officer of the Company, and may allocate any of its responsibilities to one or more members of the Committee. In the event of any such delegation or allocation the Committee shall establish procedures for the thorough and frequent review of the performance of such duties. Persons to whom responsibilities have been delegated may not delegate to others any discretionary authority or discretionary control with respect to the management or administration of the Plan. 12.9. Claims Procedure. The Committee shall administer a claims procedure as follows: 12.9.1. If a claim for benefits is denied by the Committee either in whole or in part, the Committee shall notify any Participant or Beneficiary adversely affected by such denial by a written notice setting forth the specific reason or reasons for the denial, a specific reference to the provisions of the Plan upon which the denial is based, a description of any additional material or information necessary for the Participant or Beneficiary to obtain a review of the decision denying the claim in whole or in part together with an explanation of the reasons such material or information may be necessary for these purposes, and an explanation of the claim review procedures for the Plan. 12.9.2. The Participant or Beneficiary whose claim has been denied in whole or in part (or the authorized representative of the Participant or Beneficiary) may, within 60 days after receipt of the written notification described in (a) above, appeal the denial of the claim by delivering to a member of the Committee a written request for a review of the denial. Such written request for a review may be supplemented, within 30 days following delivery of the request for a review, by written comments prepared by the claimant or his duly authorized representative, and the claimant or his duly authorized representative shall for purposes of preparing the request for a review or the additional written comments have made available to him any pertinent documents. 12.9.3. Within 60 days following the later of receipt of a request for review by a member of the Committee or receipt of any additional written comments, the Committee shall give notice to the claimant of its decision on review, which decision shall include specific reasons for the decision and specific references to the provisions of the Plan upon which the decision on review is based. ARTICLE XIII AMENDMENTS, DISCONTINUANCE AND LIABILITIES. 13.1. Amendment. This Plan may be amended at any time, and from time to time, by the Company's Retirement Plan Committee, provided that such amendment does not materially increase the cost of the Plan. The Plan may also be amended at any time and from time to time by the Board of Directors. No amendment shall divest any vested interest of any Participant or Beneficiary nor be effective unless the Plan, as so amended, continues to be maintained for the exclusive benefit of the Participants and their Beneficiaries. 13.2. Termination. The Company reserves the right to discontinue the Plan at any time by action of the Board of Directors. If the Plan is so discontinued the Fund shall continue to be held for distribution as provided in Article X and Article XI. No new Participants may thereafter be admitted to the Plan and the Company shall make no further contributions to the Fund. 13.3. Merger, Consolidation or Transfer of Assets or Liabilities. The Company reserves the right, by action of the Board of Directors, to merge or consolidate this Plan with any other employee stock ownership plan qualified under section 401(a) of the Code, or to transfer Plan assets and liabilities to any other such plan qualified under section 401(a) of the Code, including such a transfer in connection with the termination of a Subsidiary's status as a Designated Subsidiary, provided that the amount standing to the credit of each Participant's Account immediately after any such merger, consolidation or transfer of assets and liabilities shall be at least equal to the amount standing to the credit of the Participant's Account immediately before such merger, consolidation or transfer. 13.4. Change in Designated Subsidiary Status. In the event a Subsidiary ceases to be a Designated Subsidiary, but continues in existence as a corporate entity, no further allocations shall be made to the Accounts of the Participants employed by that Subsidiary, other than Stock, money or other property distributed with respect to Stock held in those Accounts, for any Plan Year beginning after the Subsidiary ceases to be a Designated Subsidiary. Those Participants' Accounts shall either be: 13.4.1. transferred-to another qualified plan, in accordance with Section 13.3, or 13.4.2. completely distributed to the Participants entitled thereto in accordance with the provisions of Article X. ARTICLE XIV VETERANS' REEMPLOYMENT RIGHTS. Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to Qualified Military Service will be provided in accordance with section 414(u) of the Code. For purposes of determining an Employee's service under the Plan, any military service in the Armed Forces of the United States during which an Employee's employment and reemployment rights with the Employer are guaranteed by federal law (including the Uniformed Services Employment and Reemployment Rights Act of 1994) shall be recognized as service, provided such Employee applies for reemployment with the Employer after such separation from military service within the time prescribed by such law. ARTICLE XV MISCELLANEOUS. 15.1. Limited Purpose of Plan. The establishment or existence of the Plan shall not confer upon any Employee the right to be continued in the employ of the Company or any Designated Subsidiary. The Company and its Designated Subsidiaries expressly reserve the right to discharge any Employee whenever in their judgment their best interests so require. 15.2. Non-alienation. No benefit payable under the Plan shall be subject in any manner to anticipation, assignment, or voluntary or involuntary alienation. This section shall not preclude the Trustee from complying with the terms of any qualified domestic relations order under section 414(p) of the Code. 15.3. Facility of Payment. If the Committee, in its sole discretion, deems a Participant or Beneficiary who is entitled to receive any payment hereunder to be incompetent to receive the same by reason of age, illness or any infirmity or incapacity of any kind, the Committee may direct the Trustee to apply such payment directly for the benefit of such person, or to make payment to any person selected by the Committee to disburse the same for the benefit of the Participant or Beneficiary. The receipt given by such a person shall be complete discharge therefor. Payments made pursuant to this section shall operate as a discharge, to the extent thereof, of all liabilities of the Company, any Designated Subsidiary, the Committee, the Trustee, and the Fund to the person for which benefit the payments are made. 15.4. Impossibility of Diversion. All Plan assets shall be held, in trust, as part of the Fund, until paid to provide benefits to Participants or their Beneficiaries or to pay reasonable Plan expenses. It shall be impossible for any part of the Fund to be used for, or diverted to, purposes other than the exclusive benefit of the Participants or their beneficiaries, and the Trust shall continue for such time as may be necessary to accomplish the purpose for which it is created. 15.5. Provisions Relating to Top-Heavy Plan. Notwithstanding anything in the Plan to the contrary, if the Plan is determined to be a Top-Heavy Plan within the meaning of Section A.12 of Appendix A and Code section 416(g) for any Plan Year, then Article B of Appendix A shall apply. 15.6. Electronic or Telephonic Means. Notwithstanding any provisions of this Plan to the contrary, salary reduction agreements and suspensions or changes thereto, withdrawal decisions and any other election by any Participant under this Plan may be made by electronic or telephonic means that are not otherwise prohibited by law and that are in accordance with procedures and/or systems approved or arranged by the Committee. 15.7. Unclaimed Benefits. If a Participant or Beneficiary to whom a benefit is payable under the Plan cannot be located following a reasonable effort to so by the Committee, such benefit shall be forfeited but will be reinstated if a claim therefor is filed by the Participant or Beneficiary. 15.8. Contingent Effectiveness of Plan Amendment and Restatement. The effectiveness of this amendment and restatement, including but not limited to the contributions made by the Company and its Designated Subsidiaries, shall be subject to and contingent upon a determination of the District Director of Internal Revenue that the Plan and Trust continue to meet the requirements for qualification under the applicable provisions of the Code. If the amendment and restatement should be determined by the District Director not to continue to meet the requirements for qualification, then, upon notice to the Trustee, the Company shall have the right further to amend the Plan or to rescind the amendment and restatement. To record the adoption of the amendment and restatement of the Plan, the Company and its Designated Subsidiaries have caused this document to be executed, on their behalf, by the appropriate officer of the Company on this 1st day of August, 2000. [CORPORATE SEAL] AMERICAN WATER WORKS COMPANY, INC. AND ITS DESIGNATED SUBSIDIARIES By:___________________________________ APPENDIX A TOP-HEAVY PROVISIONS ARTICLE A. TOP-HEAVY PLAN DEFINITIONS. The following words and phrases as used herein have the following meanings unless a different meaning is plainly required by the context: A.1 "Account Balance" means, for all plans included in an Aggregation Group, the sum of: A.1.1 the balance, as of the Top-Heavy Valuation Date, standing to the credit of a Participant (including a Beneficiary of such Participant) in his Account, including contributions that would be allocated as of the Top-Heavy Valuation Date, even though these amounts are not yet required to be contributed, except for amounts maintained in a subaccount attributable to "unrelated" rollover contributions or plan-to- plan transfers; and A.1.2 the aggregate distributions made with respect to such Participant (including a Beneficiary of such Participant) under the Plan during the five-year period ending on the Determination Date. The term "Account Balance" shall not include any amount held or distributed on behalf of any Participant who is a Former Key Employee, or who has not received compensation from the Employer (other than benefits under qualified plans maintained by the Employer) at any time during the five-year period ending on the Determination Date. A.2 "Aggregation Group" means: A-2.1 a Required Aggregation Group, or A.2.2 a Permissive Aggregation Group. A.3 "Determination Date" means: A.3.1 if the Plan is not included in an Aggregation Group, the last day of the preceding Plan Year; or A.3.2 if the Plan is included in an Aggregation Group, the Determination Date as determined under Section A.3.1 that falls within the same calendar year as does the determination date of each other plan included in such Aggregation Group. A.4 "Employer" means the Company and any Designated Subsidiary. A.5 "Former Key Employee" means a Participant who is a Non- Key Employee with respect to the Plan for the Plan Year if such Participant was a Key Employee with respect to the Plan for any prior Plan Year. A.6 "Key Employee" means an Employee, including a deceased former Employee, with respect to the Plan Year, who at any time during the Plan Year that includes the Determination Date or any of the four preceding Plan Years is (or was): A.6.1 An officer of the Employer having annual compensation greater than 150% of the amount in effect under Code section 415(b)(1)(A) for the calendar year in which such Plan Year ends, provided that in no event shall the number of individuals treated as officers exceed 50 employees, or, if lesser, the greater of three employees or 10% of the total number of employees: If more than the maximum number of employees who may be treated as officers are officers, only those officers who had the largest annual compensation in any one of the five Plan Years ending on the Determination Date shall be treated as officers. A.6.2 One of the 10 Employees having annual Compensation from the Employer of more than the maximum dollar limitation of Code section 415(c)(1)(A) and owning (or considered as owning within the meaning of Code section 318) the largest interest in the Employer, provided that such interest is more than 0.5% of the ownership interest in the Employer. If an Employee's ownership interest change, during a Plan Year, his ownership interest for the year is the largest interest owned at any time during the year. If two Employees have the same ownership interest in the Employer during the five Plan Years ending on the Determination Date, the Employee having the larger annual compensation from the Employer for the Plan Year during any part of which that ownership interest existed shall be treated as having a larger interest; A.6.3 If the Employer is a corporation, an Employee who owns (or is considered as owning within the meaning of Code section 318) more than 5% of the outstanding stock of the Employer or more than 5% of the total combined voting power of all stock of the Employer; if the Employer is not a corporation, an Employee who owns more than 5% of the capital or profits interest in the Employer; or A.6.4 A person who has annual compensation from the Employer of more than $150,000 and who would be described in Section A.3.3 if "1%" were substituted for "5%" each time it appears in Section A.6.3. For purposes of this Section A.6, Code section 318(a)(2)(C) shall be applied by substituting "5%"' for "50%". In addition, for purposes of determining ownership in the Employer under this Section A.3, Section A.4 shall not apply. A.7 "Non-Key Employee" means any Employee, including a deceased former Employee who is not a Key Employee with respect to the Plan for the Plan Year. A.8 "Permissive Aggregation Group" means: A.8.1 each plan of the Employer included in a Required Aggregation Group; and A.8.2 each other plan of the Employer if the group of plans consisting of such plan and the plan or plans described in Section A.8.1, when considered as a single plan, meets the requirements of Code section 401(a)(4) and Code section 410. A.9 "Required Aggregation Group" means: A.9.1 each plan of the Employer in which a Key Employee participated during the five Plan Years ending on the Determination Date; and A.9.2 each other plan of the Employer that enables any plan described in Section A.9.1 to meet the requirements of Code section 401(a)(4) or Code section 410. A.10 "Super Top Heavy Plan" means the Plan if it would be a Top-Heavy Plan if "90%" were substituted for "60%" each time it appears in Section A-11 and Section A-12. A-11 "Top-Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of: A.11.1 the aggregate of the Account Balances of Key Employees under all Defined Contribution Plans included in an Aggregation Group, and A.11.2 the aggregate of the present value of cumulative accrued benefits for Key Employees under all Defined Benefit Plans included in an Aggregation Group, exceeds 60% of the sum of such aggregate determined for all Employees. A.12. "Top-Heavy Plan" means the Plan, if as of the Determination Date: A.12.1 the aggregate of the Account Balances of Participants who are Key Employees exceeds 60% of the aggregate of the Account Balances of all Participants; or A.12.2 the Plan is part of a Required Aggregation Group which is a Top-Heavy Group. Notwithstanding Section A.12.1 and Section A.12.2, the Plan shall not be considered a Top-Heavy Plan for any Plan Year in which the Plan is a part of a Required Aggregation Group or a Permissive Aggregation Group which is not a Top-Heavy Group. A.13 "Top-Heavy Valuation Date" means the Determination Date. ARTICLE B. PROVISIONS RELATING TO TOP-HEAVY PLAN. Notwithstanding anything in the Plan to the contrary, if the Plan is a Top-Heavy Plan within the meaning of Section A.12 and Code section 416(g) for any Plan Year, then the Plan shall meet the requirements of Section B.1, Section B.2 and Section B.3 for any such Plan Year. If the Plan is a Super Top- Heavy Plan for any Plan Year, then in addition to meeting the requirements of Sections B.1 through B.4, it shall also meet the requirements of Section B.4. B.1 Minimum Vesting Requirements. The vested interest of a Participant who is credited with an Hour of Service after the Plan becomes a Top-Heavy Plan will be determined under a schedule that is not less favorable to the Participant than the following: Years of Service Vested Interest Less than two 0% Two but less than 20% three Three but less 40% than four Four but less 60% than five Five but less 80% than six Six or more 100% B.2 Minimum Contribution Requirement. B.2.1 The Employer will meet the minimum benefit and contribution requirements of Code section 416(g) by providing a minimum benefit that complies with Code section 416(c) (1) under the Pension Plan for such Plan Year for each Participant who is a Non-Key Employee and participates in the Pension Plan. B.2.2 For each Participant who is a Non-Key Employee, but who does not participate in the Pension Plan, this Plan shall provide a minimum contribution allocation for such Plan Year for each Participant who is a Non-Key Employee in an amount equal to at least 3% of such Participant's Compensation for such Plan Year. Such 3% minimum contribution requirement shall be increased to 4% for any Plan Year in which the Employer also maintains a Defined Benefit Plan if necessary to avoid the application of Code section 416(h)(1), relating to special adjustments to the Code section 415 limits for Top-Heavy Plans, if the adjusted limitations of Code section 416(h)(1) would otherwise be exceeded if such minimum contribution were not so increased. B.2.3 The minimum contribution requirements set forth above shall be reduced in the following circumstances: B.2.3.1 The percentage minimum contribution required hereunder shall in no event exceed the percentage contribution made for the Key Employee for whom such percentage is the highest for the Plan Year after taking into account contributions or benefits under other qualified plans in an Aggregation Group of which the Plan is a part; and B.2.3.2 No minimum contribution will be required (or the minimum contribution will be reduced, as the case may be) for a Participant under this Plan for any Plan Year if the Employer maintains another qualified plan under which a minimum benefit or contribution is being accrued or made for such year in whole or in part for the Participant in accordance with Code section 416(c). B.2.3.3 The minimum contribution shall be made for each Non-Key Employee who is employed at the end of the Plan Year in question, regardless of whether such Non-Key Employee has been credited with 1,000 Hours of Service in such Plan Year and regardless of such Non-Key Employee's level of Compensation and whether such Non-Key Employee elected to make contributions under Section 4.1 of the Plan for such Plan Year. B.3 Change in Top-Heavy Status. If the Plan becomes a Top- Heavy Plan and subsequently ceases to be a Top-Heavy Plan, the vesting schedule in Section B.1 shall continue to apply in determining the vested percentage of the Account of any Participant who had at least three Years of Service as of the last day of the last Plan Year in which the Plan was a Top-Heavy Plan. For all other Participants, the vesting schedule in Section B.1 shall apply only to their Accounts as of such last day. B.4 Adjustment for Super Top-Heavy Plan. If the Plan is a Super Top-Heavy Plan for any Plan Year, then for purposes of Section 7.3 the defined contribution fraction and the defined benefit fraction shall be adjusted in the manner described in Code section 416(h)(1). APPENDIX B LIST OF DESIGNATED SUBSIDIARIES American Water Works Company, Inc. American Commonwealth Company American Water Resources, Inc.* American Water Services, Inc.* American Water Works Service Company, Inc. Arizona-American Water Company California-American Water Company Greenwich Water System, Inc. Connecticut-American Water Company Hampton Water Works Company Massachusetts-American Water Company New York-American Water Company, Inc. The Salisbury Water Supply Company Hawaii American Water Company Illinois-American Water Company Indiana-American Water Company, Inc. Iowa-American Water Company Kentucky-American Water Company Maryland-American Water Company Michigan American Water Company Missouri-American Water Company Jefferson City Water Works Company, Inc. New Jersey-American Water Company, Inc. New Mexico-American Water Company, Inc. Ohio-American Water Company Pennsylvania-American Water Company Tennessee-American Water Company Virginia-American Water Company United Water Virginia, Inc. West Virginia-American Water Company Bluefield Valley Water Works Company _______________________________ * Participating only with respect to certain grandfathered employees. -----END PRIVACY-ENHANCED MESSAGE-----