Exhibit 10.5

2011 Performance Stock Unit Grant Form B

ML1 – L5

AMERICAN WATER WORKS COMPANY, INC.

2007 OMNIBUS EQUITY COMPENSATION PLAN

PERFORMANCE STOCK UNIT GRANT

This PERFORMANCE STOCK UNIT GRANT, dated as of February 24, 2011, (the “Date of
Grant”), is delivered by American Water Works Company, Inc. (the “Company”) to
                     (the “Participant”).

RECITALS

WHEREAS, the Committee (as defined in the American Water Works Company, Inc.
2007 Omnibus Equity Compensation Plan) has adopted a 2011 Long Term Incentive
Plan (“2011 LTIP”) pursuant to which designated employees will be granted equity
awards (collectively, the “Equity Award”) for shares of Common Stock of the
Company, par value $0.01 per share, (the “Company Stock”);

WHEREAS, the Equity Award is comprised of three separate grants, a nonqualified
stock option and two performance stock unit grants;

WHEREAS, the Committee has determined that the Participant is eligible to
participate in the 2011 LTIP and to grant the Participant an Equity Award under
the 2011 LTIP; and

WHEREAS, the Committee has determined that the performance stock unit portion of
the Equity Award granted to the Participant pursuant to the 2011 LTIP shall be
issued under the American Water Works Company, Inc. 2007 Omnibus Equity
Compensation Plan (the “Plan”), and the terms and conditions of the performance
stock unit grant that may be earned based on performance goals relating to
compounded earnings per share growth and operational efficiency improvement, as
set forth in Exhibit A attached hereto, shall be memorialized in this grant (the
“Grant”).

NOW, THEREFORE, the parties to this Grant, intending to be legally bound hereby,
agree as follows:

1. Grant of Performance Stock Units. Subject to the terms and conditions set
forth in this Grant and the Plan, the Company hereby grants to the Participant
             performance stock units (the “Performance Units”). The Performance
Units are contingently awarded and will be earned and distributable if and only
to the extent that the Performance Goals (as defined below) and other conditions
set forth in this Grant are met. Each Performance Unit shall be a phantom right
and shall be equivalent to one share of Company Stock on the applicable payment
date, as described in Paragraph 5 below. The number of Performance Units set
forth above is equal to the target number of shares of Company Stock that the
Participant will earn for 100% achievement of the Performance Goals described in
this Grant (the “Target Award”).

2. Performance Unit Account. The Company shall establish and maintain a
Performance Unit account as a bookkeeping account on its records (the
“Performance Unit Account”) for the

 

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Participant and shall record in such Performance Unit Account the number of
Performance Units granted to the Participant. The Participant shall not have any
interest in any fund or specific assets of the Company by reason of this grant
or the Performance Unit Account established for the Participant.

3. Performance Goals.

(a) Unless a Change of Control (as defined below) occurs prior to the end of the
Performance Period (as defined below), the distribution of the shares of Company
Stock attributable to the Performance Units is contingent upon achievement of
the performance goals set forth in Exhibit A attached hereto (the “Performance
Goals”) and the Participant satisfying the continuation of employment and
service with the Employer (as defined in the Plan) requirement described in
Paragraph 4 below.

(b) Following the end of the Performance Period, the Committee will determine
whether and to what extent the Performance Goals have been met and certify the
number of Performance Units the Participant has earned, if any. Except as
described in Paragraph 4 below, the Participant must be employed by, or
providing service to, the Employer on the last day of the Performance Period in
order to earn the Performance Units.

(c) If a Change of Control occurs prior to the end of the Performance Period,
then the Performance Period will end on the date of the Change of Control and
the Performance Units will be deemed earned at the Target Award level as of the
date of the Change of Control (the “Change of Control Date”). For purposes of
this Grant, the term “Change of Control” shall mean as such term is defined in
the Plan, except that a Change of Control shall not be deemed to have occurred
for purposes of this Grant unless the event constituting the Change of Control
constitutes a change in ownership or effective control of the Company, or in the
ownership of a substantial portion of the assets of the Company, within the
meaning of section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”) and its corresponding regulations.

(d) For purposes of this Grant, the term “Performance Period” shall mean the
three-year period beginning on January 1, 2011 and ending December 31, 2013.

4. Termination of Employment or Service.

(a) If, at least one year after the beginning of the Performance Period, but
prior to the end of the Performance Period, the Participant ceases to be
employed by, or provide service to, the Employer on account of any reason other
than a termination for Cause (as defined below), the Participant will earn a
pro-rata portion of the Performance Units, if the Performance Goals and the
requirements of this Grant are met as of the last day of the Performance Period.
The prorated portion will be determined as the number of Performance Units that
would have been earned if the Participant had remained employed through the last
day of the Performance Period, multiplied by a fraction, which fraction shall be
equal to (i) 1/3, if the Participant’s employment or service with the Employer
terminates on or after January 1, 2012, but prior to January 1, 2013; (ii) 2/3,
if the Participant’s employment or service with the Employer terminates on or
after January 1, 2013, but prior to January 1, 2014; and (iii) 3/3, if the
Participant’s employment or service terminates with the Employer on or after
January 1, 2014. If the Participant ceases to be

 

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employed by, or provide service to, the Employer for any reason other than on
account of Cause, the prorated number of Performance Units will be distributed
in accordance with Paragraph 5.

(b) If at any time prior to the earlier of January 1, 2012 or a Change of
Control, the Participant’s employment or service with the Employer is terminated
by the Employer on account of any reason or no reason or by the Participant for
any reason or no reason, all of the Performance Units subject to this Grant
shall be immediately forfeited as of the date of the Participant’s termination
of employment or service with the Employer and the Participant shall not have
any rights with respect to the distribution of any portion of the Performance
Units.

(c) If at any time prior to the date the Performance Units are distributed in
accordance with Paragraph 5 the Participant’s employment or service with the
Employer is terminated on account of Cause, all of the Performance Units subject
to this Grant shall be immediately forfeited and the Participant will not have
any rights with respect to the distribution of any portion of the Performance
Units, irrespective of the level of achievement of the Performance Goals. For
purposes of this Grant, the term “Cause” shall mean a finding by the Committee
that the Participant (A) has breached his or her employment or service contract
with the Employer, if any; (B) has engaged in disloyalty to the Employer,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty; (C) has disclosed trade secrets or confidential
information of the Employer to persons not entitled to receive such information;
(D) has breached any written noncompetition or nonsolicitation agreement between
the Participant and the Employer; or (E) has engaged in such other behavior
detrimental to the interests of the Employer as the Committee determines.

5. Time and Form of Payment with Respect to Performance Units. Unless an
election is made pursuant to Paragraph 6 below, the Participant will receive a
distribution with respect to the Performance Units earned as described in
Paragraphs 3 and 4 above within seventy (70) days following the earlier of
(i) January 1, 2014 (the “Distribution Date”), or (ii) the Change of Control
Date. The Performance Units will be distributed in shares of Company Stock, with
each Performance Unit earned equivalent to one share of Company Stock. Any
Performance Units not earned because of the failure to attain the Performance
Goals and service condition will be forfeited.

6. Deferrals. The Participant may make an irrevocable election to defer the
Distribution Date (or further defer the Deferred Date (as defined below), if
applicable) of all of the Performance Units that are earned, plus dividend
equivalents earned on such Performance Units as described in Paragraph 7 below,
to a later date, provided that (i) the election shall not take effect until at
least twelve (12) months after the date on which the election is made, (ii) the
deferred Distribution Date cannot be earlier than five (5) years from the
original Distribution Date under Paragraph 5 above (or five (5) years from the
applicable Deferred Date, if a subsequent deferral of a Deferred Date is being
made), and (iii) the election must be made no less than twelve (12) months prior
to the date of the Distribution Date (twelve (12) months prior to the previously
applicable Deferred Date, if a subsequent deferral of a Deferred Date is being
made). To defer the Distribution Date, the Participant must elect to defer 100%
of the Performance Units, including corresponding dividend equivalents, earned
by the Participant under this Grant, as well as 100% of the other performance
stock units, including corresponding dividend equivalents, earned by the
Participant under the 2011 LTIP, and complete the deferral

 

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election form provided to the Participant by the Committee. If the Participant
desires to make a further deferral, the Participant must make such election on a
separate form provided by the Committee for such purpose. Any such election
shall be made in accordance with section 409A of the Code and any corresponding
guidance and regulations issued under section 409A of the Code. Notwithstanding
a Participant’s election pursuant to this Paragraph, if the Change of Control
Date occurs prior to the Deferred Date, the distribution of the Participant’s
earned Performance Units, plus corresponding dividend equivalents, will be the
Change of Control Date. If a Distribution Date is delayed one or more times
pursuant to this Paragraph 6, the new Distribution Date shall be referred to as
the “Deferred Date.”

7. Dividend Equivalents. Until the earlier of the Distribution Date (or the
Deferred Date, if elected) or the Change of Control Date, if any dividends are
declared with respect to the shares of Company Stock, the Company shall credit
to a dividend equivalent account (the “Dividend Equivalent Account”) the value
of the dividends that would have been distributed if the Performance Units
credited to the Participant’s Performance Unit Account at the time of the
declaration of the dividend were shares of Company Stock. At the same time that
the Performance Units are converted to shares of Company Stock and distributed
to the Participant, the Company shall pay to the Participant a lump sum cash
payment equal to the value of the dividends credited to the Participant’s
Dividend Equivalent Account; provided, however, that any dividends that were
credited to the Participant’s Dividend Equivalent Account that are attributable
to Performance Units that have been forfeited as provided in Paragraph 3 and 4
above shall be forfeited and not payable to the Participant. No interest shall
accrue on any dividend equivalents credited to the Participant’s Dividend
Equivalent Account.

8. Change of Control. Except as set forth above, the provisions set forth in the
Plan applicable to a Change of Control (as defined in the Plan) shall apply to
the Performance Units, and, in the event of a Change of Control, the Committee
may take such actions as it deems appropriate pursuant to the Plan and is
consistent with the requirements of section 409A of the Code.

9. Acknowledgment by Participant. By accepting this Grant, the Participant
acknowledges that with respect to any right to distribution pursuant to this
Grant, the Participant is and shall be an unsecured general creditor of the
Company without any preference as against other unsecured general creditors of
the Company, and the Participant hereby covenants for himself or herself, and
anyone at any time claiming through or under the Participant, not to claim any
such preference, and hereby disclaims and waives any such preference which may
at any time be at issue, to the fullest extent permitted by applicable law. The
Participant also hereby agrees to be bound by the terms and conditions of the
Plan and this Grant. The Participant further agrees to be bound by the
determinations and decisions of the Committee with respect to this Grant and the
Plan and the Participant’s rights to benefits under this Grant and the Plan, and
agrees that all such determinations and decisions of the Committee shall be
binding on the Participant, his or her beneficiaries and any other person having
or claiming an interest under this Grant and the Plan on behalf of the
Participant.

 

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10. Restrictions on Issuance or Transfer of Shares of Company Stock.

(a) The obligation of the Company to deliver shares of Company Stock upon the
Participant earning the Performance Units shall be subject to the condition that
if at any time the Committee shall determine in its discretion that the listing,
registration or qualification of the shares of Company Stock upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the issuance of shares of Company Stock, the shares of Company
Stock may not be issued in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. The issuance of shares of
Company Stock and the payment of cash to the Participant pursuant to this Grant
is subject to any applicable taxes and other laws or regulations of the United
States or of any state having jurisdiction thereof.

(b) As a condition to receive any shares of Company upon conversion of the
earned Performance Units, the Participant agrees:

(i) to be bound by the Company’s policies regarding the limitations on the
transfer of such shares, and understands that there may be certain times during
the year that the Participant will be prohibited from selling, transferring,
pledging, donating, assigning, mortgaging, hypothecating or otherwise
encumbering the shares; and

(ii) that any shares of Company Stock received by the Participant upon the
distribution of the earned Performance Units pursuant to this Grant shall be
subject to the restrictions set forth in the Company’s Stock Retention Program
for Executives.

11. Grant Subject to Plan Provisions. This Grant is made pursuant to the Plan,
the terms of which are incorporated herein by reference, and in all respects
shall be interpreted in accordance with the Plan. In the event of any
contradiction, distinction or difference between this Grant and the terms of the
Plan, the terms of the Plan will control. Except as otherwise defined in this
Grant, capitalized terms used in this Grant shall have the meanings set forth in
the Plan. This Grant is subject to the interpretations, regulations and
determinations concerning the Plan established from time to time by the
Committee in accordance with the provisions of the Plan, including, but not
limited to, provisions pertaining to (i) rights and obligations with respect to
withholding taxes, (ii) the registration, qualification or listing of the shares
of Company Stock, (iii) changes in capitalization of the Company, and (iv) other
requirements of applicable law. The Committee shall have the authority to
interpret and construe this Grant pursuant to the terms of the Plan, its
decisions shall be conclusive as to any questions arising hereunder and the
Participant’s acceptance of this Grant is the Participant’s agreement to be
bound by the interpretations and decisions of the Committee with respect to this
Grant and the Plan.

12. No Rights as Stockholder. The Participant shall not have any rights as a
stockholder of the Company, including the right to any cash dividends (except as
provided in Paragraph 7), or the right to vote, with respect to any Performance
Units.

13. No Rights to Continued Employment or Service. This Grant shall not confer
upon the Participant any right to be retained in the employment or service of
the Employer and shall not

 

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2011 Performance Stock Unit Grant Form B

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interfere in any way with the right of the Employer to terminate the
Participant’s employment or service at any time. The right of the Employer to
terminate at will the Participant’s employment or service at any time for any
reason is specifically reserved.

14. Assignment and Transfers. No Performance Units or dividend equivalents
awarded to the Participant under this Grant may be transferred, assigned,
pledged, or encumbered by the Participant and the Performance Units and dividend
equivalents shall be distributed during the lifetime of the Participant only for
the benefit of the Participant. Any attempt to transfer, assign, pledge, or
encumber the Performance Units or dividend equivalents under this Grant by the
Participant shall be null, void and without effect. The rights and protections
of the Company hereunder shall extend to any successors or assigns of the
Company. This Grant may be assigned by the Company without the Participant’s
consent.

15. Withholding. The Participant shall be required to pay to the Employer, or
make other arrangements satisfactory to the Employer to provide for the payment
of, any federal, state, local or other taxes that the Employer is required to
withhold with respect to the grant, vesting and distribution of the Performance
Units and dividend equivalents. Any tax withholding obligation of the Employer
with respect to the distribution of shares of Company Stock pursuant to the
Performance Units that are earned by the Participant under this Grant shall be
satisfied by having shares of Company Stock withheld up to an amount that does
not exceed the minimum applicable withholding tax rate for federal (including
FICA), state, local and other tax liabilities.

16. Effect on Other Benefits. The value of shares of Company Stock and dividend
equivalents distributed with respect to the Performance Units shall not be
considered eligible earnings for purposes of any other plans maintained by the
Company or the Employer. Neither shall such value be considered part of the
Participant’s compensation for purposes of determining or calculating other
benefits that are based on compensation, such as life insurance.

17. Applicable Law. The validity, construction, interpretation and effect of
this Grant shall be governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to the conflicts of laws provisions
thereof.

18. Notice. Any notice to the Company provided for in this instrument shall be
addressed to the Company in care of the General Counsel at the Company’s
corporate headquarters, and any notice to the Participant shall be addressed to
such Participant at the current address shown on the payroll records of the
Employer, or to such other address as the Participant may designate to the
Employer in writing. Any notice shall be delivered by hand, sent by telecopy or
enclosed in a properly sealed envelope addressed as stated above, registered and
deposited, postage prepaid, in a post office regularly maintained by the United
States Postal Service.

19. Section 409A of the Code. As applicable, this Grant is intended to comply
with the requirements of section 409A of the Code and shall be interpreted and
administered to avoid any penalty sanctions under section 409A of the Code. If
any distribution cannot be provided or made at the time specified herein or as
elected by the Participant, then such distribution shall be provided in full at
the earliest time thereafter when such sanctions cannot be imposed. Unless a
valid election is made pursuant to Paragraph 6 above, in no event may the
Participant, directly or indirectly, designate the calendar year of
distribution.

 

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2011 Performance Stock Unit Grant Form B

ML1 – L5

 

IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Grant, effective as of the Date of Grant.

AMERICAN WATER WORKS COMPANY, INC.

 

By:  

Jeffry E. Sterba

LOGO [g174211ex10-signature.jpg] Its:   President and CEO

 

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“PSU GRANT B – EPS AND O&M EXPENSE”

EXHIBIT A

PERFORMANCE GOALS

The number of Performance Units that may be earned shall be determined based on
the combined achievement of Compounded Earnings Per Share Growth (as described
below) (50% weighting) and Operational Efficiency Improvement (as described
below) (50% weighting) over the Performance Period.

Compounded Earnings Per Share (“EPS”) Growth – will be calculated based on fully
diluted EPS calculated in accordance with US GAAP as reported in the Company’s
audited consolidated financial statements adjusted to exclude the net of tax
impact of any impairments. The starting point for the calculation will be EPS of
$1.53 for the year ended December 31, 2010. The ending point for the calculation
will be EPS for the year ended December 31, 2013, adjusted to exclude the net of
tax impact of any impairments.

As soon as administratively practicable following the end of the Performance
Period, the Committee will certify the level of achievement of the Compounded
EPS Growth.

The award scale for Compounded EPS Growth is as follows:

 

Compounded EPS Growth

 

Actual Compounded Growth

   Target Award
(50%
Weighting)*  

10.0% or more

     175 % 

9.4%

     160 % 

8.8%

     145 % 

8.2%

     130 % 

7.6%

     115 % 

7.0%

     100 % 

6.6%

     85 % 

6.2%

     70 % 

5.8%

     55 % 

5.4%

     40 % 

5.0%

     25 % 

<5.0%

     0 % 

Operational Efficiency Improvement – will be calculated as the ratio of total
operation and maintenance expense (“O&M”) to total operating revenues for the
Company’s regulated operations, with both amounts adjusted to exclude purchased
water expense. This information is to be prepared in a manner that is consistent
with the income statement presentation in the Company’s annual audited
consolidated financial statements prepared in accordance with US GAAP, and the
Segment Information reported for the Regulated Businesses segment in the notes

 

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to those financial statements. The final result will be the average of the three
individual calculations for the years ended December 31, 2011, 2012 and 2013.

As soon as administratively practicable following the end of the Performance
Period, the Committee will certify the level of achievement of the Operational
Efficiency Improvement.

The award scale for Operational Efficiency Improvement is as follows:

 

Operational Efficiency Improvement

 

Actual Three Year Average

   Target Award
(50%
Weighting)*  

41.0% or less

     175 % 

41.4%

     160 % 

41.9%

     145 % 

42.3%

     130 % 

42.8%

     115 % 

43.2%

     100 % 

43.6%

     85 % 

44.1%

     70 % 

44.5%

     55 % 

45.0%

     40 % 

45.4%

     25 % 

> 45.4%

     0 % 

 

* Results between the award percentages in the award scales will be
interpolated.

If actual achievement of any of the two Performance Goals does not meet
threshold performance (i.e., less than 5% for Compounded EPS Growth and greater
than 45.4% for Operational Efficiency Improvement), then that Performance Goal
will be reflected in the final result for determining the number of earned
Performance Units at its assigned weighting with a 0%. The maximum award that
may be earned for each Performance Goal is capped at 175%, and the maximum award
that may be earned by the Participant is capped at 175% of the Target Award.

 

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Example

The following is an example calculation for a Participant with a Target Award of
1,000 Performance Units:

Earnings Per Share

(In thousands, except per share)

 

     12/31/2010
Actual     12/31/2013
Illustration  

Net income (loss) per US GAAP

   $ 267,827      $ 326,037   

Impairment charge, net of tax

     0        0   

Adjustment for diluted EPS calculation

     (51 )      (100 )                        267,776        325,937   

/ Average common shares outstanding – diluted

     175,124        175,235                        $ 1.53      $ 1.86          
         

Compounded annual growth rate

       6.8 %            

Operational Efficiency Ratio

(Dollars in thousands)

 

     Year     

Operating

Revenue

    

O&M

Expense

    

Annual

Efficiency

Ratio

   

Three

Year

Average

 

Actual

     2008       $ 1,992,550       $ 985,228         49.4 %   

Actual

     2009       $ 2,113,950       $ 1,024.934         48.5 %   

Actual

     2010       $ 2,320,023       $ 1,071,780         46.2 %      48.0 % 

Illustration

     2011       $ 2,555,931       $ 1,142,501         44.7 %      46.5 % 

Illustration

     2012       $ 2,629,131       $ 1,104,235         42.0 %      44.3 %       
             

Illustration

     2013       $ 2,819,455       $ 1,175,713         41.7 %      42.8 %       
             

Earned Performance Units

 

     Achievement     Award     Weighting     Weighted
Payout  

Compounded Earnings Per Share Growth

     6.8 %      92.5 %      50 %      46.3 % 

Operational Efficiency Improvement

     42.8 %      115.0 %      50 %      57.5 %                               
100 %      103.8 %                      

In this example, the individual who was awarded a Target Award of 1,000
Performance Units would earn 1,038 Performance Units (1,000 x 1.038), which is
convertible into an equivalent number of shares of Company Stock assuming all of
the other terms and conditions of the Grant have been satisfied.

 

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