<PAGE>
As Filed with the Securities and Exchange Commission on December 20, 1996
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SOUTHWEST WATER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1840947
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
--------------------
225 NORTH BARRANCA AVENUE, SUITE 200
WEST COVINA, CALIFORNIA 91791-1605
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
--------------------
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS OF
SOUTHWEST WATER COMPANY
(FULL TITLE OF THE PLAN)
--------------------
PETER J. MOERBEEK COPY TO:
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER JAMES W. DANIELS, ESQ.
SOUTHWEST WATER COMPANY LATHAM & WATKINS
225 NORTH BARRANCA AVENUE, SUITE 200 650 TOWN CENTER DRIVE,
WEST COVINA, CALIFORNIA 91791-1605 TWENTIETH FLOOR
(818) 915-1551 COSTA MESA, CALIFORNIA 92626
(714) 540-1235
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE (1) PRICE (1) FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value... 50,000 $13.125 $656,250 $199
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(h). The Proposed Maximum Offering Price Per Share and
Amount of Registration Fee are based upon the average of the high and low
sales price of the Common Stock in the over-the-counter market, as reported
on the NASDAQ National Market System, on December 18, 1996 (which were
$13.25 and $13.00, respectively).
================================================================================
PROPOSED SALE TO TAKE PLACE AS SOON AFTER THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT AS OPTIONS GRANTED UNDER THE STOCK OPTION PLAN ARE EXERCISED.
Total Pages 7
Exhibit Index on Page 7
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
---------------------------------------
The following documents filed with the Securities and Exchange Commission
(the "Commission) are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
filed by Southwest Water Company (the "Company") with the Commission.
(b) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1996, filed by the Company with the Commission.
(c) Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1996, filed by the Company with the Commission.
(d) Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1996, filed by the Company with the Commission.
(e) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-B (File No. 0-8176) filed with the
Commission on July 7, 1988, including any subsequently filed amendments and
reports updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
after the date of this Registration Statement and prior to the filing of a post-
effective amendment which indicates that all securities offered have been sold
or which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference in this Registration Statement and to be a part of it
from the respective dates of filing such documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Registration
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Registration Statement.
ITEM 4. DESCRIPTION OF SECURITIES
-------------------------
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
--------------------------------------
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Statutory Provisions
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "DGCL") enables a corporation in its certificate of incorporation to
eliminate or limit the personal liability of members of its board of directors
to the corporation or its stockholders for monetary damages for violations of a
director's fiduciary duty of care. Such a provision would have no effect on the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. In addition, no such provision may eliminate or limit
the liability of a director for breaching his duty of loyalty, failing to act in
good faith, engaging in intentional misconduct or
2
<PAGE>
knowingly violating a law, paying an unlawful dividend or approving an illegal
stock repurchase, or obtaining an improper personal benefit.
Section 145 of the DGCL empowers a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is, or was, a director, officer,
employee or agent of the corporation, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. No
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. Additionally, a corporation is required to indemnify its
directors and officers against expenses to the extent that such directors or
officers have been successful on the merits or otherwise in any action, suit or
proceeding or in defense of any claim, issue or matter therein.
Indemnification can be made by the corporation only upon a determination that
indemnification is proper in the circumstances because the party seeking
indemnification has met the applicable standard of conduct as set forth in the
DGCL. The indemnification provided by the DGCL shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise. A corporation also has the power to purchase and maintain insurance
on behalf of any person, whether or not the corporation would have the power to
indemnify him against such liability. The indemnification provided by the DGCL
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
The Company's Certificate of Incorporation and Bylaws
The Company's Certificate of Incorporation limits the directors' liability
for monetary damages to the Company and its stockholders for breaches of
fiduciary duty except under the circumstances outlined in Section 102(b)(7) of
the DGCL as described above under "--Statutory Provisions."
The Company's Bylaws extend indemnification rights to the fullest extent
authorized by the DGCL to directors and officers involved in any action, suit or
proceeding where the basis of such involvement is such persons' alleged action
in an official capacity or in another capacity while serving as a director or
officer of the Company. The Company's Bylaws also permit the Company to
maintain insurance to protect itself and any of its directors, officers,
employees or agents against any expense, liability or loss incurred as a result
of any action, suit or proceeding whether or not the Company would have the
power to indemnify such person under the DGCL. The Bylaws also authorize the
Company to enter into a contract with any director, officer, employee or agent
of the Company providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in the Bylaws
of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors or
officers of the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Commission such indemnification is
against public policy and therefore unenforceable.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
-----------------------------------
Not applicable.
3
<PAGE>
ITEM 8. EXHIBITS
--------
See Index to Exhibits on page 7.
ITEM 9. UNDERTAKINGS
------------
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-8 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of West Covina, State of California, on this 19th day of December, 1996.
SOUTHWEST WATER COMPANY
a Delaware corporation
By: /s/ Peter J. Moerbeek
--------------------------
Peter J. Moerbeek
Vice President and Chief Financial Officer
5
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints
Peter J. Moerbeek and Anton C. Garnier, or either one of them, as attorneys-in-
fact and agents, each acting alone, with full powers of substitution to sign on
his or her behalf, individually and in the capacities stated below, and to file
any and all amendments, including post-effective amendments, to this
Registration Statement and other documents in connection therewith, with the
Securities and Exchange Commission, granting to said attorneys-in-fact and
agents full power and authority to perform any other act on behalf of the
undersigned required to be done in the premises.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Anton C. Garnier President, Chief Executive Officer December 19, 1996
- ------------------------------------ and Director (Principal Executive Officer)
Anton C. Garnier
/s/ Peter J. Moerbeek Vice President Finance, Chief Financial Officer and December 19, 1996
- ------------------------------------ Secretary (Principal Financing and Accounting Officer)
Peter J. Moerbeek
/s/ H. Frederick Christie Director December 19, 1996
- ------------------------------------
H. Frederick Christie
/s/ Michael J. Fasman Director December 19, 1996
- ------------------------------------
Michael J. Fasman
/s/ Monroe Harris Director December 19, 1996
- ------------------------------------
Monroe Harris
/s/ Donovan D. Huennekens Director December 19, 1996
- ------------------------------------
Donovan D. Huennekens
/s/ Richard Kelton Director December 19, 1996
- ------------------------------------
Richard Kelton
/s/ Richard Newman Director December 19, 1996
- ------------------------------------
Richard Newman
</TABLE>
6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C> <C>
4.1 The Stock Option Plan for Non-Employee Directors 8
4.2 Form of Nonqualified Stock Option Agreement for
Non-Employee Directors 17
5.1 Opinion of Latham & Watkins 28
23.1 Consent of Latham & Watkins (included in Exhibit 5.1) __
23.2 Consent of KPMG Peat Marwick LLP 29
24 Power of Attorney 6
</TABLE>
7
<PAGE>
EXHIBIT 4.1
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS OF
SOUTHWEST WATER COMPANY
Southwest Water Company, a corporation organized under the laws of the
State of Delaware, hereby adopts this Stock Option Plan for Non-Employee
Directors of Southwest Water Company ("Director Option Plan"). The purpose of
this Director Option Plan is to enable the Company to obtain and retain the
services of experienced Non-Employee Directors considered essential to the long
range success of the Company, and to motivate them by providing an opportunity
to become owners of Common Stock of the Company pursuant to the exercise of
options granted under this Director Option Plan.
ARTICLE 1
DEFINITIONS
Section 1.1--General
Whenever the following terms are used in this Director Option Plan they
shall have the meaning specified below unless the context clearly indicates to
the contrary.
Section 1.2--Board
"Board" shall mean the Board of Directors of the Company as constituted
from time to time.
Section 1.3--Code
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
Section 1.4--Common Stock
"Common Stock" shall mean the Common Stock, par value $.01 per share, of
the Company.
Section 1.5--Company
"Company" shall mean Southwest Water Company, a Delaware corporation.
Section 1.6--Director
"Director" shall mean a person who is a member of the Board as constituted
at that time.
Section 1.7--Employee
"Employee" shall mean any employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a Subsidiary or a
Parent corporation, whether such employee is so employed at the time this
Director Option Plan is adopted or becomes so employed subsequent to the
adoption of this Director Option Plan.
<PAGE>
Section 1.8--Non-Employee Director
"Non-Employee Director" shall mean any Director who is not at the same time
an Employee.
Section 1.9--Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.10--Option
"Option" shall mean a non-qualified stock option to purchase Common Stock
of the Company granted under this Director Option Plan.
Section 1.11--Optionee
"Optionee" shall mean a Non-Employee Director to whom an Option is granted
under this Director Option Plan.
Section 1.12--Parent Corporation
"Parent Corporation" shall have the meaning given in Section 424(e) of the
Code.
Section 1.13--Director Option Plan
"Director Option Plan" shall mean this Stock Option Plan for Non-Employee
Directors of Southwest Water Company, as the same may be amended from time to
time.
Section 1.14--Pronouns
The masculine pronoun shall include the feminine and neuter and the
singular shall include the plural, where the context so indicates.
Section 1.15--Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 promulgated under the
Exchange Act, as such rule may be amended from time to time.
Section 1.16--Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.17--Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.18--Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
<PAGE>
Section 1.19--Termination as a Non-Employee Director
"Termination as a Non-Employee Director" shall mean the time when the
Optionee who is a Non-Employee Director ceases to be a member of the Board by
reason of such Optionee's death, disability (within the meaning of Section
22(e)(3) of the Code) or in any other manner other than Removal as a Non-
Employee Director.
Section 1.20--Removal as a Non-Employee Director
"Removal as a Non-Employee Director" shall mean the time when the Optionee
who is a Non-Employee Director is removed from the Board as provided in Section
141 of the Delaware General Corporation Law.
ARTICLE 2
SHARES SUBJECT TO DIRECTOR OPTION PLAN
Section 2.1--Shares Subject to Director Option Plan
Subject to Section 4.6 (relating to adjustments in shares upon a
-----------
Recapitalization, as defined therein), the shares of stock subject to Options
shall be shares of Common Stock. The aggregate number of shares of Common Stock
which may be issued upon exercise of Options shall not exceed 50,000.
Section 2.2--Unexercised Options
If any Option expires or is canceled without having been fully exercised,
the number of shares subject to such Option but as to which such Option was not
exercised prior to its expiration or cancellation may again be optioned
hereunder, subject to the limitations of Section 2.1.
-----------
ARTICLE 3
GRANTING OF OPTIONS
Section 3.1--Eligibility
Subject to the provisions of Section 3.3, each person who is a Non-Employee
-----------
Director shall be eligible to receive Options in accordance with Section 3.2.
-----------
Section 3.2--Grant of Options to Non-Employee Directors
Subject to Section 3.3 below, each person who is elected or re-elected as a
-----------
Non-Employee Director at the 1997 Annual Meeting of Stockholders shall be
granted automatically as of the date of such meeting an initial Option to
purchase 1,000 shares of Common Stock. Each person who first becomes a Non-
Employee Director after the 1997 Annual Meeting of Stockholders by election or
appointment to the Board shall be granted automatically on the date of such
person's election or appointment to the Board, an initial Option to purchase
1,000 shares of Common Stock. In addition, each person who is a Non-Employee
Director immediately following the Annual Meeting of Stockholders shall be
granted automatically on the date of the Company's Annual Meeting of
Stockholders in (I) the year following the date upon which such Non-Employee
Director is granted the initial Option under this Director Option Plan, as
provided in the preceding two sentences, and (ii) each year thereafter, an
Option to purchase an additional 1,000 shares of Common Stock.
<PAGE>
Section 3.3--No Option Grants When Prohibited by Law or Policy
No person shall be granted an Option under this Director Option Plan if at
the time of such Option grant, as provided in Section 3.2 above, the grant of
-----------
such Option to such person is prohibited by applicable law or the policies of
the employer of such person or of any other company on whose board of directors
such person is a member.
ARTICLE 4
TERMS OF OPTION
Section 4.1--Option Agreement
Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized officer of the Company and
which shall contain such terms and conditions as the Board shall determine,
consistent with this Director Option Plan.
Section 4.2--Option Price
(a) The price per share of the Common Stock subject to each Option shall be
100% of the fair market value of a share of Common Stock on the date such Option
is granted.
(b) For purposes of this Director Option Plan, the fair market value of a
share of Common Stock as of a given date shall be: (I) the closing price of a
share of the Common Stock on the principal exchange on which shares of the
Common Stock are then trading, if any, on the trading day preceding such date
or, if shares were not traded on the day preceding such date, then on the next
preceding trading day during which a sale occurred; or (ii) if the Common Stock
is not traded on an exchange (x) the last sales price of a share of the Common
Stock on The Nasdaq Stock Market (if the stock is then traded on The Nasdaq
Stock Market) on the trading day preceding such date, or, if shares were not
traded on the day preceding such date, then on the next preceding trading day
during which a sale occurred; or (y) the mean between the closing representative
high and low prices for the Common Stock on the trading day next preceding such
date as reported by the National Association of Securities Dealers, Inc. through
Nasdaq or a successor quotation system or, if shares were not quoted on the day
immediately preceding such date, then on the next preceding trading day during
which a quote occurred, or (iii) if the Common Stock is not publicly traded on
an exchange and prices are not provided through The Nasdaq Stock Market, NASDAQ
or a successor quotation system, the mean between the closing high and low
prices for the Common Stock on the trading day next preceding such date as
determined in good faith by the Board; or (iv) if the Common Stock is not
publicly traded, the fair market value of the Common Stock established by the
Board acting in good faith.
Section 4.3--Commencement of Exercisability
(a) No Option may be exercised in whole or in part during the first year
after such Option is granted.
(b) Subject to the provisions of Sections 4.3(a), 4.3(c) and 7.3, Options
-------------------------------
shall become exercisable in two (2) cumulative installments as follows:
(i) The first installment shall consist of fifty percent (50%) of
the shares covered by the Option and shall become exercisable on the first
anniversary of the date the Option is granted.
<PAGE>
(ii) The second installment shall consist of fifty percent (50%)of
the shares covered by the Option and shall become exercisable on the second
anniversary of the date the Option is granted.
(c) No portion of an Option which is unexercisable on the date of Removal
as a Non-Employee Director shall thereafter become exercisable. The portion, if
any, of a previously granted Option which is unexercisable on the date of
Termination as a Non-Employee Director shall become immediately exercisable.
Section 4.4--Expiration of Options
No Option may be exercised to any extent by anyone after the first to occur
of the following events:
(i) The expiration of a period of ten years and one day from the
date such Option was granted; or
(ii) The expiration of three months from the date of the Optionee's
Removal as a Non-Employee Director for any reason unless the Optionee dies
within said three-month period; or
(iii) The expiration of six months from the date of the Optionee's
Termination as a Non-Employee Director for any reason other than such
Optionee's death unless the Optionee dies within said six month period; or
(iv) The expiration of one year from the date of the Optionee's
death.
Section 4.5--Consideration
In consideration of the granting of the Option, the Optionee shall agree,
in the written Stock Option Agreement, to remain as a Non-Employee Director of
the Company for a period of at least one year after the Option is granted,
unless the stockholders of the Company fail to reelect the Non-Employee Director
upon expiration of the Director's term of office prior to the expiration of the
one year period.
Section 4.6--Adjustments in Outstanding Options
In the event that the outstanding shares of the Common Stock subject to
Options are changed into or exchanged for a different number or kind of shares
of the Company or other securities of the Company by reason of merger (including
reincorporation by means of merger), consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of shares (a
"Recapitalization"), the Board shall make an appropriate and equitable
adjustment in (I) the number and kind of shares as to which all outstanding
Options, or portions thereof then unexercised, shall be exercisable, to the end
that after such event the Optionee's proportionate interest shall be maintained
as before the occurrence of such event and (ii) the limitations in Section 2.1
-----------
above on the maximum number and kind of shares which may be issued on exercise
of Options. Such adjustment in an outstanding Option shall be made without
change in the total price applicable to the Option or the unexercised portion of
the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices) and with any necessary corresponding
adjustment in option price per share. Any such adjustment made by the Board
shall be final and binding upon all Optionees, the Company and all other
interested persons.
<PAGE>
Section 4.7--Merger, Consolidation, Exchange, Acquisition, Liquidation or
Dissolution
The Board may provide by the terms of any Option that such Option cannot be
exercised after the merger or consolidation of the Company into another
corporation, the exchange of all or substantially all of the assets of the
Company for the securities of another corporation, the acquisition by another
corporation of 80% or more of the Company's then outstanding voting stock or the
liquidation or dissolution of the Company; or the Board may, in its absolute
discretion and on such terms and conditions as it deems appropriate, also
provide that such Option shall be assumed or an equivalent option substituted by
any successor corporation of the Company, or the Board may, in its absolute
discretion and upon such terms and conditions as it deems appropriate, provided
by resolution adopted prior to the occurrence of such merger, consolidation,
exchange, acquisition, liquidation or dissolution, that, for some period of time
prior to such event, that such Option shall be exercisable as to all shares
covered thereby, notwithstanding anything to the contrary in Section 4.3(a) or
--------------
Section 4.3(b). Any determinations made by the Board pursuant to this Section
- -------------- -------
4.7 shall be applied uniformly to all Options outstanding on the date of such
- ---
determination.
ARTICLE 5
EXERCISE OF OPTIONS
Section 5.1--Person Eligible to Exercise
During the lifetime of the Optionee, only the Optionee may exercise an
Option granted to the Optionee, or any portion thereof; provided, however, that
nothing in this Section 5.1 shall prevent the exercise of an Option by a person
-----------
to whom such Option was lawfully transferred, in whole or in part, pursuant to a
qualified domestic relations order (as defined in the Code). After the death of
theOptionee, any exercisable portion of an Option may, prior to the time when
such portion becomes unexercisable under Section 4.4 or Section 4.7 or any
----------- ----------
provisions of such Option, be exercised by his personal representative or by any
person empowered to do so under the deceased Optionee's will or under the then
applicable laws of descent and distribution.
Section 5.2--Partial Exercise
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof becomes unexercisable under Section 4.4 or
-----------
Section 4.7 or any provisions of such Option, such Option or portion thereof may
- -----------
be exercised in whole or in part; provided, however, that the Company shall not
be required to issue fractional shares and partial exercises shall be at least
one hundred (100) shares.
Section 5.3--Manner of Exercise
An exercisable Option, or any exercisable portion thereof, shall be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such Option or such portion becomes
unexercisable under Section 4.4 or Section 4.7:
----------- -----------
(a) Notice in writing signed by the Optionee or other person then entitled
to exercise such Option or portion, stating that such Option or portion is
exercised; and
(b) The payment to the Company for the aggregate Option exercise price for
the shares with respect to which such Option or portion is thereby exercised in:
(i) Cash;
(ii) (A) shares of the Company's Common Stock owned by the Optionee
duly endorsed for transfer to the Company, or (B) subject to the timing
requirements of Section 5.4, shares of the Company's Common Stock issuable
-----------
to the
<PAGE>
Optionee upon exercise of the Option, with a fair market value (as
determined under Section 4.2(b)) on the date of Option exercise equal to
---------------
the aggregate exercise Option price of the shares with respect to which
such Option or portion is thereby exercised; or
(iii) A full recourse promissory note bearing interest (at no less
than such rate as shall then preclude the imputation of interest under the
Code or any successor provision) and payable upon such terms as may be
prescribed by the Board. The Board may also prescribe the form of such note
and the security to be given for such note. No Option may, however, be
exercised by delivery of a promissory note or by a loan from the Company
when or where such loan or other extension of credit is prohibited by law;
or
(iv) Any combination of the consideration provided for in the
foregoing subsections (i), (ii) or (iii); and
(c) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law in connection with the exercise
of the Option or a portion thereof. All or any part of such payment may be
made, with the consent of the Board, (i) subject to the timing requirements
of Section 5.4, with shares of the Company's Common Stock issuable to the
-----------
Optionee upon exercise of the Option, or (ii) with shares of the Company's
Common Stock owned by the Optionee duly endorsed for transfer, in each
case, valued in accordance with Section 4.2(b) at the date of Option
--------------
exercise; and
(d) Such representations and documents as the Board, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other Federal or state
securities laws or regulations. The Board may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share
certificates and issuing stop-transfer orders to transfer agents and
registrars; and
(e) In the event that the Option shall be exercised pursuant to Section 5.1
-----------
by any person or persons other than the Optionee, appropriate proof of the
right of such person or persons to exercise the Option.
Notwithstanding anything herein to the contrary, an Optionee may satisfy
the requirements of subsections (b) and (c) of this Section 5.3 concerning
-----------
payment for the shares and all applicable withholding taxes, with the consent of
the Board, through the delivery to the Secretary or his office of (i) an
irrevocable written exercise notice containing instructions to the Company to
deliver to Optionee's broker the certificate(s) representing the shares with
respect to which such Option or portion is thereby exercised and (ii) a copy of
Optionee's irrevocable written instructions to such broker to deliver to the
Company, within five business days from the date of the Company's receipt of
such exercise notice, full payment (in cash or by check) for the shares with
respect to which such Option or portion is thereby exercised and all amounts
which the Company is required to withhold under federal, state or local law in
connection with the exercise of the Option or portion thereof. Provided the
Optionee complies with clauses (i) and (ii) above and the Company receives such
full payment the Optionee shall be deemed to have exercised such Option on the
date of the Company's receipt of the deliveries specified in clauses (i) and
(ii) above. Notwithstanding anything to the contrary in this Section 4.7, the
-----------
Board shall not take any discretionary action which will result in the failure
of the Director Option Plan to satisfy any exemptive condition imposed by Rule
16b-3 of the Code with respect to the effected Option.
Section 5.4--Certain Timing Requirements
To the extent required by Rule 16b-3, shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option may be used to satisfy the
Option price or the tax withholding consequences of such exercise only (i)
during the period beginning on the third business day following the date of
release of the quarterly or annual summary statement of sales and earnings of
the Company and ending on the twelfth business day following such date or (ii)
pursuant
<PAGE>
to an irrevocable written election by the Optionee to use shares of the
Company's Common Stock issuable to the Optionee upon exercise of the Option to
pay all or part of the Option price or the withholding taxes (subject to the
approval of the Board) made at least six months prior to the payment of such
Option price or withholding taxes.
Section 5.5--Conditions to Issuance of Stock Certificates
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges, if any,
on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Board shall, in its absolute discretion, deem necessary or advisable;
and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Board shall, in its absolute discretion,
determine to be necessary or advisable; and
(d) The payment to the Company of all amounts which it is required to
withhold under Federal, state or local law in connection with the exercise of
the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Board may establish from time to time for reasons of
administrative convenience.
Section 5.6--Rights as Stockholders
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued and delivered by the Company to such
holders.
Section 5.7--Transfer Restrictions
No shares acquired upon exercise of any Option may be sold, assigned,
pledged, encumbered or otherwise transferred until at least six months have
elapsed from (but excluding) the date that such Option was granted; provided,
however, that nothing in this Section 5.7 shall prevent transfers by will or by
-----------
the applicable laws of descent and distribution, or, to the extent not
prohibited by the Code, pursuant to a qualified domestic relations order. The
Board, in its absolute discretion, may impose such other restrictions on the
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate and any such restriction shall be set forth in the respective
Stock Option Agreement and may be referred to on the certificates evidencing
such shares.
<PAGE>
ARTICLE 6
ADMINISTRATION
Section 6.1--Duties and Powers of Board
It shall be the duty of the Board to conduct the general administration of
the Director Option Plan in accordance with its provisions. The Board shall
have the power to interpret the Director Option Plan and the Options and to
adopt such rules for the administration, interpretation and application of the
Director Option Plan as are consistent therewith and to interpret, amend or
revoke any such rules.
Section 6.2--Professional Assistance; Good Faith Actions
All expenses and liabilities incurred by members of the Board in connection
with the administration of the Director Option Plan shall be borne by the
Company. The Board may employ attorneys, consultants, accountants, appraisers,
brokers or other persons. The Board and the Company shall be entitled to rely
upon the advice, opinions or valuations of any such persons. All actions taken
and all interpretations and determinations made by the Board in good faith shall
be final and binding. No member of the Board shall be personally liable for any
action, determination or interpretation made in good faith with respect to the
Director Option Plan or the Options, and all members of the Board shall be fully
protected, indemnified and held harmless by the Company in respect to any such
action, determination or interpretation.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.1--Options Not Transferable
No Option or interest or right therein or part thereof shall be liable for
the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy) and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that nothing in this Section 7.1 shall
-----------
prevent transfers by will or by the applicable laws of descent and distribution,
or, to the extent not prohibited by the Code, pursuant to a qualified domestic
relations order (as defined in the Code).
Section 7.2--Amendment, Suspension or Termination of the Director Option Plan
The Director Option Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the Board.
However, without approval of the Company's stockholders given within 12 months
before or after the action by the Board, no action of the Board may, increase
any limit imposed in Section 2.1 on the maximum number of shares which may be
-----------
issued upon exercise of Options (except for anti-dilution adjustments), modify
the eligibility requirements of Section 3.1, modify the number of shares which
-----------
may be granted to an Optionee, or the timing of such Option grants under Section
-------
3.2, change the minimum option price in Section 4.2(a), modify the provisions
- --- --------------
relating to the Exercisability of the Options in Section 4.3, extend the limit
-----------
imposed in this Section 7.2 on the period during which Options may be granted,
-----------
or amend or modify the Director Option Plan in a manner requiring shareholder
approval under Rule 16b-3. In addition, the Director Option Plan shall not be
amended more than once every six months, other than to comport with changes in
the Code or the rules promulgated thereunder. Neither the amendment, suspension
nor termination of the Director Option Plan shall, without the consent of the
<PAGE>
holder of an Option, alter or impair any rights or obligations under any Option
theretofore granted. No Option may be granted during any period of suspension
nor after termination of the Director Option Plan, and in no event may any
Option be granted under this Director Option Plan after May 21, 2006.
Section 7.3--Approval of Director Option Plan by Stockholders
This Director Option Plan will be submitted for the approval of the
Company's stockholders within 12 months after the date of the Board's initial
adoption of the Director Option Plan. Options may be granted prior to such
shareholder approval; provided, however that such Options shall not be
exercisable prior to the time when the Director Option Plan is approved by the
stockholders; provided, further, that if such approval has not been obtained at
the end of said 12-month period, all Options previously granted under the
Director Option Plan shall thereupon be canceled and become null and void.
Section 7.4--Effect of Director Option Plan Upon Other Options and Compensation
Plans
The adoption of this Director Option Plan shall not affect any other
compensation or incentive plans in effect for the Company or any Subsidiary.
Nothing in this Director Option Plan shall be construed to limit the right of
the Company or any Subsidiary to grant or assume options otherwise than under
this Director Option Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, firm or
association.
Section 7.5--Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Director Option Plan.
Section 7.6--Conformity to Securities Laws
The Director Option Plan is intended to conform to the extent necessary
with all provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
herein to the contrary, the Director Option Plan shall be administered, and
Options shall be granted and may be exercised, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Director Option Plan and Options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
<PAGE>
EXHIBIT 4.2
NONQUALIFIED STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
THIS AGREEMENT, dated ____________, 19__, is made by and between Southwest
Water Company, a Delaware corporation hereinafter referred to as the "Company,"
and _________________________, a non-employee director of the Company or
Subsidiary of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock;
WHEREAS, the Company wishes to carry out its Stock Option Plan for Non-
Employee Directors (the "Plan") (the terms of which are hereby incorporated by
reference and made a part of this Agreement); and
WHEREAS, the Board of Directors of the Company, appointed to administer the
Plan, has determined that it would be to the advantage and best interest of the
Company and its stockholders to grant the Non-Qualified Stock Option provided
for herein to the Optionee as an inducement to enter into or remain in the
service of the Company or its Subsidiaries and as an incentive for increased
efforts during such service, and has advised the Company thereof and instructed
the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company as constituted
from time to time.
Section 1.2 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
<PAGE>
Section 1.3 - Common Stock
- ----------- ------------
"Common Stock" shall mean the common stock of the Company, par value $.01
per share, of the Company.
Section 1.4 - Company
- ----------- -------
"Company" shall mean Southwest Water Company, a Delaware corporation.
Section 1.5 - Director
- ----------- --------
"Director" shall mean a person who is a member of the Board as constituted
at that time.
Section 1.6 - Employee
- ----------- ---------
"Employee" shall mean any employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a Subsidiary or a
Parent Corporation, whether such employee is so employed at the time the Plan is
adopted or becomes so employed subsequent to the adoption of the Plan.
Section 1.7 - Exchange Act
- ----------- -------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.8 - Fair Market Value
- ----------- ------------------
"Fair Market Value" of a share of Common Stock as of a given date shall be
(i) the closing price of a share of Common Stock on the principal exchange on
which shares of Common Stock are then trading, if any (or as reported on any
composite index which includes such principal exchange), on the trading day
preceding such date, or if shares were not traded on the trading day preceding
such date, then on the next preceding trading day during which a sale occurred,
or (ii) if the Common Stock is not traded on an exchange (x) the last sales
price of a share of the Common Stock on The Nasdaq Stock Market (if the stock is
then traded on The Nasdaq Stock Market) on the trading day preceding such date,
or, if shares were not traded on the day preceding such date, then on the next
preceding trading day during which a sale occurred; or (y) the mean between the
closing representative bid and asked prices for the Common Stock on the trading
day next preceding such date as reported by the National Association of
Securities Dealers, Inc. through NASDAQ or a successor quotation system or, if
shares were not quoted on the day immediately preceding such date, then on the
next preceding trading day during which a quote occurred, or (iii) if the Common
Stock is not publicly traded on an exchange and prices are not provided through
The Nasdaq Stock Market, NASDAQ or a successor quotation system, the mean
between the closing bid and asked prices for the Common Stock on the trading day
next preceding such date as determined in good faith by the Board; or (iv) if
the Common Stock is not publicly
2
<PAGE>
traded, the fair market value of the Common Stock established by the Board
acting in good faith.
Section 1.9 - Non-Employee Director
- ----------- ----------------------
"Non-Employee Director" shall mean any Director who is not at the same time
an Employee.
Section 1.10 - Option
- ------------ -------
"Option" shall mean a non-qualified stock option to purchase Common Stock
of the Company granted under this Agreement and Article III of the Plan.
Section 1.11 - Optionee
- ------------ ---------
"Optionee" shall mean a Non-Employee Director to whom an Option is granted
under this Agreement and the Plan.
Section 1.12 - Parent Corporation
- ------------ ------------------
"Parent Corporation" shall have the meaning given in Section 424(e) of the
Code.
Section 1.13 - Plan
- ------------ ----
"Plan" shall mean the Stock Option Plan for Non-Employee Directors of
Southwest Water Company.
Section 1.14 -- Removal as a Non-Employee Director
- ------------ ----------------------------------
"Removal as a Non-Employee Director" shall mean the time when the Optionee
who is a Non-Employee Director is removed from the Board as provided in Section
141 of the Delaware General Corporation Law.
Section 1.15 - Rule 16b-3
- ------------ -----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended from time to time.
Section 1.16 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.17 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
3
<PAGE>
Section 1.18 - Subsidiary
- ------------ -----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
Section 1.19 - Termination as a Non-Employee Director
- ------------ ---------------------------------------
"Termination as a Non-Employee Director" shall mean the time when the
Optionee who is a Non-Employee Director ceases to be a member of the Board by
reason of such Optionee's death or disability (within the meaning of Section
22(e)(3) of the Code) or any other manner other than Removal as a Non-Employee
Director.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Optionee's agreement to serve as a Non-Employee
Director of the Company or its Subsidiaries until the next annual meeting of
stockholders of the Company and for other good and valuable consideration,
effective as of ____________, the Company irrevocably grants to the Optionee the
option to purchase any part or all of an aggregate of 1,000 shares of its $.01
par value Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The price per share of the Common Stock subject to each Option shall be
$_____ per share (which is the Fair Market Value of a share of Common Stock on
the date of the granting of this Option) without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, until the next annual meeting of stockholders of the Company.
Nothing in the Plan or this Agreement shall confer upon any Optionee any right
to continue as a director of the Company, or shall interfere with or restrict in
any way the rights of the Company and any Subsidiary, which are hereby expressly
reserved, to discharge the Optionee at any time for any reason whatsoever, with
or without good cause.
4
<PAGE>
Section 2.4 - Adjustments in Option
- ----------- ---------------------
In the event that the outstanding shares of the Common Stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger (including
reincorporation by means of merger), consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of shares (a
"Recapitalization"), the Board shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Option, or portions
thereof then unexercised, shall be exercisable, to the end that after such event
the Optionee's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option may include any
necessary corresponding adjustment in the Option price per share, but shall be
made without change in the total price applicable to the Option or the
unexercised portion of the Option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices). Any such adjustment
made by the Board shall be final and binding upon the Optionee, the Company and
all other interested persons.
Section 2.5 - Merger, Consolidation, Exchange, Acquisition, Liquidation or
- ----------- ------------------------------------------------------------
Dissolution
- -----------
The Board may provide by the terms of the Option that the Option cannot be
exercised after the merger or consolidation of the Company into another
corporation, the exchange of all or substantially all of the assets of the
Company for the securities of another corporation, the acquisition by another
corporation of 80% or more of the Company's then outstanding voting stock or the
liquidation or dissolution of the Company; or the Board may, in its absolute
discretion and on such terms and conditions as it deems appropriate, also
provide that the Option shall be assumed or an equivalent option substituted by
any successor corporation of the Company, or the Board may, in its absolute
discretion and upon such terms and conditions as it deems appropriate, provided
by resolution adopted prior to the occurrence of such merger, consolidation,
exchange, acquisition, liquidation or dissolution, that, for some period of time
prior to such event, that such Option shall be exercisable as to all shares
covered thereby, notwithstanding anything to the contrary in Sections 3.1(a) or
3.1(b) below. Any determinations made by the Board pursuant to this Section
shall be applied uniformly to all Options outstanding on the date of such
determination.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) The Option may not be exercised in whole or in part during the first
year after the date of grant of the Option.
(b) Subject to the provisions of Sections 3.1(a) and 3.1(c), the Option
shall become exercisable in two (2) cumulative installments as follows:
5
<PAGE>
(i) The first installment shall consist of fifty percent (50%) of
the shares covered by the Option and shall become exercisable on the first
anniversary of the date the Option is granted.
(ii) The second installment shall consist of fifty percent (50%) of
the shares covered by the Option and shall become exercisable on the second
anniversary of the date the Option is granted.
(c) No portion of an Option which is unexercisable on the date of Removal
as a Non-Employee Director shall thereafter become exercisable. The portion, if
any, of an Option which is unexercisable on the date of Termination as a Non-
Employee Director shall become immediately exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(a) The expiration of a period of ten years and one day from the date the
Option was granted; or
(b) The expiration of three months from the date of the Optionee's Removal
as a Non-Employee Director for any reason unless the Optionee dies within said
three-month period; or
(c) The expiration of six months from the date of the Optionee's
Termination as a Non-Employee Director for any reason other than such Optionee's
death unless the Optionee dies within said six month period; or
(d) The expiration of one year from the date of the Optionee's death.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only the Optionee may exercise the
Option or any portion thereof; provided, however, that nothing in this Section
4.1 shall prevent the exercise of the Option by a person to whom the Option was
lawfully transferred, in whole or in part, pursuant to a qualified domestic
relations order (as defined in the Code).
6
<PAGE>
After the death of the Optionee, any exercisable portion of the Option may,
prior to the time when the Option becomes unexercisable under Section 3.3, be
exercised by his personal representative or by any person empowered to do so
under the Optionee's will or under the then applicable laws of descent and
distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time and from time to
time prior to the time when the Option or portion thereof becomes unexercisable
under Section 3.3; provided, however, that each partial exercise shall be for
not less than one hundred (100) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, shall be exercised solely
by delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Board;
(b) The payment to the Company of the aggregate Option exercise price for
the shares with respect to which such Option or portion is exercised in:
(i) Cash;
(ii) With the consent of the Board, (A) shares of the Company's
Common Stock owned by the Optionee duly endorsed for transfer to the
Company or (B) subject to the timing requirements of Section 4.4, shares of
the Company's Common Stock issuable to the Optionee upon exercise of the
Option, with a Fair Market Value on the date of Option exercise equal to
the aggregate purchase price of the shares with respect to which such
Option or portion is exercised;
(iii) With the consent of the Board, a full recourse promissory note
bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code or successor provision) and payable
upon such terms as may be prescribed by the Board. The Board may also
prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note
or by a loan from the Company when or where such loan or other extension of
credit is prohibited by law; or
(iv) With the consent of the Board, any combination of the
consideration provided in the foregoing subparagraphs (i), (ii) and (iii);
7
<PAGE>
(c) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local law, it is required to withhold in
connection with the exercise of the Option or a portion thereof; all or any part
of such payment may be made, with the consent of the Board, (i) with shares of
the Company's Common Stock owned by the Optionee duly endorsed for transfer, or
(ii) subject to the timing requirements of Section 4.4, with shares of the
Company's Common Stock issuable to the Optionee upon exercise of the Option, in
each case, having a Fair Market Value at the date of Option exercise equal to
the sums required to be withheld;
(d) Such representations and documents as the Board, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other Federal or state
securities laws or regulations. The Board may, in its absolute discretion, also
take whatever additional actions it deems appropriate to effect such compliance
including, without limitation, placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars; and
(e) In the event the Option or portion thereof shall be exercised pursuant
to Section 4.1 by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option.
Notwithstanding anything herein to the contrary, the Optionee may satisfy
the requirements of subsections (b) and (c) of this Section 4.3 concerning
payment for the shares and all applicable withholding taxes, with the consent of
the Board, through the delivery to the Secretary or his office of (i) an
irrevocable written exercise notice containing instructions to the Company to
deliver to Optionee's broker the certificate(s) representing the shares with
respect to which the Option or portion is thereby exercised and (ii) a copy of
Optionee's irrevocable written instructions to such broker to deliver to the
Company, within five business days from the date of the Company's receipt of
such exercise notice, full payment (in cash or by check) for the shares with
respect to which such Option or portion is thereby exercised and all amounts
which the Company is required to withhold under federal, state or local law in
connection with the exercise of the Option or portion thereof. Provided the
Optionee complies with clauses (i) and (ii) above and the Company receives such
full payment the Optionee shall be deemed to have such exercised such Option on
the date of the Company's receipt of the deliveries specified in clauses (i) and
(ii) above. Notwithstanding anything to the contrary in this Section 4.3, the
Board shall not take any discretionary action which will result in the failure
of the Plan to satisfy any exemptive condition imposed by Rule 16b-3 of the code
with respect to the effected Option.
Section 4.4 - Certain Timing Requirements
- ----------- ---------------------------
To the extent required by Rule 16b-3, shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option may be used to satisfy the
Option price or the tax withholding consequences of such exercise only (i)
during the period beginning on the third (3rd) business day following the date
of release of the quarterly or annual summary statement of sales and earnings of
the Company and ending on the twelfth (12th) business day following such date or
(ii) pursuant to an irrevocable written election by the Optionee to use shares
of the Company's Common Stock issuable to the Optionee upon
8
<PAGE>
exercise of the Option to pay all or part of the Option price or the withholding
taxes (subject to the approval of the Board) made at least six (6) months prior
to the payment of such Option price or withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock issuable and deliverable upon the exercise of the
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. Such
shares shall be fully paid and nonassessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of the Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Board shall, in its absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Board shall, in its absolute discretion,
determine to be necessary or advisable;
(d) The receipt by the Company of full payment for such shares, including
payment of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Board may establish from time to time for reasons of
administrative convenience.
Section 4.6 - Rights as Stockholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
9
<PAGE>
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
With respect to this Option, the full Board, acting by a majority of its
members in office, shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Board in good faith shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Option.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that nothing in this
Section 5.2 shall prevent transfers by will or by the applicable laws of descent
and distribution, or, to the extent not prohibited by the Code, pursuant to a
qualified domestic relations order (as defined in the Code).
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
10
<PAGE>
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
laws of the State of California.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan and this Option grant are intended
to conform to the extent necessary with all provisions of the Securities Act and
the Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including without limitation Rule
16b-3. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
SOUTHWEST WATER COMPANY,
a Delaware corporation
By:
----------------------------
President
By:
----------------------------
Secretary
- -----------------------
Optionee
- -----------------------
- -----------------------
Address
Optionee's Taxpayer
Identification Number:
- -----------------------
11
<PAGE>
EXHIBIT 5.1
-----------
[LETTERHEAD OF LATHAM & WATKINS]
December 19, 1996
Board of Directors
Southwest Water Company
225 North Barranca Avenue, Suite 200
West Covina, California 91791-1605
Re: Registration Statement on Form S-8
----------------------------------
Gentlemen:
At your request we have examined the Registration Statement on Form S-
8 (the "Registration Statement") to be filed by you with the Securities and
Exchange Commission in connection with the registration under the Securities Act
of 1933, as amended, of 50,000 shares (the "Shares") of Common Stock, $.01 par
value, of Southwest Water Company (the "Company"), none of which are issued and
outstanding as of the date hereof, but which are issuable upon exercise of
options to be granted in the future under the Stock Option Plan for Non-Employee
Directors of Southwest Water Company (the "Plan").
We are familiar with the proceedings taken by you, and with the
additional proceedings proposed to be taken by you, in connection with the
authorization and proposed issuance and sale of the Shares. Based upon the
foregoing, we are of the opinion that, upon the exercise of options granted
pursuant to the Plan and the issuance and sale of the Shares, each in the manner
contemplated by the Registration Statement and the Summary of the Plan dated
December 19, 1996, and each in accordance with the terms of the Plan, the Shares
will be legally and validly issued, fully paid and nonassessable securities of
the Company.
We are opining herein as to the effect on the subject transaction of
only the General Corporation Law of the State of Delaware and we assume no
responsibility as to the application to the subject transaction, or the effect
thereon, of any other laws, of the laws of any other jurisdiction or as to any
matters of municipal law or the laws of any other local agencies within any
other state.
We consent to your filing this opinion as an exhibit to the
Registration Statement.
Very Truly Yours,
/s/ Latham & Watkins
<PAGE>
EXHIBIT 23.2
------------
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Southwest Water Company
We consent to the use of our report dated January 23, 1996 incorporated herein
by reference in the Registration Statement on Form S-8 of Southwest Water
Company, relating to the consolidated balance sheets of Southwest Water Company
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in common stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995, and the
related schedule.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Los Angeles, California
December 19, 1996
