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EXHIBIT 10.2  

 AEROGEN, INC.  

 AMENDED AND RESTATED

1994 STOCK OPTION PLAN  

 (Formerly Known As The 1994 Stock Option Plan Of AeroGen, Inc.,

Formerly Fluid Propulsion Technologies, Inc.)  

ADOPTED OCTOBER 19, 1994

APPROVED BY THE BOARD OF DIRECTORS AND STOCKHOLDERS IN 1994

AMENDED FOR 1 FOR 3 REVERSE STOCK SPLIT SEPTEMBER 29, 2000

AMENDED AND RESTATED AS OF FEBRUARY 23, 2001

TERMINATION DATE: OCTOBER 19, 2004  

1.  PURPOSES.  

    (a)  Eligible Stock Award Recipients.  The persons eligible to receive Stock Awards are the Employees,
Directors and Consultants of the Company and its Affiliates. 

    (b)  Available Stock Awards.  The purpose of the Plan is to provide a means by which eligible recipients
of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to acquire restricted stock. 

    (c)  General Purpose.  The Company, by means of the Plan, seeks to retain the services of the group of
persons eligible to receive Stock Awards, to secure and retain the services of new members of this
group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 

2.  DEFINITIONS.  

    (a) "Affiliate" means any parent corporation or subsidiary corporation of the Company, whether
now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. 

    (b) "Board" means the Board of Directors of the Company. 

    (c) "Code" means the Internal Revenue Code of 1986, as amended. 

    (d) "Committee" means a committee of one or more members of the Board appointed by the Board in
accordance with subsection 3(c). 

    (e) "Common Stock" means the common stock of the Company. 

    (f)  "Company" means AeroGen, Inc., a Delaware corporation. 

    (g) "Consultant" means any person, including an advisor, (i) engaged by the Company or an
Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term "Consultant"
shall not include either Directors who are not compensated by the Company for their services as Directors or Directors who are merely paid a director's fee by the Company for their services as
Directors. 

    (h) "Continuous Service" means that the Participant's service with the Company or an Affiliate,
whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant's Continuous
Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or 

 

Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant's Continuous Service. For example, a change
in status from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the
Company, in that party's sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave,
military leave or any other personal leave. 

    (i)  "Covered Employee" means the chief executive officer and the four (4) other highest
compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. 

    (j)  "Director" means a member of the Board of Directors of the Company. 

    (k) "Disability" means the permanent and total disability of a person within the meaning of
Section 22(e)(3) of the Code. 

    (l)  "Employee" means any person employed by the Company or an Affiliate. Mere service as a
Director or payment of a director's fee by the Company or an Affiliate shall not be sufficient to constitute "employment" by the Company or an Affiliate. 

    (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. 

    (n) "Fair Market Value" means, as of any date, the value of the Common Stock determined as
follows: 

    (i)  If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the
Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or
market (or the exchange or market with the greatest volume of trading in the Common
Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems
reliable. 

    (ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the
Board. 

    (o) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code and the regulations promulgated thereunder. 

    (p) "Non-Employee Director" means a Director who either (i) is not a current Employee or
Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in
any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business
relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. 

    (q) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock
Option. 

    (r) "Officer" means a person who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated thereunder. 

    (s) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to
the Plan. 

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    (t) "Option Agreement" means a written agreement between the Company and an Optionholder
evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. 

    (u) "Optionholder" means a person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option. 

    (v) "Outside Director" means a Director who either (i) is not a current employee of the
Company or an "affiliated corporation" (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time and is not currently
receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director or (ii) is otherwise considered an "outside
director" for purposes of Section 162(m) of the Code. 

    (w) "Participant" means a person to whom a Stock Award is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Stock Award. 

    (x) "Plan" means this AeroGen, Inc. Amended and Restated 1994 Stock Option Plan (formerly
known as the 1994 Stock Option Plan of Fluid Propulsion Technologies, Inc.). 

    (y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time. 

    (z) "Securities Act" means the Securities Act of 1933, as amended. 

    (aa) "Stock Award" means any right granted under the Plan, including an Option, a stock bonus
and a right to acquire restricted stock. 

    (bb) "Stock Award Agreement" means a written agreement between the Company and a holder of a
Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. 

    (cc) "Ten Percent Stockholder" means a person who owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates. 

3.  ADMINISTRATION.  

    (a)  Administration by Board.  The Board shall administer the Plan unless and until the Board delegates
administration to a Committee, as provided in subsection 3(c). 

    (b)  Powers of Board.  The Board shall have the power, subject to, and within the limitations of, the
express provisions of the Plan: 

    (i)  To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and
how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time
or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such
person. 

    (ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke
rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award 

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Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. 

    (iii) To amend the Plan or a Stock Award as provided in Section 12. 

    (iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote
the best interests of the Company which are not in conflict with the provisions of the Plan. 

    (c)  Delegation to Committee.  

    (i)  General.  The Board may delegate administration of the Plan to a Committee or Committees of one
(1) or more members of the Board, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent
with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 

    (ii) Committee Composition when Common Stock is Publicly Traded.  At such time as the Common Stock is
publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more members
of the Board who are not Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at
the time of recognition of income resulting from such Stock Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate to a
committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act. 

    (d)  Effect of Board's Decision.  All determinations, interpretations and constructions made by the Board
in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons. 

4.  SHARES SUBJECT TO THE PLAN.  

    (a)  Share Reserve.  Subject to the provisions of Section 11 relating to adjustments upon changes in
Common Stock, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate one hundred sixty-six thousand six hundred and sixty-six (166,666) shares of Common Stock
(after the Company's one-for-three share reverse stock split). 

    (b)  Reversion of Shares to the Share Reserve.  If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Stock Award shall revert to and again become available for issuance
under the Plan. If any shares are repurchased, such repurchased shares shall revert back to and again become available for issuance under the Plan for all Stock Awards other than Incentive Stock
Options. 

    (c)  Source of Shares.  The shares of Common Stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise. 

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5.  ELIGIBILITY.  

    (a)  Eligibility for Specific Stock Awards.  Incentive Stock Options may be granted only to Employees.
Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. 

    (b)  Ten Percent Stockholders.  A Ten Percent Stockholder shall not be granted an Incentive Stock Option
unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant. 

    (c)  Section 162(m) Limitation.  Subject to the provisions of Section 11 relating to adjustments upon
changes in the shares of Common Stock, no Employee shall be eligible to be granted Options covering more than one million (1,000,000) shares of Common Stock during any calendar year. 

    (d)  Consultants.  

    (i)  A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration
Statement under the Securities Act ("Form S-8") is not available to register either the offer or the sale of the Company's securities to such Consultant because of the nature of the services that the
Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both
(i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the
securities laws of all other relevant jurisdictions. 

    (ii) Form S-8 generally is available to consultants and advisors only if (i) they are natural persons;
(ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer's securities. 

6.  OPTION PROVISIONS.  

    Each
Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options
or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type
of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of
each of the following provisions: 

    (a)  Term.  Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no
Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date it was granted. 

    (b)  Exercise Price of an Incentive Stock Option.  Subject to the provisions of subsection
5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject
to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such 

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Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. 

    (c)  Exercise Price of a Nonstatutory Stock Option.  The exercise price of each Nonstatutory Stock Option
shall be not less than eighty-five percent (85%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory
Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a
manner satisfying the provisions of Section 424(a) of the Code. 

    (d)  Consideration.  The purchase price of Common Stock acquired pursuant to an Option shall be paid, to
the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the
Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement
with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common
Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock
of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time
that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. 

    In
the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment
as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. 

    (e)  Transferability of an Incentive Stock Option.  An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder
may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option. 

    (f)  Transferability of a Nonstatutory Stock Option.  A Nonstatutory Stock Option shall be transferable
to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by
the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. 

    (g)  Vesting Generally.  The total number of shares of Common Stock subject to an Option may, but need
not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection
6(g) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised. 

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    (h)  Termination of Continuous Service.  In the event an Optionholder's Continuous Service terminates
(other than upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder's Continuous Service (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. 

    (i)  Extension of Termination Date.  An Optionholder's Option Agreement may also provide that if the
exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or Disability) would be prohibited at any time solely because the
issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the
Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements. 

    (j)  Disability of Optionholder.  In the event that an Optionholder's Continuous Service terminates as a
result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent
that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following
such termination (or such longer or shorter period specified in the Option Agreement) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. 

    (k)  Death of Optionholder.  In the event (i) an Optionholder's Continuous Service terminates as a
result of the Optionholder's death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder's Continuous Service for
a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but only
within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement) or (2) the
expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. 

    (l)  Early Exercise.  The Option may, but need not, include a provision whereby the Optionholder may
elect at any time before the Optionholder's Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. 

7.  PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.  

    (a)  Stock Bonus Awards.  Each stock bonus agreement shall be in such form and shall contain such terms
and conditions as the Board shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through incorporation 

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of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: 

    (i)  Consideration.  A stock bonus may be awarded in consideration for past services actually rendered to
the Company or an Affiliate for its benefit. 

    (ii) Vesting.  Shares of Common Stock awarded under the stock bonus agreement may, but need not, be
subject to a share reacquisition option in favor of the Company in accordance with a vesting schedule to be determined by the Board. 

    (iii) Termination of Participant's Continuous Service.  In the event a Participant's Continuous Service
terminates, the Company may reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the stock bonus agreement. 

    (iv) Transferability.  Rights to acquire shares of Common Stock under the stock bonus agreement shall be
transferable by the Participant only upon such terms and conditions as are set forth in the stock bonus agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under
the stock bonus agreement remains subject to the terms of the stock bonus agreement. 

    (b)  Restricted Stock Purchase Awards.  Each restricted stock purchase agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the restricted stock purchase agreements may change from time to time, and the terms and
conditions of separate restricted stock purchase agreements need not be identical, but each restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference
in the agreement or otherwise) the substance of each of the following provisions: 

    (i)  Purchase Price.  The purchase price under each restricted stock purchase agreement shall be such
amount as the Board shall determine and designate in such restricted stock purchase agreement. The purchase price shall not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated. 

    (ii) Consideration.  The purchase price of Common Stock acquired pursuant to the restricted stock
purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the
Participant; or (iii) in any other form of legal consideration that may be acceptable to the Board in its discretion; provided, however, that at any time that the Company is incorporated in
Delaware, then payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. 

    (iii) Vesting.  Shares of Common Stock acquired under the restricted stock purchase agreement may, but
need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board. 

    (iv) Termination of Participant's Continuous Service.  In the event a Participant's Continuous Service
terminates, the Company may repurchase or otherwise reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of
the restricted stock purchase agreement. 

    (v) Transferability.  Rights to acquire shares of Common Stock under the restricted stock purchase
agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the restricted stock purchase agreement, as the Board shall determine in its discretion, so
long as Common Stock awarded under the restricted stock purchase agreement remains subject to the terms of the restricted stock purchase agreement. 

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8.  COVENANTS OF THE COMPANY.  

    (a)  Availability of Shares.  During the terms of the Stock Awards, the Company shall keep available at
all times the number of shares of Common Stock required to satisfy such Stock Awards. 

    (b)  Securities Law Compliance.  The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that
this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common
Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. 

9.  USE OF PROCEEDS FROM STOCK.  

    Proceeds
from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company. 

10. MISCELLANEOUS.  

    (a)  Acceleration of Exercisability and Vesting.  The Board shall have the power to accelerate the time
at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it will vest. 

    (b)  Stockholder Rights.  No Participant shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to
its terms. 

    (c)  No Employment or other Service Rights.  Nothing in the Plan or any instrument executed or Stock
Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall
affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant
to the terms of such Consultant's agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable
provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be. 

    (d)  Incentive Stock Option $100,000 Limitation.  To the extent that the aggregate Fair Market Value
(determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions
thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. 

    (e)  Investment Assurances.  The Company may require a Participant, as a condition of exercising or
acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the Company who is 

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knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the
Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant's own account
and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if
(1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement
under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then
applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to
comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock. 

    (f)  Withholding Obligations.  To the extent provided by the terms of a Stock Award Agreement, the
Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to
the Company's right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to
withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award, provided,
however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered
shares of Common Stock. 

11. ADJUSTMENTS UPON CHANGES IN COMMON STOCK.  

    (a)  Capitalization Adjustments.  If any change is made in the Common Stock subject to the Plan, or
subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property
other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the nature, class(es) and maximum number of securities subject to the Plan pursuant to Section 4 and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the nature, class(es) and number of securities and price per share of Common Stock
subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration" by the Company.) 

    (b)  Dissolution or Liquidation.  In the event of a dissolution or liquidation of the Company, then all
outstanding Stock Awards shall terminate immediately prior to such event. 

    (c)  Asset Sale, Merger, Consolidation or Reverse Merger.  In the event of (i) a sale, lease or
other disposition of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation and in which beneficial
ownership of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of the members of the Board of Directors has changed;
(iii) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or otherwise, and in which beneficial ownership of securities of the 

10

 

Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of the member of the Board of Directors has changed; (iv) an acquisition by any
entity (other than (A) a controlled affiliate of the Company, (B) any employee benefit plan, or related trust, sponsored or maintained by the Company or subsidiary of the Company or
other entity controlled by the Company, or (C) any company owned directly or indirectly by stockholders of the Company in substantially the same proportions as their ownership of Common Stock
interest of the Company, immediately prior to the occurrence with respect to which the evaluation of the Change in Control is being made) of the beneficial ownership, directly or indirectly, of
securities of the Company representing at least fifty percent (50%) of the combined voting power of the Company's then outstanding securities; or (v) in the event that the individuals who, as
of the date of adoption of the Plan, are members of the Company's Board of Directors (the "Incumbent Board"), cease for any reason to constitute at least fifty percent (50%) of the Board of Directors
(if the election, or nomination for election by the Company's stockholders, of any new Director is approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new Director shall be
considered to be a member of the Incumbent Board in the future), then any surviving corporation or acquiring corporation shall assume any Stock Awards outstanding under the Plan or shall substitute
similar stock
awards (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection 11(c) for those outstanding under the Plan). In the event
any surviving corporation or acquiring corporation refuses to assume such Stock Awards or to substitute similar stock awards for those outstanding under the Plan, then with respect to Stock Awards
held by Participants whose Continuous Service has not terminated, the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated
in full, and the Stock Awards shall terminate if not exercised (if applicable) at or prior to such event. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall
terminate if not exercised (if applicable) prior to such event. 

12. AMENDMENT OF THE PLAN AND STOCK AWARDS.  

    (a)  Amendment of Plan.  The Board at any time, and from time to time, may amend the Plan. However,
except as provided in Section 11 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder
approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements. 

    (b)  Stockholder Approval.  The Board may, in its sole discretion, submit any other amendment to the Plan
for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. 

    (c)  Contemplated Amendments.  It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. 

    (d)  No Impairment of Rights.  Rights under any Stock Award granted before amendment of the Plan shall
not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. 

    (e)  Amendment of Stock Awards.  The Board at any time, and from time to time, may amend the terms of any
one or more Stock Awards; provided, however, that the rights under any Stock Award 

11

 

shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. 

13. TERMINATION OR SUSPENSION OF THE PLAN.  

    (a)  Plan Term.  The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the
Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards
may be granted under the Plan while the Plan is suspended or after it is terminated. 

    (b)  No Impairment of Rights.  Suspension or termination of the Plan shall not impair rights and
obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant. 

14. EFFECTIVE DATE OF PLAN.  

    The
Plan shall become effective upon the date the Plan is approved by the Board. 

15. CHOICE OF LAW.  

    The
law of the State of California shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state's conflict of laws
rules. 

EFFECTIVE FOR OPTIONS GRANTED UNDER THIS PLAN BEGINNING FEBRUARY 23, 2001.  

12<PAGE>

                                                                     EXHIBIT 10C

                       AMERICAN WATER WORKS COMPANY, INC.

                           DEFERRED COMPENSATION PLAN

               (As amended and restated effective January 1, 2001)

<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE

      ARTICLE I   INTRODUCTION.......................................   1
      1.1.  Name  ...................................................   1
      1.2.  Effective Date...........................................   1
      1.3.  Employers ...............................................   1
      1.4.  Purpose .................................................   1

      ARTICLE II  DEFINITIONS........................................   1
      2.1.  "Administrator" .........................................   1
      2.2.  "Annual Incentive Plan" .................................   1
      2.3.  "Beneficiary" ...........................................   1
      2.4.  "Board"..................................................   2
      2.5.  "Change in Control" .....................................   2
      2.6.  "Committee" .............................................   2
      2.7.  "Deferred Compensation Account" .........................   2
      2.8.  "Deferred Compensation Agreement" .......................   2
      2.9.  "Disability".............................................   2
      2.10  "Elective Deferred Compensation".........................   2
      2.11. "Eligible Employee" .....................................   2
      2.12. "Participant" ...........................................   2
      2.13. "Plan Year"..............................................   3
      2.14. "Retirement".............................................   3
      2.15. "Stock"..................................................   3
      2.16. "Stock Equivalent Unit"..................................   3

      ARTICLE III PARTICIPATION BY ELIGIBLE EMPLOYEES ...............   3
      3.1.  Participation ...........................................   3
      3.2.  Continuity of Participation .............................   3
      3.3.  Immediate Cash-Out of Ineligible Employee ...............   3

      ARTICLE IV  DEFERRALS AND DEFERRED COMPENSATION ACCOUNTS ......   4
      4.1.  Compensation Eligible for Deferral.......................   4
      4.2.  Irrevocability of Deferral Elections.....................   4
      4.3.  Date of Election ........................................   4
      4.4.  Establishment of Deferred Compensation Accounts..........   5
      4.5.  Hypothetical Investment Vehicles.........................   5
      4.6.  Allocation and Reallocation of Hypothetical Investments..   5
      4.7.  Dividend Equivalents.....................................   6
      4.8.  Restrictions on Participant Direction....................   6

<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE

      ARTICLE V   DISTRIBUTIONS .....................................    7
      5.1.  Election of Distribution Date ...........................    7
      5.2.  Distribution of Mandatory Deferrals Not Elected To Be
            Extended.................................................    7
      5.3.  Method of Payment .......................................    7
      5.4.  Special Election for Early Distribution .................    7
      5.5.  Distributions on Death. .................................    8
      5.6.  Valuation of Cash Distributions..........................    8
      5.7.  Financial Emergency and Other Payments...................    8

      ARTICLE VI  FUNDING AND PARTICIPANT"S INTEREST.................    8
      6.1.  Deferred Compensation Plan Unfunded .....................    8
      6.2.  Participant's Interest in Plan ..........................    9

      ARTICLE VII ADMINISTRATION AND INTERPRETATION .................    9
      7.1.  Administration. .........................................    9
      7.2.  Interpretation...........................................    9
      7.3.  Records and Reports .....................................   10
      7.4.  Payment of Expenses .....................................   10
      7.5.  Indemnification for Liability............................   11
      7.6.  Claims Procedure.........................................   11
      7.7.  Review Procedure.........................................   11

      ARTICLE VIII AMENDMENT AND TERMINATION.........................   12
      8.1.  Amendment and Termination ...............................   12

      ARTICLE IX  MISCELLANEOUS PROVISIONS...........................   12
      9.1.  Right of Employers to Take Employment Actions ...........   12
      9.2.  Alienation or Assignment of Benefits.....................   13
      9.3.  Right to Withhold .......................................   13
      9.4.  Construction.............................................   13
      9.5.  Headings.................................................   13
      9.6.  Number and Gender .......................................   13

<PAGE>

                                    ARTICLE I

                                  INTRODUCTION

      1.1.  NAME. The name of this plan is the American Water Works Company,
Inc. Deferred Compensation Plan ("Deferred Compensation Plan").

      1.2.  EFFECTIVE DATE. The effective date of this Deferred Compensation
Plan is January 1, 1996.

      1.3.  EMPLOYERS. American Water Works Company, Inc. ("American Water
Works"), and each subsidiary or affiliate of American Water Works that employs
one or more Eligible Employees who have become Participants in accordance with
Article III, shall each be an "Employer" under this Deferred Compensation Plan.

      1.4.  PURPOSE. This Deferred Compensation Plan is established effective
January 1, 1996 by American Water Works for the purpose of providing deferred
compensation benefits for a select group of management or highly compensated
employees of the Employers.

                                   ARTICLE II

                                   DEFINITIONS

      Whenever the following initially capitalized words and phrases are used in
this Deferred Compensation Plan, they shall have the meanings specified below
unless the context clearly indicates to the contrary:

      2.1.  "ADMINISTRATOR" shall mean the Retirement Committee of American
Water Works Company, Inc., or its delegate.

      2.2.  "ANNUAL INCENTIVE PLAN" shall mean American Water Works Company,
Inc.'s Annual Incentive Plan, effective January 1, 1996.

      2.3. "BENEFICIARY" shall mean such person or legal entity as may be
designated by a Participant under Section 5.5 to receive benefits hereunder
after such Participant's death.

      2.4.  "BOARD" shall mean the Board of Directors of American Water Works
Company, Inc.

                                      -4-
<PAGE>

      2.5.  "CHANGE IN CONTROL" shall have the meaning given to such term in the
American Water Works Company, Inc. 2000 Stock Award and Incentive Plan.

      2.6.  "COMMITTEE" shall mean the Compensation and Management Development
Committee of the Board.

      2.7.  "DEFERRED COMPENSATION ACCOUNT" shall mean the account or subaccount
established and maintained by the Administrator for specified deferrals by a
Participant, as described in Article IV of this Deferred Compensation Plan.
Deferred Compensation Accounts shall be maintained solely as bookkeeping entries
to evidence unfunded obligations of American Water Works.

      2.8. "DEFERRED COMPENSATION AGREEMENT" shall mean a document (or
documents) as made available from time to time by the Administrator, whereby an
Eligible Employee enrolls as a Participant and elects to defer compensation
pursuant to Article IV of this Deferred Compensation Plan.

      2.9.  "DISABILITY" shall mean a physical or mental impairment of
sufficient severity such that a Participant is eligible for benefits under the
long-term disability provisions of his Employer"s benefit plans.

      2.10. "ELECTIVE DEFERRED COMPENSATION" shall mean that portion of the
Participant's Compensation which the Participant elects to defer pursuant to
Article IV of this Deferred Compensation Plan in accordance with the Deferred
Compensation Agreement.

      2.11. "ELIGIBLE EMPLOYEE" shall mean an individual employed by an Employer
who is a member of a select group of management or highly compensated employees
participating in the Annual Incentive Plan.

      2.12. "PARTICIPANT" shall mean an Eligible Employee who has amounts
standing to his credit under a Deferred Compensation Account.

      2.13. "PLAN YEAR" shall mean the calendar year.

                                      -5-
<PAGE>

      2.14. "RETIREMENT" shall mean a Participant"s voluntary termination of
employment at or after the date on which he is eligible promptly thereafter to
commence receipt of retirement benefits under the Pension Plan for Employees of
American Water Works Company, Inc. and Its Designated Subsidiaries or any
supplemental retirement plan maintained by American Water Works or any successor
plan thereto.

      2.15. "STOCK" shall mean American Water Works Company, Inc. common stock,
or any other equity securities of American Water Works designated by the
Administrator.

      2.16. "STOCK EQUIVALENT UNIT" shall mean a bookkeeping entry representing
a hypothetical investment in Stock.

                                   ARTICLE III

                       PARTICIPATION BY ELIGIBLE EMPLOYEES

      3.1.  PARTICIPATION. Participation in this Deferred Compensation Plan is
limited to Eligible Employees. An Eligible Employee shall participate in this
Deferred Compensation Plan as determined by the Administrator in its sole
discretion; provided, however, that all executive officers of American Water
Works shall automatically be considered Eligible Employees.

      3.2.  CONTINUITY OF PARTICIPATION. A Participant who separates from
service with all of the Employers will cease active participation hereunder.
However, the separation from service of an Eligible Employee with one Employer
will not interrupt the continuity of his active participation if, concurrently
with or immediately after such separation, he is employed by one or more of the
other Employers.

      3.3.  IMMEDIATE CASH-OUT OF INELIGIBLE EMPLOYEE. This Deferred
Compensation Plan is intended to be an unfunded "top-hat" plan, maintained
primarily for the purposes of providing deferred compensation for a select group
of management or highly compensated employees. Accordingly, if the Administrator
determines that any Participant does not qualify as a member of the select
group, one hundred percent (100%) of such Participant's Deferred Compensation
Account shall be paid to the Participant immediately.

                                      -6-
<PAGE>

                                   ARTICLE IV

                  DEFERRALS AND DEFERRED COMPENSATION ACCOUNTS

      4.1.  COMPENSATION ELIGIBLE FOR DEFERRAL. To the extent authorized by the
Committee, a Participant may elect to defer compensation or awards which may be
in the form of cash, Stock, Stock-denominated awards or other property to be
received from an Employer, including salary, annual bonus awards, long-term
awards, shares issuable on stock option exercise and compensation payable under
other plans and programs, employment agreements or other arrangements, or
otherwise, as may be provided under the terms of such plans, programs and
arrangements or as designated by the Administrator. The Committee may impose
limitations on the amounts permitted to be deferred and other terms and
conditions on deferrals under the Deferred Compensation Plan. Any such
limitations, and other terms and conditions of deferral, shall be set forth in
the rules relating to the Deferred Compensation Plan or election forms, other
forms, or instructions published by or at the direction of the Administrator.
The Committee may permit awards and other amounts to be treated as deferrals
under the Deferred Compensation Plan, including deferrals that may be mandatory
as determined by the Committee in its sole discretion or under the terms of
another plan or arrangement of an Employer, for administrative convenience or
otherwise to serve the purposes of the Deferred Compensation Plan and such other
plan or arrangement.

      4.2.  IRREVOCABILITY OF DEFERRAL ELECTIONS. Once a Deferred Compensation
Agreement, properly completed, is received by the Administrator, the elections
of the Participant shall be irrevocable; provided, however, that the
Administrator may, in its discretion, permit a Participant to elect a further
deferral of amounts credited to a Deferred Compensation Account by filing a
later election form; provided, further, that, unless otherwise approved by the
Administrator, any election to further defer amounts credited to a Deferred
Compensation Account must be made at least six months prior to the date such
amounts would otherwise be payable.

      4.3.  DATE OF ELECTION. An election to defer compensation or awards
hereunder must be received by the Administrator prior to the date specified by
the Administrator. Under no circumstances may a Participant defer compensation
or awards if the Participant has, at the time of deferral, a legally enforceable
right to current receipt of such compensation or awards.

      4.4.  ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNTS. One or more
Deferred Compensation Accounts will be established for each Participant, as
determined by the Administrator. The amount of compensation or awards deferred
with respect to each Deferred Compensation Account will be credited to such
Account as of the date on which such amounts

                                      -7-
<PAGE>

would have been paid to the Participant but for the Participant's election to
defer receipt hereunder, unless otherwise determined by the Administrator. With
respect to any fractional shares of Stock or Stock-denominated awards, the
Administrator, in its sole discretion, shall pay such fractional shares to the
Participant in cash, credit the Deferred Compensation Account with cash in lieu
of depositing fractional shares into the Deferred Compensation Account, or
credit the Deferred Compensation Account with a fraction of a share calculated
to at least three decimal places. Unless otherwise determined by the
Administrator, amounts credited to a Deferred Compensation Account shall be
deemed invested in a hypothetical investment as of the date of deferral. The
amounts of hypothetical income and appreciation and depreciation in the value of
such Account will be credited and debited to, or otherwise reflected in, such
Account from time to time.

      4.5.  HYPOTHETICAL INVESTMENT VEHICLES. Subject to the provisions of
Sections 4.6 and 4.8, amounts credited to a Deferred Compensation Account shall
be deemed to be invested, at the Participant's direction, in one or more
investment vehicles as may be specified from time to time by the Administrator.
The Administrator may change or discontinue any hypothetical investment vehicle
available under the Deferred Compensation Plan in its discretion; provided,
however, that each affected Participant shall be given the opportunity, without
limiting or otherwise impairing any other right of such Participant regarding
changes in investment directions, to redirect the allocation of his Deferred
Compensation Account deemed invested in the discontinued investment vehicle
among the other hypothetical investment vehicles, including any replacement
vehicle.

      4.6.  ALLOCATION AND REALLOCATION OF HYPOTHETICAL INVESTMENTS. A
Participant may allocate amounts credited to his Deferred Compensation Account
to one or more of the hypothetical investment vehicles authorized under the
Deferred Compensation Plan. Subject to the rules established by the
Administrator, a Participant may reallocate amounts credited to his Deferred
Compensation Account to one or more of such hypothetical investment vehicles as
of the next day following the filing of the Participant's election to reallocate
amounts credited to his Deferred Compensation Account. The Administrator may, in
its discretion, restrict allocation into or reallocation by specified
Participants into or out of specified investment vehicles or specify minimum or
maximum amounts that may be allocated or reallocated by Participants.

      4.7.  DIVIDEND EQUIVALENTS. Dividend equivalents will be credited on Stock
Equivalent Units credited to a Participant's Deferred Compensation Account as
follows:

            (a) CASH AND NON-STOCK DIVIDENDS. If American Water Works declares
      and pays a dividend on Stock in the form of cash or property other than
      shares of Stock, then a

                                      -8-
<PAGE>

      number of additional Stock Equivalent Units shall be credited to a
      Participant's Deferred Compensation Account as of the payment date for
      such dividend equal to (i) the number of Stock Equivalent Units credited
      to the Deferred Compensation Account as of the record date for such
      dividend, multiplied by (ii) the amount of cash plus the fair market value
      of any property other than shares actually paid as a dividend on each
      share at such payment date, divided by (iii) the closing market price of a
      share of Stock at such payment date as published in The Wall Street
      Journal report of New York Stock Exchange Composite Transactions.

            (b) STOCK DIVIDENDS AND SPLITS. If American Water Works declares and
      pays a dividend on Stock in the form of additional shares of Stock, or
      there occurs a forward split of Stock, then a number of additional Stock
      Equivalent Units shall be credited to the Participant's Deferred
      Compensation Account as of the payment date for such dividend or forward
      Stock split equal to (i) the number of Stock Equivalent Units credited to
      the Deferred Compensation Account as of the record date for such dividend
      or split, multiplied by (ii) the number of additional shares actually paid
      as a dividend or issued in such split in respect of each share of Stock.

      4.8.  RESTRICTIONS ON PARTICIPANT DIRECTION. The provisions of Sections
4.5 and 4.6 notwithstanding, the Administrator may restrict or prohibit
reallocations of amounts deemed invested in specified investment vehicles, and
subject such amounts to a risk of forfeiture and other restrictions, in order to
conform to restrictions applicable to Stock, a Stock-denominated award, or any
other award or amount deferred under the Deferred Compensation Plan and
resulting in such deemed investment, to comply with any applicable law or
regulation, or for such other purpose as the Administrator may determine is not
inconsistent with the Deferred Compensation Plan. Notwithstanding any other
provision of the Deferred Compensation Plan to the contrary, deferrals of all
Stock-denominated awards under the American Water Works Company, Inc. Long-Term
Performance-Based Incentive Plan shall be credited to the Participant"s Deferred
Compensation Account in the form of Stock Equivalent Units and may not be
reallocated or deemed reinvested in any other investment vehicle.

                                    ARTICLE V

                                  DISTRIBUTIONS

                                      -9-
<PAGE>

      5.1.  ELECTION OF DISTRIBUTION DATE. At the time a Participant makes an
election to defer compensation under Article IV, such Participant shall also
specify in writing in the Deferred Compensation Agreement the date or event on
which the payment of the Participant's Deferred Compensation Account shall be
made. Payments in settlement of a Deferred Compensation Account shall be made as
soon as practicable after the date or dates (including upon the occurrence of
specified events), and in such number of installments, as may be directed by the
Participant in his election relating to such Deferred Compensation Account,
provided that, in the event of termination of employment for reasons other than
Retirement or Disability, a single lump sum payment in settlement of any
Deferred Compensation Account (including an Account with respect to which one or
more installment payments have previously been made) shall be made as promptly
as practicable thereafter, unless otherwise determined by the Administrator.

      5.2.  DISTRIBUTION OF MANDATORY DEFERRALS NOT ELECTED TO BE EXTENDED. If
the Participant has not made an election to extend the deferral period of any
mandatory deferral of a portion of his annual incentive award to be earned under
the Annual Incentive Plan for any Plan Year, a payment of the cash value of the
Stock Equivalent Units credited to his Deferred Compensation Account
attributable to such mandatory deferral, including additional units credited as
a result of dividends as provided under Section 4.7, shall be made on the date
the period of mandatory deferral ends.

      5.3.  METHOD OF PAYMENT. All distributions under this Deferred
Compensation Plan shall be in the form of a cash payment; provided, however,
that all deferrals of Stock-denominated awards under the American Water Works
Company, Inc. Long-Term Performance-Based Incentive Plan shall be paid by
delivery of shares of Stock reserved under such Plan.

      5.4.  SPECIAL ELECTION FOR EARLY DISTRIBUTION. A Participant may apply to
the Administrator for early distribution of all or any part of his Deferred
Compensation Account excluding any amounts attributable to mandatory deferrals
that have not been credited to his Deferred Compensation Account for the minimum
period of mandatory deferral. Such early distribution shall be made in a single
lump sum, provided that 10% of the amount withdrawn in such early distribution
shall be forfeited to the Participant's Employer prior to payment of the
remainder to the Participant. In the event a Participant's early distribution
election is submitted within one year after a Change in Control, the forfeiture
penalty shall be reduced to 5%.

      5.5.  DISTRIBUTIONS ON DEATH. In the event of a Participant's death before
his Deferred Compensation Account has been distributed, distribution of his
entire account (including mandatory deferrals) shall be made to the Beneficiary
selected by the Participant in a single lump sum

                                      -10-
<PAGE>

payment within 30 days after the date of death (or, if later, after the proper
Beneficiary has been identified). A Participant may from time to time change his
designated Beneficiary without the consent of such Beneficiary by filing a new
designation in writing with the Administrator. If no Beneficiary designation is
in effect at the time of the Participant's death, or if the designated
Beneficiary is missing or has predeceased the Participant, distribution shall be
made to the Participant's estate.

      5.6.  VALUATION OF CASH DISTRIBUTIONS. All cash distributions under this
Deferred Compensation Plan shall be based upon the cash value of the investment
credited to a Participant's Deferred Compensation Account as of the date
immediately preceding the date of the distribution. It is understood that
administrative requirements may lead to a delay between such valuation date and
the date of distribution, not to exceed 30 days.

      5.7.  FINANCIAL EMERGENCY AND OTHER PAYMENTS. Other provisions of this
Deferred Compensation Plan notwithstanding, if, upon the written application of
a Participant, the Administrator determines that the Participant has a financial
emergency of such a substantial nature and beyond the individual's control that
payment of amounts previously deferred under this Deferred Compensation Plan is
warranted, the Administrator may direct the payment to the Participant of all or
a portion of the balance of his Deferred Compensation Account and the time and
manner of such payment.

                                   ARTICLE VI

                       FUNDING AND PARTICIPANT'S INTEREST

      6.1.  DEFERRED COMPENSATION PLAN UNFUNDED. This Deferred Compensation Plan
shall be unfunded and no trust shall be created by this Deferred Compensation
Plan. The crediting to each Participant's Deferred Compensation Account shall be
made through record keeping entries. No actual funds shall be set aside;
provided, however, that nothing herein shall prevent the Employers from
establishing one or more grantor trusts from which benefits due under this
Deferred Compensation Plan may be paid in certain instances. All distributions
shall be paid by the Employer from its general assets and a Participant (or his
Beneficiary) shall have the rights of a general, unsecured creditor against the
Employer for any distributions due hereunder. This Deferred Compensation Plan
constitutes a mere promise by the Employers to make benefit payments in the
future.

                                      -11-
<PAGE>

      6.2.  PARTICIPANT'S INTEREST IN PLAN. A Participant has an interest in the
cash value of amounts credited to his Deferred Compensation Account. A
Participant has no rights or interests in Stock or dividends and has no right to
elect delivery of shares of Stock except as provided in Section 5.3.

                                   ARTICLE VII

                        ADMINISTRATION AND INTERPRETATION

      7.1.  ADMINISTRATION. Except where certain duties are delegated to the
Administrator, the Committee shall be in charge of the operation and
administration of this Deferred Compensation Plan. The Committee has, to the
extent appropriate and in addition to the powers described elsewhere in this
Deferred Compensation Plan, full discretionary authority to construe and
interpret the terms and provisions of this Deferred Compensation Plan; to adopt,
alter and repeal administrative rules, guidelines and practices governing this
Deferred Compensation Plan; to perform all acts, including the delegation of its
administrative responsibilities to advisors or other persons who may or may not
be employees of the Employers; and to rely upon the information or opinions of
legal counsel or experts selected to render advice with respect to this Deferred
Compensation Plan, as it shall deem advisable, with respect to the
administration of this Deferred Compensation Plan.

      7.2.  INTERPRETATION. The Committee may take any action, correct any
defect, supply any omission or reconcile any inconsistency in this Deferred
Compensation Plan, or in any election hereunder, in the manner and to the extent
it shall deem necessary to carry this Deferred Compensation Plan into effect or
to carry out the Board's purposes in adopting the Plan. Any decision,
interpretation or other action made or taken in good faith by or at the
direction of the Employers, the Board, the board of directors of any Employer,
the Committee, or the Administrator arising out of or in connection with this
Deferred Compensation Plan, shall be within the absolute discretion of all and
each of them, as the case may be, and shall be final, binding and conclusive on
the Employers and all Participants and Beneficiaries and their respective heirs,
executors, administrators, successors and assigns. The Committee's or
Administrator"s determinations hereunder need not be uniform, and may be made
selectively among Eligible Employees, whether or not they are similarly
situated. Any actions to be taken by the Committee or Administrator will require
majority vote of the Committee or the Administrator. If a member of the
Committee or the Administrator is a Participant in this Deferred Compensation
Plan, such member may not decide or

                                      -12-
<PAGE>

determine any matter or question concerning his benefits under this Deferred
Compensation Plan that such member would not have the right to decide or
determine if he were not a member.

      7.3.  RECORDS AND REPORTS. The Administrator shall keep a record of
proceedings and actions and shall maintain or cause to be maintained all such
books of account, records, and other data as shall be necessary for the proper
administration of this Deferred Compensation Plan. Such records shall contain
all relevant data pertaining to Participants and their rights under this
Deferred Compensation Plan. The Administrator shall have the duty to carry into
effect all rights or benefits provided hereunder to the extent assets of the
Employers are properly available.

      7.4.  PAYMENT OF EXPENSES. The Employers, in such proportions as the
Committee determines, shall bear all expenses incurred by them and by the
Committee in administering this Deferred Compensation Plan. If a claim or
dispute arises concerning the rights of a Participant or Beneficiary to amounts
deferred under this Deferred Compensation Plan, regardless of the party by whom
such claim or dispute is initiated, the Employers shall (in such proportions as
between the Employers as the Committee determines), and upon presentation of
appropriate vouchers, pay all legal expenses, including reasonable attorneys'
fees, court costs, and ordinary and necessary out-of-pocket costs of attorneys,
billed to and payable by the Participant or by anyone claiming under or through
the Participant (such person being hereinafter referred to as the "Participant's
Claimant"), in connection with the bringing, prosecuting, defending, litigating,
negotiating, or settling of such claim or dispute; provided, that:

      (a)   The Participant or the Participant's Claimant shall repay to his
Employer any such expenses theretofore paid or advanced by his Employer if and
to the extent that the party disputing the Participant's rights obtains a
judgment in its favor from a court of competent jurisdiction from which no
appeal may be taken, whether because the time to do so has expired or otherwise,
and it is determined by the court that such expenses were not incurred by the
Participant or the Participant's Claimant while acting in good faith; provided,
further, that

      (b)   In the case of any claim or dispute initiated by a Participant or
the Participant's Claimant, such claim shall be made, or notice of such dispute
given, with specific reference to the provisions of this Deferred Compensation
Plan, to the Committee within two years (three years, in the event of a Change
in Control) after the occurrence of the event giving rise to such claim or
dispute.

                                      -13-
<PAGE>

      7.5.  INDEMNIFICATION FOR LIABILITY. The Employers shall indemnify the
Administrator, the members of the Committee, and the employees of any Employer
to whom the Administrator delegates duties under this Deferred Compensation
Plan, against any and all claims, losses, damages, expenses and liabilities
arising from their responsibilities in connection with this Deferred
Compensation Plan, unless the same is determined to be due to gross negligence
or willful misconduct.

      7.6.  CLAIMS PROCEDURE. If a claim for benefits or for participation under
this Deferred Compensation Plan is denied in whole or in part, a Participant
will receive written notification. The notification will include specific
reasons for the denial, specific reference to pertinent provisions of this
Deferred Compensation Plan, a description of any additional material or
information necessary to process the claim and why such material or information
is necessary, and an explanation of the claims review procedure. If the
Committee fails to respond within 90 days, the claim is treated as denied.

      7.7.  REVIEW PROCEDURE. Within 60 days after the claim is denied or, if
the claim is deemed denied, within 150 days after the claim is filed, a
Participant (or his duly authorized representative) may file a written request
with the Committee for a review of his denied claim. The Participant may review
pertinent documents that were used in processing his claim, submit pertinent
documents, and address issues and comments in writing to the Committee. The
Committee will notify the Participant of its final decision in writing. In its
response, the Committee will explain the reason for the decision, with specific
references to pertinent Deferred Compensation Plan provisions on which the
decision was based. If the Committee fails to respond to the request for review
within 60 days, the review is treated as denied.

                                  ARTICLE VIII

                            AMENDMENT AND TERMINATION

      8.1.  AMENDMENT AND TERMINATION. The Committee shall have the right, at
any time, to amend or terminate this Deferred Compensation Plan, in whole or in
part, provided that such amendment or termination shall not adversely affect the
right of any Participant or Beneficiary to payment of Participant's Deferred
Compensation Account. The Administrator, upon review of the effectiveness of
this Deferred Compensation Plan, may at any time recommend amendments to, or
termination of, this Deferred Compensation Plan to the Committee. American Water
Works reserves the right, in its sole discretion, to discontinue deferrals
under, or completely terminate, this Deferred Compensation Plan at any time. If
this Deferred Compensation Plan is discontinued with

                                      -14-
<PAGE>

respect to future deferrals, Participants' Deferred Compensation Accounts shall
be distributed on the distribution dates elected in accordance with Section 5.1,
unless the Committee designates that distributions shall be made on an earlier
date. If the Committee designates such earlier date, each Participant shall
receive distribution of his entire Deferred Compensation Account as specified by
the Committee. If this Deferred Compensation Plan is completely terminated, each
Participant shall receive distribution of his entire Deferred Compensation
Account in one lump sum payment as of the date this Deferred Compensation Plan
terminates.

                                      -15-
<PAGE>

                                   ARTICLE IX

                            MISCELLANEOUS PROVISIONS

      9.1.  RIGHT OF EMPLOYERS TO TAKE EMPLOYMENT ACTIONS. The adoption and
maintenance of this Deferred Compensation Plan shall not be deemed to constitute
a contract between an Employer and any Eligible Employee, or to be a
consideration for, or an inducement or condition of, the employment of any
individual. Nothing herein contained, or any action taken hereunder, shall be
deemed to give any Eligible Employee the right to be retained in the employ of
an Employer or to interfere with the right of an Employer to discharge any
Eligible Employees at any time, nor shall it be deemed to give to an Employer
the right to require the Eligible Employee to remain in its employ, nor shall it
interfere with the Eligible Employee's right to terminate his employment at any
time. Nothing in this Deferred Compensation Plan shall prevent an Employer from
amending, modifying, or terminating any other benefit plan, including the Annual
Incentive Plan.

      9.2.  ALIENATION OR ASSIGNMENT OF BENEFITS. A Participant's rights and
interest under this Deferred Compensation Plan shall not be assigned or
transferred except as otherwise provided herein, and a Participant's rights to
benefit payments under this Deferred Compensation Plan shall not be subject to
alienation, pledge or garnishment by or on behalf of creditors (including heirs,
beneficiaries, or dependents) of the Participant or of a Beneficiary.

      9.3.  RIGHT TO WITHHOLD. To the extent required by law in effect at the
time a distribution is made from this Deferred Compensation Plan, the Employer
or its agents shall have the right to withhold or deduct from any distributions
or payments any taxes required to be withheld by federal, state or local
governments.

      9.4.  CONSTRUCTION. All legal questions pertaining to this Deferred
Compensation Plan shall be determined in accordance with the laws of the State
of New Jersey, to the extent such laws are not superseded by the Employee
Retirement Income Security Act of 1974, as amended, or any other federal law.

      9.5.  HEADINGS. The headings of the Articles and Sections of this Deferred
Compensation Plan are for reference only. In the event of a conflict between a
heading and the contents of an Article or Section, the contents of the Article
or Section shall control.

      9.6.  NUMBER AND GENDER. Whenever any words used herein are in the
singular form, they shall be construed as though they were also used in the
plural form in all cases where they

                                      -16-
<PAGE>

would so apply, and references to the male gender shall be construed as
applicable to the female gender where applicable, and vice versa.

   AMERICAN WATER WORKS COMPANY, INC.

   By: /s/ J. James Barr
       ----------------------------------------------------
       J. James Barr
       President and Chief Executive Officer

  Attest: /s/ W. Timothy Pohl
          -------------------------------------------------
          W. Timothy Pohl
          General Counsel and Secretary

                                      -17-

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