-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J+W5IknsZPmibXn+5wfHQBjaBkzyoA9Utv/Ym/ygcVW+M56Dlix5ERoOEE0lyZYe K0ucHLKlQuJTJX9lw1KiSQ== 0001157523-06-004567.txt : 20060503 0001157523-06-004567.hdr.sgml : 20060503 20060503172002 ACCESSION NUMBER: 0001157523-06-004567 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060503 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060503 DATE AS OF CHANGE: 20060503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST WATER CO CENTRAL INDEX KEY: 0000092472 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 951840947 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08176 FILM NUMBER: 06805019 BUSINESS ADDRESS: STREET 1: ONE WILSHIRE BUILDING STREET 2: 624 SOUTH GRAND AVENUE, SUITE 2900 CITY: LOS ANGELES STATE: CA ZIP: 90017-3782 BUSINESS PHONE: 213 929 1800 MAIL ADDRESS: STREET 1: ONE WILSHIRE BUILDING STREET 2: 624 SOUTH GRAND AVENUE, SUITE 2900 CITY: LOS ANGELES STATE: CA ZIP: 90017-3782 FORMER COMPANY: FORMER CONFORMED NAME: SUBURBAN WATER SYSTEMS DATE OF NAME CHANGE: 19751202 8-K 1 a5139808.txt SOUTHWEST WATER COMPANY 8-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 3, 2006 SOUTHWEST WATER COMPANY (Exact Name of Registrant as Specified in its Charter) DELAWARE 0-8176 95-1840947 (State or Other Jurisdiction of (Commission File Number) (IRS Employer Incorporation or Organization) Identification Number) ONE WILSHIRE BUILDING 624 SOUTH GRAND AVENUE, SUITE 2900 LOS ANGELES, CALIFORNIA 90017-3782 (Address of Principal Executive Offices, including zip code) (213) 929-1800 (Registrant's telephone number, including area code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ Item 1.01 Entry into a Material Definitive Agreement (a) Employment Agreements. On April 28, 2006, Southwest Water Company (the "Company") entered into Employment Agreements (the "Agreements" and each an "Agreement") with each of Cheryl L. Clary, Chief Financial Officer of the Company, and Michael O. Quinn, President, Utility Group. The Agreement with Ms. Clary provides for a severance payment of 0.75 times Ms. Clary's base salary and an additional cash payment of $25,000 should the Company under certain circumstances terminate her employment before May 15, 2007. The Agreement with Mr. Quinn provides for a severance payment of 1.5 times Mr. Quinn's base salary and an additional cash payment of $25,000 should the Company under certain circumstances terminate his employment before May 15, 2008. Copies of the Agreements are attached to this Report as Exhibits 10.1 and 10.2. (b) Change of Control Severance Agreements. On April 28, 2006, Southwest Water Company (the "Company") entered into Change of Control Severance Agreements (the "Severance Agreements" and each a "Severance Agreement") with each of Cheryl L. Clary, Chief Financial Officer of the Company, and Michael O. Quinn, President, Utility Group. Each Severance Agreement provides that the executive will, upon a change of control as defined in the Severance Agreement, be entitled for a period of two (2) years thereafter, to a severance payment if executive's employment is terminated by the Company for other than good cause. The severance consists of 2.99 times the sum of the executive's most recent base salary plus the average bonus for the prior three full years. The severance benefits also include acceleration of vesting of previously granted stock options held as of the date of the change of control. Total benefits may not exceed the limits imposed by Section 280G of the Internal Revenue Code. Copies of the Severance Agreements are attached to this Report as Exhibits 10.3 and 10.4. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits 10.1 Executive Employment Agreement dated April 28, 2006, between Cheryl L. Clary and Southwest Water Company 10.2 Executive Employment Agreement dated April 28, 2006, between Michael O. Quinn and Southwest Water Company 10.3 Change of Control Agreement dated April 28, 2006, between Cheryl L. Clary and Southwest Water Company 10.4 Change of Control Agreement dated April 28, 2006, between Michael O. Quinn and Southwest Water Company SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized. SOUTHWEST WATER COMPANY By: /s/ Shelley A. Farnham ---------------------- Its: Secretary Dated: April 18, 2006 ---------------------- EX-10.1 2 a5139808ex10_1.txt EXHIBIT 10.1 Exhibit 10.1 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") between Southwest Water Company ("Company") and Cheryl L. Clary ("Executive") is entered into effective as of April 28, 2006 ("Effective Date"). The Company and Executive are each a Party and are collectively referred to as the "Parties" to this Agreement. REASON FOR AGREEMENT -------------------- A. As part of an orderly succession process and in accordance with prudent corporate governance practices, the Company has retained an executive recruiting firm to begin a search for a new Chief Executive Officer ("CEO"). B. The Company considers a sound and vital management team to be essential and wishes to encourage the Executive to effectively perform Executive's duties and responsibilities without distraction from circumstances arising in the event of a change of CEO. Therefore, in the event a new CEO is hired during the Term, the Company desires to provide certain incentives and separation benefits under the terms and conditions provided in this Agreement. The date a new CEO is hired will be referred to as the "Transition Date." C. The Parties desire to formalize the terms of their continued employment relationship. THEREFORE, in consideration of the promises and of the covenants and agreements herein provided, the Parties agree as follows: 1. Term. The term of this Agreement begins on the Transition Date and continues until the first anniversary of the Transition Date ("Term"). Notwithstanding any other provision of this Agreement, if the Transition Date has not occurred on or before December 31, 2006, this Agreement expires on December 31, 2006 ("Expiration Date"). Prior to the Transition Date and following the Expiration Date, the terms and conditions of Executive's employment will be governed by the Company's usual policies for executives (including any Company Change of Control Agreement then in effect) or as otherwise agreed by the Parties. 2. Duties and Responsibilities. 2.1. Duties. During the Term, Executive agrees to continue to serve as Chief Financial Officer and will have such powers, duties and responsibilities as are usually vested in Executive's position and as may be assigned from time to time by the CEO and the Board of Directors, subject to the direction of the CEO and the Board of Directors. 2.2. Business Ethics. During the Term, Executive will perform Executive's duties and responsibilities faithfully, diligently and to the best of Executive's ability, consistent with the highest and best standards of the industry and in compliance with all applicable laws and the Company's policies and procedures. Executive understands that it is the Company's policy to conduct its business according to the highest moral, ethical and legal standards and agrees to uphold those standards of business conduct and ethical principles, and comply with all applicable laws and regulations and the Company's Ethics Policy. 3. Compensation and Method of Payment. 3.1.1. Compensation. For so long as Executive is employed by the Company during the Term, Executive will receive the base salary Executive is currently receiving and will be eligible for such salary review, bonus programs and stock option awards as may be established by the Company for Executive and as may be approved by the Compensation and Organization Committee and the Board of Directors. 3.1.2. Reasonable Expenses. For so long as Executive is employed by the Company during the Term, the Company will reimburse Executive for all reasonable travel, entertainment and other expenses incurred or paid by Executive in connection with, or related to, the performance of Executive's duties, responsibilities or services under this Agreement, upon presentation by the Executive of documentation, expense statements, vouchers and/or such other reasonable supporting information as the Company may request. 3.1.3. Benefits. For so long as Executive is employed by the Company during the Term, Executive may continue to participate in the Company's executive fringe benefits, health insurance, life insurance, key employee insurance and other plans and programs in effect from time to time for executives of the Company and its affiliates at comparable levels of responsibility. 3.2. Reservation Of Rights. Notwithstanding any other provision of this Agreement, the Company reserves the right to modify, suspend or discontinue any and all benefit plans, practices, policies and programs at any time whether before or after termination of employment without advance notice to or recourse by Executive. 3.3. Payment Of Compensation. The Company will pay Executive's Base Salary in accordance with the normal payroll cycle of the Company as established from time to time, subject to applicable taxes, withholding and other required, usual or elected employee deductions. 4. Termination Of Agreement. This Agreement will terminate upon the earliest to occur of any of the following (the last day of Executive's employment will be referred to as the "Termination Date"): 4.1. Expiration Of Term. This Agreement will terminate on Expiration Date or at the end of the Term, although Executive's employment may continue after the Term or the Expiration Date. 4.2. Termination Of Executive's Employment By Company For Cause. The Company may terminate Executive's employment for "Cause." Executive's employment will terminate immediately following written notice from the Company to Executive which identifies the termination provision relied upon and outlines in reasonable detail the circumstances claimed to provide the basis for termination. For the purpose of this Section 4.2, "Cause" for termination will be deemed to include (a) acts or omissions by Executive which could materially adversely affect the Company; (b) acts or omissions by Executive which constitute discriminatory, harassing or retaliatory conduct; (c) theft, fraud, dishonesty or Executive's conviction of a felony; (d) Breach of Executive's fiduciary duty or duty of loyalty to the Company, including violation of the restrictive covenants in Section 6 of this Agreement; (e) the continued failure of Executive to substantially perform Executive's duties with the Company, which failure is not remedied within thirty (30) days after a demand for substantial performance is delivered to Executive by the Company; or (f) Executive's failure to comply with any material term of this Agreement. 2 4.3. Termination by Company Upon Executive's Disability Or Death. Executive's employment will terminate immediately upon the death of Executive. In addition, the Company may terminate Executive's employment upon reasonable determination that Executive has a permanent disability and is unable to perform Executive's duties and responsibilities with or without reasonable accommodation. 4.4. Involuntary Termination of Employment. The Company may terminate this Agreement and Executive's employment for any reason or no reason upon 60 days written notice. For purposes of this Agreement, the termination of Executive's employment by the Company, other than a termination for Cause, death or disability will be referred to as "Involuntary Termination of Employment." The date of Company's notice of termination to Executive under this Section 4.4, or Executive's notice of termination to the Company under Section 4.5, will be referred to as "Notice of Termination Date." 4.5. Voluntary Termination by Executive for Good Reason. Executive may terminate Executive's employment for "Good Reason" upon 60 days written notice. For purpose of this Agreement, "Good Reason" means the occurrence of any of the following without Executive's express written consent, unless such circumstances are corrected within a reasonable time after written notice from Executive to the Company which identifies the termination provision relied upon and outlines in reasonable detail the circumstances claimed to provide the basis for the Good Reason termination: (a) the Company materially reduces Executive's Base Salary or benefits, unless such reduction is on a basis not materially less favorable to Executive relative to other employees in comparable positions; (b) the Company substantially and adversely reduces duties and scope of responsibility; provided however that the assignment of different or additional management responsibilities does not by itself constitute a substantial and adverse reduction; or (c) the Company relocates Executive's office to a location more than 50 miles from its location on the Effective Date (except that required travel by Executive to an extent substantially consistent with Executive's business travel obligations as of the Effective Date will not constitute relocation under this Section). 5. Effect of Termination. 5.1. Termination for Good Reason or Involuntary Termination. In the event of Executive's Voluntary Termination of Employment for Good Reason (as defined in Section 4.5) or the Company's Involuntary Termination of Executive's Employment (as defined in Section 4.4) within one year of the Transition Date, Executive will be entitled to receive the following compensation and benefits, subject to Executive's compliance with Section 5.4 and Section 6: 5.1.1. Accrued Compensation Due at Termination. The Company will pay to Executive when due (a) all accrued but unpaid compensation, including accrued but unpaid vacation pay; (b) reimbursement of approved business expenses; and (c) benefits provided under the Company's benefit plans and as otherwise required by law. 3 5.1.2. Severance Pay. The Company will pay to Executive, as severance pay, an amount equal to 0.75 times Executive's Base Salary as of the Notice of Termination Date when calculated on an annual basis and an additional cash payment of $25,000. The severance pay will be paid in lump sum six months after Executive's Termination Date, except as may otherwise be required to comply with Section 409A of the Internal Revenue Code. 5.1.3. Acceleration of Option Vesting. All unvested options granted to Executive which would have vested within one year of the Termination Date under any equity compensation plan of the Company will vest and become immediately exercisable on the Notice of Termination Date, except as may otherwise be required to comply with Section 409A of the Internal Revenue Code. If Executive remains employed until the expiration of the Term, Executive will not be entitled to this acceleration of option vesting. 5.1.4. Change of Control. The Parties agree that Executive will execute a Change of Control Severance Agreement of even date and concurrently with the execution of this Agreement. If Executive's employment is terminated upon the occurrence of a Change of Control (as that term is defined in the Executive's Change of Control Agreement then in effect), Executive will be entitled to the greater of the benefits provided under this Agreement or the Change of Control Agreement, but not both. 5.2. Other Termination of Employment. In the event that Executive's employment terminates for any reason other Executive's Voluntary Termination of Employment for Good Reason or the Company's Involuntary Termination of Executive's Employment, the Company will pay Executive (a) all accrued but unpaid compensation, including accrued but unpaid vacation pay; (b) reimbursement of approved business expenses; and (c) benefits provided under the Company's benefit plans and as otherwise required by law. 5.3. Resignation As Board Member Or Officer. Immediately upon the termination of Executive's employment with the Company, Executive will tender a written notice of Executive's resignation from any and all offices of the Company and all subsidiaries, affiliates or clients in which Executive represents the Company in the capacity of an officer or director. Notwithstanding any failure by Executive to provide the Company with such written notice of resignation within three days after the date of the termination of Executive's employment with the Company, Executive authorizes and directs the Board of Directors to accept Executive's resignation from all said positions effective as of the date of termination of Executive's employment. 5.4. Execution Of Release Agreement As Condition To Receiving Payments. In the event of Executive's Voluntary Termination of Employment for Good Reason (as defined in Section 4.5) or the Company's Involuntary Termination of Executive's Employment (as defined in Section 4.4) during the Term, Executive agrees to execute a general release of claims in a form agreeable to the Parties as a condition to receiving the benefits and payments provided under Section 5.1. 4 6. Property Rights And Obligations Of Executive. 6.1. Trade Secrets. For purposes of this Agreement, "trade secrets" will include without limitation any and all financial, cost and pricing information and any and all information contained in any drawings, designs, plans, proposals, customer lists, records of any kind, data, formulas, specifications, concepts or ideas, where such information is reasonably related to the business of the Company or any of its affiliates ("Company Group"), has been divulged to or learned by Executive during Executive's employment by the Company Group, and has not previously been publicly released by duly authorized representatives of the Company Group or otherwise lawfully entered the public domain. Trade secrets as used herein is intended to come within the meaning of, but be broader than, Trade Secrets as defined in California Civil Code Section 3426.1(d). 6.2. Preservation Of Trade Secrets. Executive will preserve as confidential all trade secrets pertaining to the Company Group's business that have been obtained or learned by Executive by reason of Executive's employment. Executive will not, without the prior written consent of the Company, either use for Executive's own benefit or purposes or disclose or permit disclosure to any third parties, either during the Executive's employment or thereafter (except as required in fulfilling the duties of Executive's employment), any trade secret connected with the business of the Company. Executive agrees that Executive will not disclose to the Company or induce the Company to use any trade secrets belonging to any third party. 6.3. Property Of The Company. Executive agrees that all documents, reports, files, analyses, drawings, designs, tools, equipment, plans (including, without limitation, marketing and sales plans), proposals, customer lists, computer software or hardware, and similar materials that are made by Executive or come into Executive's possession by reason of and during the Executive's employment with the Company Group are the property of the Company Group and will not be used by Executive in any way adverse to the Company Group's interests. Executive will not allow any such documents or things, or any copies, reproductions or summaries thereof, to be delivered to or used by any third party without the specific consent of the Company Group. Executive agrees to deliver to the Board of Directors of the Company or its designee, upon demand, and in any event upon the termination of Executive's employment, all of such documents and things which are in Executive's possession or control. 6.4. Noncompetition And Nonsolicitation By Executive. 6.4.1. Noncompetition. Executive agrees that during the Term, Executive will not directly or indirectly compete with the Company Group in the active business of the Company Group in such territories as the Company Group continues in active business. 6.4.2. Nonsolicitation Of Employees. Executive agrees during the Term and for two years following the termination of Executive's employment, Executive will not recruit, engage in passive hiring efforts, solicit or induce any person or entity who during the period within one year prior to the termination of Executive's employment with the Company, was an employee or independent contractor of the Company Group, to leave or cease employment or other relationship with the Company Group for hire or engage the services of such person for Executive in any business substantially similar to or competitive with that in which the Company Group was engaged during Executive's employment. 5 6.4.3. Nonsolicitation Of Customers. Executive acknowledges that in the course of employment, Executive has and will continue to learn about the Company Group's business, services, materials, programs and products and the manner in which they are developed, marketed, served and provided. Executive acknowledges that the Company Group has invested considerable time and money in developing its programs, agreements, offices, representatives, services, products and marketing techniques and that they are unique and original. Executive further acknowledges that the Company Group must keep secret all pertinent information divulged to Executive about the Company Group business concepts, ideas, programs, plans and processes, so as not to aid the Company Group's competitors. Accordingly, the Company Group is entitled to the following protection, which Executive agrees is reasonable: Executive agrees that during the Term and for a period of two years following the termination of Executive's employment, Executive will not, on Executive's own behalf or on behalf of any person or entity other than the Company, knowingly solicit, call upon, or initiate communication or contact any customer or prospective customer of the Company Group with the intent of soliciting business or diverting business from the Company Group. 6.5. Effect Of Violation Of Provisions Of Section 6. The Parties agree that to the extent permitted by law, in the event that Executive breaches Executive's obligations under Section 6, effective upon the determination of the breach, except for payments required by Section 5.2, the Company's obligations will to make post termination payments will terminate. 6.6. Survival Provisions And Certain Remedies. Unless otherwise agreed to in writing between the Parties hereto, the provisions of this Section 6 will survive the termination of this Agreement. In the event Executive breaches any of the provisions of this Section 6, Executive agrees that the Company will be entitled to injunctive relief in addition to any other remedy to which the Company may be entitled. 6.7. Severability. The covenants in this Section 6 will be construed as separate covenants and to the extent any covenant will be judicially unenforceable, it will not affect the enforcement of any other covenant. In the event that any of the provisions of this Section are deemed to exceed the temporal or geographic limitations permitted by law, then such provisions will be and are hereby reformed to the maximum temporal or geographic limitations permitted by law. 7. General Provisions. 7.1. Notices. Any notices or other communications required or permitted to be given under this Agreement must be in writing and addressed to the Company or Executive at the addresses below, or at such other address as either Party may from time to time designate in writing. Any notice or communication that is addressed as provided in this Section 7 will be deemed given (a) upon delivery, if delivered personally or via certified mail, postage prepaid, return receipt requested; or (b) on the first business day of the receiving Party after the timely delivery to the courier, if delivered by overnight courier. Other methods of delivery will be acceptable only upon proof of receipt by the Party to whom notice is delivered. 6 If to Company/Company Group: Southwest Water Company Attn: Vice President of Human Resources 624 South Grand Avenue Suite 2900 Los Angeles, CA 90017 Facsimile No.: (213) 929-1890 If to Executive: Cheryl L. Clary 284 Berkshire Avenue La Canada, CA 91011 Facsimile No.: (818) 248-8159 7.2. Choice Of Law And Forum. This Agreement will be governed by and construed in accordance with the laws of the State of California and both Parties consent to the personal jurisdiction of the courts of the State of California. 7.3. Arbitration. Subject to the exceptions described in this Agreement, any controversy, dispute or claim arising out of or relating to this Agreement or any breach of it (each a "Claim" and collectively "Claims"), will be settled by binding arbitration in Los Angeles, California in accordance with the Employment Dispute Resolution Procedures of any recognized arbitration organization selected by the parties to resolve any Claim. 7.3.1. The Claims covered by this agreement include, without limitation, claims for wages and other compensation, claims for breach of contract (express or implied), tort claims, claims for discrimination (including, but not limited to, race, sex, sexual orientation, religion, national origin, age, marital status, medical condition, and disability), harassment (including, but not limited to race, sex, sexual orientation, religion, national origin, age, marital status, medical condition, and disability), and claims for violation of any federal, state, or other government law, statute, regulation, or ordinance. This provision shall not apply, however, to claims for workers' compensation or unemployment insurance benefits or claims; nor shall it restrict the Executive's right to submit claims to the Equal Employment Opportunity Commission or the Department of Fair Employment and Housing, as appropriate. The Parties may elect to arbitrate or bring a civil action to obtain any injunctive or other provisional relief (including for breaches or threatened breaches of Section 6 or any of the restrictive covenants, confidentiality and non-disclosure agreements). 7.3.2. The Parties may select an arbitrator from any recognized arbitration associations satisfactory to both Parties. If the Parties cannot agree on an arbitrator within 30 days of the demand for arbitration, the moving Party will request from either of American Arbitration Association, JAMS or ADR a list of five (5) names drawn from its panel of employment arbitrators. The Parties will select from that list by striking arbitrators pursuant to the strike procedures of that organization. 7 7.3.3. The demand for arbitration must be in writing and made within the applicable statue of limitations period. The parties will be entitled to conduct reasonable discovery, including conducting depositions and requesting documents. The arbitrator will have the authority to resolve discovery disputes including determining what constitutes reasonable discovery. The arbitrator will have all powers conferred by law, and will prepare and provide to the Parties a written decision and award which includes factual findings and the conclusions upon which such an award is based. The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator will be final, conclusive and binding on the Parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction 7.3.4. If required by law, the fees for the arbitrator and the arbitration forum shall be paid by the Company and Executive will not be required to bear any type of expense that the Executive would not be required to bear if Claims were litigated in court. The Parties will each bear their own attorneys' fees and costs incurred in connection with the arbitration, except for any attorneys' fees or costs which are awarded by the Arbitrator pursuant this Agreement or statute which provides for recovery of such fees and costs. 7.3.5. The Company and Executive each understand and agree that by using arbitration to resolve any claims between the Parties, the Company and Executive are giving up any right that they may have to a judge or jury trial with regard to the Claims. Both Parties acknowledge that they are entering into this Agreement voluntarily and have independently negotiated and agreed upon this arbitration provision. 7.4. Entire Agreement. This Agreement supersedes any and all other agreements whether oral or in writing, between the Parties hereto with respect to the employment of Executive by the Company (including Executive's Severance Compensation Agreement) and contains all covenants and agreements between the Parties relating to such employment in any manner whatsoever. Each Party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or written, have been made by any Party, or anyone acting on behalf of any Party, that are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. 7.5. Modification And Waiver. Any modification of this Agreement will be effective only if it is in writing signed by the Party to be charged. No waiver of any of the provisions of this Agreement will be deemed, or will constitute, a waiver of any other provision, whether or not similar, nor will any waiver constitute a continuing waiver. No waiver will be binding unless executed in writing by the Party making the waiver. 7.6. Assignment. Because of the personal nature of the services to be rendered hereunder, this Agreement may not be assigned in whole or in part by Executive without the prior written consent of the Company. Subject to the foregoing limitation, this Agreement will be binding on, and will inure to the benefit of, the Parties hereto and their respective heirs, legatees, executors, administrators, legal representatives, successors and assigns. The Company agrees to require any successor to assume and perform this Agreement. 8 7.7. Severability. If for any reason whatsoever, any one or more of the provisions of this Agreement will be held or deemed to be inoperative, unenforceable, or invalid as applied to any particular case or in all cases, such circumstances will not have the effect of rendering any such provision inoperative, unenforceable, or invalid in any other case or of rendering any of the other provisions of this Agreement inoperative, unenforceable or invalid. 7.8. Representation By Counsel; Interpretation. The Company and Executive acknowledge that each Party to this agreement has had the opportunity to be represented by counsel in connection with this Agreement and the matters contemplated by this Agreement. Accordingly, any rule of law or decision which would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived. In addition, the term "including" and its variations are always used in the non-restrictive sense (as if followed by a phrase such as "but not limited to"). The provisions of this Agreement will be interpreted in a reasonable manner to affect the intent of the Parties. 7.9. Corporate Authority. The Company represents and warrants as of the Effective Date that the Company's execution and delivery of this Agreement to Executive and the carrying out of the provisions of the Agreement have been duly authorized by the Company's Board of Directors and authorized by the Company's shareholders as appropriate. 7.10. Attorneys' Fees. In any action at law or in equity to enforce or construe any provisions or rights under this Agreement, the unsuccessful Party will pay the successful Party all costs, expenses, and reasonable attorneys' fees. 7.11. Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of, which will be deemed an original, but all of which together will constitute one and the same instrument. Fax signatures will be valid and binding. 7.12. Headings And Captions. Headings and captions are included for purposes of convenience only and are not a part of this Agreement. IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the day and year first written above at Los Angeles, California. SOUTHWEST WATER COMPANY By: /s/ Shelley A. Farnham ------------------------------- Its: V.P. Human Resources EXECUTIVE /s/ Cheryl L. Clary ----------------------------------- CHERYL L. CLARY 9 EX-10.2 3 a5139808ex10_2.txt EXHIBIT 10.2 Exhibit 10.2 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") between Southwest Water Company ("Company") and Michael O. Quinn ("Executive") is entered into effective as of April 28, 2006 ("Effective Date"). The Company and Executive are each a Party and are collectively referred to as the "Parties" to this Agreement. REASON FOR AGREEMENT -------------------- A. As part of an orderly succession process and in accordance with prudent corporate governance practices, the Company has retained an executive recruiting firm to begin a search for a new Chief Executive Officer ("CEO"). B. The Company considers a sound and vital management team to be essential and wishes to encourage the Executive to effectively perform Executive's duties and responsibilities without distraction from circumstances arising in the event of a change of CEO. Therefore, in the event a new CEO is hired during the Term, the Company desires to provide certain incentives and separation benefits under the terms and conditions provided in this Agreement. The date a new CEO is hired will be referred to as the "Transition Date." C. The Parties desire to formalize the terms of their continued employment relationship. THEREFORE, in consideration of the promises and of the covenants and agreements herein provided, the Parties agree as follows: 1. Term. The term of this Agreement begins on the Transition Date and continues until the second anniversary of the Transition Date ("Term"). Notwithstanding any other provision of this Agreement, if the Transition Date has not occurred on or before December 31, 2006, this Agreement expires on December 31, 2006 ("Expiration Date"). Prior to the Transition Date and following the Expiration Date, the terms and conditions of Executive's employment will be governed by the Company's usual policies for executives (including any Company Change of Control Agreement then in effect) or as otherwise agreed by the Parties. 2. Duties and Responsibilities. 2.1. Duties. During the Term, Executive agrees to continue to serve as President, Utility Group and will have such other powers, duties and responsibilities as are usually vested in that position and as may be assigned from time to time by the CEO and the Board of Directors and subject to the direction of the CEO and the Board of Directors. 2.2. Business Ethics. During the Term, Executive will perform Executive's duties and responsibilities faithfully, diligently and to the best of Executive's ability, consistent with the highest and best standards of the industry and in compliance with all applicable laws and the Company's policies and procedures. Executive understands that it is the Company's policy to conduct its business according to the highest moral, ethical and legal standards and agrees to uphold those standards of business conduct and ethical principles, and comply with all applicable laws and regulations and the Company's Ethics Policy. 3. Compensation and Method of Payment. 3.1.1. Compensation. For so long as Executive is employed by the Company during the Term, Executive will receive the base salary Executive is currently receiving and will be eligible for such salary review, bonus programs and stock option awards as may be established by the Company for Executive and as may be approved by the Compensation and Organization Committee and the Board of Directors. 3.1.2. Reasonable Expenses. For so long as Executive is employed by the Company during the Term, the Company will reimburse Executive for all reasonable travel, entertainment and other expenses incurred or paid by Executive in connection with, or related to, the performance of Executive's duties, responsibilities or services under this Agreement, upon presentation by the Executive of documentation, expense statements, vouchers and such other reasonable supporting information as the Company may request. 3.1.3. Benefits. For so long as Executive is employed by the Company during the Term, Executive may continue to participate in the Company's executive fringe benefits, health insurance, life insurance, key employee insurance and other plans and programs in effect from time to time for executives of the Company and its affiliates at comparable levels of responsibility. 3.2. Reservation Of Rights. Notwithstanding any other provision of this Agreement, the Company reserves the right to modify, suspend or discontinue any and all benefit plans, practices, policies and programs at any time whether before or after termination of employment without advance notice to or recourse by Executive. 3.3. Payment Of Compensation. The Company will pay Executive's Base Salary in accordance with the normal payroll cycle of the Company as established from time to time, subject to applicable taxes, withholding and other required, usual or elected employee deductions. 4. Termination Of Agreement. This Agreement will terminate upon the earliest to occur of any of the following (the last day of Executive's employment will be referred to as the "Termination Date"): 4.1. Expiration Of Term. This Agreement will terminate on Expiration Date or at the end of the Term, although Executive's employment may continue after the Term or the Expiration Date. 4.2. Termination Of Executive's Employment By Company For Cause. The Company may terminate Executive's employment for "Cause." Executive's employment will terminate immediately following written notice from the Company to Executive which identifies the termination provision relied upon and outlines in reasonable detail the circumstances claimed to provide the basis for termination. For the purpose of this Section 4.2, "Cause" for termination will be deemed to include (a) acts or omissions by Executive which could materially adversely affect the Company; (b) acts or omissions by Executive which constitute discriminatory, harassing or retaliatory conduct; (c) theft, fraud, dishonesty or Executive's conviction of a felony; (d) Breach of Executive's fiduciary duty or duty of loyalty to the Company, including violation of the restrictive covenants in Section 6 of this Agreement; (e) the continued failure of Executive to substantially perform Executive's duties with the Company, which failure is not remedied within thirty (30) days after a demand for substantial performance is delivered to Executive by the Company; or (f) Executive's failure to comply with any material term of this Agreement. 2 4.3. Termination by Company Upon Executive's Disability Or Death. Executive's employment will terminate immediately upon the death of Executive. In addition, the Company may terminate Executive's employment upon reasonable determination that Executive has a permanent disability and is unable to perform Executive's duties and responsibilities with or without reasonable accommodation. 4.4. Involuntary Termination of Employment. The Company may terminate this Agreement and Executive's employment for any reason or no reason upon 60 days written notice. For purposes of this Agreement, the termination of Executive's employment by the Company, other than a termination for Cause, death or disability will be referred to as "Involuntary Termination of Employment." The date of Company's notice of termination to Executive under this Section 4.4, or Executive's notice of termination to the Company under Section 4.5, will be referred to as "Notice of Termination Date." 4.5. Voluntary Termination by Executive for Good Reason. Executive may terminate Executive's employment for "Good Reason" upon 60 days written notice. For purpose of this Agreement, "Good Reason" means the occurrence of any of the following without Executive's express written consent, unless such circumstances are corrected within a reasonable time after written notice from Executive to the Company which identifies the termination provision relied upon and outlines in reasonable detail the circumstances claimed to provide the basis for the Good Reason termination: (a) the Company materially reduces Executive's Base Salary or benefits, unless such reduction is on a basis not materially less favorable to Executive relative to other employees in comparable positions; (b) the Company substantially and adversely reduces duties and scope of responsibility; provided however that the assignment of different or additional management responsibilities does not by itself constitute a substantial and adverse reduction; or (c) the Company relocates Executive's office to a location more than 50 miles from its location on the Effective Date (except that required travel by Executive to an extent substantially consistent with Executive's business travel obligations as of the Effective Date will not constitute relocation under this Section). 5. Effect of Termination. 5.1. Termination for Good Reason or Involuntary Termination. In the event of Executive's Voluntary Termination of Employment for Good Reason (as defined in Section 4.5) or the Company's Involuntary Termination of Executive's Employment (as defined in Section 4.4) within two years]of the Transition Date, Executive will be entitled to receive the following compensation and benefits, subject to Executive's compliance with Section 5.4 and Section 6: 5.1.1. Accrued Compensation Due at Termination. The Company will pay to Executive when due (a) all accrued but unpaid compensation, including accrued but unpaid vacation pay; (b) reimbursement of approved business expenses; and (c) benefits provided under the Company's benefit plans and as otherwise required by law. 3 5.1.2. Severance Pay. The Company will pay to Executive, as severance pay, an amount equal to 1.5 times Executive's Base Salary as of the Notice of Termination Date when calculated on an annual basis and an additional cash payment of $25,000. The severance pay will be paid in lump sum six months after Executive's Termination Date, except as may otherwise be required to comply with Section 409A of the Internal Revenue Code. 5.1.3. Acceleration of Option Vesting. All unvested options granted to Executive which would have vested within two years of the Termination Date under any equity compensation plan of the Company will vest and become immediately exercisable on the Notice of Termination Date, except as may otherwise be required to comply with Section 409A of the Internal Revenue Code. If Executive remains employed until the expiration of the Term, Executive will not be entitled to this acceleration of option vesting. 5.1.4. Change of Control. The Parties agree that Executive will execute a Change of Control Severance Agreement of even date and concurrently with the execution of this Agreement. If Executive's employment is terminated upon the occurrence of a Change of Control (as that term is defined in the Executive's Change of Control Agreement then in effect), Executive will be entitled to the greater of the benefits provided under this Agreement or the Change of Control Agreement, but not both. 5.2. Other Termination of Employment. In the event that Executive's employment terminates for any reason other Executive's Voluntary Termination of Employment for Good Reason or the Company's Involuntary Termination of Executive's Employment, the Company will pay Executive (a) all accrued but unpaid compensation, including accrued but unpaid vacation pay; (b) reimbursement of approved business expenses; and (c) benefits provided under the Company's benefit plans and as otherwise required by law. 5.3. Resignation As Board Member Or Officer. Immediately upon the termination of Executive's employment with the Company, Executive will tender a written notice of Executive's resignation from any and all offices of the Company and all subsidiaries, affiliates or clients in which Executive represents the Company in the capacity of an officer or director. Notwithstanding any failure by Executive to provide the Company with such written notice of resignation within three days after the date of the termination of Executive's employment with the Company, Executive authorizes and directs the Board of Directors to accept Executive's resignation from all said positions effective as of the date of termination of Executive's employment. 5.4. Execution Of Release Agreement As Condition To Receiving Payments. In the event of Executive's Voluntary Termination of Employment for Good Reason (as defined in Section 4.5) or the Company's Involuntary Termination of Executive's Employment (as defined in Section 4.4) during the Term, Executive agrees to execute a general release of claims in a form agreeable to the Parties as a condition to receiving the benefits and payments provided under Section 5.1. 4 6. Property Rights And Obligations Of Executive. 6.1. Trade Secrets. For purposes of this Agreement, "trade secrets" will include without limitation any and all financial, cost and pricing information and any and all information contained in any drawings, designs, plans, proposals, customer lists, records of any kind, data, formulas, specifications, concepts or ideas, where such information is reasonably related to the business of the Company or any of its affiliates ("Company Group"), has been divulged to or learned by Executive during Executive's employment by the Company Group, and has not previously been publicly released by duly authorized representatives of the Company Group or otherwise lawfully entered the public domain. Trade secrets as used herein is intended to come within the meaning of, but be broader than, Trade Secrets as defined in California Civil Code Section 3426.1(d). 6.2. Preservation Of Trade Secrets. Executive will preserve as confidential all trade secrets pertaining to the Company Group's business that have been obtained or learned by Executive by reason of Executive's employment. Executive will not, without the prior written consent of the Company, either use for Executive's own benefit or purposes or disclose or permit disclosure to any third parties, either during the Executive's employment or thereafter (except as required in fulfilling the duties of Executive's employment), any trade secret connected with the business of the Company. Executive agrees that Executive will not disclose to the Company or induce the Company to use any trade secrets belonging to any third party. 6.3. Property Of The Company. Executive agrees that all documents, reports, files, analyses, drawings, designs, tools, equipment, plans (including, without limitation, marketing and sales plans), proposals, customer lists, computer software or hardware, and similar materials that are made by Executive or come into Executive's possession by reason of and during the Executive's employment with the Company Group are the property of the Company Group and will not be used by Executive in any way adverse to the Company Group's interests. Executive will not allow any such documents or things, or any copies, reproductions or summaries thereof, to be delivered to or used by any third party without the specific consent of the Company Group. Executive agrees to deliver to the Board of Directors of the Company or its designee, upon demand, and in any event upon the termination of Executive's employment, all of such documents and things which are in Executive's possession or control. 6.4. Noncompetition And Nonsolicitation By Executive. 6.4.1. Noncompetition. Executive agrees that during the Term, Executive will not directly or indirectly compete with the Company Group in the active business of the Company Group in such territories as the Company Group continues in active business. In addition, to the extent permitted by applicable law, Executive agrees that Executive will not directly or indirectly compete with the Company Group in the active business of the Company Group in such territories as the Company Group continues in active business for a period equal to the period that is the basis for calculating the severance pay in section 5.1.2 (even if the severance amount is paid in lump sum). 6.4.2. Nonsolicitation Of Employees. Executive agrees during the Term and for two years following the termination of Executive's employment, Executive will not recruit, engage in passive hiring efforts, solicit or induce any person or entity who during the period within one year prior to the termination of Executive's employment with the Company, was an employee or independent contractor of the Company Group, to leave or cease employment or other relationship with the Company Group for hire or engage the services of such person for Executive in any business substantially similar to or competitive with that in which the Company Group was engaged during Executive's employment. 5 6.4.3. Nonsolicitation Of Customers. Executive acknowledges that in the course of employment, Executive has and will continue to learn about the Company Group's business, services, materials, programs and products and the manner in which they are developed, marketed, served and provided. Executive acknowledges that the Company Group has invested considerable time and money in developing its programs, agreements, offices, representatives, services, products and marketing techniques and that they are unique and original. Executive further acknowledges that the Company Group must keep secret all pertinent information divulged to Executive about the Company Group business concepts, ideas, programs, plans and processes, so as not to aid the Company Group's competitors. Accordingly, the Company Group is entitled to the following protection, which Executive agrees is reasonable: Executive agrees that during the Term and for a period of two years following the termination of Executive's employment, Executive will not, on Executive's own behalf or on behalf of any person or entity other than the Company, knowingly solicit, call upon, or initiate communication or contact any customer or prospective customer of the Company Group with the intent of soliciting business or diverting business from the Company Group. 6.5. Effect Of Violation Of Provisions Of Section 6. The Parties agree that to the extent permitted by law, in the event that Executive breaches Executive's obligations under Section 6, effective upon the determination of the breach, except for payments required by Section 5.2, the Company's obligations will to make post termination payments will terminate. 6.6. Survival Provisions And Certain Remedies. Unless otherwise agreed to in writing between the Parties hereto, the provisions of this Section 6 will survive the termination of this Agreement. In the event Executive breaches any of the provisions of this Section 6, Executive agrees that the Company will be entitled to injunctive relief in addition to any other remedy to which the Company may be entitled. 6.7. Severability. The covenants in this Section 6 will be construed as separate covenants and to the extent any covenant will be judicially unenforceable, it will not affect the enforcement of any other covenant. In the event that any of the provisions of this Section are deemed to exceed the temporal or geographic limitations permitted by law, then such provisions will be and are hereby reformed to the maximum temporal or geographic limitations permitted by law. 7. General Provisions. 7.1. Notices. Any notices or other communications required or permitted to be given under this Agreement must be in writing and addressed to the Company or Executive at the addresses below, or at such other address as either Party may from time to time designate in writing. Any notice or communication that is addressed as provided in this Section 7 will be deemed given (a) upon delivery, if delivered personally or via certified mail, postage prepaid, return receipt requested; or (b) on the first business day of the receiving Party after the timely delivery to the courier, if delivered by overnight courier. Other methods of delivery will be acceptable only upon proof of receipt by the Party to whom notice is delivered. 6 If to Company/Company Group: Southwest Water Company Attn: Vice President of Human Resources 624 South Grand Avenue Suite 2900 Los Angeles, CA 90017 Facsimile No.: (213) 929-1890 If to Executive: Michael O. Quinn 1013 Dancove Drive West Covina, CA 91791 7.2. Choice Of Law And Forum. This Agreement will be governed by and construed in accordance with the laws of the State of California and both Parties consent to the personal jurisdiction of the courts of the State of California. 7.3. Arbitration. Subject to the exceptions described in this Agreement, any controversy, dispute or claim arising out of or relating to this Agreement or any breach of it (each a "Claim" and collectively "Claims"), will be settled by binding arbitration in Los Angeles, California in accordance with the Employment Dispute Resolution Procedures of any recognized arbitration organization selected by the parties to resolve any Claim. 7.3.1. The Claims covered by this agreement include, without limitation, claims for wages and other compensation, claims for breach of contract (express or implied), tort claims, claims for discrimination (including, but not limited to, race, sex, sexual orientation, religion, national origin, age, marital status, medical condition, and disability), harassment (including, but not limited to race, sex, sexual orientation, religion, national origin, age, marital status, medical condition, and disability), and claims for violation of any federal, state, or other government law, statute, regulation, or ordinance. This provision shall not apply, however, to claims for workers' compensation or unemployment insurance benefits or claims; nor shall it restrict the Executive's right to submit claims to the Equal Employment Opportunity Commission or the Department of Fair Employment and Housing, as appropriate. The Parties may elect to arbitrate or bring a civil action to obtain any injunctive or other provisional relief (including for breaches or threatened breaches of Section 6 or any of the restrictive covenants, confidentiality and non-disclosure agreements). 7.3.2. The Parties may select an arbitrator from any recognized arbitration associations satisfactory to both Parties. If the Parties cannot agree on an arbitrator within 30 days of the demand for arbitration, the moving Party will request from either of American Arbitration Association, JAMS or ADR a list of five (5) names drawn from its panel of employment arbitrators. The Parties will select from that list by striking arbitrators pursuant to the strike procedures of that organization. 7 7.3.3. The demand for arbitration must be in writing and made within the applicable statue of limitations period. The parties will be entitled to conduct reasonable discovery, including conducting depositions and requesting documents. The arbitrator will have the authority to resolve discovery disputes including determining what constitutes reasonable discovery. The arbitrator will have all powers conferred by law, and will prepare and provide to the Parties a written decision and award which includes factual findings and the conclusions upon which such an award is based. The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator will be final, conclusive and binding on the Parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction 7.3.4. If required by law, the fees for the arbitrator and the arbitration forum shall be paid by the Company and Executive will not be required to bear any type of expense that the Executive would not be required to bear if Claims were litigated in court. The Parties will each bear their own attorneys' fees and costs incurred in connection with the arbitration, except for any attorneys' fees or costs which are awarded by the Arbitrator pursuant this Agreement or statute which provides for recovery of such fees and costs. 7.3.5. The Company and Executive each understand and agree that by using arbitration to resolve any claims between the Parties, the Company and Executive are giving up any right that they may have to a judge or jury trial with regard to the Claims. Both Parties acknowledge that they are entering into this Agreement voluntarily and have independently negotiated and agreed upon this arbitration provision. 7.4. Entire Agreement. This Agreement supersedes any and all other agreements whether oral or in writing, between the Parties hereto with respect to the employment of Executive by the Company (including Executive's Severance Compensation Agreement) and contains all covenants and agreements between the Parties relating to such employment in any manner whatsoever. Each Party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or written, have been made by any Party, or anyone acting on behalf of any Party, that are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. 7.5. Modification And Waiver. Any modification of this Agreement will be effective only if it is in writing signed by the Party to be charged. No waiver of any of the provisions of this Agreement will be deemed, or will constitute, a waiver of any other provision, whether or not similar, nor will any waiver constitute a continuing waiver. No waiver will be binding unless executed in writing by the Party making the waiver. 7.6. Assignment. Because of the personal nature of the services to be rendered hereunder, this Agreement may not be assigned in whole or in part by Executive without the prior written consent of the Company. Subject to the foregoing limitation, this Agreement will be binding on, and will inure to the benefit of, the Parties hereto and their respective heirs, legatees, executors, administrators, legal representatives, successors and assigns. The Company agrees to require any successor to assume and perform this Agreement. 8 7.7. Severability. If for any reason whatsoever, any one or more of the provisions of this Agreement will be held or deemed to be inoperative, unenforceable, or invalid as applied to any particular case or in all cases, such circumstances will not have the effect of rendering any such provision inoperative, unenforceable, or invalid in any other case or of rendering any of the other provisions of this Agreement inoperative, unenforceable or invalid. 7.8. Representation By Counsel; Interpretation. The Company and Executive acknowledge that each Party to this agreement has had the opportunity to be represented by counsel in connection with this Agreement and the matters contemplated by this Agreement. Accordingly, any rule of law or decision which would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived. In addition, the term "including" and its variations are always used in the non-restrictive sense (as if followed by a phrase such as "but not limited to"). The provisions of this Agreement will be interpreted in a reasonable manner to affect the intent of the Parties. 7.9. Corporate Authority. The Company represents and warrants as of the Effective Date that the Company's execution and delivery of this Agreement to Executive and the carrying out of the provisions of the Agreement have been duly authorized by the Company's Board of Directors and authorized by the Company's shareholders as appropriate. 7.10. Attorneys' Fees. In any action at law or in equity to enforce or construe any provisions or rights under this Agreement, the unsuccessful Party will pay the successful Party all costs, expenses, and reasonable attorneys' fees. 7.11. Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of, which will be deemed an original, but all of which together will constitute one and the same instrument. Fax signatures will be valid and binding. 7.12. Headings And Captions. Headings and captions are included for purposes of convenience only and are not a part of this Agreement. IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the day and year first written above at Los Angeles, California. SOUTHWEST WATER COMPANY By: /s/ Shelley A. Farnham ------------------------------- Its: V.P. Human Resources EXECUTIVE /s/ Michael O. Quinn ----------------------------------- MICHAEL O. QUINN 9 EX-10.3 4 a5139808ex10_3.txt EXHIBIT 10.3 Exhibit 10.3 CHANGE OF CONTROL SEVERANCE AGREEMENT THIS CHANGE OF CONTROL SEVERANCE AGREEMENT ("Agreement") is made effective as of April 28, 2006 (the "Effective Date") by and between Southwest Water Company, a Delaware corporation (the "Company"), and Cheryl L. Clary ("Executive"). WHEREAS, Executive is employed as an executive officer or key employee of the Company; WHEREAS, the Company believes it to be in the best interests of its stockholders to attract, retain and motivate key executive officers and employees and to ensure continuity of management; WHEREAS, the Company recognizes that the possibility of a change of control of the Company may result in the departure of key executives or employees to the detriment of the Company and its stockholders; WHEREAS, the Company and Executive are parties to that certain Severance Compensation Agreement dated as of April 2005 (the "Prior Agreement") and the Company and Executive desire to terminate the Prior Agreement and institute this Agreement; WHEREAS, in order to induce Executive to remain in its employ, the Company hereby agrees that as of the Effective Date, Executive shall be entitled to receive the change of control benefits set forth below. THEREFORE, in consideration of Executive's continued employment as an executive officer or key employee of the Company and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as follows: 1. Term of Agreement. (a) Original Term and Extension. Subject to earlier termination as set forth in Section 1(b), this Agreement shall commence on the Effective Date and shall continue in effect until the third anniversary of the Effective Date; provided, however, that the term of this Agreement shall automatically be extended for one or more additional terms of three years each (whether or not one or more Change of Control (as defined below) have occurred) unless, not later than 90 days prior to the last day of the then existing term, the Company shall have given notice to Executive that it does not wish to extend this Agreement. Notwithstanding the foregoing, if a Change of Control occurs during the original or any extended term of this Agreement, the term of this Agreement shall automatically continue in effect for the duration of the Protective Period (as defined below) and any attempt to have this Agreement terminate prior to such time shall be of no force or effect. (b) Earlier Termination. Notwithstanding the provisions of section 1(a), the term of this Agreement shall terminate upon the earlier of (i) the date as of which Executive ceases to be an executive officer or key employee of the Company and such cessation of position is not subject to Section 3 hereof or (ii) the expiration of the Change of Control Payment Period (as defined below), as applicable. 2. Certain Definitions. (a) Cause. "Cause" shall mean, and the Company shall be entitled to terminate the employment of Executive for: (i) fraud, misappropriation or embezzlement of money or property by Executive; (ii) willful and continued failure of Executive to substantially perform Executive's duties with the Company (other than any such failure resulting from incapacity of Executive due to physical or mental illness), which failure is not remedied within thirty (30) days after a demand for substantial performance is delivered to Executive by the Chief Executive Officer of the Company or the Compensation and Organization Committee of the Board, which demand specifically identifies the manner in which Executive has not substantially performed Executive's duties; or (iii) willful engagement by Executive in misconduct which is materially injurious to the Company, monetarily or otherwise. For purposes of this subparagraph, no act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of the Compensation and Organization Committee finding that in the good faith opinion of the Compensation and Organization Committee, Executive was guilty of conduct set forth in this subparagraph and specifying the particulars thereof in detail. (b) Change of Control. "Change of Control" shall mean the occurrence of any of the following events: (i) the acquisition, directly or indirectly, by any "person" or "group" (as those terms are defined in Sections 3(a)(9), 13(d), and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder) of "beneficial ownership" (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors ("voting securities") of the Company that represent more than 50% of the combined voting power of the Company's then outstanding voting securities, other than: 2 (A) an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company; (B) an acquisition of voting securities by the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company; or (C) an acquisition of voting securities pursuant to a transaction described in clause (iii) below that would not be a Change of Control under clause (iii). Notwithstanding the foregoing, neither of the following events shall constitute an "acquisition" by any person or group for purposes of this clause (i): (x) a change in the voting power of the Company's voting securities based on the relative trading values of the Company's then outstanding securities as determined pursuant to the Company's Articles of Incorporation or (y) an acquisition of the Company's securities by the Company which, either alone or in combination only with the other event, causes the Company's voting securities beneficially owned by a person or group to represent more than 50% of the combined voting power of the Company's then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of more than 50% of the combined voting power of the Company's then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change of Control; or (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or 3 (iii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination, (y) a sale or other disposition of all or substantially all of the Company's assets or (z) the acquisition of assets or stock of another entity, in each case, other than a transaction which results in the Company's voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company's assets or otherwise succeeds to the business of the Company (the Company or such person, the "Successor Entity") directly or indirectly, of more than 50% of the combined voting power of the Successor Entity's outstanding voting securities immediately after the transaction; or (iv) a liquidation or dissolution of the Company. For purposes of clause (i) above, the calculation of voting power shall be made as if the date of the acquisition were a record date for a vote of the Company's stockholders, and for purposes of clause (iii) above, the calculation of voting power shall be made as if the date of the consummation of the transaction were a record date for a vote of the Company's stockholders. (c) Change of Control Payment Period. "Change of Control Payment Period" shall mean the period of twenty-four (24) months after the Date of Termination of Executive, where such Termination is an Involuntary Termination of Employment or a termination of employment by Executive for Good Reason. (d) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor code. (e) Date of Termination. "Date of Termination" shall mean the date specified in the Notice of Termination (as defined below) as being the effective date of the termination of Executive's employment with the Company, provided that such date shall not be less than 30 days following the date the Notice of Termination is delivered. (f) Disability. "Disability" shall mean a physical or mental incapacity as a result of which Executive becomes unable to continue the proper performance of Executive's duties hereunder for six consecutive calendar months or for shorter periods aggregating 180 business days in any 12 month period, but only to the extent that such definition does not violate the Americans with Disabilities Act. (g) Good Reason. "Good Reason" shall mean, with respect to any termination by Executive of Executive's employment with the Company, any of the following which occurs during the Protective Period (as defined below), without the express written consent of Executive, unless such circumstances are cured prior to the Date of Termination: 4 (i) The assignment to Executive by the Company of duties materially inconsistent with Executive's position, duties, responsibilities and status with the Company immediately prior to a Change of Control of the Company, or a material change in Executive's title or offices as in effect immediately prior to a Change of Control of the Company, except in connection with the termination of Executive's employment for Cause, death or Disability or by Executive other than for Good Reason; (ii) A material reduction in Executive's base salary as in effect at the time of a Change of Control of the Company, unless such reduction is on a basis not materially less favorable to Executive relative to other employees; (iii) Any failure by the Company to continue in effect any material benefit plan or arrangement in which Executive is participating at the time of a Change of Control of the Company, unless (a) an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or arrangement, or (b) such failure is on a basis not materially less favorable to Executive, both in terms of the amount of benefits provided and the level of Executive's participation, relative to other participants; (iv) Any failure by the Company to continue in effect any bonus or incentive plan or arrangement in which Executive is participating at the time of a Change of Control of the Company, unless (a) an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or arrangement, or (b) such failure is on a basis not materially less favorable to Executive, both in terms of the amount of benefits provided and the level of Executive's participation, relative to other participants; (v) Any requirement by the Company that Executive be based anywhere other than within fifty (50) miles of Executive's office location as of the date of a Change of Control, except for required travel by Executive on the Company's business to an extent substantially consistent with Executive's business travel obligations at the time of a Change of Control of the Company; (vi) Any failure by the Company to provide Executive with the number of paid vacation days to which Executive is entitled at the time of a Change of Control of the Company; (vii) Any material breach by the Company of any provision of this Agreement; (viii) Any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or (ix) Any purported termination by the Company of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements set forth herein, and for purposes of this Agreement, no such purported termination shall be effective. 5 (h) Involuntary Termination of Employment. "Involuntary Termination of Employment" shall mean any termination of Executive's employment by the Company and its subsidiaries, other than a termination for Cause or due to death or Disability. (i) Notice of Termination. "Notice of Termination" shall mean a written notice delivered by the party effecting the termination of Executive's employment to the other party. The notice shall state the specific termination provision in this Agreement relied upon for the termination of Executive's employment, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and shall state the date upon which such termination shall be effective. (j) Protective Period. "Protective Period" shall mean the 24 months following the effective date of a Change of Control. (k) Termination Base Salary. "Termination Base Salary" shall mean Executive's base salary at the rate in effect at the time the Notice of Termination is given or, if a greater amount, Executive's base salary at the rate in effect immediately prior to the Change of Control. 3. Change of Control Severance Plan. Upon the occurrence, during a Protective Period, of (a) Executive's voluntary termination of employment for Good Reason or (b) an Involuntary Termination of Employment of Executive, Executive shall be entitled to receive the following compensation and benefits, subject to Executive's compliance with Sections 6 and 7: (a) Salary Due Prior to Termination. The Company shall pay to Executive when otherwise due Executive's then base salary through the Date of Termination, along with credit for any vacation earned but not taken and any earned and awarded, but unpaid bonus amount. Such payment shall be within five days after the Date of Termination. (b) Severance Pay. The Company shall pay to Executive, as severance pay, an amount equal to 2.99 times the sum of (i) Executive's Termination Base Salary and (ii) the average aggregate annual bonus paid by the Company to Executive for the three (3) full calendar years preceding the date of Change of Control (the "Change of Control Payment"). If Executive has not been employed by the Company for three (3) full calendar years preceding the date of Change of Control, the Change of Control Payment, with respect to part (ii) of this clause above, shall be computed based on the average aggregate annual bonus paid by the Company to Executive for the full term of Executive's employment with the Company. The Change of Control Payment shall be paid in cash in a single lump sum within fifteen days after the Date of Termination, except as provided for in Section 5 below. (c) Other Benefits. Executive shall be entitled to the benefits set forth in Section 4. 6 4. Acceleration of Option Vesting Upon a Change of Control. Notwithstanding the provisions of the Company's equity compensation plans or of any particular option grant, all unvested options granted under any equity compensation plan of the Company (or assumed by the Company) and held by Executive as of the effective date of a Change of Control of the Company shall vest and become immediately exercisable upon the effective date of the Change of Control of the Company. 5. Limitation on Payments. If the severance and other benefits provided for in this Agreement or otherwise payable to Executive constitute "excess parachute payments" within the meaning of Section 280G of the Code, but for this Section, then Executive's Change of Control Payments and other severance benefits under this Agreement shall be reduced to such lesser amount as would result in no portion of such severance benefits being classified as excess parachute payments under Section 2806 of the Code. 6. Non-Compete and Confidentiality Covenants. (a) Non-Compete. As an inducement for the Company to enter into this Agreement, Executive agrees that during the Change of Control Payment Period, Executive shall not, directly or indirectly in any geographic area where the Company currently operates (i) engage without the prior express written consent of the Company, in any business or activity, whether as an employee, consultant, partner, principal, agent, representative, stockholder (except as a holder of less than 2% of the combined voting power of the outstanding stock of a publicly held company) or in any other individual, corporate or representative capacity, or render any services or provide any advice to any business, activity, person or entity, if Executive knows or reasonably should know that such business, activity, service, person or entity, directly or indirectly, competes in any material manner with the Business, or (ii) meaningfully assist, help or otherwise support, without the prior express written consent of the Company, any person, business, corporation, partnership or other entity or activity, whether as an employee, consultant, partner, principal, agent, representative, stockholder (other than in the capacity as a stockholder of less than 2% of the combined voting power of the outstanding shares of stock of a publicly held company) or in any other individual, corporate or representative capacity, to create, commence or otherwise initiate, or to develop, enhance or otherwise further, any business or activity if Executive knows or reasonably should know that such business or activity, directly or indirectly competes in any material manner with the Business. For purposes of this Section 6, the term "Business" shall refer to the business of the Company as presently conducted or as conducted on the Date of Termination. As of the date of this Agreement, the business of the Company, generally, involves the ownership, operation, billing, collection, maintenance, construction management, servicing and management of entities in the water or wastewater industry and water and wastewater utilities. 7 (b) Non-Solicitation. As an additional inducement for the Company to enter into this Agreement, Executive agrees that for the Change of Control Payment Period, Executive shall not, directly or indirectly (i) with respect to the Business, take any action to solicit or divert any business (or potential business) or clients or customers (or potential clients or potential customers) away from the Company who it comes in contact with or are involved in the Business, (ii) induce customers, potential customers, clients, potential clients, suppliers, agents or other persons under contract or otherwise associated or doing business with respect to the Business with the Company to terminate, reduce or alter any such association or business with respect to the Business with or from the Company, and/or (iii) knowingly induce any person in the employment of the Company to (A) terminate such employment, (B) accept employment, or enter into any consulting arrangement, with anyone other than the Company, and/or (C) interfere with the customers, suppliers, or clients of the Company in any manner or the business of the Company. (c) Confidentiality. Throughout the Change of Control Payment Period, Executive shall not, directly or indirectly, disclose or make available to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, any Confidential Information (as defined below). Executive agrees that, upon termination of Executive's employment with the Company, all Confidential Information in Executive's possession that is in writing or other tangible form (together with all copies or duplicates thereof, including computer files) shall be returned to the Company and shall not be retained by Executive or furnished to any third party, in any form except as provided herein; provided, however, that Executive shall not be obligated to treat as confidential, or return to the Company copies of any Confidential Information that (i) was publicly known at the time of disclosure to Executive, (ii) becomes publicly known or available thereafter other than by any means in violation of this Agreement or any other duty owed to Company by any person or entity, or (iii) is lawfully disclosed to Executive by a third party. As used in this Agreement, the term "Confidential Information" means: information disclosed to Executive or known by Executive as a consequence of or through Executive's relationship with the Company, about the customers, employees, business methods, operations, public relations, contracts, organization, procedures, finances, customer lists, rates and prospects of the Company and its affiliates. (d) Remedies. Executive agrees and acknowledges that Executive's right to receive any of the benefits set forth in Sections 3 and 4 (to the extent Executive is otherwise entitled to such payments) is conditioned upon Executive's compliance with the covenants in this Section 6, and all benefits granted to Executive under this Agreement shall terminate immediately upon Executive's breach of any covenant in this Section 6 and Executive shall be responsible for refunding to the Company the benefits previously received under this Agreement. (e) Understanding of Covenants. Executive represents that he (i) is familiar with the foregoing covenants not to compete and not to solicit, and (ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants. 7. Additional Condition to Payment. The Company's obligations to make the Change of Control Payments and to provide any other benefits under Sections 3 and 4 shall be contingent upon Executive's execution (and, if applicable, non-revocation) of a general release of claims against the Company and any related parties, in the form attached as Exhibit A; provided, however, that in the event of a change in law affecting the breadth or efficacy of the release, the Company may modify Exhibit A as necessary to have the same effect as Exhibit A would have had, but for the change in law. Executive understands that he will not be entitled to any payments under this agreement should he fail to execute or should he revoke such release. 8 8. Indemnity. In any situation where under applicable law the Company has the power to indemnify, advance expenses to and defend Executive in respect of any judgments, fines, settlements, loss, cost or expense (including attorneys' fees) of any nature related to or arising out of Executive's activities as an agent, employee, officer or director of the Company or in any other capacity on behalf of or at the request of the Company, the Company shall promptly on written request, indemnify Executive, advance expenses to Executive and defend Executive to the fullest extent permitted by applicable law, including but not limited to making such findings and determinations and taking any and all such actions as the Company may, under applicable law, be permitted to have the discretion to take so as to effectuate such indemnification, advancement or defense. Such agreement by the Company shall not be deemed to impair any other obligation of the Company respecting Executive's indemnification or defense otherwise arising out of this or any other agreement or promise of the Company or under any statute. 9. Arbitration; Dispute Resolution, Etc. (a) Executive and the Company each agrees that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof (any such occurrence, a "Dispute") shall be settled by arbitration to be held in Los Angeles County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator shall apply California law to the merits of any Dispute, without reference to rules of conflict of law. The arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law. The Company and Executive each hereby expressly consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement and/or relating to any arbitration in which the parties are participants. (c) The Company and Executive shall each pay one-half of the costs and expenses of such arbitration, and shall separately pay its counsel fees and expenses. (d) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 10, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE COMPANY/EXECUTIVE RELATIONSHIP. 9 (e) THE COMPANY AGREES THAT BY SIGNING THIS AGREEMENT, THE COMPANY AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF COMPANY'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE COMPANY/EXECUTIVE RELATIONSHIP. 10. Code Section 409A. (a) Short-Term Deferral Exemption. This Agreement is not intended to provide for any deferral of compensation subject to Code Section 409A and, accordingly, the Change of Control Payment is to be paid not later than the later of: (i) the 15th day of the third month following Executive's first taxable year in which such severance benefit is no longer subject to a substantial risk of forfeiture, and (ii) the 15th day of the third month following first taxable year of the Company in which such severance benefit is no longer subject to substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury Regulations and other guidance issued thereunder. The date determined under this subsection is referred to as the "Short-Term Deferral Date." (b) Compliance with Code Section 409A. Notwithstanding anything to the contrary in the Agreement, in the event that the Change of Control Payment is not actually or constructively received by Executive on or before the Short-Term Deferral Date, to the extent such Change of Control Payment constitutes a deferral of compensation subject to Code Section 409A, then: (i) subject to clause (ii), such Change of Control Payment shall be paid upon Executive's "separation from service," as defined in Code Section 409A(a)(2)(A)(i), with respect to the Company, and (ii) if Executive is a "specified employee," as defined in Code Section 409A(a)(2)(B)(i), with respect to the Company, such Change of Control Payment shall be paid upon the date which is six months after the date of Executive's "separation from service" (or, if earlier, the date of Executive's death) in accordance with Code Section 409A(a)(2)(B)(i) and any Treasury Regulations or other guidance issued thereunder. In the event that the Change of Control Payment is subject to this subsection, such Change of Control Payment shall be paid not later than 60 days following the payment date determined under this subsection, and shall be made subject to Section 6(d) and Section 7. 11. Miscellaneous. (a) Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise nor, except as provided in Section 4(a), shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned or benefit received by Executive as the result of employment by another the Company or self-employment, by retirement benefits, by offset against any amount claimed to be owed by Executive to the Company, or otherwise. 10 (b) Modification. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Except as expressly provided in this Agreement, any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The section headings contained in this Agreement are for convenience only, and shall not affect the interpretation of this Agreement. (c) Successors; Binding Agreement. (i) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets as stock of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate Executive's employment and receive compensation from the Company in the same amount and on the same terms to which Executive would be entitled hereunder if Executive terminates Executive's employment for Good Reason within the Protective Period, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. (ii) This Agreement shall inure to the benefit of and be enforceable by Executive and Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee or other designee or, if there is no such designee, to Executive's estate. (d) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11 (e) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. (f) Entire Agreement. Except as set forth in clause (g) below, this Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein. Any of Executive's rights hereunder shall be in addition to any rights Executive may otherwise have under benefit plans or agreements of the Company to which Executive is a party or in which Executive is a participant, including, but not limited to, any Company sponsored employee benefit plans and stock options plans. In the event any provision of this Agreement shall conflict with the provisions of any other agreement to which Executive and the Company are parties, the provisions of this Agreement shall control. (g) Termination of Prior Agreements. This Agreement is effective as of the Effective Date. The Prior Agreement and any other prior severance or change of control agreement between Executive and any of the Company, or predecessors to any of the Company, or any subsidiary of the Company are hereby expressly terminated as of the Effective Date. Executive hereby terminates and waives any and all rights, title and interest Executive may have under the Prior Agreement. (h) Governing Law. This Agreement is made and is to be governed by and construed under the laws of the State of California. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and delivered by United States certified or registered mail (return receipt requested, postage prepaid) or by courier guaranteeing overnight delivery or by hand delivery (with signed receipt required), addressed to the respective addresses set forth below, and such notice or communication shall be deemed to have been duly given two days after deposit in the mail, one day after deposit with such overnight carrier or upon delivery with hand delivery. The addresses set forth below may be changed in writing in accordance herewith. Corporation: Executive Southwest Water Company Cheryl L. Clary One Wilshire Building 284 Berkshire Avenue 624 South Grand Avenue La Canada, CA 91011 Suite 2900 Los Angeles, California 90017 Attention: Human Resources [Signature page follows] 12 IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the date first above written. COMPANY SOUTHWEST WATER CORPORATION, a Delaware corporation By ------------------------------- Its: EXECUTIVE ---------------------------------- Name: 13 EXHIBIT A FORM OF GENERAL RELEASE GENERAL RELEASE This General Release ("Agreement") is entered into by and between ______________ ("Executive") and Southwest Water Company, a Delaware corporation (the "Company") as of _______, 200__ (the "Effective Date"). RECITALS WHEREAS, Executive is currently employed by the Company as _______________; WHEREAS, the Company and Executive desire to terminate their employment relationship in accordance with the terms of that certain Change of Control Severance Agreement dated __________________, 200__, by and between Executive and Company (the "Severance Agreement"); and WHEREAS, Executive's receipt of the benefits set forth in the Severance Agreement are conditioned upon Executive's execution and delivery of this Agreement. THEREFORE, in consideration of the mutual covenants and promises set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties expressly, knowingly and voluntarily agree as follows: 1. Release of the Company and Related Persons. (a) General Release. In consideration for the Company's payments and other benefits specified in the Severance Agreement, Executive hereby releases and forever discharges the Company and its respective parents, subsidiaries, predecessors, successors, heirs, estates and each of their associates, owners, stockholders, members, assigns, employees, agents, directors, officers, partners, lawyers, and all persons acting by, through, under, or in concert with them, or any of them (collectively the "Releasees") of and from any and all manner of action or actions, causes or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liabilities, claims, demands, damages, losses, costs or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called "Claims"), which Executive now has or may hereafter have against the Releasees by reason of any and all acts, omissions, events or facts occurring or existing prior to the date hereof. This release includes, but is not limited to, any and all alleged claims based on Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Age Discrimination in Employment Act (including the Older Workers Benefit Protection Act), the Equal Pay Act, the Americans with Disabilities Act, the California Fair Employment and Housing Act, the California Labor Code, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, the Family and Medical Leave Act of 1993 or any common law, public policy, contract (whether oral or written, express or implied) or tort law, or any other local, state or federal law, regulation or ordinance having any bearing whatsoever on the terms and conditions of Executive's employment and the cessation thereof. The foregoing release, together with subparagraph (c) of this Section 1, shall hereinafter be referred to as the "General Release". 14 (b) Release of Unknown Claims. Executive acknowledges that he is familiar with the provisions of California Civil Code section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Executive, being aware of said code section, hereby expressly waives any rights he may have thereunder, as well as under any other statutes or common law principles of similar effect. (c) Older Worker's Benefit Protection Act. Executive agrees and expressly acknowledges that this General Release includes a waiver and release of all claims which Executive has or may have under the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. ss. 621, et seq. ("ADEA"). The following terms and conditions apply to and are part of the waiver and release of the ADEA claims under this Agreement: (1) That this General Release is written in a manner calculated to be understood by Executive. (2) The waiver and release of claims under the ADEA contained in this General Release do not cover rights or claims that may arise after the date on which Executive signs this General Release. (3) This General Release provides for consideration in addition to anything of value to which Executive is already entitled. (4) Executive is advised to consult an attorney before signing this General Release. (5) Executive is granted twenty-one (21) days after Executive is presented with this General Release to decide whether or not to sign this General Release. If Executive executes this General Release prior to the expiration of such period, Executive does so voluntarily and after having had the opportunity to consult with an attorney. (6) Executive will have the right to revoke the General Release within seven (7) days of signing this Agreement. In the event the General Release is revoked, this General Release will be null and void in its entirety, and Executive will not receive any of the payments provided for in the Severance Agreement. 15 (7) If Executive wishes to revoke the General Release, he shall deliver written notice stating his intent to revoke the General Release to ________________ on or before 5:00 p.m. on the Seventh (7th) Day after the Effective Date. (d) No Assignment of Claims. Executive represents and warrants to the Releasees that there has been no assignment or other transfer of any interest in any Claim which Executive may have against the Releasees, or any of them, and Executive agrees to indemnify and hold the Releasees harmless from any liability, claims, demands, damages, costs, expenses and attorneys' fees incurred as a result of any person asserting any such assignment or transfer of any rights or Claims under any such assignment or transfer from such party. (e) No Suits or Actions. If Executive hereafter commences, joins in, or in any manner seeks relief through any suit arising out of, based upon, or relating to any of the Claims, or in any manner asserts any of the Claims against the Releasees, then he will pay to the Releasees against whom any such Claim is asserted, in addition to any other damages caused thereby, all attorneys' fees incurred by such Releasees in defending or otherwise responding to such Claim. This provision, however, shall not apply to claims relating to the interpretation of this Agreement, or to the alleged breach of this Agreement. Such claims will be governed by Section 9 of the Severance Agreement. 2. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 3. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, heirs, successors, assigns, related entities, directors, officers, employees, stockholders and agents to the full extent permitted by law. 4. Severability. If any clause or provision in this Agreement is found to be void, invalid, or unenforceable, it shall be severed from the remaining provisions and clauses which shall remain in full force and effect. 5. Waiver. A waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by that same party. 6. Governing Law. This Agreement shall be governed by the laws of the state of California applicable to agreements made and to be wholly performed in such state. 7. Headings. The section headings contained in this Agreement are for convenience and reference purposes only and shall not affect in any way the meaning and interpretation of this Agreement. 8. Notices. All notices, requests, demands and other communications required or permitted under this Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given, made and received on the date when delivered by hand delivery with receipt acknowledged or upon the third day after deposit in the United States mail, registered or certified with postage prepaid, return receipt requested, addressed as set forth below or to such other address as either party may have furnished to the other party: 16 (a) If to Company: Southwest Water Company One Wilshire Building 624 South Grand Avenue Suite 2900 Los Angeles, California 90017 Attention: _____________ (b) If to Executive: ______________________ ______________________ ______________________ [Signature page follows] 17 The parties hereto have executed this Agreement as of the date first set forth above. SOUTHWEST WATER COMPANY, a Delaware corporation By: /s/ Shelley A. Farnham ---------------------- Its: V.P. Human Resources Executive /s/ Cheryl L. Clary ------------------------------- EX-10.4 5 a5139808ex10_4.txt EXHIBIT 10.4 Exhibit 10.4 CHANGE OF CONTROL SEVERANCE AGREEMENT THIS CHANGE OF CONTROL SEVERANCE AGREEMENT ("Agreement") is made effective as of April 28, 2006 (the "Effective Date") by and between Southwest Water Company, a Delaware corporation (the "Company"), and Michael O. Quinn ("Executive"). WHEREAS, Executive is employed as an executive officer or key employee of the Company; WHEREAS, the Company believes it to be in the best interests of its stockholders to attract, retain and motivate key executive officers and employees and to ensure continuity of management; WHEREAS, the Company recognizes that the possibility of a change of control of the Company may result in the departure of key executives or employees to the detriment of the Company and its stockholders; WHEREAS, the Company and Executive are parties to that certain Severance Compensation Agreement dated as of August 5, 1999 (the "Prior Agreement") and the Company and Executive desire to terminate the Prior Agreement and institute this Agreement; WHEREAS, in order to induce Executive to remain in its employ, the Company hereby agrees that as of the Effective Date, Executive shall be entitled to receive the change of control benefits set forth below. THEREFORE, in consideration of Executive's continued employment as an executive officer or key employee of the Company and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as follows: 1. Term of Agreement. (a) Original Term and Extension. Subject to earlier termination as set forth in Section 1(b), this Agreement shall commence on the Effective Date and shall continue in effect until the third anniversary of the Effective Date; provided, however, that the term of this Agreement shall automatically be extended for one or more additional terms of three years each (whether or not one or more Change of Control (as defined below) have occurred) unless, not later than 90 days prior to the last day of the then existing term, the Company shall have given notice to Executive that it does not wish to extend this Agreement. Notwithstanding the foregoing, if a Change of Control occurs during the original or any extended term of this Agreement, the term of this Agreement shall automatically continue in effect for the duration of the Protective Period (as defined below) and any attempt to have this Agreement terminate prior to such time shall be of no force or effect. (b) Earlier Termination. Notwithstanding the provisions of section 1(a), the term of this Agreement shall terminate upon the earlier of (i) the date as of which Executive ceases to be an executive officer or key employee of the Company and such cessation of position is not subject to Section 3 hereof or (ii) the expiration of the Change of Control Payment Period (as defined below), as applicable. 2. Certain Definitions. (a) Cause. "Cause" shall mean, and the Company shall be entitled to terminate the employment of Executive for: (i) fraud, misappropriation or embezzlement of money or property by Executive; (ii) willful and continued failure of Executive to substantially perform Executive's duties with the Company (other than any such failure resulting from incapacity of Executive due to physical or mental illness), which failure is not remedied within thirty (30) days after a demand for substantial performance is delivered to Executive by the Chief Executive Officer of the Company or the Compensation and Organization Committee of the Board, which demand specifically identifies the manner in which Executive has not substantially performed Executive's duties; or (iii) willful engagement by Executive in misconduct which is materially injurious to the Company, monetarily or otherwise. For purposes of this subparagraph, no act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of the Compensation and Organization Committee finding that in the good faith opinion of the Compensation and Organization Committee, Executive was guilty of conduct set forth in this subparagraph and specifying the particulars thereof in detail. (b) Change of Control. "Change of Control" shall mean the occurrence of any of the following events: (i) the acquisition, directly or indirectly, by any "person" or "group" (as those terms are defined in Sections 3(a)(9), 13(d), and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder) of "beneficial ownership" (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors ("voting securities") of the Company that represent more than 50% of the combined voting power of the Company's then outstanding voting securities, other than: 2 (A) an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company; (B) an acquisition of voting securities by the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company; or (C) an acquisition of voting securities pursuant to a transaction described in clause (iii) below that would not be a Change of Control under clause (iii). Notwithstanding the foregoing, neither of the following events shall constitute an "acquisition" by any person or group for purposes of this clause (i): (x) a change in the voting power of the Company's voting securities based on the relative trading values of the Company's then outstanding securities as determined pursuant to the Company's Articles of Incorporation or (y) an acquisition of the Company's securities by the Company which, either alone or in combination only with the other event, causes the Company's voting securities beneficially owned by a person or group to represent more than 50% of the combined voting power of the Company's then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of more than 50% of the combined voting power of the Company's then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change of Control; or (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or 3 (iii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination, (y) a sale or other disposition of all or substantially all of the Company's assets or (z) the acquisition of assets or stock of another entity, in each case, other than a transaction which results in the Company's voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company's assets or otherwise succeeds to the business of the Company (the Company or such person, the "Successor Entity") directly or indirectly, of more than 50% of the combined voting power of the Successor Entity's outstanding voting securities immediately after the transaction; or (iv) a liquidation or dissolution of the Company. For purposes of clause (i) above, the calculation of voting power shall be made as if the date of the acquisition were a record date for a vote of the Company's stockholders, and for purposes of clause (iii) above, the calculation of voting power shall be made as if the date of the consummation of the transaction were a record date for a vote of the Company's stockholders. (c) Change of Control Payment Period. "Change of Control Payment Period" shall mean the period of twenty-four (24) months after the Date of Termination of Executive, where such Termination is an Involuntary Termination of Employment or a termination of employment by Executive for Good Reason. (d) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor code. (e) Date of Termination. "Date of Termination" shall mean the date specified in the Notice of Termination (as defined below) as being the effective date of the termination of Executive's employment with the Company, provided that such date shall not be less than 30 days following the date the Notice of Termination is delivered. (f) Disability. "Disability" shall mean a physical or mental incapacity as a result of which Executive becomes unable to continue the proper performance of Executive's duties hereunder for six consecutive calendar months or for shorter periods aggregating 180 business days in any 12 month period, but only to the extent that such definition does not violate the Americans with Disabilities Act. (g) Good Reason. "Good Reason" shall mean, with respect to any termination by Executive of Executive's employment with the Company, any of the following which occurs during the Protective Period (as defined below), without the express written consent of Executive, unless such circumstances are cured prior to the Date of Termination: 4 (i) The assignment to Executive by the Company of duties materially inconsistent with Executive's position, duties, responsibilities and status with the Company immediately prior to a Change of Control of the Company, or a material change in Executive's title or offices as in effect immediately prior to a Change of Control of the Company, except in connection with the termination of Executive's employment for Cause, death or Disability or by Executive other than for Good Reason; (ii) A material reduction in Executive's base salary as in effect at the time of a Change of Control of the Company, unless such reduction is on a basis not materially less favorable to Executive relative to other employees; (iii) Any failure by the Company to continue in effect any material benefit plan or arrangement in which Executive is participating at the time of a Change of Control of the Company, unless (a) an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or arrangement, or (b) such failure is on a basis not materially less favorable to Executive, both in terms of the amount of benefits provided and the level of Executive's participation, relative to other participants; (iv) Any failure by the Company to continue in effect any bonus or incentive plan or arrangement in which Executive is participating at the time of a Change of Control of the Company, unless (a) an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or arrangement, or (b) such failure is on a basis not materially less favorable to Executive, both in terms of the amount of benefits provided and the level of Executive's participation, relative to other participants; (v) Any requirement by the Company that Executive be based anywhere other than within fifty (50) miles of Executive's office location as of the date of a Change of Control, except for required travel by Executive on the Company's business to an extent substantially consistent with Executive's business travel obligations at the time of a Change of Control of the Company; (vi) Any failure by the Company to provide Executive with the number of paid vacation days to which Executive is entitled at the time of a Change of Control of the Company; (vii) Any material breach by the Company of any provision of this Agreement; (viii) Any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or (ix) Any purported termination by the Company of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements set forth herein, and for purposes of this Agreement, no such purported termination shall be effective. 5 (h) Involuntary Termination of Employment. "Involuntary Termination of Employment" shall mean any termination of Executive's employment by the Company and its subsidiaries, other than a termination for Cause or due to death or Disability. (i) Notice of Termination. "Notice of Termination" shall mean a written notice delivered by the party effecting the termination of Executive's employment to the other party. The notice shall state the specific termination provision in this Agreement relied upon for the termination of Executive's employment, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and shall state the date upon which such termination shall be effective. (j) Protective Period. "Protective Period" shall mean the 24 months following the effective date of a Change of Control. (k) Termination Base Salary. "Termination Base Salary" shall mean Executive's base salary at the rate in effect at the time the Notice of Termination is given or, if a greater amount, Executive's base salary at the rate in effect immediately prior to the Change of Control. 3. Change of Control Severance Plan. Upon the occurrence, during a Protective Period, of (a) Executive's voluntary termination of employment for Good Reason or (b) an Involuntary Termination of Employment of Executive, Executive shall be entitled to receive the following compensation and benefits, subject to Executive's compliance with Sections 6 and 7: (a) Salary Due Prior to Termination. The Company shall pay to Executive when otherwise due Executive's then base salary through the Date of Termination, along with credit for any vacation earned but not taken and any earned and awarded, but unpaid bonus amount. Such payment shall be within five days after the Date of Termination. (b) Severance Pay. The Company shall pay to Executive, as severance pay, an amount equal to 2.99 times the sum of (i) Executive's Termination Base Salary and (ii) the average aggregate annual bonus paid by the Company to Executive for the three (3) full calendar years preceding the date of Change of Control (the "Change of Control Payment"). If Executive has not been employed by the Company for three (3) full calendar years preceding the date of Change of Control, the Change of Control Payment, with respect to part (ii) of this clause above, shall be computed based on the average aggregate annual bonus paid by the Company to Executive for the full term of Executive's employment with the Company. The Change of Control Payment shall be paid in cash in a single lump sum within fifteen days after the Date of Termination, except as provided for in Section 5 below. (c) Other Benefits. Executive shall be entitled to the benefits set forth in Section 4. 6 4. Acceleration of Option Vesting Upon a Change of Control. Notwithstanding the provisions of the Company's equity compensation plans or of any particular option grant, all unvested options granted under any equity compensation plan of the Company (or assumed by the Company) and held by Executive as of the effective date of a Change of Control of the Company shall vest and become immediately exercisable upon the effective date of the Change of Control of the Company. 5. Limitation on Payments. If the severance and other benefits provided for in this Agreement or otherwise payable to Executive constitute "excess parachute payments" within the meaning of Section 280G of the Code, but for this Section, then Executive's Change of Control Payments and other severance benefits under this Agreement shall be reduced to such lesser amount as would result in no portion of such severance benefits being classified as excess parachute payments under Section 2806 of the Code. 6. Non-Compete and Confidentiality Covenants. (a) Non-Compete. As an inducement for the Company to enter into this Agreement, Executive agrees that during the Change of Control Payment Period, Executive shall not, directly or indirectly in any geographic area where the Company currently operates (i) engage without the prior express written consent of the Company, in any business or activity, whether as an employee, consultant, partner, principal, agent, representative, stockholder (except as a holder of less than 2% of the combined voting power of the outstanding stock of a publicly held company) or in any other individual, corporate or representative capacity, or render any services or provide any advice to any business, activity, person or entity, if Executive knows or reasonably should know that such business, activity, service, person or entity, directly or indirectly, competes in any material manner with the Business, or (ii) meaningfully assist, help or otherwise support, without the prior express written consent of the Company, any person, business, corporation, partnership or other entity or activity, whether as an employee, consultant, partner, principal, agent, representative, stockholder (other than in the capacity as a stockholder of less than 2% of the combined voting power of the outstanding shares of stock of a publicly held company) or in any other individual, corporate or representative capacity, to create, commence or otherwise initiate, or to develop, enhance or otherwise further, any business or activity if Executive knows or reasonably should know that such business or activity, directly or indirectly competes in any material manner with the Business. For purposes of this Section 6, the term "Business" shall refer to the business of the Company as presently conducted or as conducted on the Date of Termination. As of the date of this Agreement, the business of the Company, generally, involves the ownership, operation, billing, collection, maintenance, construction management, servicing and management of entities in the water or wastewater industry and water and wastewater utilities. 7 (b) Non-Solicitation. As an additional inducement for the Company to enter into this Agreement, Executive agrees that for the Change of Control Payment Period, Executive shall not, directly or indirectly (i) with respect to the Business, take any action to solicit or divert any business (or potential business) or clients or customers (or potential clients or potential customers) away from the Company who it comes in contact with or are involved in the Business, (ii) induce customers, potential customers, clients, potential clients, suppliers, agents or other persons under contract or otherwise associated or doing business with respect to the Business with the Company to terminate, reduce or alter any such association or business with respect to the Business with or from the Company, and/or (iii) knowingly induce any person in the employment of the Company to (A) terminate such employment, (B) accept employment, or enter into any consulting arrangement, with anyone other than the Company, and/or (C) interfere with the customers, suppliers, or clients of the Company in any manner or the business of the Company. (c) Confidentiality. Throughout the Change of Control Payment Period, Executive shall not, directly or indirectly, disclose or make available to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, any Confidential Information (as defined below). Executive agrees that, upon termination of Executive's employment with the Company, all Confidential Information in Executive's possession that is in writing or other tangible form (together with all copies or duplicates thereof, including computer files) shall be returned to the Company and shall not be retained by Executive or furnished to any third party, in any form except as provided herein; provided, however, that Executive shall not be obligated to treat as confidential, or return to the Company copies of any Confidential Information that (i) was publicly known at the time of disclosure to Executive, (ii) becomes publicly known or available thereafter other than by any means in violation of this Agreement or any other duty owed to Company by any person or entity, or (iii) is lawfully disclosed to Executive by a third party. As used in this Agreement, the term "Confidential Information" means: information disclosed to Executive or known by Executive as a consequence of or through Executive's relationship with the Company, about the customers, employees, business methods, operations, public relations, contracts, organization, procedures, finances, customer lists, rates and prospects of the Company and its affiliates. (d) Remedies. Executive agrees and acknowledges that Executive's right to receive any of the benefits set forth in Sections 3 and 4 (to the extent Executive is otherwise entitled to such payments) is conditioned upon Executive's compliance with the covenants in this Section 6, and all benefits granted to Executive under this Agreement shall terminate immediately upon Executive's breach of any covenant in this Section 6 and Executive shall be responsible for refunding to the Company the benefits previously received under this Agreement. (e) Understanding of Covenants. Executive represents that he (i) is familiar with the foregoing covenants not to compete and not to solicit, and (ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants. 8 7. Additional Condition to Payment. The Company's obligations to make the Change of Control Payments and to provide any other benefits under Sections 3 and 4 shall be contingent upon Executive's execution (and, if applicable, non-revocation) of a general release of claims against the Company and any related parties, in the form attached as Exhibit A; provided, however, that in the event of a change in law affecting the breadth or efficacy of the release, the Company may modify Exhibit A as necessary to have the same effect as Exhibit A would have had, but for the change in law. Executive understands that he will not be entitled to any payments under this agreement should he fail to execute or should he revoke such release. 8. Indemnity. In any situation where under applicable law the Company has the power to indemnify, advance expenses to and defend Executive in respect of any judgments, fines, settlements, loss, cost or expense (including attorneys' fees) of any nature related to or arising out of Executive's activities as an agent, employee, officer or director of the Company or in any other capacity on behalf of or at the request of the Company, the Company shall promptly on written request, indemnify Executive, advance expenses to Executive and defend Executive to the fullest extent permitted by applicable law, including but not limited to making such findings and determinations and taking any and all such actions as the Company may, under applicable law, be permitted to have the discretion to take so as to effectuate such indemnification, advancement or defense. Such agreement by the Company shall not be deemed to impair any other obligation of the Company respecting Executive's indemnification or defense otherwise arising out of this or any other agreement or promise of the Company or under any statute. 9. Arbitration; Dispute Resolution, Etc. (a) Executive and the Company each agrees that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof (any such occurrence, a "Dispute") shall be settled by arbitration to be held in Los Angeles County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator shall apply California law to the merits of any Dispute, without reference to rules of conflict of law. The arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law. The Company and Executive each hereby expressly consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement and/or relating to any arbitration in which the parties are participants. (c) The Company and Executive shall each pay one-half of the costs and expenses of such arbitration, and shall separately pay its counsel fees and expenses. (d) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 10, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE COMPANY/EXECUTIVE RELATIONSHIP. 9 (e) THE COMPANY AGREES THAT BY SIGNING THIS AGREEMENT, THE COMPANY AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF COMPANY'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE COMPANY/EXECUTIVE RELATIONSHIP. 10. Code Section 409A. (a) Short-Term Deferral Exemption. This Agreement is not intended to provide for any deferral of compensation subject to Code Section 409A and, accordingly, the Change of Control Payment is to be paid not later than the later of: (i) the 15th day of the third month following Executive's first taxable year in which such severance benefit is no longer subject to a substantial risk of forfeiture, and (ii) the 15th day of the third month following first taxable year of the Company in which such severance benefit is no longer subject to substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury Regulations and other guidance issued thereunder. The date determined under this subsection is referred to as the "Short-Term Deferral Date." (b) Compliance with Code Section 409A. Notwithstanding anything to the contrary in the Agreement, in the event that the Change of Control Payment is not actually or constructively received by Executive on or before the Short-Term Deferral Date, to the extent such Change of Control Payment constitutes a deferral of compensation subject to Code Section 409A, then: (i) subject to clause (ii), such Change of Control Payment shall be paid upon Executive's "separation from service," as defined in Code Section 409A(a)(2)(A)(i), with respect to the Company, and (ii) if Executive is a "specified employee," as defined in Code Section 409A(a)(2)(B)(i), with respect to the Company, such Change of Control Payment shall be paid upon the date which is six months after the date of Executive's "separation from service" (or, if earlier, the date of Executive's death) in accordance with Code Section 409A(a)(2)(B)(i) and any Treasury Regulations or other guidance issued thereunder. In the event that the Change of Control Payment is subject to this subsection, such Change of Control Payment shall be paid not later than 60 days following the payment date determined under this subsection, and shall be made subject to Section 6(d) and Section 7. 11. Miscellaneous. (a) Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise nor, except as provided in Section 4(a), shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned or benefit received by Executive as the result of employment by another the Company or self-employment, by retirement benefits, by offset against any amount claimed to be owed by Executive to the Company, or otherwise. 10 (b) Modification. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Except as expressly provided in this Agreement, any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The section headings contained in this Agreement are for convenience only, and shall not affect the interpretation of this Agreement. (c) Successors; Binding Agreement. (i) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets as stock of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate Executive's employment and receive compensation from the Company in the same amount and on the same terms to which Executive would be entitled hereunder if Executive terminates Executive's employment for Good Reason within the Protective Period, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. (ii) This Agreement shall inure to the benefit of and be enforceable by Executive and Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee or other designee or, if there is no such designee, to Executive's estate. (d) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11 (e) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. (f) Entire Agreement. Except as set forth in clause (g) below, this Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein. Any of Executive's rights hereunder shall be in addition to any rights Executive may otherwise have under benefit plans or agreements of the Company to which Executive is a party or in which Executive is a participant, including, but not limited to, any Company sponsored employee benefit plans and stock options plans. In the event any provision of this Agreement shall conflict with the provisions of any other agreement to which Executive and the Company are parties, the provisions of this Agreement shall control. (g) Termination of Prior Agreements. This Agreement is effective as of the Effective Date. The Prior Agreement and any other prior severance or change of control agreement between Executive and any of the Company, or predecessors to any of the Company, or any subsidiary of the Company are hereby expressly terminated as of the Effective Date. Executive hereby terminates and waives any and all rights, title and interest Executive may have under the Prior Agreement. (h) Governing Law. This Agreement is made and is to be governed by and construed under the laws of the State of California. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and delivered by United States certified or registered mail (return receipt requested, postage prepaid) or by courier guaranteeing overnight delivery or by hand delivery (with signed receipt required), addressed to the respective addresses set forth below, and such notice or communication shall be deemed to have been duly given two days after deposit in the mail, one day after deposit with such overnight carrier or upon delivery with hand delivery. The addresses set forth below may be changed in writing in accordance herewith. Corporation: Executive Southwest Water Company Michael O. Quinn One Wilshire Building 1013 Dancove Drive 624 South Grand Avenue West Covina, CA 91791 Suite 2900 Los Angeles, California 90017 Attention: Human Resources [Signature page follows] 12 IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the date first above written. COMPANY SOUTHWEST WATER CORPORATION, a Delaware corporation By --------------------------- Its: EXECUTIVE ------------------------------ Name: 13 EXHIBIT A FORM OF GENERAL RELEASE GENERAL RELEASE This General Release ("Agreement") is entered into by and between ______________ ("Executive") and Southwest Water Company, a Delaware corporation (the "Company") as of _______, 200__ (the "Effective Date"). RECITALS WHEREAS, Executive is currently employed by the Company as _______________; WHEREAS, the Company and Executive desire to terminate their employment relationship in accordance with the terms of that certain Change of Control Severance Agreement dated __________________, 200__, by and between Executive and Company (the "Severance Agreement"); and WHEREAS, Executive's receipt of the benefits set forth in the Severance Agreement are conditioned upon Executive's execution and delivery of this Agreement. THEREFORE, in consideration of the mutual covenants and promises set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties expressly, knowingly and voluntarily agree as follows: 1. Release of the Company and Related Persons. (a) General Release. In consideration for the Company's payments and other benefits specified in the Severance Agreement, Executive hereby releases and forever discharges the Company and its respective parents, subsidiaries, predecessors, successors, heirs, estates and each of their associates, owners, stockholders, members, assigns, employees, agents, directors, officers, partners, lawyers, and all persons acting by, through, under, or in concert with them, or any of them (collectively the "Releasees") of and from any and all manner of action or actions, causes or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liabilities, claims, demands, damages, losses, costs or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called "Claims"), which Executive now has or may hereafter have against the Releasees by reason of any and all acts, omissions, events or facts occurring or existing prior to the date hereof. This release includes, but is not limited to, any and all alleged claims based on Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Age Discrimination in Employment Act (including the Older Workers Benefit Protection Act), the Equal Pay Act, the Americans with Disabilities Act, the California Fair Employment and Housing Act, the California Labor Code, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, the Family and Medical Leave Act of 1993 or any common law, public policy, contract (whether oral or written, express or implied) or tort law, or any other local, state or federal law, regulation or ordinance having any bearing whatsoever on the terms and conditions of Executive's employment and the cessation thereof. The foregoing release, together with subparagraph (c) of this Section 1, shall hereinafter be referred to as the "General Release". 14 (b) Release of Unknown Claims. Executive acknowledges that he is familiar with the provisions of California Civil Code section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Executive, being aware of said code section, hereby expressly waives any rights he may have thereunder, as well as under any other statutes or common law principles of similar effect. (c) Older Worker's Benefit Protection Act. Executive agrees and expressly acknowledges that this General Release includes a waiver and release of all claims which Executive has or may have under the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. ss. 621, et seq. ("ADEA"). The following terms and conditions apply to and are part of the waiver and release of the ADEA claims under this Agreement: (1) That this General Release is written in a manner calculated to be understood by Executive. (2) The waiver and release of claims under the ADEA contained in this General Release do not cover rights or claims that may arise after the date on which Executive signs this General Release. (3) This General Release provides for consideration in addition to anything of value to which Executive is already entitled. (4) Executive is advised to consult an attorney before signing this General Release. (5) Executive is granted twenty-one (21) days after Executive is presented with this General Release to decide whether or not to sign this General Release. If Executive executes this General Release prior to the expiration of such period, Executive does so voluntarily and after having had the opportunity to consult with an attorney. (6) Executive will have the right to revoke the General Release within seven (7) days of signing this Agreement. In the event the General Release is revoked, this General Release will be null and void in its entirety, and Executive will not receive any of the payments provided for in the Severance Agreement. 15 (7) If Executive wishes to revoke the General Release, he shall deliver written notice stating his intent to revoke the General Release to ________________ on or before 5:00 p.m. on the Seventh (7th) Day after the Effective Date. (d) No Assignment of Claims. Executive represents and warrants to the Releasees that there has been no assignment or other transfer of any interest in any Claim which Executive may have against the Releasees, or any of them, and Executive agrees to indemnify and hold the Releasees harmless from any liability, claims, demands, damages, costs, expenses and attorneys' fees incurred as a result of any person asserting any such assignment or transfer of any rights or Claims under any such assignment or transfer from such party. (e) No Suits or Actions. If Executive hereafter commences, joins in, or in any manner seeks relief through any suit arising out of, based upon, or relating to any of the Claims, or in any manner asserts any of the Claims against the Releasees, then he will pay to the Releasees against whom any such Claim is asserted, in addition to any other damages caused thereby, all attorneys' fees incurred by such Releasees in defending or otherwise responding to such Claim. This provision, however, shall not apply to claims relating to the interpretation of this Agreement, or to the alleged breach of this Agreement. Such claims will be governed by Section 9 of the Severance Agreement. 2. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 3. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, heirs, successors, assigns, related entities, directors, officers, employees, stockholders and agents to the full extent permitted by law. 4. Severability. If any clause or provision in this Agreement is found to be void, invalid, or unenforceable, it shall be severed from the remaining provisions and clauses which shall remain in full force and effect. 5. Waiver. A waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by that same party. 6. Governing Law. This Agreement shall be governed by the laws of the state of California applicable to agreements made and to be wholly performed in such state. 7. Headings. The section headings contained in this Agreement are for convenience and reference purposes only and shall not affect in any way the meaning and interpretation of this Agreement. 8. Notices. All notices, requests, demands and other communications required or permitted under this Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given, made and received on the date when delivered by hand delivery with receipt acknowledged or upon the third day after deposit in the United States mail, registered or certified with postage prepaid, return receipt requested, addressed as set forth below or to such other address as either party may have furnished to the other party: 16 (a) If to Company: Southwest Water Company One Wilshire Building 624 South Grand Avenue Suite 2900 Los Angeles, California 90017 Attention: _____________ (b) If to Executive: ______________________ ______________________ ______________________ [Signature page follows] 17 The parties hereto have executed this Agreement as of the date first set forth above. SOUTHWEST WATER COMPANY, a Delaware corporation By: /s/ Shelley A. Farnham ------------------------- Its: V.P. Human Resources Executive /s/ Michael O. Quinn ----------------------------- 18 -----END PRIVACY-ENHANCED MESSAGE-----