<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________________ to________________
Commission file number: 0-8176
[LOGO OF SOUTHWEST
WATER COMPANY] SOUTHWEST WATER COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 95-1840947
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
225 North Barranca Avenue, Suite 200
West Covina, California 91791-1605
(Address of principal executive offices) (Zip Code)
(818) 915-1551
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
On April 30, 1995, there were 2,431,213 common shares outstanding.
<PAGE>
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
- -------
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 1995 and December 31, 1994 3 - 4
Consolidated Condensed Statements of Operations -
Three months ended March 31, 1995 and 1994 5
Consolidated Condensed Statements of Cash Flows -
Three months ended March 31, 1995 and 1994 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 11
Part II. Other Information:
- --------
Item 1. Legal Proceedings 12 - 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION> March 31, Dec. 31,
1995 1994
----------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 577 $ 828
Customers' accounts receivable 5,736 6,021
Other current assets 1,981 2,011
-------- --------
8,294 8,860
PROPERTY, PLANT AND EQUIPMENT:
Utility property, plant and equipment - at cost 97,143 96,179
Non-utility property, plant and equipment - at cost 6,008 5,923
-------- --------
103,151 102,102
Less accumulated depreciation and amortization 30,141 29,966
-------- --------
73,010 72,136
OTHER ASSETS 5,817 5,838
-------- --------
$ 87,121 $ 86,834
======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------
<TABLE>
<CAPTION>
March 31, Dec. 31,
1995 1994
----------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt and bank
notes payable $ 5,159 $ 3,491
Accounts payable 1,026 1,185
Other current liabilities 5,595 6,455
------- -------
11,780 11,131
OTHER LIABILITIES AND DEFERRED CREDITS:
Long-term debt 20,500 20,500
Advances for construction 9,122 9,151
Contributions in aid of construction 10,579 10,683
Deferred income taxes 3,395 3,260
Other liabilities and deferred credits 3,568 3,577
------- -------
TOTAL LIABILITIES AND DEFERRED CREDITS 58,944 58,302
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Cumulative preferred stock 519 530
Common stock 24 24
Paid-in capital 17,310 17,241
Retained earnings 10,400 10,820
Unamortized value of restricted stock issued (76) (83)
------- -------
TOTAL STOCKHOLDERS' EQUITY 28,177 28,532
------- -------
$87,121 $86,834
======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
March 31,
-----------------------
1995 1994
-------- --------
(In thousands except
per share amounts)
<S> <C> <C>
OPERATING REVENUES $11,290 $11,102
OPERATING EXPENSES:
Direct operating expenses 9,020 8,712
Selling, general and administrative 2,119 2,128
------- -------
11,139 10,840
------- -------
OPERATING INCOME 151 262
OTHER INCOME (EXPENSE):
Interest expense (560) (524)
Interest income 25 19
Gain on sale of land 84 -
Other 6 27
------- -------
(445) (478)
------- -------
LOSS BEFORE INCOME TAX BENEFIT (294) (216)
Income tax benefit (123) (85)
------- -------
NET LOSS (171) (131)
Dividends on preferred shares (7) (7)
------- -------
NET LOSS APPLICABLE TO COMMON SHARES $ (178) $ (138)
======= =======
LOSS PER COMMON SHARE:
Primary $ (0.07) $ (0.06)
======= =======
Fully diluted $ (0.07) $ (0.06)
======= =======
CASH DIVIDENDS PER COMMON SHARE $ 0.10 $ 0.10
======= =======
WEIGHTED-AVERAGE OUTSTANDING COMMON
AND COMMON EQUIVALENT SHARES:
Primary 2,423 2,390
======= =======
Fully diluted 2,423 2,390
======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
March 31,
------------------------
1995 1994
-------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (171) $ (131)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 934 924
Deferred income taxes 135 996
Changes in assets and liabilities:
Customers' accounts receivable 285 (22)
Other current assets 30 610
Accounts payable (159) (2,274)
Other current liabilities (860) (2,123)
Other, net 80 (156)
------- -------
Total adjustments 445 (2,045)
------- -------
Net cash provided by (used in) in operating
activities 274 (2,176)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,878) (1,191)
Net redemption of U.S. Government securities - 1,503
------- -------
Net cash provided by (used in) investing
activities (1,878) 312
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of short-term debt 1,675 1,850
Net proceeds from dividend reinvestment and
employee stock purchase plans 60 90
Additions to advances for construction 13 -
Dividends paid (249) (245)
Contributions in aid of construction, net (104) 77
Payments on advances for construction (42) (518)
------- -------
Net cash provided by financing activities 1,353 1,254
------- -------
Net decrease in cash and cash equivalents (251) (610)
Cash and cash equivalents at beginning of year 828 2,979
------- -------
Cash and cash equivalents at end of quarter $ 577 $ 2,369
======= =======
</TABLE>
See accompanying notes.
6
<PAGE>
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1995
(Unaudited)
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements of Southwest Water Company (hereafter
together with its consolidated subsidiaries referred to as "Company" or
"Registrant" unless the context otherwise indicates) reflect all
adjustments (including adjustments which are of a normal recurring nature)
necessary to present fairly the financial position and results of
operations.
2. The results of operations for the periods ended March 31, 1995 and 1994 are
not necessarily indicative of the results to be expected for the full year.
The first quarter is normally the quarter with the lowest average water
usage per customer for the Company's water utilities. The operations of the
Company's service business are also seasonal in nature.
3. Primary earnings per share are calculated using the weighted-average number
of common shares and dilutive common equivalent shares outstanding during
the period, after recognition of dividend requirements on preferred shares.
Common equivalent shares arise from stock options. Fully diluted earnings
per share were computed based upon the weighted-average number of common
shares and dilutive common equivalent shares outstanding, assuming the 9.5%
convertible subordinated debentures were converted at the beginning of the
period and the related interest for the period, net of income taxes, was
eliminated.
7
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1995, the Company had cash and cash equivalent balances totaling
approximately $577,000 and unused lines of credit from commercial banks of
$8,375,000. In 1995, the Company borrowed a net $1,675,000 on its lines of
credit to meet construction and operating requirements. Additional borrowing is
anticipated during 1995 to meet construction, operating and debt service
requirements.
The Company has additional borrowing capacity under its First Mortgage Bond
Indentures of approximately $20,730,000. The amount of additional borrowings
available to the Company under the indentures and lines of credit is limited by
certain financial covenants that restrict additional borrowings at March 31,
1995, to a maximum of approximately $11,599,000.
The Company's liquidity and capital resources are influenced primarily by
construction expenditures at Suburban Water Systems (Suburban) for the
replacement and renovation of existing water utility facilities and construction
expenditures for new water and wastewater utility facilities at New Mexico
Utilities, Inc. (New Mexico). Additionally, liquidity is influenced by the
Company's continuing investment in its service business, ECO Resources, Inc.
(ECO).
The Company's additions to property, plant and equipment approximated $1,878,000
for the three months ended March 31, 1995, representing an increase of $687,000
over the same period of 1994. This increase relates primarily to capital
expenditures incurred at New Mexico due to construction in New Mexico's service
area. The Company will continue its construction programs, with 1995 capital
expenditures estimated at $11,600,000, of which approximately $2,700,000 is
estimated to be in the form of developer contributions. Because these estimates
are subject to management's ongoing review, actual expenditures may vary. These
construction expenditures, as well as the Company's ongoing investment in ECO,
affect the Company's liquidity.
The amount and timing of future long-term financings will depend on various
factors discussed earlier, the timeliness and adequacy of rate increases, the
availability of capital, and the Company's ability to meet interest and fixed
charge coverage requirements.
REGULATORY AFFAIRS AND INFLATION:
The rates and operations of the Company's utilities are regulated primarily by
the Public Utilities Commission of the State of California (CPUC) and the New
Mexico Public Utility Commission (NMPUC). The rates are intended to provide a
reasonable return on common equity. The Company's expected future construction
expenditures and increased direct operating expenses will require periodic
requests for rate increases.
Effective January 1, 1995, the CPUC granted Suburban an annual "step"
adjustment for its Whittier/La Mirada District customers, yielding additional
annual revenues of $286,000. Suburban is currently authorized an 11% return on
common equity. This authorized rate of return is moderately favorable in
comparison to rates currently granted to other water utilities by the CPUC.
8
<PAGE>
Suburban filed a preliminary general rate increase application with the CPUC in
April 1995. The general rate increase, if approved, would be effective early
in 1996. Suburban's general rate application covers both of its service
districts based upon recent suggestions by the CPUC. This general rate increase
application requests an increase in rates of approximately 11%. New Mexico
anticipates filing a general sewer rate increase application with the NMPUC in
May 1995, requesting a 10% increase in rates, effective early in 1996.
From 1989 through 1995, the Company recorded pretax gains on five land
transactions which aggregated $1,900,000. On January 7, 1994, the CPUC ruled on
the 1989 sale and allowed Suburban to retain $210,000 in income, in accordance
with CPUC accounting regulations, as opposed to distributing it to ratepayers in
the form of water rate reductions. However, a more recent CPUC decision
involving an unrelated water company required that its gain on the sale of land
be split equally between the ratepayers and the stockholders. Suburban's
remaining transactions (with pretax gains of $1,690,000) are subject to CPUC
review; however, management believes these gains belong to the stockholders.
Accordingly, no provision for any liability has been recorded in the
accompanying consolidated condensed financial statements.
The operations of ECO are not regulated. ECO's long-term water and wastewater
service contracts typically include annual inflation adjustments that
approximate inflation rates. Contracts with municipal utility districts, which
are usually shorter term contracts, do not generally include inflation
adjustments.
ENVIRONMENTAL AFFAIRS:
The Company's operations are subject to water and wastewater pollution
prevention standards and water and wastewater quality regulations of the United
States Environmental Protection Agency (EPA) and various state regulatory
agencies. The EPA and state regulatory agencies continue to promulgate new
regulations mandated by the Federal Water Pollution Control Act, the Safe
Drinking Water Act, and the Resource Conservation and Recovery Act. To date,
the Company has not experienced any material adverse effects upon its operations
resulting from compliance with governmental regulations. Costs associated with
the testing of the Company's water supplies have, however, increased and are
expected to increase further as the regulatory agencies adopt additional
monitoring requirements. The Company believes that future incremental costs of
complying with governmental regulations, including capital expenditures, if any,
will be recoverable through increased rates and contract revenues.
9
<PAGE>
RESULTS OF OPERATIONS:
Three Months Ended March 31, 1995 Versus Three Months Ended March 31, 1994
- --------------------------------------------------------------------------
Fully diluted loss per common share for the three months ended March 31
increased from a loss per share of $.06 in 1994 to a loss per share of $.07 in
1995. Results for the three months ended March 31, 1995 include a net gain of
$50,000, or $.02 per fully diluted share, resulting from the sale of land by
Suburban.
Operating income decreased $111,000 in the three months ended March 31, 1995,
over the same period in 1994, and, as a percentage of operating revenues,
decreased from 2% in 1994 to 1% in 1995. Utility operating income decreased
during the three months ended March 31, 1995 as Suburban experienced the
negative effects of a decrease in customer water consumption due to heavy rains
and cooler than normal temperatures in Southern California. New Mexico
experienced the positive effects of increases in customer water consumption
resulting from the addition of new customers during 1995 as compared with 1994.
ECO experienced an increased operating loss during this same period, due
primarily to higher selling expenses, as well as a $37,000 settlement of a
lawsuit.
The results of operations for the three-month period may not necessarily be
indicative of the results to be expected for the full year, due to the seasonal
nature of the Company's operations. The first quarter is normally the quarter
with the lowest average water usage per customer for the Company's water
utilities. The operations of ECO are also seasonal in nature. Moderate
rainfall hampers ECO's performance because less billable work can be performed.
Heavy rainfall often has the opposite effect, as it may create opportunities for
additional billable work.
Operating revenues
- ------------------
Operating revenues increased $188,000 or 2% during the three months ended March
31, 1995, over the same period in 1994.
Water utility operating revenues decreased by $124,000. Heavy rainfall and
cooler temperatures in Southern California caused Suburban's customers to
decrease water consumption by approximately 10% during this period as compared
with 1994, resulting in a revenue decrease of approximately $370,000. However,
Suburban received the benefits of a step rate increase which resulted in
additional revenues of $77,000 in 1995. New Mexico's customers' water
consumption increased by 17% during this period over 1994, representing an
increase in water revenues of $46,000. As anticipated, construction has
continued in New Mexico's service area with 130 new water customers added during
the three months ended March 31, 1995. Higher sewer collection revenues by New
Mexico, resulting from higher volume, led to an increase in revenues of
$123,000.
ECO's revenues increased $312,000 during this period as compared to the same
period in 1994 as a result of new contract revenues in Texas.
Direct operating expenses
- -------------------------
Direct operating expenses increased $308,000 or 4% in the three months ended
March 31, 1995, as compared to the same period of 1994. As a percentage of
operating revenues, these expenses increased from 78% in 1994 to 80% in 1995.
10
<PAGE>
Water utility direct operating expenses increased $13,000 during the three
months ended March 31, 1995, as compared to the same period of 1994. The
decrease in Suburban's water production resulted in a decrease in water, power
and gas expenses of $277,000. New Mexico experienced higher sewer collection
expenses of $107,000 related directly to the corresponding increase in volume.
Increases in payroll and associated benefits, depreciation, repairs and other
expenses at Suburban and New Mexico also contributed to an increase in direct
operating expenses of $183,000.
ECO's direct operating expenses increased approximately $321,000 during 1995 as
compared with 1994, related to higher expenses associated with the addition of
new contracts in Texas. ECO recorded higher than planned labor and other
expenses related to a new contract in the Rio Grande Valley. ECO anticipates
performing certain repairs and maintenance services for this customer in the Rio
Grande Valley, during the second and third quarters of 1995. Once these repairs
are completed, ECO will reduce current direct operating expenses.
Selling, general and administrative
- -----------------------------------
Selling, general and administrative expenses decreased $9,000 during the three
months ended March 31, 1995, as compared to the same period of 1994. As a
percentage of operating revenues, these expenses remained constant at 19% in
1995 and 1994. Suburban's legal expenses decreased $74,000 during this period
compared with the same period of 1994. ECO's selling expenses increased $17,000
during this period related to ECO's expanded sales and marketing activity in
the pursuit of new contracts. Additionally, ECO settled a lawsuit for $37,000,
as noted earlier.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
As described in Registrant's Form 10-K Reports for the years ended December
31, 1992, 1993 and 1994, Suburban was a defendant in three lawsuits arising
from a chlorine gas leak that occurred in October 1990 at a Suburban water
distribution facility. In two of the actions, the plaintiffs were,
respectively, five employees and 22 employees (and some spouses) of a
manufacturing plant located adjacent to a water production facility owned and
operated by Suburban. In the third action, the plaintiff was the workers'
compensation carrier for the operator of the adjacent manufacturing plant. The
plaintiffs in the three actions sought general damages in excess of $3.8
million, and the plaintiffs in the action involving 22 employee plaintiffs
sought unspecified punitive damages.
As earlier reported, in January 1994 Suburban settled with all of the
plaintiffs for aggregate cash payments of approximately $1.5 million. These
settlements included releases of all claims against Suburban and dismissals with
prejudice of the actions and are the last known claims arising out of this
incident.
At the time of the chlorine gas incident, Registrant and Suburban
maintained liability insurance coverage of $20 million. However, the
Registrant's primary and excess liability insurance carrier declined to defend
or indemnify Suburban on the basis of allegedly applicable exclusions in the
policies. Suburban believes it is entitled to defense and indemnity under these
policies and filed a lawsuit against the carrier to obtain reimbursement for the
full settlement amounts and all associated defense costs. On May 3, 1994, in
the U.S. District Court, Central District of California, the insurance carrier
was granted a summary judgment dismissing Suburban's action. On May 31, 1994,
Suburban appealed this judgment, and the appeal is pending. Suburban will seek
recovery of defense expenses through future CPUC rate proceedings. There is no
assurance that recovery of such costs will be allowed. Suburban will not
recognize income on these potential recoveries until amounts, if any, are
received. Additionally, this litigation will have no future material adverse
effect on the Registrant's financial condition or results of operations.
As described in the Registrant's Form 10-K Report for the year ended
December 31, 1994, ECO was named as a defendant in a lawsuit filed on April 15,
1992, in Houston, Texas, by certain homeowners and Pulte Home Corporation of
Texas (Pulte). The plaintiffs allege that in 1989, ECO, as an independent
contractor for Municipal Utility District #81 (MUD #81) in Houston, Texas,
failed to change the treatment of the water supplied to plaintiffs after the
plaintiffs made MUD #81 and ECO aware of highly corrosive elements in the water
supplied. Plaintiffs additionally allege that this resulted in accelerated
corrosion of residential plumbing pipes. The original complaint requested
unspecified special damages and reasonable attorneys' fees.
On April 24, 1994, the plaintiffs filed an amended complaint which alleges
additional causes of action against ECO. The amended complaint alleges that
plaintiffs have sustained more than $838,000 in repair damages and will incur
future expenses for home repairs in the sum of $1,000,000 if the water remains
untreated. Plaintiffs also allege mental pain and anguish as a result of
plumbing failures, loss of home values and that ECO's conduct constitutes gross
negligence. Plaintiffs are seeking at least $1,000,000 in exemplary damages.
Pulte now also claims that defendant MUD #81 failed to require its agent, ECO,
to change the treatment of the water to eliminate accelerated corrosion of pipes
and has included MUD #81 as a direct defendant in the amended complaint.
As of the date when damages are first alleged to have occurred (1989) and
thereafter, the Registrant and ECO maintained liability insurance coverage of
$20 million. ECO's primary liability carrier is providing
12
<PAGE>
a defense for the primary cause of action against ECO, but has reserved all
rights as to allegations that ECO knowingly committed intentional acts
constituting "deceptive trade practices" and "negligence." The Registrant
believes the ultimate resolution of this matter will not have a material adverse
effect on its consolidated financial condition or results of operations.
As described in the Registrant's Form 10-K Report for the year ended
December 31, 1994, ECO and Southbend Municipal Utility District (Southbend) were
named as defendants in a lawsuit filed on February 15, 1993, in Harris County,
Texas, by homeowner customers. The plaintiffs alleged that ECO, as an
independent contractor for Southbend in Houston, Texas, failed to adequately
test the water delivered to residents to detect contaminants that would cause
harm to persons in the Southbend subdivision. Plaintiffs also alleged physical
and mental personal injuries resulting from defendants' alleged negligence. ECO
vigorously defended the case, and defense counsel discovered facts indicating
that the action was barred by res judicata resulting from a settlement in an
earlier similar action. Such counsel made an appropriate demand upon plaintiffs
and, on January 13, 1995, the plaintiffs filed a motion requesting dismissal of
this action against ECO. Such motion was granted without prejudice as to all
plaintiffs on January 20, 1995. As a result, the Registrant believes the
ultimate resolution of this matter will not have a material adverse effect on
its consolidated financial condition or its results of operations. A second
independent lawsuit by another Southbend customer was filed in March 1993 with
substantially the same allegations as to ECO's performance. No specific damages
were claimed in that action. The Registrant applied the successful defense
strategy used in the first litigation to this second litigation. In March 1995,
the plaintiffs filed a motion for non-suit of all plaintiffs' claims against ECO
which was granted on March 20, 1995, resulting in a dismissal of this action as
to ECO. ECO does not have any further financial exposure with respect to the
claims made in these actions.
As described in the Registrant's Form 10-K Report for the year ended
December 31, 1994, Suburban is a defendant and cross defendant in two actions
filed in, respectively, March 1994 and June 1994 in the Superior Court of Los
Angeles County and arising out of a slope slide or failure in 1992 in a hilly,
residential development in West Covina, California. One of the plaintiffs, Dr.
Mendoza, is the owner of a residence located below the failed slope. The other
plaintiff, South Hills Home Partnership, is a developer of a tract of lots,
including one lot adjacent to the failed slope. Defendants in the actions
include the owners of the lot above and containing the failed slope, Suburban
and an engineer and contractor who directed and conducted repair work to the
slope after a prior failure in 1978. Claims raised by the plaintiffs and
certain cross defendants are described in Registrant's 1994 Form 10-K Report as
is the consolidation of the two cases.
As of the date of the 1992 slope failure, the Registrant and Suburban
maintained liability insurance coverage of $20 million. Suburban's primary
liability carrier is providing a defense in the consolidated action, and
Suburban is vigorously defending all claims. At the initiation of Suburban's
defense counsel, Dr. Mendoza dismissed his action against Suburban in March 1995
and defense counsel is discussing with South Hills Home Partnership a similar
dismissal as to Suburban. Suburban believes that it has meritorious defenses to
all claims in the consolidated action and that if Suburban were determined to
have any liability in the action such liability would be fully covered by the
liability insurance maintained by Suburban and the Registrant. Accordingly, the
Registrant believes that the ultimate resolution of this matter will not have a
material adverse effect on its consolidated financial condition or results of
operations.
As described in Registrant's Form 10-K Report for the year ended December
31, 1994, a written request for information was received in June 1994 from the
Enforcement Division of the Securities and Exchange Commission (the
"Commission") concerning trading in the common stock of the Registrant from July
1993 to August 1993. The Registrant voluntarily responded to such request in
July 1994. In October 1994, the Registrant was again contacted by the
Commission to arrange for oral depositions of the Registrant's directors, its
three officers and one employee of the Registrant. Concurrently, the Commission
served
13
<PAGE>
subpoenas requesting documents and records of the deponents. The individual
deponents responded to such subpoenas, and the depositions were taken in late
1994. Legal counsel for the Registrant was present at all depositions.
The Registrant believes that the Commission's inquiry is focused upon
several small sales of the Registrant's stock. These sales occurred prior to the
public announcement of a dividend reduction on August 13, 1993. The
Registrant's management believes that the Commission's inquiry is directed at
whether such sales were made on the basis of inside information concerning that
dividend reduction.
The Registrant has had a written policy for a number of years prohibiting
its officers, directors and employees both from trading on the basis of inside
information and from providing such information to others. This policy has been
communicated to all officers and directors as well as to key employees. The
Registrant is not aware of any officer, director or employee who provided any
inside information to any person making the sales being examined by the
Commission.
To date, no formal action has been initiated by the SEC. Moreover, the
Registrant is aware of no allegation of any improper conduct by the Registrant,
its officers or directors. Because of the written policy of the Registrant on
insider trading described above, the absence of facts suggesting improper use of
inside information, and the absence of any formal charge to date, the Registrant
believes that should the SEC initiate a formal action, the Registrant would have
meritorious defenses and ultimately prevail.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
At the Annual Meeting of Stockholders, held on May 9, 1995, all of the members
of the Board of Directors were re-elected by the following votes:
<TABLE>
<CAPTION>
Name of Director Votes For Votes Withheld
---------------- --------- --------------
<S> <C> <C>
Michael J. Fasman 1,940,391 125,212
Anton C. Garnier 1,950,336 115,267
Monroe Harris 1,948,774 116,829
Donovan D. Huennekens 1,948,694 116,909
Richard Kelton 1,949,322 116,281
Richard G. Newman 1,949,805 115,798
</TABLE>
In addition, KPMG Peat Marwick LLP was ratified as independent auditors for 1995
by the following vote: votes for - 1,969,849; votes against - 77,128; and votes
abstained - 18,626.
No broker non-votes were recorded.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits furnished pursuant to Item 601 of Regulation S-K
3.1B Certificate of Amendment of Article Fourth of Articles of
Incorporation dated March 30, 1995, filed herewith.
10.11 Form of Severance Compensation Agreement between the Company and
Anton C. Garnier, Diane Castello Pitts, Michael O. Quinn, Robert
L. Swartwout and James E. Furman, dated various dates in 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
March 31, 1995.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHWEST WATER COMPANY
-----------------------
(Registrant)
Dated: May 10, 1995 /s/ ANTON C. GARNIER
- -------------------- --------------------
Anton C. Garnier,
Director and President
(Principal Executive Officer)
Dated: May 10, 1995 /s/ DIANE CASTELLO PITTS
- -------------------- ------------------------
Diane Castello Pitts,
Corporate Controller and Treasurer
(Principal Accounting Officer)
15
<PAGE>
EXHIBIT 3.1B
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
SOUTHWEST WATER COMPANY
ANTON C. GARNIER and DIANE CASTELLO PITTS certify that:
1. They are the President and the Secretary, respectfully, of SOUTHWEST
WATER COMPANY, a Delaware corporation.
2. That the following action was taken by the Board of Directors of
Southwest Water Company, a Delaware corporation, by written consent, without a
meeting as of March 29, 1994, pursuant to Section 141(f) of the General
Corporation Law of the State of Delaware permitting such action to be taken.
WHEREAS, Southwest Water Company filed a Certificate of Incorporation
(the "Certificate") with the State of Delaware on February 2, 1988; and
WHEREAS, the Board of Directors has determined that the aforementioned
Certificate is inconsistent with certain provisions previously set forth by this
Corporation; and
WHEREAS, the Board of Directors desire to ratify and confirm a change
in the first paragraph of Article Fourth, Paragraph C. (2) of the Certificate of
this Corporation to amend this inconsistency;
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the first paragraph of
Article FOURTH, Paragraph C. (2) of the Certificate of this Corporation which
reads:
"FOURTH: C. (2) Dividends. The holders of the Series A Preferred Stock and
----------
the Series D Preferred Stock shall be entitled to receive out of any funds
of the Corporation at the time legally available for the declaration of
dividends, dividends at the rate of Two Dollars and Sixty-three Cents
($2.63) per share per annum and Two Dollars and Seventy-five Cents ($2.75)
per share per annum, respectively, and no more, payable in cash, annually,
or at such intervals as the Board of Directors may from time to time
determine, when and as declared by the Board of Directors.
1
<PAGE>
SHALL BE CHANGED IN ITS ENTIRETY TO READ:
"FOURTH: C. (2) Dividends. The holders of the Series A 5-1/4% $.01 par
----------
value Preferred Stock and the Series D 5-1/2% $.01 par value Preferred
Stock shall be entitled to receive out of any funds of the Corporation at
the time legally available for the declaration of dividends, dividends at
the rate of Two Dollars and Sixty Two and one-half cent ($2.625) per share
per annum and Two Dollars and Seventy-Five Cents ($2.75) per share per
annum, respectively, and no more, payable in cash, annually, or at such
intervals as the Board of Directors may from time to time determine, when
and as declared by the Board of Directors.
RESOLVED FURTHER, that the Board of Directors hereby authorizes and directs
the Secretary of this Corporation to do and perform all acts, to execute and
deliver all certificates and to take or cause to be taken all other action as
such officer may deem necessary, desirable or appropriate to carry out the full
intent and purpose of the foregoing resolution.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment this 30th day of March, 1995.
SOUTHWEST WATER COMPANY
/s/ ANTON C. GARNIER
- -------------------------------
Anton C. Garnier, President
/s/ DIANE CASTELLO PITTS
- ------------------------------------
Diane Castello Pitts, Secretary
2
<PAGE>
EXHIBIT 10.11
SEVERANCE COMPENSATION
AGREEMENT
----------------------
THIS SEVERANCE COMPENSATION AGREEMENT (the "Agreement") is made and
entered into as of the ________ day of _______________, 199__ by and between
SOUTHWEST WATER COMPANY, a Delaware corporation (the "Company"), and
__________________________ ("Executive"), with respect to the following:
RECITALS
--------
A. The Company, through its subsidiaries Suburban Water Systems
("Suburban"), ECO Resources, Inc. ("ECO") and New Mexico Utilities, Inc.
("NMU"), is engaged in the business of producing and delivering water and
providing water and wastewater services. Executive is employed by
____________________ as its _________________________.
B. The Company's Board of Directors has determined that it is appropriate
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including Executive, to their assigned duties without
distraction in potentially disturbing circumstances arising from the possibility
of a change in control of the Company and/or the subsidiary of the Company which
employs Executive.
C. This Agreement sets forth the severance compensation which the Company
agrees it will pay to Executive if Executive's employment with the Company or,
if applicable, the subsidiary which employs Executive terminates under one of
the circumstances described herein following a Change in Control, as defined
herein, of the Company or the subsidiary of the Company which employs Executive.
AGREEMENT
---------
IN CONSIDERATION OF the foregoing recitals and the mutual promises and
covenants contained herein, the Company and Executive agree as follows:
1. Term. The term of this Agreement shall commence upon the last
----
execution and delivery of this Agreement by the Company and shall continue until
the first to occur of:
(a) The second anniversary of any Change in Control, as defined in
paragraph 2 below, of the Company or the subsidiary which employs Executive. For
the purposes of this provision, the two year period provided for herein, whether
commenced by a Change in Control of the Company or a change in control of
1
<PAGE>
a subsidiary, shall not be extended by a subsequent Change in Control of either
the Company or, if applicable, the Subsidiary which employs Executive.
(b) The Retirement, as defined in paragraph 2 below, of Executive.
(c) The death or Disability, as defined in paragraph 2 below, of
Executive.
(d) Termination by the Company (or the subsidiary which employs
Executive, if applicable) of Executive's employment for Cause, as defined in
paragraph 2 below.
(e) Termination by Executive of Executive's employment with
____________________, whether or not for Good Reason, as defined in paragraph 2
below.
Provided, however, that upon any termination by Executive for Good Reason, or
any termination of Executive by the Company (or the subsidiary which employs
Executive, if applicable) other than for Cause, the obligations of the Company
pursuant to paragraph 4 below shall survive such termination. Provided further,
that the rights of Executive pursuant to paragraph 7 below shall survive any
termination of this Agreement, including termination by Executive of Executive's
employment other than for Good Reason and a termination by the Company (or the
subsidiary which employs Executive, if applicable) of Executive's employment for
Cause.
2. Definition. As used in this Agreement, the following terms shall
----------
have the meanings given to them in this paragraph 2:
(a) Cause. The term "Cause" shall mean, and the Company (or the
-----
subsidiary which employs Executive, if applicable) 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 (or the subsidiary which employs Executive, if applicable) (other than
any such failure resulting from incapacity of Executive due to physical or
mental illness), after a demand for substantial performance is delivered to
Executive by the Chief Executive Officer of the Company or the Compensation
Committee of the Board, which demand specifically identifies the manner in which
Executive has not substantially performed Executive's duties and (iii) willful
engagement by Executive in misconduct which is materially injurious to the
Company (or the subsidiary which employs Executive, if applicable), 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 (or the
subsidiary which employs Executive, if applicable). Notwithstanding the
foregoing, Executive shall not be deemed to have
2
<PAGE>
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 not
less than three-quarters of the entire membership of the Company's Board of
Directors at a meeting of the Board called and held for the purpose (after
reasonable notice to Executive and an opportunity for Executive, together with
Executive's counsel, to be heard before the Board), finding that in the good
faith opinion of the Board Executive was guilty of conduct set forth in this
subparagraph and specifying the particulars thereof in detail.
(b) Change in Control. The term "Change in Control" shall mean,
-----------------
with respect to the Company or the subsidiary which employs Executive, as
applicable, each of the following:
(i) A change in control of the Company or the subsidiary which
employs Executive, as applicable, of a nature that would be required to be
reported in response to Item 6(e)of Schedule 14A, Regulation 240.14a-101,
promulgated under the Securities Exchange Act of 1934, as amended, as in effect
on the date of this Agreement, or, if Item 6(e) is no longer in effect, any
regulation issued by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 which serves similar purposes (i.e., a change in
the person or persons owning, directly or indirectly, sufficient voting stock to
elect the Board of Directors or to take other significant shareholder actions
for the Company or the subsidiary which employs Executive, as applicable).
Provided that, without limitation, a Change of Control shall be deemed to have
occurred if and when:
(A) Any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934) who is not at the date
hereof a beneficial owner, directly or indirectly, of securities of the
Company (or the subsidiary which employs Executive, if applicable)
representing fifty percent (50%) or more of the combined voting power of
the Company's (or the subsidiary which employs Executive, if applicable)
then outstanding securities becomes such a beneficial owner, or
(B) During any period of two (2) consecutive years,
individuals who were members of the Board of Directors of the Company at
the beginning of such period cease for any reason (other than death or
disability) to constitute at least a majority thereof unless the election,
or the nomination for election by the Company's stockholders, of each new
director, was approved by vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period. The
provisions of this clause (B) shall apply only at the Company level and not
at the subsidiary level.
(ii) Consummation of (A) any reorganization, consolidation or
merger of the Company (or of the subsidiary which employs Executive, if
applicable) in which the Company (or of the subsidiary which employs Executive,
if applicable) is not the continuing or surviving corporation or pursuant to
which shares of
3
<PAGE>
the Company's (or of the subsidiary which employs Executive, if applicable)
Common Stock would be converted into cash, securities or other property, other
than a merger of the Company (or of the subsidiary which employs Executive, if
applicable) in which the holders of the Company's (or of the subsidiary which
employs Executive, if applicable) common stock immediately prior to such
transaction, immediately following such transaction, own more than fifty percent
(50%) of the combined voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated company's then outstanding,
voting securities or (B) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company (or of the subsidiary which employs Executive, if
applicable).
For the purpose of applying the foregoing definition, (x) if Executive is an
employee of the Company, then the term Change in Control shall mean, as to
Executive, only a change in control of the Company and (y) if Executive is an
employee of a subsidiary of the Company, then the term Change in Control shall
mean, as to Executive, either a change in control of the Company or a change in
------ --
control of the subsidiary which employs Executive.
(c) Date of Termination. The term "Date of Termination" shall mean:
-------------------
(i) If this Agreement is terminated by the Company (or the
subsidiary which employs Executive, if applicable) for Disability, thirty (30)
days after Notice of Termination is given to Executive (provided that Executive
shall not have returned to the performance of Executive's duties on a full-time
basis during such 30-day period); or
(ii) If Executive's employment is terminated by the Company (or
the subsidiary which employs Executive, if applicable) for any other reason, the
date on which a Notice of Termination is given; provided that if within thirty
(30) days after any Notice of Termination is given to Executive by the Company
(or the subsidiary which employs Executive, if applicable) Executive notifies
the Company (or the subsidiary which employs Executive, if applicable) that a
dispute exists concerning the termination, the Date of Termination shall be the
date the dispute is finally determined, whether by mutual agreement by the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
(d) Disability. The term "Disability" shall mean, if as a result of
----------
Executive's incapacity due to physical or mental illness, Executive shall be
unable to perform Executive's duties with the Company (or the subsidiary which
employs Executive, if applicable) on a full-time basis for four (4) months and,
within thirty (30) days after written notice of termination is thereafter given
by the Company (or the subsidiary which employs Executive, if applicable),
Executive shall not have returned to the full-time performance of Executive's
duties.
4
<PAGE>
(e) Good Reason. The term "Good Reason" shall mean, with respect to
-----------
any termination by Executive of Executive's employment with the Company (or the
subsidiary which employs Executive, if applicable), each of the following which
occurs subsequent to a Change in Control without the express written consent of
Executive:
(i) The assignment to Executive by the Company (or the
subsidiary which employs Executive, if applicable) of duties inconsistent with
Executive's position, duties, responsibilities and status with the Company (or
the subsidiary which employs Executive, if applicable) immediately prior to a
Change in Control of the Company (or the subsidiary which employs Executive, if
applicable), or a change in Executive's title or offices as in effect
immediately prior to a Change in Control of the Company (or the subsidiary which
employs Executive, if applicable), or any removal of Executive from or any
failure to reelect Executive to any of such positions, except in connection with
the termination of Executive's employment for Disability, Retirement or Cause or
as a result of Executive's death or by Executive other than for Good Reason;
(ii) A reduction by the Company (or the subsidiary which
employs Executive, if applicable) in Executive's base salary as in effect on the
date hereof or as the same may be increased from time to time during the term of
this Agreement or the Company's (or the subsidiary which employs Executive, if
applicable) failure to increase (within twelve (12) months after Executive's
last increase in base salary) Executive's base salary after a Change in Control
of the Company (or the subsidiary which employs Executive, if applicable) in an
amount which at least equals, on a percentage basis, the average percentage
increase in base salary for all officers of the Company (or the subsidiary which
employs Executive, if applicable) effected in the preceding twelve (12) months;
(iii) Any failure by the Company (or the subsidiary which
employs Executive, if applicable) to continue in effect any benefit plan or
arrangement in which Executive is participating at the time of a Change in
Control of the Company (or the subsidiary which employs Executive, if
applicable) (or any other plans providing Executive with substantially similar
benefits) (hereinafter referred to as "Benefit Plans"), or the taking of any
action by the Company (or the subsidiary which employs Executive, if applicable)
which would adversely affect Executive's participation in or reduce Executive's
benefits under any such Benefit Plan, expressed as a percentage of his base
salary, by more than ten (10) percentage points in any fiscal year as compared
to the prior fiscal year or deprive Executive of any material fringe benefit
enjoyed by Executive at the time of a Change in Control of the Company (or the
subsidiary which employs Executive, if applicable);
(iv) Any failure by the Company (or the subsidiary which
employs Executive, if applicable) to continue in effect any bonus or incentive
plan or arrangement in which Executive is participating at the time of a Change
in Control of the Company (or the subsidiary which employs Executive, if
applicable) (or any other
5
<PAGE>
plans or arrangements providing him with substantially similar benefits)
(hereinafter referred to as "Incentive Plans") or the taking of any action by
the Company (or the subsidiary which employs Executive, if applicable) which
would adversely affect Executive's participation in any such Incentive Plan or
reduce Executive's benefits under any such Incentive Plan, expressed as a
percentage of his base salary, by more than ten (10) percentage points in any
fiscal year as compared to the immediately preceding fiscal year;
(v) Any failure by the Company (or the subsidiary which employs
Executive, if applicable) to continue in effect any plan or arrangement to
receive securities of the Company in which Executive is participating at the
time of a Change in Control of the Company (or the subsidiary which employs
Executive, if applicable) (or plans or arrangements providing him with
substantially similar benefits) (hereinafter referred to as "Securities Plans")
or the taking of any action by the Company (or the subsidiary which employs
Executive, if applicable) which would adversely affect Executive's participation
in or materially reduce Executive's benefits under any such Securities Plan;
(vi) Any requirement by the Company (or the subsidiary which
employs Executive, if applicable) that Executive be based anywhere other than
within fifty (50) miles of Executive's office location as of the date of a
Change in Control, except for required travel by Executive on the Company's (or
the subsidiary which employs Executive, if applicable) business to an extent
substantially consistent with Executive's business travel obligations at the
time of a Change in Control of the Company (or the subsidiary which employs
Executive, if applicable);
(vii) Any failure by the Company (or the subsidiary which
employs Executive, if applicable) to provide Executive with the number of paid
vacation days to which Executive is entitled at the time of a Change in Control
of the Company (or the subsidiary which employs Executive, if applicable);
(viii) Any material breach by the Company of any provision of
this Agreement;
(ix) Any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(x) Any purported termination by the Company (or the subsidiary
which employs Executive, if applicable) of Executive's employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
subparagraph (f) below, and for purposes of this Agreement, no such purported
termination shall be effective.
(f) Notice of Termination. Any termination of Executive's
---------------------
employment by the Company (or the subsidiary which employs Executive, if
applicable) for Disability, Retirement or Cause shall be communicated by a
Notice of Termination.
6
<PAGE>
For purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific ground for such termination relied upon
and which sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment. For purposes of this
Agreement, no such purported termination by the Company (or the subsidiary which
employs Executive, if applicable) shall be effective without such Notice of
Termination.
(g) Retirement. The term "Retirement" as used in this Agreement
----------
shall mean termination by the Company (or the subsidiary which employs
Executive, if applicable) or Executive of Executive's employment based on
Executive's having reached age sixty-five (65) or such other age as shall have
been fixed in any written agreement between Executive and Executive's employer
entity.
(h) Termination of Employment. The term "Termination of Employment"
-------------------------
shall mean any termination of Executive's employment with the Company (or the
subsidiary which employs Executive, if applicable), however effected or caused.
(i) Involuntary Termination of Employment. The term "Involuntary
-------------------------------------
Termination of Employment" shall mean (i) any termination by the Company (or the
subsidiary which employs Executive, if applicable) of Executive's employment
with the Company (or the subsidiary which employs Executive, if applicable)
effected after a Change in Control other than a termination for Disability,
Retirement, death or Cause and (ii) any termination of Executive's employment
with the Company (or the subsidiary which employs Executive, if applicable) by
Executive after a Change in Control for Good Reason.
3. Services by Executive. In consideration for the Company's execution
---------------------
and delivery of this Agreement, Executive agrees that Executive will render
services to the Company (or to any subsidiary thereof or successor thereto, as
applicable) during the period of Executive's employment to the best of
Executive's ability and in a prudent and businesslike manner and that Executive
shall devote substantially the same time, efforts and dedication to Executive's
duties as heretofore devoted.
4. Severance Obligations Upon any Involuntary Termination. Upon any
------------------------------------------------------
Involuntary Termination of Executive's employment with the Company (or the
subsidiary which employs Executive, if applicable) subsequent to a Change in
Control and during the term of this Agreement, Executive shall be entitled to
the benefits provided in this paragraph (subject to any applicable payroll taxes
or other taxes required to be withheld and employee benefit premiums):
(a) The Company shall pay (or shall cause the employer subsidiary
to pay) to Executive Executive's full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given
plus credit for any vacation earned but not taken and the amount, if any, of any
bonus for a past fiscal
7
<PAGE>
year which has been awarded to Executive but not yet paid to Executive pursuant
to any bonus plan of the Company (or the subsidiary which employs Executive, if
applicable). Such payment shall be made within five (5) days after the Date of
Termination.
(b) The Company shall pay (or shall cause the employer subsidiary
to pay) to Executive, as severance pay, an amount equal to one and one-half (1
1/2) times Executive's annual base compensation, as defined herein (the
"Severance Payment"). As used herein, annual base compensation shall mean the
average aggregate annual amount paid by the Company (or any subsidiary of or
successor to the Company) to Executive for the five (5) full calendar years
preceding the date of Change of Control for salaries, bonuses and automobile
allowances (or the amount reported by Executive as taxable income for personal
use of a car provided by the Company (or the subsidiary which employs Executive,
if applicable) in lieu of an automobile allowance) together with the amounts, if
any, of insurance premiums paid by the Company (or the subsidiary which employs
Executive, if applicable) with respect to Executive and reported as taxable
income by Executive. If Executive has not been employed by the Company (or the
subsidiary which employs Executive, if applicable) for five (5) full calendar
years preceding the date of Change of Control, the Severance Payment shall be
computed based on the average aggregate annual amount paid by the Company (or
the subsidiary which employs Executive, if applicable) to Executive for the full
term of Executive's employment with the Company (or the subsidiary which employs
Executive, if applicable). The Severance Payment shall be paid in cash in a
single lump sum within five (5) days after the Date of Termination.
(c) The Company shall cause Executive to continue to be covered,
without any cost to Executive in excess of the cost borne by Executive prior to
the Change of Control, under health, medical and dental benefits ("Benefits")
comparable to those in effect immediately prior to the Change of Control,
including, but not limited to, medical, dental, life insurance, accidental death
and dismemberment, and long term disability benefits. Such continuation shall
(i) also apply to Executive's dependents (including Executive's spouse) who were
covered under such Benefits immediately prior to the Change of Control and (ii)
apply for twenty-four (24) months after the Date of Termination; provided,
however, that such coverage shall terminate if and to the extent Executive
becomes eligible for Benefit coverage from a subsequent employer; provided
further, however, that if Executive (and/or Executive's spouse) would have been
entitled to retiree Benefits under the Company's benefit plans (or those of the
subsidiary which employs Executive, if applicable) had Executive voluntarily
retired on the Date of Termination, then such coverage shall be continued as
provided under such plans.
(d) Provide a full service outplacement service for Executive as
selected by Executive for a period not exceeding three (3) months and at a cost
not exceeding $4,000 in the aggregate.
8
<PAGE>
Any payment due by the Company pursuant to this paragraph 4 which is
not made as and when due shall bear interest from the date due until date of
payment at the maximum rate which Executive may charge for the loan or
forbearance of money under the then applicable usury law of the State of
California.
5. No Obligation to Mitigate Damages. Executive shall not be required
---------------------------------
to mitigate damages or the amount of any payment provided for under paragraph 4
of this Agreement by seeking other employment or otherwise, nor shall the amount
of any payment provided for under this Agreement be reduced by any compensation
earned by Executive as the result of employment by another employer after the
Date of Termination, or otherwise. Any indebtedness of Executive to the Company
(or to any subsidiary of or successor to the Company) as of the Date of
Termination may be offset against the Company's payment obligations pursuant to
paragraph 4 above.
6. Parachute Payment Limitation. Notwithstanding anything to the
----------------------------
contrary in this Agreement, the payments and benefits otherwise provided in
paragraphs 4(b), (c) and (d) of this Agreement shall be reduced if and to the
extent that such payments and benefits, when added to any payments and benefits
provided by the Company (and the subsidiary which employs Executive, if
applicable) other than under this Agreement, would result in any such payments
being nondeductible to the Company or would subject Employee to an excise tax
pursuant to the golden parachute payment provisions of Section 280G or Section
4999 of the Internal Revenue Code of 1986, as amended. Any reduction of payments
and benefits under this Agreement resulting from the foregoing limitations shall
be applied to the payments and benefits due to be otherwise provided to
Executive latest in time.
7. Other Benefits. The provisions of this Agreement, and any payment
--------------
provided for in paragraph 4 hereof, shall not reduce any amounts otherwise
payable, or in any way diminish Executive's existing rights, or rights which
would accrue solely as a result of the passage of time, under any Benefit Plan,
Incentive Plan or Securities Plan, employment agreement or other contract, plan
or arrangement. The provisions of this paragraph 7 shall apply to any
Termination of Employment with the Company (or the subsidiary which employs
Executive if applicable), whether or not such Termination of Employment results
in payments due to Executive pursuant to paragraph 4 above.
8. Not a Contract of Employment. This Agreement shall not be deemed to
----------------------------
constitute a contract of employment. Further, no portion of this Agreement shall
affect (a) the right of the Company (or any subsidiary of or successor to the
Company) to discharge Executive at will or (b) the terms and conditions of any
other agreement between the Company (or the subsidiary which employs Executive,
if applicable) and Executive, except as expressly provided herein.
9
<PAGE>
9. Successors to the Company.
-------------------------
(a) The Company will require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance reasonably satisfactory to Executive, expressly, absolutely
and unconditionally to 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 or assignment had taken place. Any failure of the Company
to obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle
Executive to terminate Executive's employment for Good Reason. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor or assign to its business and/or assets as aforesaid which executes
and delivers the agreement provided for in this paragraph 9 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law. If at any time during the term of this Agreement Executive is employed by
any corporation a majority of the voting securities of which is then owned by
the Company, "Company" as used herein shall include such employer. In such
event, the Company agrees that it shall pay or shall cause such employer to pay
any amounts owed to Executive pursuant to paragraph 4 hereof.
(b) This Agreement shall inure to the benefit of and be enforceable
by Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, 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
be no such designee, to Executive's estate.
10. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be personally delivered or sent by first class mail,
registered or certified with return receipt requested to the parties at their
respective addresses set forth after their signatures to this Agreement. Any
notice which is personally served shall be effective upon delivery; any notice
sent by first class mail, registered or certified, postage prepaid and properly
addressed shall be effective upon the date of delivery or refusal indicated on
the return receipt. Either party may change his, her or its address for notices
hereunder by written notice to the other given in the manner specified in this
paragraph.
11. General Provisions.
------------------
(a) The Company's obligation to pay (or to cause one of its
subsidiaries to pay) Executive the amounts and to make the arrangements provided
for in paragraph 4 hereof, shall be absolute and unconditional and, except as
provided in paragraphs 5 and 6 hereof, shall not be affected by any
circumstances, including without limitation, any set-off, counterclaim,
recoupment, defense or other right which
10
<PAGE>
the Company (or any subsidiary of or successor to the Company) may have against
Executive. All amounts payable by the Company (or any subsidiary of or
successor to the Company) shall be paid without notice or demand.
(b) No provisions of this Agreement may be modified, amended,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by Executive and the Company. 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 any similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
(c) This Agreement contains each and every agreement of every kind
and nature whatsoever between the parties hereto concerning the subject matter
hereof, and all preliminary negotiations and agreements of whatsoever kind with
respect to the subject matter hereof are superseded and of no further force or
effect. If Executive is entitled to and receives the benefits provided in
paragraphs 4 and 7 hereof, performance of the obligations of the Company
thereunder shall constitute full settlement of all claims which Executive might
otherwise assert against the Company on account of termination of Executive's
employment.
(d) This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
(e) This Agreement may be executed in two (2) or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(f) The invalidity or unenforceability of any provision of this
Agreement as to any jurisdiction, fact or circumstance shall not affect the
validity or enforceability of any other provision of this Agreement or of such
provision as to any other jurisdiction, fact or circumstance, and each provision
of this Agreement shall be enforced and complied with to the maximum extent
possible.
(g) Executive shall not have any right to pledge, hypothecate,
anticipate or assign this Agreement or the rights hereunder, except by last will
and testament.
(h) The obligation to pay amounts under this Agreement is an
unfunded obligation of the Company, and no such obligation shall create a trust
or be deemed to be secured by any pledge or encumbrance on any property of the
Company (or any subsidiary of or successor to the Company).
(i) In the event of any legal action between the Company and
Executive to enforce the provisions of this Agreement, to prevent the breach or
continued breach of this Agreement, to recover damages on account of the breach
or
11
<PAGE>
alleged breach of this Agreement, to seek a judicial determination of the
obligations and rights of the parties hereunder or in which this Agreement is
asserted as a defense, the prevailing party shall be entitled to recover from
the other party its attorneys' fees incurred in such amount as the court shall
determine to be reasonable, in addition to its costs and all other relief which
the court determines such prevailing party is entitled to receive. For the
purposes of this provision, the term "legal action" shall exclude an action by
Executive as the result of any termination of Executive's employment. Except as
provided in the immediately preceding sentence, all legal expenses which are
reasonable and necessary and which are associated with any such termination
shall be paid by the Company.
(j) In the event Executive is employed by a subsidiary of the
Company rather than the Company itself, all references herein to the Company
shall, as and when required by the context of this Agreement, be deemed to refer
to such subsidiary employer. The provisions of this subparagraph shall not,
however, be deemed or construed to relieve the Company of any of the Company's
obligations or to deprive the Company of any of its rights pursuant to this
Agreement.
[(k) It is understood and agreed that NMU and Executive are parties
to a certain letter agreement dated March 2, 1992, as amended March 23, 1992
(collectively, the "Prior Agreement"). It is understood and agreed that the
provisions of paragraph 4 of this Agreement supersede and replace in their
entirety the severance payment provisions of the first paragraph of Article XI
of the Prior Agreement. This Agreement shall not, however, eliminate Executive's
right to a payment under the last paragraph of Article XI of the Prior Agreement
or affect any other provision of the Prior Agreement. If Executive is entitled
to receive a payment under the last paragraph of Article XI of the Prior
Agreement and is also entitled to receive a payment under paragraph 4(b) of this
Agreement, Executive shall receive only the larger of the two payments and not
both payments.]
[11(k) above applies to Robert L. Swartwout only]
12
<PAGE>
IN WITNESS WHEREOF, Executive and the Company have executed and
delivered this Severance Compensation Agreement as of the day and year first
above written.
________________________________ SOUTHWEST WATER COMPANY,
"Executive" a Delaware corporation
Address for Notices:
By________________________________
_________________________________
_________________________________ Title: ___________________________
"Company"
_________________________________
Address for Notices:
Southwest Water Company
225 North Barranca Avenue, Suite 200
West Covina, California 91791-1605
Attn: Corporate Secretary
13
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<PAGE>
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<S> <C>
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<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
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0
519,000
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<INCOME-PRETAX> (294,000)
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