Exhibit 10.2

Execution Version

April 11, 2018

 

To:   

American Water Works Company, Inc.

1025 Laurel Oak Road

Voorhees, NJ 08043

      From:   

Wells Fargo Bank, National Association

375 Park Avenue

New York, New York 10152

          

Dear Sirs,

The purpose of this letter agreement (this “Confirmation”) is to confirm the
terms and conditions of the transaction entered into between us on the Trade
Date specified below (the “Transaction”). This Confirmation constitutes a
“Confirmation” as referred to in the ISDA Master Agreement specified below.

 

1. The definitions and provisions contained in the 2000 ISDA Definitions (the
“2000 Definitions”) and the 2002 ISDA Equity Derivatives Definitions (the “2002
Definitions” and, together with the 2000 Definitions, the “Definitions”), each
as published by the International Swaps and Derivatives Association, Inc., are
incorporated into this Confirmation. In the event of any inconsistency between
the 2002 Definitions and the 2000 Definitions, the 2002 Definitions will govern.
In the event of any inconsistency between the Definitions and this Confirmation,
this Confirmation will govern.

Each party further agrees that this Confirmation together with the Agreement
(defined below) evidence a complete binding agreement between Party A and Party
B as to the subject matter and terms of the Transaction to which this
Confirmation relates, and shall supersede all prior or contemporaneous written
or oral communications with respect thereto. This Confirmation shall supplement,
form a part of, and be subject to an agreement in the form of the 2002 ISDA
Master Agreement (the “Agreement”) as if Party A and Party B had executed an
agreement in such form on the Trade Date (but without any Schedule except for
the election of the laws of the State of New York as the governing law), and
provided that in no event shall Party B be required to pay an additional amount
to Party A under Section 2(d)(i)(4) of the Agreement in respect of any
distribution or deemed distribution with respect to the Shares. In the event of
any inconsistency between provisions of the Agreement and this Confirmation,
this Confirmation will prevail for the purpose of the Transaction to which this
Confirmation relates. The parties hereby agree that no Transaction other than
the Transaction to which this Confirmation relates shall be governed by the
Agreement. For purposes of the 2002 Definitions, the Transaction is a Share
Forward Transaction.

Party A and Party B each represents to the other that it has entered into the
Transaction in reliance upon such tax, accounting, regulatory, legal, and
financial advice as it deems necessary and not upon any view expressed by the
other.

 

Wells Fargo Bank, National Association

Organised under the laws of the United States as a National Banking Association.

Main Office 375 Park Avenue, New York, New York 10152

Authorised by the Office of the Comptroller of the Currency in the jurisdiction
of the USA.

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2. The terms of the particular Transaction to which this Confirmation relates
are as follows:

General Terms:

 

Party A:    Wells Fargo Bank, National Association Party B:    American Water
Works Company, Inc. Trade Date:    April 11, 2018 Effective Date:    April 16,
2018 Base Amount:    Initially, 1,160,000 Shares. On each Settlement Date, the
Base Amount shall be reduced by the number of Settlement Shares for such
Settlement Date. Maturity Date:    April 11, 2019 (or, if such date is not a
Scheduled Trading Day, the next following Scheduled Trading Day). Forward Price:
   On the Effective Date, the Initial Forward Price, and on any other day, the
Forward Price as of the immediately preceding calendar day multiplied by the sum
of (i) 1 and (ii) the Daily Rate for such day; provided that on each Forward
Price Reduction Date, the Forward Price in effect on such date shall be the
Forward Price otherwise in effect on such date, minus the Forward Price
Reduction Amount for such Forward Price Reduction Date. Initial Forward Price:
   $79.36 per Share. Daily Rate:    For any day, (i)(A) USD-Federal Funds Rate
for such day, minus (B) the Spread, divided by (ii) 365. USD-Federal Funds Rate
   For any day, the rate set forth for such day opposite the caption “Federal
funds”, as such rate is displayed on the page “OBFR01 <Index> <GO>” on the
BLOOMBERG Professional Service, or any successor page; provided that if no rate
appears for any day on such page, the rate for the immediately preceding day for
which a rate appears shall be used for such day. Spread:    0.75% Forward Price
Reduction Date:    Each date (other than the Trade Date) set forth on Schedule I
under the caption “Forward Price Reduction Date.” Forward Price Reduction
Amount:    For each Forward Price Reduction Date, the Forward Price Reduction
Amount set forth opposite such date on Schedule I. No Forward Price Reduction
Amount for a Forward Price Reduction Date shall be applied to reduce the Forward
Price more than once.

 

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Shares:    Common stock, $0.01 par value per share, of Party B (also referred to
herein as the “Issuer”) (Exchange identifier: “AWK”). Exchange:    The New York
Stock Exchange. Related Exchange(s):    All Exchanges. Clearance System:    DTC.
Calculation Agent:    Party A; provided that following the occurrence and during
the continuation of an Event of Default with respect to Party A, Party B may
designate a nationally or internationally recognized third-party dealer with
expertise in over-the-counter corporate equity derivatives that is not an
Affiliate of Party B to replace Party A as Calculation Agent. Any determination
or calculation by the Calculation Agent in such capacity shall be made in good
faith and in a commercially reasonable manner.    Following any determination or
calculation by Party A as Calculation Agent, upon a written request by Party B,
the Calculation Agent will provide to Party B, by e-mail to the e-mail address
provided by Party B in such written request, a report (in a commonly used file
format for the storage and manipulation of financial data) displaying, in
reasonable detail, the basis for such determination or calculation, it being
understood that the Calculation Agent shall not be obligated to disclose any
proprietary models or other confidential or proprietary information used by it
for such determination or calculation.   

Settlement Terms:

 

Settlement Date:    Any Scheduled Trading Day following the Effective Date and
up to and including the Maturity Date, as designated by (a) Party A pursuant to
“Termination Settlement” below or (b) Party B in a written notice (a “Settlement
Notice”) that satisfies the Settlement Notice Requirements and is delivered to
Party A at least (i) two Scheduled Trading Days prior to such Settlement Date,
which may be the Maturity Date, if Physical Settlement applies, and (ii) nine
Scheduled Trading Days prior to such Settlement Date, which may be the Maturity
Date, if Cash Settlement or Net Share Settlement applies; provided that (i) the
Maturity Date shall be a Settlement Date if on such date the Base Amount is
greater than zero, (ii) if Physical Settlement applies and a Settlement Date
specified above (including a Settlement Date occurring on the Maturity Date) is
not a Clearance System Business Day, the Settlement Date shall be the next
following Clearance System Business Day, and (iii) if Cash Settlement or Net
Share Settlement applies and Party A shall have fully unwound its hedge during

 

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   an Unwind Period by a date that is more than two Scheduled Trading Days prior
to a Settlement Date specified above, Party A may, by written notice to Party B,
specify any Scheduled Trading Day prior to such originally specified Settlement
Date as the Settlement Date. Settlement Shares:    With respect to any
Settlement Date, a number of Shares, not to exceed the Base Amount, designated
as such by Party B in the related Settlement Notice or by Party A pursuant to
“Termination Settlement” below; provided that on the Maturity Date the number of
Settlement Shares shall be equal to the Base Amount on such date. Settlement:   
Physical Settlement, Cash Settlement or Net Share Settlement, at the election of
Party B as set forth in a Settlement Notice delivered on or after the Effective
Date that satisfies the Settlement Notice Requirements; provided that Physical
Settlement shall apply (i) if no Settlement Method is validly selected,
(ii) with respect to any Settlement Shares in respect of which Party A is
unable, in its judgment, to unwind its hedge by the end of the Unwind Period in
a manner that, in the judgment of Party A, is consistent with the requirements
for qualifying for the safe harbor provided by Rule 10b-18 under the Exchange
Act or due to the lack of sufficient liquidity in the Shares on any Exchange
Business Day during the Unwind Period or (iii) to any Termination Settlement
Date (as defined below under “Termination Settlement”).    With respect to any
Settlement Date (x) in respect of which Cash Settlement applies, Party A shall
be deemed to have completed unwinding its hedge in respect of the portion of the
Transaction to be settled on such Settlement Date when it purchases (or, to the
extent applicable, unwinds derivative positions (including, but not limited to,
swaps or options related to the Shares) resulting in Party A’s synthetic
purchase of) an aggregate number of Shares equal to the number of Settlement
Shares for such Settlement Date; and (y) in respect of which Net Share
Settlement applies, Party A shall be deemed to have completed unwinding its
hedge in respect of the portion of this Transaction to be settled on such
Settlement Date when it purchases (or, to the extent applicable, unwinds
derivative positions (including, but not limited to, swaps or options related to
the Shares) resulting in Party A’s synthetic purchase of) an aggregate number of
Shares having an aggregate purchase price equal to the Net Share Purchase Price
for such Settlement Date. Settlement Notice Requirements:    Notwithstanding any
other provision hereof, a Settlement Notice delivered by Party B that specifies
Cash Settlement or Net Share Settlement will not be effective to establish a
Settlement Date or require Cash Settlement or Net Share Settlement unless Party
B delivers to Party A with such

 

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   Settlement Notice a representation signed by Party B substantially in the
following form: “As of the date of this Settlement Notice, Party B is not aware
of any material nonpublic information concerning itself or the Shares, and is
designating the date contained herein as a Settlement Date and is electing Cash
Settlement or Net Share Settlement, as the case may be, in good faith and not as
part of a plan or scheme to evade compliance with the federal securities laws.”
Unwind Period:    Subject to the provisions below under the caption “Other
Forward”, each Exchange Business Day that is not a Suspension Day during the
period from and including the first Exchange Business Day following the date
Party B validly elects Cash Settlement or Net Share Settlement in respect of a
Settlement Date through the second Scheduled Trading Day preceding such
Settlement Date (or the immediately preceding Exchange Business Day if such
Scheduled Trading Day is not an Exchange Business Day); subject to “Termination
Settlement” below. If any Exchange Business Day during an Unwind Period is a
Disrupted Day, the Calculation Agent shall make commercially reasonable
adjustments to the terms of the Transaction (including, without limitation, the
Cash Settlement Amount, the number of Net Share Settlement Shares and the 10b-18
VWAP) to account for the occurrence of such Disrupted Day. Suspension Day:   
Any Exchange Business Day on which Party A determines based on the advice of
counsel that Cash Settlement or Net Share Settlement may violate applicable
securities laws. Party A shall notify Party B if it receives such advice from
its counsel. Market Disruption Event:    Section 6.3(a)(ii) of the 2002
Definitions is hereby amended by replacing clause (ii) in its entirety with
“(ii) an Exchange Disruption, or” and inserting immediately following clause
(iii) the phrase “; in each case that the Calculation Agent determines is
material.” Exchange Act:    The Securities Exchange Act of 1934, as amended from
time to time. Physical Settlement:    On any Settlement Date in respect of which
Physical Settlement applies, Party B shall deliver to Party A through the
Clearance System the Settlement Shares for such Settlement Date, and Party A
shall deliver to Party B, by wire transfer of immediately available funds to an
account designated by Party B, an amount in cash equal to the Physical
Settlement Amount for such Settlement Date, on a delivery versus payment basis.
If, on any Settlement Date, the Shares to be delivered by Party B to Party A
hereunder are not so delivered (the “Deferred Shares”), and a Forward Price
Reduction Date occurs during the period from, and including, such Settlement
Date to, but excluding, the date such Shares are actually

 

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   delivered to Party A, then the portion of the Physical Settlement Amount
payable by Party A to Party B in respect of the Deferred Shares shall be reduced
by an amount equal to the Forward Price Reduction Amount for such Forward Price
Reduction Date, multiplied by the number of Deferred Shares. Physical Settlement
Amount:    For any Settlement Date in respect of which Physical Settlement
applies, an amount in cash equal to the product of (i) the Forward Price on such
Settlement Date and (ii) the number of Settlement Shares for such Settlement
Date. Cash Settlement:    On any Settlement Date in respect of which Cash
Settlement applies, if the Cash Settlement Amount for such Settlement Date is a
positive number, Party A will pay such Cash Settlement Amount to Party B. If the
Cash Settlement Amount is a negative number, Party B will pay the absolute value
of such Cash Settlement Amount to Party A. Such amounts shall be paid on the
Settlement Date. Cash Settlement Amount:    For any Settlement Date in respect
of which Cash Settlement applies, an amount determined by the Calculation Agent
equal to the difference between (1) the product of (i) (A) the average Forward
Price over the period beginning on, and including, the date that is one
Settlement Cycle following the first day of the applicable Unwind Period and
ending on, and including, such Settlement Date (calculated assuming no reduction
to the Forward Price for the Forward Price Reduction Date if it occurs during
the Unwind Period, except as set forth in clause (2) below), minus USD 0.01
minus (B) the average of the 10b-18 VWAP prices per Share on each Exchange
Business Day during such Unwind Period, and (ii) the number of Settlement Shares
for such Settlement Date and (2) the product of (i) the Forward Price Reduction
Amount for the Forward Price Reduction Date if it occurs during such Unwind
Period, and (ii) the number of Settlement Shares with respect to which Party A
has not unwound its hedge as of such Forward Price Reduction Date. Net Share
Settlement:    On any Settlement Date in respect of which Net Share Settlement
applies, if the number of Net Share Settlement Shares is a (i) negative number,
Party A shall deliver a number of Shares to Party B equal to the absolute value
of the Net Share Settlement Shares, or (ii) positive number, Party B shall
deliver to Party A the Net Share Settlement Shares; provided that if Party A
determines in its good faith judgment that it would be required to deliver Net
Share Settlement Shares to Party B, Party A may elect to deliver a portion of
such Net Share Settlement Shares on one or more dates prior to the applicable
Settlement Date. Net Share Settlement Shares:    For any Settlement Date in
respect of which Net Share Settlement applies, a number of Shares equal to
(a) the number of Settlement Shares for such Settlement Date, minus (b) the

 

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   number of Shares Party A actually purchases during the applicable Unwind
Period for a total purchase price (the “Net Share Purchase Price”) equal to the
difference between (1) the product of (i) the average Forward Price during the
applicable Unwind Period (calculated assuming no reduction to the Forward Price
for any Forward Price Reduction Date that occurs during the Unwind Period,
except as set forth in clause (2) below) minus USD 0.01, and (ii) the number of
Settlement Shares for such Settlement Date, and (2) the product of (i) the
Forward Price Reduction Amount for any Forward Price Reduction Date that occurs
during such Unwind Period and (ii) the number of Shares with respect to which
Party A has not unwound its hedge as of such Forward Price Reduction Date.
10b-18 VWAP:    For any Exchange Business Day during the Unwind Period which is
not a Suspension Day, the volume-weighted average price at which the Shares
trade as reported in the composite transactions for the Exchange on such
Exchange Business Day, excluding (i) trades that do not settle regular way,
(ii) opening (regular way) reported trades on the Exchange on such Exchange
Business Day, (iii) trades that occur in the last ten minutes before the
scheduled close of trading on the Exchange on such Exchange Business Day and ten
minutes before the scheduled close of the primary trading session in the market
where the trade is effected, and (iv) trades on such Exchange Business Day that
do not satisfy the requirements of Rule 10b-18(b)(3), as determined in good
faith by the Calculation Agent. Party B acknowledges that Party A may refer to
the Bloomberg Page “AWK <Equity> AQR SEC” (or any successor thereto), in its
discretion, for such Exchange Business Day to determine the 10b-18 VWAP.
Settlement Currency:    USD. Failure to Deliver:    Inapplicable.

Adjustments:

 

Potential Adjustment Event:    The definition of “Potential Adjustment Event”
shall not include clause (iii) thereof.    Notwithstanding Section 11.2(e)(v) of
the 2002 Definitions, the following repurchases of Shares, to the extent
applicable, shall not be considered to be a Potential Adjustment Event:    (i)
Shares withheld from employees of Party B or its Affiliates to pay certain
withholding taxes upon the vesting of Share awards or options granted to such
employees under compensation plans of Party B; and    (ii) Shares purchased in
connection with the reinvestment of dividends by recipients of Share awards
under Party B’s compensation plans; and

 

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   (iii) Up to 1,000,000 Shares purchased subsequent to the Trade Date under
Party B’s publicly announced share repurchase program. Method of Adjustment:   
Calculation Agent Adjustment; notwithstanding anything in the 2002 Definitions
to the contrary, the Calculation Agent may make an adjustment pursuant to
Calculation Agent Adjustment to any one or more of the Base Amount, the Forward
Price and any other variable relevant to the settlement or payment terms of the
Transaction. Additional Adjustment:    If, in Party A’s sole judgment, the stock
loan fee to Party A (or an affiliate thereof), excluding the federal funds rate
component payable by the relevant stock lender to Party A or such affiliate (the
“Stock Loan Fee”), over any 30 consecutive day period, of borrowing a number of
Shares equal to the Base Amount to hedge its exposure to the Transaction exceeds
a weighted average rate equal to the rate specified on Schedule I hereto, the
Calculation Agent shall reduce the Forward Price in order to compensate Party A
for the amount by which the Stock Loan Fee exceeded a weighted average rate
equal to such rate during such period. The Calculation Agent shall notify Party
B prior to making any such adjustment to the Forward Price and, upon the request
of Party B, Party A shall provide an itemized list of the Stock Loan Fee for the
applicable 30 consecutive day period.

Account Details:

 

Payments to Party A:    To be advised under separate cover or telephone
confirmed prior to each Settlement Date. Payments to Party B:    To be advised
under separate cover or telephone confirmed prior to each Settlement Date.
Delivery of Shares to Party A:    To be advised. Delivery of Shares to Party B:
   To be advised. Offices:    The Office of Party A for the Transaction is:   
New York The Office of Party B for the Transaction is:    Inapplicable, Party B
is not a Multibranch Party.

 

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3. Other Provisions:

Conditions to Effectiveness:

The effectiveness of this Confirmation on the Effective Date shall be subject to
(i) the condition that the representations and warranties of Party B contained
in the Underwriting Agreement dated the date hereof among Party B and J.P.
Morgan Securities LLC and Wells Fargo Securities, LLC (the “Underwriting
Agreement”) and any certificate delivered pursuant thereto by Party B are true
and correct or, as provided in the Underwriting Agreement or such certificate,
true and correct in all material respects on the Effective Date as if made as of
the Effective Date, (ii) the condition that Party B has performed all of the
obligations required to be performed by it under the Underwriting Agreement on
or prior to the Effective Date, (iii) the satisfaction of all of the conditions
set forth in Section 10 of the Underwriting Agreement, (iv) the condition that
the Underwriting Agreement shall not have been terminated pursuant to Section 12
and the condition that Section 13 thereof does not apply and (v) the condition
that neither of the following has occurred (A) Party A (or its affiliate) is
unable to borrow and deliver for sale a number of Shares equal to the Base
Amount, or (B) in Party A’s sole judgment Party A (or its affiliate) would incur
a Stock Loan Fee of more than a rate equal to the rate set forth on Schedule I
hereto to do so (in which event this Confirmation shall be effective but the
Base Amount for the Transaction shall be the number of Shares Party A (or an
affiliate thereof) is required to deliver in accordance with Section 4(b) of the
Underwriting Agreement).

Representations and Agreements of Party B:

Party B (i) has such knowledge and experience in financial and business affairs
as to be capable of evaluating the merits and risks of entering into the
Transaction; (ii) has consulted with its own legal, financial, accounting and
tax advisors in connection with the Transaction; and (iii) is entering into the
Transaction for a bona fide business purpose.

Party B is not and has not been the subject of any civil proceeding of a
judicial or administrative body of competent jurisdiction that could reasonably
be expected to impair materially Party B’s ability to perform its obligations
hereunder.

Party B will by the next succeeding New York Business Day notify Party A upon
obtaining knowledge of the occurrence of any event that would constitute an
Event of Default or a Potential Adjustment Event.

Additional Representations, Warranties and Agreements of Party B: Party B hereby
represents and warrants to, and agrees with, Party A as of the date hereof that:

 

  (a) Any Shares, when issued and delivered in accordance with the terms of the
Transaction, will be duly authorized and validly issued, fully paid and
nonassessable, and the issuance thereof will not be subject to any preemptive or
similar rights.

 

  (b) Party B has reserved and will keep available at all times, free from
preemptive rights, out of its authorized but unissued Shares, solely for the
purpose of issuance upon settlement of the Transaction as herein provided, the
full number of Shares as shall be issuable at such time upon settlement of the
Transaction. All Shares so issuable shall, upon such issuance, be accepted for
listing or quotation on the Exchange.

 

  (c)

Party B agrees to provide Party A at least five Exchange Business Days’ written
notice (an “Issuer Repurchase Notice”) prior to executing any repurchase of
Shares by Party B or any of its subsidiaries (or entering into any contract that
would require, or give the option to, Party B or any of its subsidiaries, to
purchase or repurchase Shares), whether out of profits or capital or whether the
consideration for such repurchase is cash, securities or otherwise (an “Issuer
Repurchase”), that alone or in the aggregate would result in the Base Amount
Percentage (as defined below) being greater by 0.5% or more than the Base Amount
Percentage at the time of the immediately preceding Issuer Repurchase Notice (or
in the case of the first such Issuer Repurchase Notice, greater than the Base
Amount Percentage as of the later of the date hereof

 

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  or the immediately preceding Settlement Date, if any). The “Base Amount
Percentage” as of any day is the fraction (1) the numerator of which is the Base
Amount and (2) the denominator of which is the number of Shares outstanding on
such day.

 

  (d) No filing with, or approval, authorization, consent, license registration,
qualification, order or decree of, any court or governmental authority or
agency, domestic or foreign, is necessary or required for the execution,
delivery and performance by Party B of this Confirmation and the consummation of
the Transaction (including, without limitation, the issuance and delivery of
Shares on any Settlement Date) except (i) such as have been obtained under the
Securities Act of 1933, as amended (the “Securities Act”), and (ii) as may be
required to be obtained under state securities laws.

 

  (e) Party B agrees not to make any Issuer Repurchase if, immediately following
such Issuer Repurchase, the Base Amount Percentage would be equal to or greater
than 7.5%.

 

  (f) Party B is not insolvent, nor will Party B be rendered insolvent as a
result of the Transaction.

 

  (g) Neither Party B nor any of its affiliates shall take or refrain from
taking any action (including, without limitation, any direct purchases by Party
B or any of its affiliates or any purchases by a party to a derivative
transaction with Party B or any of its affiliates), either under this
Confirmation, under an agreement with another party or otherwise, that might
cause any purchases of Shares by Party A or any of its affiliates in connection
with any Cash Settlement or Net Share Settlement of the Transaction not to meet
the requirements of the safe harbor provided by Rule 10b-18 under the Exchange
Act if such purchases were made by Party B.

 

  (h) Party B will not engage in any “distribution” (as defined in Regulation M
under the Exchange Act (“Regulation M”)) that would cause a “restricted period”
(as defined in Regulation M) to occur during any Unwind Period.

 

  (i) Party B is an “eligible contract participant” (as such term is defined in
Section 1a(18) of the Commodity Exchange Act, as amended).

 

  (j) In addition to any other requirements set forth herein, Party B agrees not
to elect Cash Settlement or Net Share Settlement if, in the reasonable judgment
of either Party A or Party B, such settlement or Party A’s related market
activity would result in a violation of the U.S. federal securities laws or any
other federal or state law or regulation applicable to Party B.

 

  (k) Party B (i) is capable of evaluating investment risks independently, both
in general and with regard to all transactions and investment strategies
involving a security or securities; (ii) will exercise independent judgment in
evaluating the recommendations of any broker-dealer or its associated persons,
unless it has otherwise notified the broker-dealer in writing; and (iii) has
total assets of at least USD 50 million as of the date hereof.

 

  (l) Party B acknowledges and agrees that:

 

  (i) during the term of the Transaction, Party A and its Affiliates may buy or
sell Shares or other securities or buy or sell options or futures contracts or
enter into swaps or other derivative securities in order to establish, adjust or
unwind its hedge position with respect to the Transaction;

 

  (ii) Party A and its Affiliates may also be active in the market for the
Shares and Share-linked transactions other than in connection with hedging
activities in relation to the Transaction;

 

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  (iii) Party A shall make its own determination as to whether, when or in what
manner any hedging or market activities in Party B’s securities shall be
conducted and shall do so in a manner that it deems appropriate to hedge its
price and market risk with respect to the Forward Price and the 10b-18 VWAP;

 

  (iv) any market activities of Party A and its Affiliates with respect to the
Shares may affect the market price and volatility of the Shares, as well as the
Forward Price and 10b-18 VWAP, each in a manner that may be adverse to Party B;
and

 

  (v) the Transaction is a derivatives transaction in which it has granted Party
A the right, under certain circumstances, to receive cash or Shares, as the case
may be; Party A may purchase Shares for its own account at an average price that
may be greater than, or less than, the effective price paid by Party B under the
terms of the Transaction.

 

  (m) Party B agrees not to effect any Potential Adjustment Event that but for
the application of the limitation set forth under “Maximum Share Delivery” could
result in it being required to deliver an aggregate number of Shares upon full
Physical Settlement or Net Settlement that exceeds the amount set forth therein.

Covenant of Party B:

 

  (a) Subject to the provisions of “Private Placement Procedures” below, the
parties acknowledge and agree that any Shares delivered by Party B to Party A on
any Settlement Date will be newly issued Shares and when delivered by Party A
(or an affiliate of Party A) to securities lenders from whom Party A (or an
affiliate of Party A) borrowed Shares in connection with hedging its exposure to
the Transaction will be freely saleable without further registration or other
restrictions under the Securities Act, in the hands of those securities lenders,
irrespective of whether such stock loan is effected by Party A or an affiliate
of Party A. Accordingly, subject to the provisions of “Private Placement
Procedures” below, Party B agrees that the Shares that it delivers to Party A on
each Settlement Date will not bear a restrictive legend and that such Shares
will be deposited in, and the delivery thereof shall be effected through the
facilities of, the Clearance System.

 

  (b) For the purpose of Sections 4(a)(i) and 4(a)(ii) of the Agreement, Party B
shall deliver to Party A on the Trade Date a properly executed Internal Revenue
Service Form W-9 or similar documentation establishing an exemption from backup
withholding under the Internal Revenue Code of 1986, as amended (the “Code”),
and shall deliver such documentation to Party A upon the reasonable request of
Party A subsequent to the Trade Date.

Covenants of Party A:

 

  (a) Unless the provisions set forth below under “Private Placement Procedures”
shall be applicable, Party A shall use any Shares delivered by Party B to Party
A on any Settlement Date to return Shares to securities lenders to close out
open Share loans created by Party A or an affiliate of Party A in the course of
Party A’s or such affiliate’s hedging activities related to Party A’s exposure
under this Confirmation.

 

  (b) In connection with bids and purchases of Shares in connection with any
Cash Settlement or Net Share Settlement of the Transaction, Party A shall use
its commercially reasonable efforts to conduct its activities, or cause its
affiliates to conduct their activities, in a manner consistent with the
requirements of the safe harbor provided by Rule 10b-18 under the Exchange Act,
as if such provisions were applicable to such purchases.

 

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  (c) For the purpose of Sections 4(a)(i) and 4(a)(ii) of the Agreement, Party A
shall deliver to Party B on the Trade Date a properly executed Internal Revenue
Service Form W-9 or similar documentation establishing an exemption from backup
withholding under the Code, and shall deliver such documentation to Party B upon
the reasonable request of Party B subsequent to the Trade Date.

Insolvency Filing:

Notwithstanding anything to the contrary herein, in the Agreement or in the
Definitions, upon any Insolvency Filing in respect of Party B, the Transaction
shall automatically terminate on the date thereof without further liability of
either party to this Confirmation to the other party (except for any liability
in respect of any breach of representation or covenant by a party under this
Confirmation prior to the date of such Insolvency Filing); provided that if
Party B has delivered to Party A a Settlement Notice electing Physical
Settlement prior to the date of the Insolvency Filing, then the Transaction
shall not automatically terminate with respect to the Settlement Shares
designated in such Settlement Notice if such Settlement Shares are delivered to
Party A through the Clearance System as contemplated by this Confirmation on the
Settlement Date.

Extraordinary Dividends:

If an ex-dividend date for an Extraordinary Dividend occurs on or after the
Trade Date and on or prior to the Maturity Date (or, if later, the last date on
which Shares are delivered by Party B to Party A in settlement of the
Transaction), Party B shall pay an amount, as determined by the Calculation
Agent, in cash equal to the product of such Extraordinary Dividend and the Base
Amount to Party A on the earlier of (i) the date on which such Extraordinary
Dividend is paid by the Issuer to holders of record of the Shares or (ii) the
Maturity Date. “Extraordinary Dividend” means the per Share amount of any cash
dividend or distribution declared by the Issuer with respect to the Shares that
is specified by the board of directors of the Issuer as an “extraordinary”
dividend.

Acceleration Events:

The following events shall each constitute an “Acceleration Event”:

 

  (a) Stock Borrow Events. In the sole judgment of Party A (i) Party A (or its
affiliate) is unable to hedge Party A’s exposure to the Transaction because
(A) of the lack of sufficient Shares being made available for Share borrowing by
lenders, or (B) Party A (or an Affiliate of Party A) would incur a Stock Loan
Fee to hedge its exposure to the Transaction that is greater than a rate equal
to 200 basis points per annum (a “Stock Borrow Event”);

 

  (b) Dividends and Other Distributions. On any day occurring after the Trade
Date Party B declares a distribution, issue or dividend to existing holders of
the Shares of (i) any cash dividend (other than an Extraordinary Dividend) to
the extent all cash dividends having an ex-dividend date during the period from
and including any Forward Price Reduction Date (with the Trade Date being a
Forward Price Reduction Date for purposes of this clause (b) only) to but
excluding the next subsequent Forward Price Reduction Date exceeds, on a per
Share basis, the Forward Price Reduction Amount set forth opposite the first
date of any such period on Schedule I or (ii) share capital or securities of
another issuer acquired or owned (directly or indirectly) by Party B as a result
of a spin-off or other similar transaction or (iii) any other type of securities
(other than Shares), rights or warrants or other assets, for payment (cash or
other consideration) at less than the prevailing market price as determined by
Party A;

 

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  (c) ISDA Early Termination Date. Either Party A or Party B has the right to
designate an Early Termination Date pursuant to Section 6 of the Agreement;

 

  (d) Other ISDA Events. The announcement of any event that if consummated,
would result in an Extraordinary Event or the occurrence of any Change in Law or
a Delisting; provided that in case of a Delisting, in addition to the provisions
of Section 12.6(a)(iii) of the 2002 Definitions, it will also constitute a
Delisting if the Exchange is located in the United States and the Shares are not
immediately re-listed, re-traded or re-quoted on any of the New York Stock
Exchange, the NASDAQ Global Select Market or the NASDAQ Global Market (or their
respective successors); and provided further that the definition of “Change in
Law” provided in Section 12.9(a)(ii) of the 2002 Definitions is hereby amended
by (i) inserting the parenthetical “(including, for the avoidance of doubt and
without limitation, adoption or promulgation of new regulations authorized or
mandated by existing statute)” at the end of clause (A) thereof, (ii) replacing
the phrase “the interpretation” in the third line thereof with the phrase “or
public announcement of the formal or informal interpretation,” and
(iii) immediately following the word “Transaction” in clause (X) thereof, adding
the phrase “in the manner contemplated by Party A on the Trade Date”; or

 

  (d) Ownership Event. In the reasonable judgment of Party A, on any day, the
Share Amount for such day exceeds the Post-Effective Limit for such day (if any
applies).

For purposes of clause (f) above, the “Share Amount” as of any day is the number
of Shares that Party A and any of its affiliates and any person whose ownership
position would be aggregated with that of Party A, including any “group” (within
the meaning of Section 13 of the Exchange Act) of which Party A is or may be
deemed to be a part (Party A or any such person or group, a “Party A Person”)
under any law, rule, regulation or regulatory order that for any reason becomes
applicable to ownership of Shares after the Trade Date (“Applicable Laws”),
owns, beneficially owns, constructively owns, controls, holds the power to vote
or otherwise meets a relevant definition of ownership of under the Applicable
Laws, as determined by Party A in its reasonable discretion. The “Post-Effective
Limit” means (x) the minimum number of Shares that would give rise to reporting
or registration obligations (other than any filing under Section 13 of the
Exchange Act and the rules and regulations thereunder, in each case, as in
effect on the Trade Date) or other requirements (including obtaining prior
approval from any person or entity) of a Party A Person, or would result in an
adverse effect on a Party A Person, under the Applicable Laws, as determined by
Party A in its reasonable discretion (it being understood that reporting
obligations under Section 13 or Section 16 of the Exchange Act and the rules and
regulations thereunder, in each case, as in effect on the Trade Date, will not
be deemed to have an adverse effect), minus (y) 1% of the number of Shares
outstanding.

Termination Settlement:

Upon the occurrence of any Acceleration Event, Party A shall have the right to
designate, upon at least one Scheduled Trading Day’s notice, any Scheduled
Trading Day following such occurrence to be a Settlement Date hereunder (a
“Termination Settlement Date”) to which Physical Settlement shall apply, and to
select the number of Settlement Shares relating to such Termination Settlement
Date; provided that (i) in the case of an Acceleration Event arising out of an
Ownership Event, the number of Settlement Shares so designated by Party A shall
not exceed the number of Shares necessary to reduce the Share Amount to the
Post-Effective Limit and (ii) in the case of an Acceleration Event arising out
of a Stock Borrow Event the number of Settlement Shares so designated by Party A
shall not exceed the number of Shares as to which such Stock Borrow Event
exists. If, upon designation of a Termination Settlement Date by Party A
pursuant to the preceding sentence, Party B fails to deliver the Settlement
Shares relating to such Termination Settlement Date when due or otherwise fails
to perform obligations within its control in respect of the

 

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Transaction, it shall be an Event of Default with respect to Party B and
Section 6 of the Agreement shall apply. If an Acceleration Event occurs during
an Unwind Period relating to a number of Settlement Shares to which Cash
Settlement or Net Share Settlement applies, then on the Termination Settlement
Date relating to such Acceleration Event, notwithstanding any election to the
contrary by Party B, Cash Settlement or Net Share Settlement shall apply to the
portion of the Settlement Shares relating to such Unwind Period as to which
Party A has unwound its hedge and Physical Settlement shall apply in respect of
(x) the remainder (if any) of such Settlement Shares and (y) the Settlement
Shares designated by Party A in respect of such Termination Settlement Date.

Private Placement Procedures:

If Party B is unable to comply with the provisions of “Covenant of Party B”
above because of a change in law or a change in the policy of the Securities and
Exchange Commission or its staff, or Party A otherwise determines that in its
reasonable opinion any Settlement Shares to be delivered to Party A by Party B
may not be freely returned by Party A or its affiliates to securities lenders as
described under “Covenant of Party B” above, then delivery of any such
Settlement Shares (the “Restricted Shares”) shall be effected pursuant to Annex
A hereto, unless waived by Party A; provided that Party A may not otherwise
determine that the Settlement Shares are Restricted Shares based solely upon
Party A not having borrowed a number of Shares equal to the Base Amount on or
before the Effective Date if there has been no change in law or a change in the
policy of the Securities and Exchange Commission or its staff with respect
thereto.

Rule 10b5-1:

It is the intent of Party A and Party B that following any election of Cash
Settlement or Net Share Settlement by Party B, the purchase of Shares by Party A
during any Unwind Period comply with the requirements of Rule 10b5-1(c)(1)(i)(B)
of the Exchange Act and that this Confirmation shall be interpreted to comply
with the requirements of Rule 10b5-1(c).

Party B acknowledges that (i) during any Unwind Period Party B does not have,
and shall not attempt to exercise, any influence over how, when or whether to
effect purchases of Shares by Party A (or its agent or affiliate) in connection
with this Confirmation and (ii) Party B is entering into the Agreement and this
Confirmation in good faith and not as part of a plan or scheme to evade
compliance with federal securities laws including, without limitation, Rule
10b-5 promulgated under the Exchange Act.

Party B hereby agrees with Party A that during any Unwind Period Party B shall
not communicate, directly or indirectly, any Material Non-Public Information (as
defined herein) to any EDG Personnel (as defined below). For purposes of the
Transaction, “Material Non-Public Information” means information relating to
Party B or the Shares that (a) has not been widely disseminated by wire service,
in one or more newspapers of general circulation, by communication from Party B
to its shareholders or in a press release, or contained in a public filing made
by Party B with the Securities and Exchange Commission or otherwise disseminated
in a manner that satisfies the prompt public disclosure requirement of
Regulation FD or any successor rule and (b) a reasonable investor might consider
to be of importance in making an investment decision to buy, sell or hold
Shares. For the avoidance of doubt and solely by way of illustration,
information should be presumed “material” if it relates to such matters as
dividend increases or decreases, earnings estimates, changes in previously
released earnings estimates, significant expansion or curtailment of operations,
a significant increase or decline of orders, significant merger or acquisition
proposals or agreements, significant new products or discoveries, extraordinary
borrowing, major litigation, liquidity problems, extraordinary management
developments, purchase or sale of substantial assets, or other similar
information For purposes of the

 

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Transaction, “EDG Personnel” means any employee on the trading side of the
Equity Derivatives Group of Wells Fargo Bank, National Association and does not
include Ms. Mary Lou Guttmann, Mr. Michael D. Golden, Ms. Jenny M. Dahlen or
Mr. Andrew R. Ralston (or any other person or persons designated from time to
time in writing to Party B by the Compliance Group of Party A).

Maximum Share Delivery:

Notwithstanding any other provision of this Confirmation, in no event will Party
B be required to deliver on any Settlement Date, whether pursuant to Physical
Settlement, Net Share Settlement, Termination Settlement or any Private
Placement Settlement, more than 2,320,000 Shares to Party A, subject to
reduction by the amount of any Shares delivered by Party B on any prior
Settlement Date.

Transfer and Assignment:

Party A may assign or transfer any of its rights or delegate any of its duties
hereunder to any affiliate of Party A or any entity organized or sponsored by
Party A without the prior written consent of Party B so long as (a) the
obligations of such assignee or transferee hereunder and under the Agreement are
guaranteed by Party A; (b) such assignee or transferee is organized under the
laws of the United States or any State thereof; (c) Party B will not be required
to pay to such assignee or transferee an amount in respect of an Indemnifiable
Tax under Section 2(d)(i)(4) of the Agreement greater than the amount in respect
of which Party B would have been required to pay Party A in the absence of such
assignment or transfer; (d) Party B will not receive a payment from which an
amount has been withheld or deducted on account of a Tax under Section 2(d)(i)
of the Agreement in excess of that which Party A would have been required to so
withhold or deduct in the absence of such assignment or transfer; and (e) no
Event of Default, Potential Event of Default or Termination Event will occur as
a result of such assignment or transfer. Notwithstanding any other provision in
this Confirmation to the contrary requiring or allowing Party A to purchase,
sell, receive or deliver any Shares or other securities to or from Party B,
Party A may designate any of its affiliates (each, a “Designee”) to purchase,
sell, receive or deliver such Shares or other securities and otherwise to
perform Party A’s obligations in respect of the Transaction and any such
Designee may assume such obligations. Party A shall be discharged of its
obligations to Party B only to the extent of performance by a Designee; Party A
shall otherwise remain fully liable to Party B for all of its obligations under
this Confirmation.

Matters Relating to Agent:

Each party agrees and acknowledges that (i) J.P. Morgan Securities LLC, as
agent, (the “Agent”) acts solely as agent on a disclosed basis with respect to
the transactions contemplated hereunder, and (ii) the Agent has no obligation,
by guaranty, endorsement or otherwise, with respect to the obligations of either
Party B or Party A hereunder, either with respect to the delivery of cash or
Shares, either at the beginning or the end of the transactions contemplated
hereby. In this regard, each of Party A and Party B acknowledges and agrees to
look solely to the other for performance hereunder, and not to the Agent.

 

  Indemnity:

Party B agrees to indemnify Party A and its affiliates and their respective
directors, officers, agents and controlling parties (Party A and each such
affiliate or person being an “Indemnified Party”) from and against any and all
losses, claims, damages and liabilities, joint and several, incurred by or
asserted against such Indemnified Party arising out of, in connection with, or
relating to, any breach of any covenant or representation made by Party B in
this Confirmation or the Agreement and will reimburse any Indemnified Party for
all reasonable expenses (including reasonable legal

 

15

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fees and expenses) in connection with the investigation of, preparation for, or
defense of any pending or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party thereto, but only to
the extent that the relevant loss, claim, damage, liability or expense is found
in a final and nonappealable judgment by a court of competent jurisdiction to
have resulted from such breach. Party B will not be liable under this Indemnity
paragraph to the extent that any loss, claim, damage, liability or expense is
found in a final and nonappealable judgment by a court to have resulted from
Party A’s negligence or willful misconduct.

 

  Notice:

 

Non-Reliance:    Applicable Additional Acknowledgments:    Applicable Agreements
and Acknowledgments
Regarding Hedging Activities:    Applicable

 

4. The Agreement is further supplemented by the following provisions:

No Collateral or Setoff:

Notwithstanding Section 6(f) or any other provision of the Agreement or any
other agreement between the parties to the contrary, the obligations of Party B
hereunder are not secured by any collateral. Obligations under the Transaction
shall not be set off against any other obligations of the parties, whether
arising under the Agreement, this Confirmation, under any other agreement
between the parties hereto, by operation of law or otherwise, and no other
obligations of the parties shall be set off against obligations under the
Transaction, whether arising under the Agreement, this Confirmation, under any
other agreement between the parties hereto, by operation of law or otherwise,
and each party hereby waives any such right of setoff. In calculating any
amounts under Section 6(e) of the Agreement, notwithstanding anything to the
contrary in the Agreement, (a) separate amounts shall be calculated as set forth
in such Section 6(e) with respect to (i) the Transaction and (ii) all other
Transactions, and (b) such separate amounts shall be payable pursuant to
Section 6(d)(ii) of the Agreement.

Status of Claims in Bankruptcy:

Party A acknowledges and agrees that this confirmation is not intended to convey
to Party A rights with respect to the transactions contemplated hereby that are
senior to the claims of common stockholders in any U.S. bankruptcy proceedings
of Party B; provided, however, that nothing herein shall limit or shall be
deemed to limit Party A’s right to pursue remedies in the event of a breach by
Party B of its obligations and agreements with respect to this Confirmation and
the Agreement; and provided further, that nothing herein shall limit or shall be
deemed to limit Party A’s rights in respect of any transaction other than the
Transaction.

Limit on Beneficial Ownership:

Notwithstanding any other provisions hereof, Party A shall not have the “right
to acquire” (within the meaning of NYSE Rule 312.04(g)) Shares hereunder and
Party A shall not be entitled to take delivery of any Shares deliverable
hereunder (in each case, whether in connection with the purchase of Shares on
any Settlement Date or any Termination Settlement Date, any Private Placement
Settlement or otherwise) to the extent (but only to the extent) that, after such
receipt of any Shares hereunder, (i) the Share Amount would exceed the
Post-Effective Limit or (ii) Party A

 

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and each person subject to aggregation of Shares with Party A under Section 13
or Section 16 of the Exchange Act and rules promulgated thereunder (the “Party A
Group”) would directly or indirectly beneficially own (as such term is defined
for purposes of Section 13 or Section 16 of the Exchange Act and rules
promulgated thereunder) in excess of 8,724,075 Shares (the “Threshold Number of
Shares”). Any purported delivery hereunder shall be void and have no effect to
the extent (but only to the extent) that, after such delivery, (i) the Share
Amount would exceed the Post-Effective Limit or (ii) Party A Group would
directly or indirectly so beneficially own in excess of the Threshold Number of
Shares. If any delivery owed to Party A hereunder is not made, in whole or in
part, as a result of this provision, Party B’s obligation to make such delivery
shall not be extinguished and Party B shall make such delivery as promptly as
practicable after, but in no event later than one Exchange Business Day after,
Party A gives notice to Party B that, after such delivery, (i) the Share Amount
would not exceed the Post-Effective Limit and (ii) Party A Group would not
directly or indirectly so beneficially own in excess of the Threshold Number of
Shares.

In addition, notwithstanding anything herein to the contrary, if any delivery
owed to Party A hereunder is not made, in whole or in part, as a result of the
immediately preceding paragraph, Party A shall be permitted to make any payment
due in respect of such Shares to Party B in two or more tranches that correspond
in amount to the number of Shares delivered by Party B to Party A pursuant to
the immediately preceding paragraph.

Delivery of Cash:

For the avoidance of doubt, nothing in this Confirmation shall be interpreted as
requiring Party B to deliver cash in respect of the settlement of the
Transaction, except (i) as set forth above under “Extraordinary Dividends,”
which is within Party B’s control, (ii) in circumstances where Cash Settlement
is within Party B’s control (including, without limitation, where Party B elects
to deliver or receive cash or where Party B has made a Private Placement
Settlement in accordance with Annex A unavailable due to the occurrence of
events within its control) or (iii) in those circumstances in which holders of
Shares would also receive cash. For the avoidance of doubt, the preceding
sentence shall not be construed as limiting any damages that may be payable by
Party B as a result of breach of this Confirmation.

Wall Street Transparency and Accountability Act:

In connection with Section 739 of the Wall Street Transparency and
Accountability Act of 2010 (the “WSTAA”), the parties hereby agree that neither
the enactment of the WSTAA or any regulation under the WSTAA, nor any
requirement under the WSTAA or an amendment made by the WSTAA, shall limit or
otherwise impair either party’s otherwise applicable rights to terminate,
renegotiate, modify, amend or supplement this Confirmation or the Agreement, as
applicable, arising from a termination event, force majeure, illegality,
increased costs, regulatory change or similar event under this Confirmation, the
2002 Definitions incorporated herein, or the Agreement (including, but not
limited to, rights arising from any Acceleration Event or Illegality (as defined
in the Agreement)).

 

17

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Miscellaneous:

 

  (a) Addresses for Notices. For the purpose of Section 12(a) of the Agreement:

Address for notices or communications to Party A:

 

  Wells Fargo Bank, National Association   Email:   
CorporateDerivativeNotifications@wellsfargo.com   Facsimile No:    212-214-5913

Address for notices or communications to Party B:

 

  Address:    1025 Laurel Oak Road      Voorhees, NJ 08043   Attention:   
Charles Witherspoon   Title:    Vice President & Treasurer   Telephone No:   
856-310-5546   Email:    charles.witherspoon@amwater.com

 

  (b) Waiver of Right to Trial by Jury. Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect
of any suit, action or proceeding relating to this Confirmation. Each party
(i) certifies that no representative, agent or attorney of the other party has
represented, expressly or otherwise, that such other party would not, in the
event of such a suit action or proceeding, seek to enforce the foregoing waiver
and (ii) acknowledges that it and the other party have been induced to enter
into this Confirmation by, among other things, the mutual waivers and
certifications herein.

Acknowledgements:

The parties hereto intend for:

 

  (a) the Transaction to be a “securities contract” as defined in Section 741(7)
of Title 11 of the United States Code (the “Bankruptcy Code”), qualifying for
the protections under Section 555 of the Bankruptcy Code;

 

  (b) a party’s right to liquidate the Transaction and to exercise any other
remedies upon the occurrence of any Event of Default under the Agreement with
respect to the other party to constitute a “contractual right” as defined in the
Bankruptcy Code;

 

  (c) Party A to be a “financial institution” within the meaning of
Section 101(22) of the Bankruptcy Code; and

 

  (d) all payments for, under or in connection with the Transaction, all
payments for the Shares and the transfer of such Shares to constitute
“settlement payments” as defined in the Bankruptcy Code.

If Party A is a bank regulated by the Federal Deposit Insurance Corporation,
(i) Party A recognizes and intends that this Transaction is, and shall
constitute, a “qualified financial contract” as that term is defined in 12
U.S.C. §1821(e)(8)(d)(i), as the same may be amended, modified, or supplemented
from time to time; and (ii) Party A represents and warrants that it is
authorized by appropriate corporate action under applicable law to enter into
this Transaction as evidenced by the execution hereof by an officer of Party A
at the level of vice president or higher.

 

18

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Severability:

If any term, provision, covenant or condition of this Confirmation, or the
application thereof to any party or circumstance, shall be held to be invalid or
unenforceable in whole or in part for any reason, the remaining terms,
provisions, covenants, and conditions hereof shall continue in full force and
effect as if this Confirmation had been executed with the invalid or
unenforceable provision eliminated, so long as this Confirmation as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter of this Confirmation and the deletion of such
portion of this Confirmation will not substantially impair the respective
benefits or expectations of parties to this Agreement; provided, however, that
this severability provision shall not be applicable if any provision of
Section 2, 5, 6 or 13 of the Agreement (or any definition or provision in
Section 14 to the extent that it relates to, or is used in or in connection with
any such Section) shall be so held to be invalid or unenforceable.

Tax Matters:

 

  (a) For the purpose of Section 3(e), each of Party A and Party B makes the
following representation: It is not required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, of any Relevant
Jurisdiction to make any deduction or withholding for or on account of any Tax
from any payment (other than interest under Section 9(h) of the Agreement and
any other payments of interest and penalty charges for late payment) to be made
by it to the other party under this Agreement. In making this representation, it
may rely on (i) the accuracy of any representations made by the other party
pursuant to Section 3(f) of the Agreement; (ii) the satisfaction of the
agreement contained in Section 4(a)(i) or 4(a)(iii) of the Agreement and the
accuracy and effectiveness of any document provided by the other party pursuant
to Section 4(a)(i) or 4(a)(iii) of the Agreement; and (iii) the satisfaction of
the agreement of the other party contained in Section 4(d) of the Agreement;
provided that it shall not be a breach of this representation where reliance is
placed on clause (ii) and the other party does not deliver a form or document
under Section 4(a)(iii) by reason of material prejudice to its legal or
commercial position.

 

  (b) For the purpose of Section 3(f) of the Agreement:

 

  (i) Party A makes the following representation(s):

 

  (A) It is a “U.S. person” (as that term is used in section 1.1441-4(a)(3)(ii)
of United States Treasury Regulations) for U.S. federal income tax purposes.

 

  (B) It is a national banking association organized and existing under the laws
of the United States of America and is an exempt recipient under Treasury
Regulation Section 1.6049-4(c)(1)(ii)(M).

 

  (ii) Party B makes the following representation(s):

 

  (A) It is a “U.S. person” (as that term is used in section 1.1441-4(a)(3)(ii)
of United States Treasury Regulations) for U.S. federal income tax purposes.

 

  (B) It is a corporation for U.S. federal income tax purposes and is organized
under the laws of the State of Delaware and is an exempt recipient under
Treasury Regulation Section 1.6049-4(c)(1)(ii)(A)

 

  (c)

Withholding Tax imposed on payments to non-U.S. counterparties under the United
States Foreign Account Tax Compliance Act. “Tax” and “Indemnifiable Tax”, each
as defined in

 

19

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  Section 14 of the Agreement, shall not include any U.S. federal withholding
tax imposed or collected pursuant to Sections 1471 through 1474 of the U.S.
Internal Revenue Code of 1986, as amended (the “Code”), any current or future
regulations or official interpretations thereof, any agreement entered into
pursuant to Section 1471(b) of the Code, or any fiscal or regulatory
legislation, rules or practices adopted pursuant to any intergovernmental
agreement entered into in connection with the implementation of such Sections of
the Code (a “FATCA Withholding Tax”). For the avoidance of doubt, a FATCA
Withholding Tax is a Tax the deduction or withholding of which is required by
applicable law for the purposes of Section 2(d) of the Agreement.

 

  (d) HIRE Act. “Tax” and “Indemnifiable Tax”, each as defined in Section 14 of
the Agreement, shall not include any tax imposed on payments treated as
dividends from sources within the United States under Section 871(m) of the Code
or any regulations issued thereunder.

Other Forward:

Party A acknowledges that Party B has entered into a substantially identical
forward transaction for the Shares on the date hereof (the “Other Forward”) with
JPMorgan Chase Bank, National Association. Party A and Party B agree that if
Party B designates a Settlement Date with respect to the Other Forward and for
which Cash Settlement or Net Share Settlement is applicable, and the resulting
Unwind Period for such Other Forward coincides for any period of time with an
Unwind Period for this Transaction (the “Overlap Unwind Period”), Party B shall
notify Party A prior to the commencement of such Overlap Unwind Period, and
Party A shall only be permitted to purchase Shares to unwind its hedge in
respect of this Transaction on and the resulting Unwind Period shall include
only every second Exchange Business Day that is not a Suspension Day during such
Overlap Unwind Period (in the case of an Overlap Unwind Period that coincides
with an Unwind Period under the Other Forward), in each case as notified by
Party B, commencing on the first or second Exchange Business Day of such Overlap
Unwind Period, as notified by Party B. For the avoidance of doubt the operation
of this “Other Forward” provision shall not be deemed to give rise to a
Disrupted Day or other adjustment to this Transaction.

[Remainder of page intentionally left blank]

 

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Please confirm that the foregoing correctly sets forth the terms of our
agreement by signing and returning this Confirmation.

 

Yours faithfully, WELLS FARGO BANK, NATIONAL ASSOCIATION, By:  

/s/ Thomas Yates                                        

Name:   Thomas Yates Title:   Managing Director

 

Confirmed as of the date first written above: AMERICAN WATER WORKS COMPANY, INC.
By:  

/s/ Charles Witherspoon                            

Name:   Charles Witherspoon Title:   Vice President and Treasurer

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ANNEX A

PRIVATE PLACEMENT PROCEDURES

 

(i) If Party B delivers the Restricted Shares pursuant to this clause (i) (a
“Private Placement Settlement”), then delivery of Restricted Shares by Party B
shall be effected in customary private placement procedures with respect to such
Restricted Shares reasonably acceptable to Party A; provided that if, on or
before the date that a Private Placement Settlement would occur, Party B has
taken, or caused to be taken, any action that would make unavailable either the
exemption pursuant to Section 4(a)(2) of the Securities Act for the sale by
Party B to Party A (or any affiliate designated by Party A) of the Restricted
Shares or the exemption pursuant to Section 4(a)(1) or Section 4(a)(3) of the
Securities Act for resales of the Restricted Shares by Party A (or any such
affiliate of Party A) or Party B fails to deliver the Restricted Shares when due
or otherwise fails to perform obligations within its control in respect of a
Private Placement Settlement, it shall be an Event of Default with respect to
Party B and Section 6 of the Agreement shall apply. The Private Placement
Settlement of such Restricted Shares shall include customary representations,
covenants, blue sky and other governmental filings and/or registrations,
indemnities to Party A, due diligence rights (for Party A or any designated
buyer of the Restricted Shares by Party A), opinions and certificates, and such
other documentation as is customary for private placement agreements, all
reasonably acceptable to Party A. In the case of a Private Placement Settlement,
Party A shall, in its good faith discretion, adjust the number of Restricted
Shares to be delivered to Party A hereunder in a commercially reasonable manner
to reflect the fact that such Restricted Shares may not be freely returned to
securities lenders by Party A and may only be saleable by Party A at a discount
to reflect the lack of liquidity in Restricted Shares. Notwithstanding the
Agreement or this Confirmation, the date of delivery of such Restricted Shares
shall be the Clearance System Business Day following notice by Party A to Party
B of the number of Restricted Shares to be delivered pursuant to this clause
(i). For the avoidance of doubt, delivery of Restricted Shares shall be due as
set forth in the previous sentence and not be due on the Settlement Date or
Termination Settlement Date that would otherwise be applicable.

 

(ii) If Party B delivers any Restricted Shares in respect of the Transaction,
Party B agrees that (i) such Shares may be transferred by and among Party A and
its affiliates and (ii) after the minimum “holding period” within the meaning of
Rule 144(d) under the Securities Act has elapsed after the applicable Settlement
Date, Party B shall promptly remove, or cause the transfer agent for the Shares
to remove, any legends referring to any transfer restrictions from such Shares
upon delivery by Party A (or such affiliate of Party A) to Party B or such
transfer agent of seller’s and broker’s representation letters customarily
delivered by Party A or its affiliates in connection with resales of restricted
securities pursuant to Rule 144 under the Securities Act, each without any
further requirement for the delivery of any certificate, consent, agreement,
opinion of counsel, notice or any other document, any transfer tax stamps or
payment of any other amount or any other action by Party A (or such affiliate of
Party A).

 

A-1