EXHIBIT 10.3

 

 

 

 

AMERICAN STATES WATER COMPANY

2008 STOCK INCENTIVE PLAN, AS AMENDED

(As Amended as of May 18, 2015)

 

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TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

 

1.

THE PLAN

1

1.1

Purpose

1

1.2

Administration and Authorization; Power and Procedure

1

1.3

Participation

3

1.4

Shares Available for Awards; Share Limits

3

1.5

Grant of Awards

4

1.6

Award Period

4

1.7

Limitations on Exercise and Vesting of Awards

4

1.8

No Transferability; Limited Exception to Transfer Restrictions

5

2.

OPTIONS

6

2.1

Grants

6

2.2

Option Price

6

2.3

Limitations on Grant and Terms of Incentive Stock Options

6

2.4

Limits on 10% Holders

7

3.

RESTRICTED STOCK AWARDS

7

3.1

Grants

7

3.2

Restrictions

7

3.3

Return to the Corporation

8

4.

STOCK UNIT AWARDS

8

4.1

Grants

8

4.2

Payouts

8

4.3

Non-Transferability

8

4.4

Dividend Equivalent Rights

8

4.5

Cancellation of Restricted Stock Units

9

4A.

PERFORMANCE AWARDS

9

4A.1

Generally

9

4A.2

Earning of Performance Awards

9

4A.3

Performance Criteria

9

4A.4

Performance Awards and Code Section 162(m)

10

4A.5

Payment of Awards

11

 

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4A.6

Newly Eligible Participants

11

4A.7

Dividend Equivalent Rights

11

5.

OTHER PROVISIONS

12

5.1

Rights of Eligible Employees, Participants and Beneficiaries

12

5.2

Adjustments; Acceleration

13

5.3

Effect of Termination of Service on Awards

15

5.4

Compliance with Laws

16

5.5

Tax Matters

17

5.6

Plan Amendment, Termination and Suspension

17

5.7

Privileges of Stock Ownership

18

5.8

Effective Date of the Plan

18

5.9

Term of the Plan

18

5.10

Governing Law/Construction/Severability

18

5.11

Captions

19

5.12

Stock-Based Awards in Substitution for Stock Options or Awards Granted by Other
Corporation

19

5.13

Non-Exclusivity of Plan

19

5.14

No Corporate Action Restriction

19

5.15

Other Company Benefit and Compensation Program

20

6.

DEFINITIONS

20

6.1

Definitions

20

 

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AMERICAN STATES WATER COMPANY

2008 STOCK INCENTIVE PLAN

 

 

1.            THE PLAN

 

1.1                            Purpose.

 

The purpose of this Plan is to promote the success of the Company by providing
an additional means through the grant of Awards to attract, motivate, retain and
reward key employees, including officers, whether or not directors, of the
Company with awards and incentives for high levels of individual performance and
improved financial performance of the Company.  Capitalized terms are defined in
Article 6.

 

1.2                            Administration and Authorization; Power and
Procedure.

 

(a)                   Committee.  This Plan shall be administered by and all
Awards to Eligible Employees shall be authorized by the Committee.  Action of
the Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or by written consent of its members.  With respect
to Awards intended to satisfy the requirements of performance-based compensation
under Section 162(m) of the Code, this Plan shall be administered by a committee
consisting solely of two or more outside directors (as this requirement is
applied under Section 162(m) of the Code); provided, however, that the failure
to satisfy such requirement shall not affect the validity of the action of any
committee otherwise duly authorized and acting in the matter.  Award grants, and
transactions in or involving Awards, intended to be exempt under Rule 16b-3
under the Exchange Act must be duly and timely authorized by the Board or a
committee consisting solely of two or more non-employee directors (as this
requirement is applied under Rule 16b-3 promulgated under the Exchange Act).  To
the extent required by any applicable listing agency, this Plan shall be
administered by a committee composed entirely of independent directors (within
the meaning of the applicable listing agency).

 

(b)                  Plan Awards; Interpretation; Powers of Committee.  Subject
to the express provisions of this Plan, the Committee shall have the authority:

 

(i)                                  to determine eligibility and, from among
those persons determined to be eligible, the particular Eligible Employees who
will receive an Award;

 

(ii)                              to grant Awards to Eligible Employees,
determine the price at which securities will be offered or awarded and the
number of securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such Awards consistent with
the express limits of this Plan, and establish the installments (if any) in
which such Awards shall become exercisable or shall vest (which may include,
without limitation, performance and/or time-based schedules), or determine that
no delayed exercisability or vesting is required, and establish the events of
termination or reversion of such Awards;

 

(iii)                          to approve the forms of Award Agreements (which
need not be identical either as to type of Award or among Participants);

 

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(iv)                          to construe and interpret this Plan and any
agreements defining the rights and obligations of the Company and Participants
under this Plan, further define the terms used in this Plan, and prescribe,
amend and rescind rules and regulations relating to the administration of this
Plan or the Awards granted under this Plan;

 

(v)                              to cancel, modify, or waive the Corporation’s
rights with respect to, or modify, discontinue, suspend, or terminate any or all
outstanding Awards held by Eligible Employees, subject to any required consent
under Section 5.6;

 

(vi)                          to accelerate or extend the vesting or
exercisability or extend the term of any or all such outstanding Awards (in the
case of Options, within the original term of such Awards under Section 1.6),
subject to Section 5.3;

 

(vii)                      to adjust the number of shares of Common Stock
subject to any Award, adjust the price of any or all outstanding Awards or
otherwise previously imposed terms and conditions, in such circumstances as the
Committee may deem appropriate, in each case subject to Sections 1.4 and 5.6,
and provided that in no case (except due to an adjustment contemplated by
Section 5.2 or any repricing that may be approved by shareholders) shall such an
adjustment constitute a repricing (by amendment, substitution, cancellation and
regrant, exchange or other means) of the per share exercise or base price of any
Option;

 

(viii)                  to determine the date of grant of an Award, which may be
a designated date after but not before the date of the Committee’s action
(unless otherwise designated by the Committee, the date of grant of an Award
shall be the date upon which the Committee took the action granting the Award);

 

(ix)                          to determine whether, and the extent to which,
adjustments are required pursuant to Section 5.2 hereof and authorize the
termination, conversion, substitution or succession of Awards upon the
occurrence of an event of the type described in Section 5.2;

 

(x)                              to determine the Fair Market Value of the
Common Stock of Awards under this Plan from time to time and/or the manner in
which such value will be determined; and

 

(xi)                          to make all other determinations and take such
other action as contemplated by this Plan or as may be necessary or advisable
for the administration of this Plan and the effectuation of its purposes.

 

(c)                   Binding Determinations/Liability Limitation.  Any action
taken by, or inaction of, the Corporation, any Subsidiary, the Board or the
Committee relating or pursuant to this Plan and within its authority hereunder
or under applicable law shall be within the absolute discretion of that entity
or body and shall be conclusive and binding upon all persons.  Neither the Board
nor any Committee, nor any member thereof or person acting at the direction
thereof, shall be liable for any act, omission, interpretation, construction or
determination made in good faith in connection with this Plan (or any Award made
under this Plan), and all such persons

 

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shall be entitled to indemnification and reimbursement by the Company in respect
of any claim, loss, damage or expense (including, without limitation, attorneys’
fees) arising or resulting therefrom to the fullest extent permitted by law
and/or under any directors and officers liability insurance coverage that may be
in effect from time to time.

 

(d)                 Reliance on Experts.  In making any determination or in
taking or not taking any action under this Plan, the Committee or the Board, as
the case may be, may obtain and may rely upon the advice of experts, including
employees and professional advisors to the Corporation.  No director, officer or
agent of the Company shall be liable for any such action or determination taken
or made or omitted in good faith.

 

(e)                   Delegation.  The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees of the
Company or to third parties.

 

1.3                            Participation.

 

Awards may be granted by the Committee only to those persons that the Committee
determines to be Eligible Employees.  An Eligible Employee who has been granted
an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine.

 

1.4                            Shares Available for Awards; Share Limits.

 

(a)                   Shares Available.  Subject to the provisions of
Section 5.2, the capital stock that may be delivered under this Plan shall be
shares of the Corporation’s authorized but unissued Common Stock.  The shares
may be delivered for any lawful consideration.

 

(b)                  Share Limits.  The maximum number of shares of Common Stock
that may be delivered pursuant to Awards granted to Eligible Employees under
this Plan (the “Share Limit”) is equal to the sum of the following: 
(i) 1,100,000 shares of Common Stock, plus (ii) the number of shares of Common
Stock reserved for purposes of the Corporation’s 2000 Stock Incentive Plan (the
“2000 Plan”) on March 31, 2008 that are in excess of the number of shares of
Common Stock then subject to outstanding awards grants under the 2000 Plan
reduced by the number of shares that at any time after March 21, 2008 are
withheld to satisfy tax withholding obligations under the 2000 Plan and the
number of shares that at any time after March 21, 2008 are subject to or
underlie awards that expire or for any reason are cancelled, terminated, or
forfeited, or fail to vest or for any other reason are not paid or delivered
under the 2000 Plan.  Shares issued in respect of any “Full-Value Award” granted
under this Plan shall be counted against the foregoing Share Limit as 2.45
shares for every one share actually issued in connection with such Award.  (For
example, if an Award of 100 Restricted Stock shares is granted under this Plan,
245 shares shall be charged against the Share Limit in connection with that
Award.)  For this purpose, a “Full-Value Award” means any Award under this Plan
that is not an Option.  The following limits also apply with respect to Awards
granted under this Plan:

 

(1)                              The maximum number of shares of Common Stock
that may be delivered pursuant to Options qualified as Incentive Stock Options
granted under this Plan is 187,500 shares.

 

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(2)                              The maximum number of shares of Common Stock
subject to those Options that are granted during any calendar year to any
individual under this Plan is 50,000 shares.

 

(c)                               Share Reservation; Replenishment and Reissue
of Unvested Awards.  No Award may be granted under this Plan unless, on the date
of grant, the sum of (i) the maximum number of shares issuable at any time
pursuant to such Award, plus (ii) the number of shares that have previously been
issued pursuant to Awards granted under this Plan, plus (iii) the maximum number
of shares that may be issued at any time after such date of grant pursuant to
Awards that are outstanding on such date, does not exceed the Share Limit. 
Shares that are subject to or underlie Awards which expire or for any reason are
cancelled or terminated, are forfeited, fail to vest, or for any other reason
are not paid or delivered under this Plan shall not be available for subsequent
Awards under the Plan.  Shares that are withheld by the Corporation to satisfy
the tax withholding obligations related to the Award shall not be available for
subsequent Awards under this Plan.  Except as limited by law, if an Award is or
may be settled only in cash, such Award need not be counted against any of the
limits under this Section 1.4.

 

1.5                            Grant of Awards.

 

Subject to the express provisions of this Plan, the Committee shall determine
the number of shares of Common Stock subject to each Award and the price (if
any) to be paid for the shares or the Award.  Each Award shall be evidenced by
an Award Agreement signed by the Corporation and, if required by the Committee,
by the Participant.  The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee consistent with the
specific provisions of this Plan.

 

1.6                            Award Period.

 

Each Award and all executory rights or obligations under the related Award
Agreement shall expire on such date (if any) as shall be determined by the
Committee, but in the case of Options not later than ten (10) years after the
Award Date.

 

1.7                            Limitations on Exercise and Vesting of Awards.

 

(a)                   Provisions for Exercise.  Unless the Committee otherwise
expressly provides, no Award shall be exercisable or shall vest until at least
six months after the initial Award Date, and once exercisable an Award shall
remain exercisable until the expiration or earlier termination of the Award.

 

(b)                  Procedure.  Any exercisable Award shall be deemed to be
exercised when the Secretary of the Corporation receives written notice of such
exercise from the Participant, together with any required payment made in
accordance with Section 2.2.

 

(c)                   Fractional Shares.  Fractional share interests shall be
disregarded, but may be accumulated. The Committee, however, may determine in
the case of Eligible Employees that cash, other securities, or other property
will be paid or transferred in lieu of any fractional share interests.

 

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1.8                            No Transferability; Limited Exception to Transfer
Restrictions.

 

(a)                   Limit On Exercise and Transfer.  Unless otherwise
expressly provided in (or pursuant to) this Section 1.8, by applicable law and
by the Award Agreement, as the same may be amended, (i) all Awards are
non-transferable and shall not be subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance or charge; (ii) Awards
shall be exercised only by the Participant; and (iii) amounts payable or shares
issuable pursuant to an Award shall be delivered only to (or for the account of)
the Participant.

 

(b)                  Exceptions.  The Committee may permit Awards to be
exercised by and paid only to certain persons or entities related to the
Participant, including but not limited to members of the Participant’s immediate
family, or trusts or other entities whose beneficiaries or beneficial owners are
members of the Participant’s immediate family, pursuant to such conditions and
procedures as the Committee may establish in writing.  Any permitted transfer
shall be (i) subject to compliance with applicable federal and state securities
laws and (ii) subject to the condition that the Committee receive evidence
satisfactory to it that the transfer is being made for essentially estate and/or
tax planning purposes on a gratuitous or donative basis and without
consideration (other than nominal consideration or in exchange for an interest
in a qualified transferee).  Notwithstanding the foregoing or anything to the
contrary in Section 1.8(c), Incentive Stock Options and Restricted Stock Awards
shall be subject to any and all additional transfer restrictions under the Code.

 

(c)                   Further Exceptions to Limits On Transfer.  The exercise
and transfer restrictions in Section 1.8(a) shall not apply to:

 

(i)                                  transfers to the Corporation,

 

(ii)                              the designation of a beneficiary to receive
benefits in the event of the Participant’s death or, if the Participant has
died, transfers to or exercise by the Participant’s beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will or the laws of
descent and distribution,

 

(iii)                          subject to applicable limits on Incentive Stock
Options, transfers to a family member (or former family member) pursuant to a
domestic relations order if approved or ratified by the Committee,

 

(iv)                          if the Participant has suffered a disability,
permitted transfers or exercises on behalf of the Participant by his or her
legal representative, or

 

(v)                                          the authorization by the Committee
of “cashless exercise” procedures with third parties who provide financing for
the purpose of (or who otherwise facilitate) the exercise of Awards consistent
with applicable laws and the express authorization of the Committee.

 

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2.            OPTIONS.

 

2.1                            Grants.

 

One or more Options may be granted under this Article to any Eligible Employee. 
Each Option granted shall be designated in the applicable Award Agreement by the
Committee as either an Incentive Stock Option, subject to Section 2.3 or a
Non-Qualified Stock Option.  No Option once granted may be repurchased by the
Company without the approval of shareholders.

 

2.2                            Option Price.

 

(a)                   Pricing Limits.  The purchase price per share of the
Common Stock covered by each Option shall be determined by the Committee at the
time of the Award, but shall not be less than 100% (110% in the case of an
Incentive Stock Option granted to a Participant described in Section 2.4) of the
Fair Market Value of the Common Stock on the date of grant.

 

(b)                  Payment Provisions. The purchase price of any shares
purchased on exercise of an Option granted under this Article shall be paid in
full at the time of each purchase in one or a combination of the following
methods:  (i) in cash or by electronic funds transfer; (ii) by check payable to
the order of the Corporation; (iii) by notice and third party payment in such
manner as may be authorized by the Committee; or (iv) by the delivery of shares
of Common Stock of the Corporation already owned by the Participant, provided,
however, that the Committee may in its absolute discretion limit the
Participant’s ability to exercise an Award by delivering such shares, and
provided further that any shares delivered which were initially acquired upon
exercise of a stock option must have been owned by the Participant at least six
months as of the date of delivery.  Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.

 

2.3                            Limitations on Grant and Terms of Incentive Stock
Options.

 

(a)                   $100,000 Limit.  To the extent that the aggregate “Fair
Market Value” of stock with respect to which Incentive Stock Options first
become exercisable by a Participant in any calendar year exceeds $100,000,
taking into account both Common Stock subject to Incentive Stock Options under
this Plan and stock subject to incentive stock options under all other plans of
the Company, such options shall be treated as Nonqualified Stock Options.  For
this purpose, the “Fair Market Value” of the stock subject to Options shall be
determined as of the date the Options were awarded.  In reducing the number of
Options treated as Incentive Stock Options to meet the $100,000 limit, the most
recently granted Options shall be reduced first.  To the extent a reduction of
simultaneously granted Options is necessary to meet the $100,000 limit, the
Committee may, in the manner and to the extent permitted by law, designate which
shares of Common Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.

 

(b)                  Option Period.  Each Option and all rights thereunder shall
expire no later than 10 years after the Award Date.

 

(c)                   Other Code Limits.  Incentive Stock Options may only be
granted to Eligible Employees of the Corporation or a Subsidiary that satisfies
the other eligibility

 

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requirements of the Code.  There shall be imposed in any Award Agreement
relating to Incentive Stock Options such other terms and conditions as from time
to time are required in order that the Option be an “incentive stock option” as
that term is defined in Section 422 of the Code.

 

2.4                            Limits on 10% Holders

 

No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.

 

3.            RESTRICTED STOCK AWARDS.

 

3.1                            Grants.

 

The Committee may, in its discretion, grant one or more Restricted Stock Awards
to any Eligible Employee.  Each Restricted Stock Award Agreement shall specify
the number of shares of Common Stock to be issued to the Participant, the date
of such issuance, the consideration for such shares (but not less than the
minimum lawful consideration under applicable state law) by the Participant, the
extent (if any) to which and the time (if ever) at which the Participant shall
be entitled to dividends, voting and other rights in respect of the shares prior
to vesting, and the restrictions (which may be based on performance criteria,
passage of time or other factors or any combination thereof) imposed on such
shares and the conditions of release or lapse of such restrictions.  Such
restrictions shall not lapse earlier than six months after the Award Date,
except to the extent the Committee may otherwise provide.  Stock certificates
evidencing shares of Restricted Stock pending the lapse of the restrictions
(“Restricted Shares”) shall bear a legend making appropriate reference to the
restrictions imposed hereunder and shall be held by the Corporation or by a
third party designated by the Committee until the restrictions on such shares
shall have lapsed and the shares shall have vested in accordance with the
provisions of the Award and Section 1.7.  Upon issuance of the Restricted Stock
Award, the Participant may be required to provide such further assurance and
documents as the Committee may be required to enforce the restrictions.

 

3.2                            Restrictions.

 

(a)                   Pre-Vesting Restraints.  Except as provided in Section 3.1
and 1.8, Restricted Shares comprising any Restricted Stock Award may not be
sold, assigned, transferred, pledged or otherwise disposed of or encumbered,
either voluntarily or involuntarily, until the restrictions on such shares have
lapsed and the shares have become vested.

 

(b)                  Dividend and Voting Rights.  Unless otherwise provided in
the applicable Award Agreement, a Participant receiving a Restricted Stock Award
shall be entitled to cash dividend and voting rights for all shares issued even
though they are not vested, provided that such rights shall terminate
immediately as to any Restricted Shares which cease to be eligible for vesting.

 

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(c)                   Cash Payments.  If the Participant shall have paid or
received cash (including any dividends) in connection with the Restricted Stock
Award, the Award Agreement shall specify whether and to what extent such cash
shall be returned (with or without an earnings factor) as to any Restricted
Shares which cease to be eligible for vesting.

 

3.3                            Return to the Corporation.

 

Unless the Committee otherwise expressly provides, Restricted Shares that remain
subject to restrictions at the time of termination of employment or are subject
to other conditions  vesting that have not been satisfied by the time specified
in the applicable Award Agreement shall not vest and shall be returned to the
Corporation in such manner and on such terms as the Committee shall therein
provide.

 

4.            STOCK UNIT AWARDS

 

4.1                            Grants.

 

The Committee may, in its discretion, (a) authorize and grant to any Eligible
Employee a Stock Unit Award, (b) credit to any Eligible Employee Stock Units,
(c) permit an Eligible Employee to irrevocably elect to defer by means of Stock
Units or receive in Stock Units all or a portion of any Award hereunder, or
(d) grant Stock Units in lieu of, in exchange for, in respect of, or in addition
to any other compensation or Award under this Plan.  The specific terms,
conditions, and provisions relating to each Stock Unit grant or election,
including the applicable vesting and payout provisions of the Stock Units and
the form of payment to be made at or following the vesting thereof, shall be set
forth in or pursuant to the applicable Award Agreement and any relevant Company
bonus, performance or other service or deferred compensation plan, in form
substantially as approved by the Committee, in each case subject to compliance
with Section 409A of the Code.

 

4.2                            Payouts.

 

Subject to compliance with Section 409A of the Code, the Committee in the
applicable Stock Unit Award Agreement or other Award Agreement or the relevant
Company deferred compensation plan may permit the Eligible Employee to elect the
form and time of payout of vested Stock Units on such conditions or subject to
such procedures as the Committee may impose, and may permit Stock Unit offsets
or other provision for payment of any applicable taxes that may be due on the
crediting, vesting or payment in respect of the Stock Units.

 

4.3                            Non-Transferability.

 

Rights in respect of Stock Unit Awards may not be sold, pledged, assigned,
hypothecated, transferred, or otherwise disposed of or encumbered, either
voluntarily or involuntarily, other than by will or the laws of descent or
distribution.

 

4.4                            Dividend Equivalent Rights.

 

In its discretion, the Committee may grant to any Eligible Employee “Dividend
Equivalent Rights” concurrently with the grant of any Stock Unit Award, on such
terms as set

 

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forth by the Committee in the Stock Unit Agreement or other applicable Award
Agreement.  Dividend Equivalent Rights shall be based on all or part of the
amount of dividends declared on shares of Common Stock and shall be credited as
of dividend payment dates, during the period between the date of grant (or such
later date as the Committee may set in the Award Agreement) and the date the
Stock Unit Award expires (or such earlier date as the Committee may set in the
Award Agreement), as determined by the Administrator.  Dividend Equivalent
Rights shall be payable in cash or shares at the same time as the Stock Units to
which they relate, and may be subject to such conditions, as may be determined
by the Administrator.

 

4.5                            Cancellation of Restricted Stock Units.

 

Unless the Committee otherwise expressly provides, Restricted Stock Units that
remain subject to conditions to vesting at the time of termination of employment
or service or are subject to other conditions to vesting that have not been
satisfied by the time specified in the applicable Award Agreement shall not vest
and shall be cancelled, unless the Committee otherwise provides in or by
amendment to the applicable terms of the Award.

 

4A.                        PERFORMANCE AWARDS.

 

4A.1                Generally.

 

The Committee shall have the authority to determine (i) the Participants who
shall receive Performance Awards, (ii) the size, number, amount or value, as
applicable, of Performance Awards, and (iii) the Performance Criteria applicable
in respect of such Performance Awards for each Performance Period.  The
Committee shall determine the duration of each Performance Period (which may
differ from each other), and there may be more than one Performance Period in
existence at any one time as to any Participant or all or any class of
Participants.  Each grant of Performance Awards shall be evidenced by an Award
Agreement that shall specify the Performance Criteria applicable thereto and
such other terms and conditions not inconsistent with the Plan as the Committee
shall determine.

 

 

4A.2                Earning of Performance Awards.

 

The grant and/or vesting of Performance Awards shall be contingent, in whole or
in part, upon the attainment of specified Performance Criteria or the occurrence
of any event or events involving a Change in Control Event, death or Total
Disability, as the Committee shall determine either at or after the Award Date. 
In addition to the achievement of the specified Performance Criteria, the
Committee may, at the grant date, condition earning of Performance Awards on the
Participant completing a minimum period of service following the Award Date or
on such other conditions as the Committee shall specify.

 

4A.3                Performance Criteria.

 

At the discretion of the Committee, Performance Criteria may be based upon the
relative or comparative attainment of one or more of the following criteria
during a Performance Period, whether in absolute terms or relative to the
performance of one or more similarly situated companies or a published index
covering the performance of a number of companies: total stockholder return
(inclusive or exclusive of dividends paid); stock price; gross, operating or net

 

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earnings or margins; approved rate increases; earnings before interest and
taxes; earnings before interest, taxes, depreciation and amortization; earnings
or operating income before or after water purchase costs, power purchase costs,
administrative expenses, interest, taxes, depreciation, amortization or
construction costs; earnings per share; economic value added; ratio of operating
earnings to capital spending; net sales; sales growth; return on assets, capital
or equity; income; market share; level of expenses; revenue; revenue growth;
cash flow; increases in customer base; capital expenditures; cost reductions and
expense control objectives; compliance with environmental or regulatory goals or
requirements; conservation; budget objectives; working capital; mergers,
acquisitions and divestitures; attainment of objectives measured in terms of
water quality, service reliability, efficiency, customer complaints or customer
satisfaction, operations, maintenance and/or construction contract awards, and
improvements in financial controls; and, in the case of persons who are not
Executive Officers, such other criteria as may be determined by the Committee. 
Performance Criteria may be established on a Company-wide basis or with respect
to one or more business units or divisions or Subsidiaries.

 

At the time the Committee establishes Performance Criteria for a Performance
Period, the Committee may exclude any or all “extraordinary items” as determined
under U.S. generally accepted accounting principles including, without
limitation, the charges or costs associated with restructurings of the Company
or any Subsidiary, discontinued operations, other unusual or non-recurring
items, the cumulative effects of accounting changes or such other objective
factors as the Committee deems appropriate.  Unless otherwise explicitly stated
by the Committee at the time Performance Criteria are established, each
applicable performance goal shall be appropriately adjusted for one or more of
the following items: (a) asset impairments or write downs; (b) litigation
judgments or claim settlements; (c) the effect of changes in tax law, accounting
principles or such laws or provisions affecting reported results; (d) accruals
for reorganization and restructuring programs; (e) any extraordinary
nonrecurring items as described in Accounting Standards Codification (ASC)
225-20 and/or in management’s discussion and analysis of financial condition and
results of operations appearing in the Company’s annual report to shareholders
for the applicable year; (f) the operations of any business acquired by the
Company or any affiliate or of any joint venture in which the Company or
affiliate participates; (g) the divestiture of one or more business operations
or the assets thereof; or (h) the costs incurred in connection with such
acquisitions or divestitures; or (i) charges for stock based compensation.

 

Except in the case of Awards to Executive Officers intended to be
‘performance-based compensation’ under Section 162(m)(4) of the Code, the
Committee may at any time adjust the Performance Criteria for any Performance
Period as it deems equitable in recognition of unusual or non-recurring events
affecting the Company, changes in applicable tax laws or accounting principles,
or such other factors as the Committee may determine.

 

4A.4                Performance Awards and Code Section 162(m).

 

The provisions of this Section 4A.4 shall apply with respect to any Performance
Award that is intended to be ‘performance-based compensation’ under
Section 162(m)(4) of the Code.

 

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(a)                               Establishment of Performance Criteria.

 

The Committee shall establish the Performance Criteria for the applicable
Performance Period no later than the 90th day after the Performance Period
begins (or by such other date as may be required under Section 162(m) of the
Code) but in any event at a time when achievement of the Performance Criteria is
substantially uncertain.  The Committee may not in any event increase the amount
of compensation payable to an Executive Officer upon attainment of the
Performance Criteria above the maximum amount approved by the Committee at the
time the Performance Criteria is established.

 

(b)                              Certification of Attainment of Performance
Criteria.

 

As soon as practicable after the end of a Performance Period and prior to any
payment in respect of such Performance Period, the Committee shall certify in
writing the amount, number or value, as applicable, of the Performance Awards
that have been earned on the basis of performance in relation to the established
Performance Criteria.

 

(c)                               Maximum Performance Award.

 

The maximum number of shares of Common Stock subject to Performance Awards that
are granted during any calendar year to any individual under the Plan is
100,000, or if a Performance Award is measured in cash, the maximum dollar
amount granted during any calendar year to any individual under shall not exceed
$3,000,000.00.

 

4A.5                Payment of Awards.

 

Earned Performance Awards shall be distributed to the Participant or, if the
Participant has died, to the Participant’s Designated Beneficiary as soon as
practicable after the expiration of the Performance Period and the Committee’s
certification under Section 4A.4(b) above, provided that, unless the payment of
a Performance Award has been deferred in accordance with Section 409A of the
Code, distributions of a Performance Award shall be made no later than March 15
of the year following the year in which the amount is earned.

 

4A.6                Newly Eligible Participants.

 

Notwithstanding anything in this Section 4A to the contrary, the Committee shall
be entitled to make such rules, determinations and adjustments as it deems
appropriate with respect to any Participant who becomes eligible to receive
Performance Awards after the commencement of a Performance Period, except as
would cause a Performance Award intended to qualify as ‘performance based
compensation’ under Section 162(m) of the Code to fail to do so.

 

4A.7                Dividend Equivalent Rights.

 

In its discretion, the Committee may grant to any Participant ‘Dividend
Equivalent Rights’ concurrently with the grant of any Performance Award on such
terms as set forth by the Committee in the applicable Award Agreement.  Dividend
Equivalent Rights shall be based in all or part of the amount of dividends
declared on the shares of Common Stock and shall be

 

11

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credited as of dividend payment dates, during the date between the date of grant
(or such later date as the Committee may set forth in the Award Agreement) and
the date that the Performance Award expires (or such earlier date as the
Committee may set in the Award Agreement) as determined by the Administrator. 
Notwithstanding any provision of the Plan to the contrary, any Dividend
Equivalent Rights granted with respect to a Performance Award shall vest upon
the same conditions (including Performance Criteria) that apply to the
underlying Performance Award.  Any Dividend Equivalent Right shall be subject to
the terms set forth in the Award Agreement and this Section 4A.  Dividend
Equivalent Rights shall be payable in cash or shares at the same time as the
Performance Awards to which they relate, and shall be included as shares of
Common Stock or cash, as applicable, for purposes of the limitations set forth
in Section 4A.4(c) above.

 

5.            OTHER PROVISIONS

 

5.1                            Rights of Eligible Employees, Participants and
Beneficiaries.

 

(a)                   Employment Status.  Status as an Eligible Employee shall
not be construed as a commitment that any Award will be made under this Plan to
an Eligible Employee or to Eligible Employees generally.

 

(b)                  No Employment Contract.  Nothing contained in this Plan (or
in any other documents under this Plan or in any Award) shall confer upon any
Eligible Employee or Participant any right to continue in the employ or other
service of the Company, constitute any contract or agreement of employment or
other service or affect an employee’s status as an employee at will, nor shall
interfere in any way with the right of the Company to change a person’s
compensation or other benefits, or to terminate his or her employment or other
service, with or without cause.  Nothing in this Section, however, is intended
to adversely affect any express independent right of such person under a
separate employment or service contract other than an Award Agreement.

 

(c)                   Plan Not Funded.  Awards payable under this Plan shall be
payable in shares or from the general assets of the Corporation, and (except as
provided in Section 1.4(c)) no special or separate reserve, fund or deposit
shall be made to assure payment of such Awards.  No Participant, Beneficiary or
other person shall have any right, title or interest in any fund or in any
specific asset (including shares of Common Stock, except as expressly otherwise
provided) of the Company by reason of any Award hereunder.  Neither the
provisions of this Plan (or of any related documents), nor the creation or
adoption of this Plan, nor any action taken pursuant to the provisions of this
Plan shall create, or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and any Participant, Beneficiary or other
person.  To the extent that a Participant, Beneficiary or other person acquires
a right to receive payment pursuant to any Award hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Company.

 

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5.2                            Adjustments; Acceleration

 

(a)                   Adjustments.

 

(1)                              Upon (or, as may be necessary to effect the
adjustment, immediately prior to):  any reclassification, recapitalization,
stock split (including a stock split in the form of a stock dividend) or reverse
stock split; any merger, combination, consolidation, or other reorganization;
any spin-off, split-up or similar extraordinary dividend distribution in respect
of the Common Stock; or any exchange of Common Stock or other securities of the
Corporation, or any similar, unusual or extraordinary corporate transaction in
respect of the Common Stock; then the Committee shall equitably and
proportionately adjust (1) the number and type of shares of Common Stock (or
other securities) that thereafter may be made the subject of Awards (including
the specific share limits, maximums and numbers of shares set forth elsewhere in
this Plan), (2) the number, amount and type of shares of Common Stock (or other
securities or property) subject to any outstanding Awards, (3) the grant,
purchase or exercise price of any outstanding Awards, and/or (4) the securities,
cash or other property deliverable upon exercise or payment of any outstanding
Awards, in each case to the extent necessary to preserve (but not increase) the
level of incentives intended by the Plan and the then-outstanding Awards.

 

Unless otherwise expressly provided in the applicable Award Agreement, upon (or,
as may be necessary to effect the adjustment, immediately prior to) any event or
transaction described in the preceding paragraph or a sale of all or
substantially all of the business or assets of the Corporation as an entirety,
the Committee shall equitably and proportionately adjust the performance
standards applicable to any then-outstanding performance-based Awards to the
extent necessary to preserve (but not increase) the level of incentives intended
by the Plan and the then-outstanding performance-based Awards.

 

It is intended that, if possible, any adjustments contemplated by the preceding
two paragraphs be made in a manner that satisfies applicable legal, tax
(including, without limitation and as applicable in the circumstances,
Section 424 of the Code, Section 409A of the Code and Section 162(m) of the
Code) and accounting (so as to not trigger any charge to earnings with respect
to such adjustment) requirements.

 

Without limiting the generality of Section 1.2, any good faith determination by
the Committee as to whether an adjustment is required under the circumstances
pursuant to this Section 5.2(a)(1), and the extent and nature of any such
adjustment, shall be conclusive and binding on all persons.

 

(2)                              Corporate Transactions-Assumption or
Termination of Awards.  Upon the occurrence of any of the following:  any
merger, combination, consolidation, or other reorganization; any exchange of
Common Stock or other securities of the Corporation; a sale of all or
substantially all the business, stock or assets of the Corporation; a
dissolution of the Corporation; or any other event in which the Corporation does
not survive (or does not survive as a public company in respect of its

 

13

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Common Stock); then the Committee may make provision for a cash payment in
settlement of, or for the assumption, substitution or exchange of any or all
outstanding share-based Awards or the cash, securities or property deliverable
to the holder of any or all outstanding share-based Awards, based upon, to the
extent relevant under the circumstances, the distribution or consideration
payable to holders of the Common Stock upon or in respect of such event.

 

The Committee may adopt such valuation methodologies for outstanding Awards as
it deems reasonable in the event of a cash or property settlement and, in the
case of Options or similar rights, but without limitation on other
methodologies, may base such settlement solely upon the excess if any of the per
share amount payable upon or in respect of such event over the exercise or base
price of the Award.

 

In any of the events referred to in this Section 5.2(a)(2), the Committee may
take such action contemplated by this Section 5.2(a)(2) prior to such event (as
opposed to on the occurrence of such event) to the extent that the Committee
deems the action necessary to permit the participant to realize the benefits
intended to be conveyed with respect to the underlying shares.

 

Without limiting the generality of Section 1.2, any good faith determination by
the Committee pursuant to this Section 5.2(a)(2) shall be conclusive and binding
on all persons.

 

(b)                  Possible Early Termination of Accelerated Awards.  If any
Option or other right to acquire Common Stock under this Plan has been fully
accelerated as required or permitted by Section 5.2(c) but is not exercised
prior to (1) a dissolution of the Company, or (2) an event described in
Section 5.2(a) that the Company does not survive, or (3) the consummation of an
event described in Section 5.2(a) involving a Change in Control Event approved
by the Board, such Option or right shall terminate, subject to any provision
that has been expressly made by the Board or the Committee, through a plan of
reorganization or otherwise, for the survival, substitution, assumption,
exchange or other settlement of such Option or right.

 

(c)                               Acceleration of Awards Upon Change in
Control.  Unless prior to a Change in Control Event the Committee determines
that, upon its occurrence, benefits under any or all Awards shall not be
accelerated or determines that only certain or limited benefits under any or all
Awards shall be accelerated and the extent to which they shall be accelerated,
and/or establishes a different time in respect of such Change in Control Event
for such acceleration, then upon the occurrence of a Change in Control Event:

 

(1)                              each Option shall become immediately
exercisable, and

 

(2)                              Restricted Stock shall immediately vest free of
restrictions, and

 

(3)                              Restricted Stock Units shall immediately vest
free of restrictions and become payable.

 

The Committee may override the limitations on acceleration in this
Section 5.2(c) by express provision in the Award Agreement and may accord any
Eligible Employee a right to

 

14

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refuse any acceleration, whether pursuant to the Award Agreement or otherwise,
in such circumstances as the Committee may approve.  Any acceleration of Awards
shall comply with applicable legal requirements and, if necessary to accomplish
the purposes of the acceleration or if the circumstances require, may be deemed
by the Committee to occur (subject to Section 5.2(d)) a limited period of time
not greater than 30 days before the event.  Without limiting the generality of
the foregoing, the Committee may deem an acceleration to occur immediately prior
to the applicable event and/or reinstate the original terms of an Award if an
event giving rise to an acceleration does not occur.  Notwithstanding the
foregoing, an Award shall not be accelerated and/or become payable pursuant to
this Section 5.2(c) to the extent that such acceleration and/or payment would
cause the holder of such Award to be subject to additional tax under
Section 409A of the Code with respect to such Award.

 

(d)                 Possible Rescission of Acceleration  If the vesting of an
Award has been accelerated expressly in anticipation of an event or upon
shareholder approval of an event and the Committee or the Board later determines
that the event will not occur, the Committee may rescind the effect of the
acceleration as to any then outstanding and unexercised or otherwise unvested
Awards.

 

(e)                   Acceleration Upon Termination of Service Following a
Change in Control.  If any Participant’s employment is terminated by the Company
upon or within one year after a Change in Control Event, and the termination is
not the result of death, Total Disability, Retirement or a termination for
Cause, then, subject to the other provisions of this Section 5.2 (including
without limitation Section 5.2(b) and Section 5.4), all outstanding Options and
other Awards held by the Participant shall be deemed fully vested immediately
prior to the Severance Date and Stock Units shall become payable upon such
Severance Date (or, to the extent applicable under Section 409A, upon the date
that is six months after such Severance Date), unless the Award Agreement
specifies a different result in the case of a Change in Control Event. 
Notwithstanding the foregoing, an Award shall not be accelerated and/or become
payable pursuant to this Section 5.2(e) to the extent that such acceleration
and/or payment would cause the holder of such Award to be subject to additional
tax under Section 409A of the Code with respect to such Award.

 

5.3                            Effect of Termination of Service on Awards

 

(a)       General.  The Committee shall establish the effect of a termination of
employment on the rights and benefits under each Award under this Plan and in so
doing may make distinctions based upon the cause of termination.

 

(b)      Options - Resignation or Dismissal.  If the Participant’s employment by
the Company terminates for any reason (the date of such termination being
referred to as the “Severance Date”) other than Retirement, Total Disability or
death, or for Cause (as determined in the discretion of the Committee), the
Participant shall have, unless otherwise provided in the Award Agreement and
subject to earlier termination pursuant to or as contemplated by Section 1.6 or
5.2, three months after the Severance Date to exercise any Option to the extent
it shall have become exercisable on the Severance Date.  In the case of a
termination for Cause, the Option shall terminate on the Severance Date.  In
other cases, the Option, to the extent not exercisable on the Severance Date,
shall terminate.

 

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(c)                   Options - Death or Disability.  If the Participant’s
employment by the Company terminates as a result of Total Disability or death,
the Participant, Participant’s Personal Representative or his or her
Beneficiary, as the case may be, shall have, unless otherwise provided in the
Award Agreement and subject to earlier termination pursuant to or as
contemplated by Section 1.6 or 5.2, until 12 months after the Severance Date to
exercise any Option to the extent it shall have become exercisable by the
Severance Date.  Any Option to the extent not exercisable on the Severance Date
shall terminate.

 

(d)                 Options - Retirement.  If the Participant’s employment by
the Company terminates as a result of Retirement, the Participant, Participant’s
Personal Representative or his or her Beneficiary, as the case may be, shall
have, unless otherwise provided in the Award Agreement and subject to earlier
termination pursuant to or as contemplated by Section 1.6 or 5.2, until 12
months after the Severance Date to exercise any Option to the extent it shall
have become exercisable by the Severance Date.  The Option, to the extent not
exercisable on the Severance Date, shall terminate.

 

(e)                   Events Not Deemed Terminations of Service.  Unless Company
policy or the Committee otherwise provides, the employment relationship shall
not be considered terminated in the case of (i) sick leave, (ii) military leave,
or (iii) any other leave of absence authorized by the Company or the Committee;
provided that unless reemployment upon the expiration of such leave is
guaranteed by contract or law, such leave is for a period of not more than 90
days. In the case of any Eligible Employee on an approved leave of absence,
continued vesting of the Award while on leave from the employ of the Company
shall be suspended, unless the Committee otherwise provides or applicable law
otherwise requires.  In no event shall an Award be exercised after the
expiration of the term set forth in the Award Agreement.

 

(f)                    Effect of Change of Subsidiary Status.  For purposes of
this Plan and any Award, if an entity ceases to be a Subsidiary a termination of
employment shall be deemed to have occurred with respect to each Eligible
Employee in respect of the Subsidiary who does not continue as an Eligible
Employee in respect of another entity within the Company.

 

(g)                              Committee Discretion.  Notwithstanding the
foregoing provisions of this Section 5.3, in the event of, or in anticipation
of, a termination of employment with the Company for any reason, other than
discharge for Cause, the Committee may, in its discretion, increase the portion
of the Participant’s Option available to the Participant, or Participant’s
Beneficiary or Personal Representative, as the case may be, or, subject to the
provisions of Section 1.6, extend the exercisability period upon such terms as
the Committee shall determine and expressly set forth in or by amendment to the
Award Agreement; provided, however, that in no event shall any such extension of
the exercisability period extend such period beyond the earlier of the following
dates:  (i) the latest date the Option could have expired by its original terms
or (ii) the 10th anniversary of the Award Date.

 

5.4                            Compliance with Laws.

 

This Plan, the granting and vesting of Awards under this Plan, the offer,
issuance and delivery of shares of Common Stock and/or the payment of money
under this Plan or under Awards are subject to compliance with all applicable
federal and state laws, rules and regulations

 

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(including but not limited to state and federal securities law) and to such
approvals by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith.  The person acquiring any securities under this Plan will, if
requested by the Company, provide such assurances and representations to the
Company as the Committee may deem necessary or desirable to assure compliance
with all applicable legal and accounting requirements.

 

5.5                            Tax Matters.

 

(a)       Provision for Tax Withholding or Offset.  Upon any exercise, vesting,
or payment of any Award or upon the disposition of shares of Common Stock
acquired pursuant to the exercise of an Incentive Stock Option prior to
satisfaction of the holding period requirements of Section 422 of the Code, the
Company shall have the right at its option to (i) require the Participant (or
Personal Representative or Beneficiary, as the case may be) to pay or provide
for payment of the minimum amount of any taxes which the Company may be required
to withhold with respect to such Award event or payment or (ii) deduct from any
amount payable in cash the minimum amount of any taxes which the Company may be
required to withhold with respect to such cash payment.  In any case where a tax
is required to be withheld in connection with the delivery of shares of Common
Stock under this Plan, the Committee may in its sole discretion (subject to
Section 5.4) grant (either at the time of the Award or thereafter) to the
Participant the right to elect, pursuant to such rules and subject to such
conditions as the Committee may establish, to have the Corporation reduce the
number of shares to be delivered by (or otherwise reacquire) the appropriate
number of shares valued at their Fair Market Value, necessary to satisfy such
minimum withholding obligation, determined in each case as of the trading day
next preceding the applicable date of exercise, vesting or payment.  In no event
shall shares be withheld in excess of the minimum whole number required for tax
withholding under applicable law.

 

5.6                            Plan Amendment, Termination and Suspension.

 

(a)                   Board Authorization.  The Board may, at any time,
terminate or, from time to time, amend, modify or suspend this Plan, in whole or
in part.  No Awards may be granted during any suspension of this Plan or after
termination of this Plan, but the Committee shall retain jurisdiction as to
Awards then outstanding in accordance with the terms of this Plan.

 

(b)                  Shareholder Approval.  To the extent then required by
applicable law or any applicable listing agency or required under Sections 162,
422 or 424 of the Code to preserve the intended tax consequences of the Plan, or
deemed necessary or advisable by the Board, any amendment to this Plan shall be
subject to shareholder approval.

 

(c)                   Amendments to Awards.  Without limiting any other express
authority of the Committee under (but subject to) the express limits of this
Plan, the Committee by agreement or resolution may waive conditions of or
limitations on Awards to Participants that the Committee in the prior exercise
of its discretion has imposed, without the consent of a Participant, and
(subject to the requirements of Section 1.2(b) and 5.6(d)) may make other
changes to the terms and conditions of Awards that do not affect in any manner
materially adverse to the Participant, the Participant’s rights and benefits
under an Award.  Any amendment

 

17

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or other action that would constitute a repricing of an Award is subject to the
limitations set forth in Section 1.2(b)(viii).

 

(d)                 Limitations on Amendments to Plan and Awards.  No amendment,
suspension or termination of this Plan or change affecting any outstanding Award
shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Company under any Award granted under this Plan prior to
the effective date of such change.  Changes contemplated by Section 5.2 shall
not be deemed to constitute changes or amendments for purposes of this
Section 5.6.

 

5.7                            Privileges of Stock Ownership.

 

Except as otherwise expressly authorized by the Committee or this Plan, a
Participant shall not be entitled to any privilege of stock ownership as to any
shares of Common Stock not actually delivered to and held of record by the
Participant.  No adjustment will be made for dividends or other rights as a
shareholder for which a record date is prior to such date of delivery.

 

5.8                            Effective Date of the Plan.

 

This Plan is effective as of April 1, 2008.  The Plan shall be submitted for and
subject to shareholder approval no later than twelve months after the effective
date.

 

5.9                            Term of the Plan.

 

No Award will be granted under this Plan after March 31, 2018 (the “termination
date”).  Unless otherwise expressly provided in this Plan or in an applicable
Award Agreement, any Award granted prior to the termination date may extend
beyond such date, and all authority of the Committee with respect to Awards
hereunder, including the authority to amend an Award, shall continue during any
suspension of this Plan and in respect of Awards outstanding on the termination
date.

 

5.10                    Governing Law/Construction/Severability

 

(a)                   Choice of Law.  This Plan, the Awards, all documents
evidencing Awards and all other related documents shall be governed by, and
construed in accordance with the laws of the State of California.

 

(b)                  Severability.  If a court of competent jurisdiction holds
any provision invalid and unenforceable, the remaining provisions of this Plan
shall continue in effect.

 

(c)                   Plan Construction.

 

(1)                              Rule 16b-3.  It is the intent of the
Corporation that the Awards and transactions permitted by Awards be interpreted
in a manner that, in the case of Participants who are or may be subject to
Section 16 of the Exchange Act, satisfies the applicable requirements for
exemptions under Rule 16b-3.  The exemption will not be available if the
authorization of actions by any Committee of the Board with respect to

 

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such Awards does not satisfy the applicable conditions of Rule 16b-3. 
Notwithstanding the foregoing, the Corporation shall have no liability to any
Participant for Section 16 consequences of Awards or events under Awards.

 

(2)                  Section 162(m).  It is the further intent of the Company
that (to the extent the Company or Awards under this Plan may be or become
subject to limitations on deductibility under Section 162(m) of the Code),
Options granted with an exercise or base price not less than Fair Market Value
on the date of grant will qualify as performance-based compensation or otherwise
be exempt from deductibility limitations under Section 162(m) of the Code, to
the extent that the authorization of the Award (or the payment thereof, as the
case may be) satisfies any applicable administrative requirements thereof.

 

5.11                    Captions.

 

Captions and headings are given to the sections and subsections of this Plan
solely as a convenience to facilitate reference.  Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
this Plan or any provision thereof.

 

5.12                    Stock-Based Awards in Substitution for Stock Options or
Awards Granted by Other Corporation.

 

Awards may be granted to Eligible Employees under this Plan in substitution for
employee stock options, stock appreciation rights, restricted stock or other
stock-based awards granted by other entities to persons who are or who will
become Eligible Employees in respect of the Company, in connection with a
distribution, merger or other reorganization by or with the granting entity or
an affiliated entity, or the acquisition by the Company, directly or indirectly,
or all or a substantial part of the stock or assets of the employing entity. 
The awards so granted need not comply with other specific terms of this Plan,
provided the awards reflect only adjustments giving effect to the assumption nor
substitution consistent with the conversion applicable to the Common Stock in
the transaction and any change in the issuer of the security.  Any shares that
are delivered and any awards that are granted by, or become obligations of, the
Corporation, as a result of the assumption by the Corporation of, or in
substitution for, outstanding awards previously granted by an acquired company
(or previously granted by a predecessor employer (or direct or indirect parent
thereof) in the case of persons that become employed by the Corporation or one
of its Subsidiaries in connection with a business or asset acquisition or
similar transaction) shall not be counted against the Share Limit in Section 1.4
or other limits on the number of shares available for issuance under the Plan.

 

5.13                    Non-Exclusivity of Plan.

 

Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other compensation, with
or without reference to the Common Stock, under any other plan or authority.

 

5.14                    No Corporate Action Restriction.

 

The existence of the Plan, the Award Agreements and the Awards granted hereunder

 

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shall not limit, affect or restrict in any way the right or power of the Board
or the shareholders of the Corporation to make or authorize: (a) any adjustment,
recapitalization, reorganization or other change in the Corporation’s or any
Subsidiary’s capital structure or its business, (b) any merger, amalgamation,
consolidation or change in the ownership of the Corporation or any subsidiary,
(c) any issue of bonds, debentures, capital, preferred or prior preference stock
ahead of or affecting the Corporation’s or any Subsidiary’s capital stock or the
rights thereof, (d) any dissolution or liquidation of the Corporation or any
Subsidiary, (e) any sale or transfer of all or any part of the Corporation or
any Subsidiary’s assets or business, or (f) any other corporate act or
proceeding by the Corporation or any Subsidiary.  No Participant, Beneficiary,
Personal Representative or any other person shall have any claim under any Award
or Award Agreement against any member of the Board or the Committee, or the
Corporation or any employees, officers or agents of the Corporation or any
Subsidiary, as a result of any such action.

 

5.15                    Other Company Benefit and Compensation Program.

 

Payments and other benefits received by a Participant under an Award made
pursuant to this Plan shall not be deemed a part of a Participant’s compensation
for purposes of the determination of benefits under any other employee welfare
or benefit plans or arrangements, if any, provided by the Corporation or any
Subsidiary, except where the Committee or the Board expressly otherwise provides
or authorizes in writing.  Awards under this Plan may be made in addition to, in
combination with, as alternatives to or in payment of grants, awards or
commitments under any other plans or arrangements of the Corporation or the
Subsidiaries.

 

6.            DEFINITIONS.

 

6.1                            Definitions.

 

(a)                   “Award” means an award of any Option, Restricted Stock,
Stock Unit, or Performance Award, or any combination thereof, whether
alternative or cumulative, authorized by and granted under this Plan.

 

(b)                  “Award Agreement” means any writing setting forth the terms
of an Award that has been authorized by the Committee.

 

(c)                   “Award Date” means the date upon which the Committee took
the action granting an Award or such later date as the Committee designates as
the Award Date at the time of the Award.

 

(d)                 “Award Period” means the period beginning on an Award Date
and ending on the expiration date of such Award.

 

(e)                   “Beneficiary” means the person, persons, trust or trusts
designated by a Participant or, in the absence of a designation, entitled by
will or the laws of descent and distribution, to receive the benefits specified
in the Award Agreement and under this Plan in the event of a Participant’s
death, and shall mean the Participant’s executor or administrator if no other
Beneficiary is designated and able to act under the circumstances.

 

(f)                    “Board” means the Board of Directors of the Corporation.

 

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(g)                  “Cause” with respect to a Participant means (unless
otherwise expressly provided in the applicable Award Agreement or another
applicable contract with the Participant) a termination of employment based upon
a finding by the Company, acting in good faith and based on its reasonable
belief at the time, that the Participant:

 

(1)                              has failed to render services to the Company
where such failure amounts to gross negligence or misconduct of the
Participant’s responsibility and duties; or

 

(2)                              has committed an act of fraud or been dishonest
against the Company or any affiliate of the Company; or

 

(3)                              has been convicted of a felony or other crime
involving moral turpitude.

 

A termination for Cause shall be deemed to occur (subject to reinstatement upon
a contrary final determination by the Committee) on the date on which the
Company first delivers written notice to the Participant of a finding of
termination for Cause.

 

(h)                  “Change in Control Event” means any of the following
events:

 

(1)                              the dissolution or liquidation of the
Corporation, unless its business is continued by another entity in which holders
of the Corporation’s voting securities immediately before the event own, either
directly or indirectly, more than 55% of the continuing entity’s voting
securities immediately after the event;

 

(2)                              any sale, lease, exchange or other change in
ownership (in one or a series of transactions) of all or substantially all of
the assets of the Corporation, unless its business is continued by another
entity in which holders of the Corporation’s voting securities immediately
before the event own, either directly or indirectly, more than fifty-five
percent (55%) of the continuing entity’s voting securities immediately after the
event;

 

(3)                              any reorganization or merger of the
Corporation, unless (i) the holders of the Corporation’s voting securities
immediately before the event own, either directly or indirectly, more than
fifty-five percent (55%) of the continuing or surviving entity’s voting
securities immediately after the event, and (ii) at least a majority of the
members of the Board of Directors of the surviving entity resulting from such
reorganization or merger were members of the incumbent Board of Directors of the
Corporation at the time of the execution of the initial agreement or of the
action of such incumbent Board of Directors providing for such reorganization or
merger;

 

(4)                              an acquisition by any person, entity or group
acting in concert of more than forty-five percent (45%) of the voting securities
of the Corporation, unless the holders of the Corporation’s voting securities
immediately before the event own, either directly or indirectly, more than
fifty-five percent (55%) of the acquirer’s voting securities immediately after
the acquisition;

 

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(5)                              the consummation of a tender offer or exchange
offer by an individual, entity or group which results in such individual, entity
or group beneficially owning (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act of 1934) twenty-five percent (25%) or more of the
voting securities of the Corporation, unless the tender offer is made by the
Corporation or any of its subsidiaries or the tender offer is approved by a
majority of the members of the Board of Directors of the Corporation who were in
office at the beginning of the twelve-month period preceding the commencement of
the tender offer; or

 

(6)                              a change of one-half or more of the members of
the Board of Directors of the Corporation within a twelve-month period, unless
the election or nomination for election by shareholders of new directors within
such period constituting a majority of the applicable Board was approved by the
vote of at least two-thirds (2/3) of the directors then still in office who were
in office at the beginning of the twelve-month period.

 

(i)                      “Code” means the Internal Revenue Code of 1986, as
amended from time to time.

 

(j)                      “Commission” means the Securities and Exchange
Commission.

 

(k)                  “Committee” means the Board or one or more committees
appointed by the Board to administer all or certain aspects of this Plan, each
committee to be comprised solely of one or more directors or such number as may
be required under applicable law.

 

(l)                      “Common Stock” means the Common Shares of the
Corporation and such other securities or property as may become the subject of
Awards, or become subject to Awards, pursuant to an adjustment made under
Section 5.2 of this Plan.

 

(m)              “Company” means, collectively, the Corporation and its
Subsidiaries.

 

(n)                  “Corporation” means American States Water Company, a
California corporation, and its successors.

 

(o)                  “Eligible Employee” means an officer (whether or not a
director) or key employee of the Company.

 

(p)                  “Exchange Act” means the Securities Exchange Act of 1934,
as amended from time to time.

 

(q)                  “Executive Officer” means any “covered employee” within the
meaning of Section 162(m)(3) of the Code.

 

(r)                     “Fair Market Value” on any date means (1) if the stock
is listed or admitted to trade on a national securities exchange, the closing
price of the stock listed on The Wall Street Journal website
(www.online.wsj.com), of the principal national securities exchange on which the
stock is so listed or admitted to trade, on such date, or, if there is no
trading of the stock on such date, then the closing price of the stock as quoted
on such website on the next preceding

 

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date on which there was trading in such shares; (2) if the stock is not listed
or admitted to trade on a national securities exchange, the last price for the
stock on such date, as furnished by the National Association of Securities
Dealers, Inc. (“NASD”) through the NASDAQ National Market Reporting System or a
similar organization if the NASD is no longer reporting such information; (3) if
the stock is not listed or admitted to trade on a national securities exchange
and is not reported on the National Market Reporting System, the mean between
the bid and asked price for the stock on such date, as furnished by the NASD or
a similar organization; or (4) if the stock is not listed or admitted to trade
on a national securities exchange, is not reported on the National Market
Reporting System and if bid and asked prices for the stock are not furnished by
the NASD or a similar organization, the value as established by the Committee at
such time for purposes of this Plan.

 

(s)                    “Incentive Stock Option” means an Option which is
intended, as evidenced by its designation, as an incentive stock option within
the meaning of Section 422 of the Code, the award of which contains such
provisions and is made under such circumstances and to such persons as may be
necessary to comply with that section.

 

(t)                     “Nonqualified Stock Option” means an Option that is
designated as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof.  Any Option granted hereunder that is not designated as an
incentive stock option shall be deemed to be designated a Nonqualified Stock
Option under this Plan and not an incentive stock option under the Code.

 

(u)                  “Option” means an option to purchase Common Stock granted
under this Plan.  The Committee shall designate any Option granted to an
Eligible Employee as a Nonqualified Stock Option or an Incentive Stock Option.

 

(v)                  “Participant” means an Eligible Employee who has been
granted an Award under this Plan.

 

(w)              “Personal Representative” means the person or persons who, upon
the disability or incompetence of a Participant, shall have acquired on behalf
of the Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan and who shall have become the legal
representative of the Participant.

 

(x)                  “Plan” means this 2008 Stock Incentive Plan, as it may be
amended from time to time.

 

(y)                  “Performance Award” means an Award granted pursuant to
Section 4A of the Plan of a contractual right to receive Stock or a fixed or
variable amount of cash (as determined by the Committee) upon the achievement,
in whole or in part, of the applicable Performance Criteria.  A grant of
Restricted Stock Awards or Stock Unit Awards may be designed to qualify as
Performance Awards.

 

(z)                   “Performance Criteria” means the objectives established by
the Committee for a Performance Period pursuant to Section 4A.3 of the Plan for
the purpose of determining the extent to which an Award of Performance Awards
has been earned.

 

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(aa)            “Performance Period” means the period of no less than six months
selected by the Committee during which performance is measured for the purpose
of determining the extent to which an Award of Performance Awards has been
earned.

 

(bb)          “Restricted Shares” or “Restricted Stock” means shares of Common
Stock awarded to a Participant under this Plan, subject to payment of such
consideration, if any, and such conditions on vesting (which may include, among
others, the passage of time, specified performance objectives or other factors)
and such transfer and other restrictions as are established in or pursuant to
this Plan and the related Award Agreement, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.

 

(cc)            “Restricted Stock Unit” means a Stock Unit subject to such
conditions on vesting and payout as the Committee may determine.

 

(dd)        “Retirement” means retirement from active service as an employee or
officer of the Company on or after attaining age 65.

 

(ee)            “Rule 16b-3”  means Rule 16b-3 as promulgated by the Commission
pursuant to the Exchange Act, as amended from time to time.

 

(ff)              “Section 16 Person” means a person subject to Section 16(a) of
the Exchange Act.

 

(gg)          “Securities Act” means the Securities Act of 1933, as amended from
time to time.

 

(hh)          “Stock Unit” means a bookkeeping entry that serves as a unit of
measurement relative to a share of Common Stock for purposes of determining the
payment of the Stock Unit grant.  Stock Units are not outstanding shares of
Common Stock and do not entitle a grantee to any dividend, voting or other
rights in respect of any Common Stock.  Stock Units may, however, by express
provision in the applicable Award Agreement, entitle a Participant to dividend
equivalent rights, credited in the form of cash or additional Stock Units, as
determined by the Committee.  Stock Units are payable in shares of Common Stock.

 

(ii)                  “Subsidiary” means any corporation or other entity a
majority of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.

 

(jj)      “Total Disability” means a “permanent and total disability” within the
meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions or conditions as the Committee by rule may include.

 

____________________________________________________________________________

 

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