<PAGE>
 
                                                                   Exhibit 10(a)
                             EMPLOYMENT AGREEMENT
                             --------------------

     AGREEMENT effective as of January 1, 1998 (the "Commencement Date") by and
between United Water Resources Inc., a New Jersey corporation, and its
subsidiaries (collectively, the "Company"), and Michael C.J. Fallon (the
"Executive") (this "Agreement").

     The Company desires to employ the Executive and the Executive is willing to
be employed by the Company, on the terms and conditions hereinafter provided.

     In order to effect the foregoing, the parties hereto wish to enter into an
employment agreement on the terms and conditions set forth below. Accordingly,
in consideration of the premises and the respective covenants and agreements of
the parties herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:

          1.   Employment.  The Company hereby agrees to employ the Executive,
               ----------                                                     
and the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.

          2.   Term.  The Executive's employment under this Agreement shall
               ----                                                        
commence on the Commencement Date and shall end at the close of business on
December 31, 2000; provided, however, that the Term shall thereafter be
                   --------  -------                                   
automatically extended for each succeeding 1-year period unless either party
hereto provides the other party with a written notice at least 60 days prior to
the end of the then current Term, advising that the party providing the notice
shall not agree to so extend the Term (the "Term").  Notwithstanding the
preceding, the Term shall not extent beyond the date on which the Executive
attains age 65 without the prior written consent of the Company; provided,
                                                                 -------- 
however, that the end of the Term solely on account of the Executive attaining
-------                                                                       
age 65 shall not entitle the Executive to any benefits under Section 7.

          3.   Title, Duties and Authority.  The Executive shall serve as
               ---------------------------                               
President of United Properties Group, Incorporated and Vice President of United
Water Management and Services Inc. and shall have such responsibilities and
duties (consistent with the Executive's position as President of United
Properties Group, Incorporated and Vice President of United Water Management and
Services Inc.) as may from time to time be assigned to the Executive by the
Company, and shall have all of the powers and duties usually incident to the
offices of President of United Properties Group, Incorporated and Vice President
of United Water Management and Services Inc.  The Executive shall devote
substantially all of his working time and efforts to the business and affairs of
the Company, except for vacations, illness or incapacity.

                                      77
<PAGE>
 
          4.   Compensation and Benefits.
               ------------------------- 

               (a)  Base Salary.  During the Term, the Company shall pay the 
                    -----------    
Executive a base salary ("Base Salary"), payable in equal installments in
accordance with the Company's normal practice for paying base salaries to its
executive employees. The Base Salary shall initially be payable at the rate of
$163,000.00 per annum, and shall be subject to annual review by the Company for
discretionary annual increases.

               (b)  MIP.  The Executive shall participate in the United Water
                    ---                                                      
Resources Inc. Management Incentive Plan (the "MIP") or any successor plan
established by the Company.

               (c)  Employee Benefits.  The Executive shall be entitled to 
                    -----------------        
participate in all of the Company's employee benefit plans made available by the
Company (or any affiliate thereof) to its executives during the Term as may be
in effect from time to time.

               (d)  Expenses. During the Term, the Executive shall be entitled 
                    --------           
to receive prompt reimbursement upon submission of expense claims to the Company
for all reasonable and customary expenses incurred by the Executive in
performing services hereunder, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by the
Company for its executive employees.

               (e)  Vacations. The Executive shall be entitled to paid vacation,
                    ---------      
paid holidays, sick days and personal days pursuant to the Company's regular
policies applicable to its executive employees.

               (f)  Taxes.  The Company may withhold from any amounts payable 
                    -----         
under this Agreement such federal, state, local and/or other taxes as shall be
required to be withheld pursuant to any applicable law or regulation.

          5.   Termination.  The Executive's employment hereunder may be
               -----------                                              
terminated under the following circumstances:

               (a)  Death.  The Executive's employment hereunder shall terminate
                    -----                                                       
upon the Executive's death.

               (b)  Disability.  If, as a result of the Executive's incapacity 
                    ----------     
due to physical or mental illness, the Executive shall become entitled to the
receipt of benefits under the Company's long-term disability plan, and within 30
days after a written Notice of Termination (as defined in Section 6(a)) is given
to the Executive by the Company, the Executive shall not have returned to the
performance of his duties hereunder on a full-time basis, the Company may
terminate the Executive's employment hereunder for "Disability." 

                                      78
<PAGE>
 
               (c)   Cause.  The Company may terminate the Executive's 
                     -----      
employment hereunder for Cause. For purposes of this Agreement, the Company
shall have "Cause" to terminate the Executive's employment hereunder upon:

               (i)   the failure by the Executive to substantially perform the
Executive's duties hereunder (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness);

               (ii)  the willful violation by the Executive of any of the
Executive's material obligations hereunder;

               (iii) the willful engaging by the Executive in misconduct which
is materially injurious to the business or reputation of the Company or any of
its affiliates; or

               (iv)  the Executive's conviction of a felony.

               Notwithstanding the foregoing, the Executive shall not be
terminated for Cause without:

               (A)   at least 15 days' advance notice to the Executive setting
     forth the reasons for the Company's intention to terminate the Executive's
     employment hereunder for Cause;

               (B)   the failure of the Executive to cure the nonperformance,
     violation or misconduct described in the notice referred to in clause (A)
     of this paragraph, if cure thereof is possible, to the reasonable
     satisfaction of the Board of Directors of United Water Resources Inc. (the
     "Board"), within 15 days of such notice; and

               (C)   delivery to the Executive of a Notice of Termination (as
     defined in Section 6 (a)) from the Company notifying him that in the good
     faith opinion of a majority of the Board, the Company is entitled to
     terminate the Executive for Cause as set forth above, and specifying the
     particulars thereof in detail.

               (d)   Good Reason.  The Executive may terminate his employment 
                     -----------         
hereunder for "Good Reason" by providing a Notice of Termination to the Company
within 30 days after the occurrence, without the Executive's consent, of one of
the following events that has not been cured within 15 days after written notice
thereof has been given to the Company by the Executive:

               (i)   a material and adverse change in the Executive's title,
     status, authority, duties or function (in each case, other than as may be
     contemplated by this Agreement);

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<PAGE>
 
               (ii)  any failure to pay the Executive's Base Salary or MIP
     payment (s) when due;

               (iii) a change of the Executive's place of employment by the
     Company to a location which is greater than 50 miles from the location of
     the Executive's place of employment by the Company as of the Commencement
     Date; or

               (iv)  the willful violation by the Company of any of the
     Company's material obligations hereunder.

               (e)   Without Cause.  The Company may terminate the Executive's
                     -------------                                            
employment hereunder without Cause by providing the Executive with a Notice of
Termination.

               (f)   Without Good Reason.  The Executive may terminate the 
                     -------------------   
Executive's employment hereunder without Good Reason by providing the Company
with a Notice of Termination.

          6.   Termination Procedure.
               --------------------- 

               (a)   Notice of Termination.  Any termination of the Executive's
                     ---------------------                                     
employment by the Company or by the Executive (other than a termination on
account of the Executive's death pursuant to Section 5(a)) shall be communicated
by a written Notice of Termination to the other party hereto in accordance with
Section 10. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall indicate the specific termination provision in this
Agreement relied upon and the Date of Termination, and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment hereunder pursuant to the provision so
indicated.

               (b)   Date of Termination.  "Date of Termination" shall mean:
                     -------------------                                    

               (i)   if the Executive's employment is terminated on account of
     the Executive's death pursuant to Section 5(a), the date of the Executive's
     death;

               (ii)  if the Executive's employment is terminated on account of
     the Executive's Disability pursuant to Section 5(b), 30 days after a Notice
     of Termination has been provided pursuant thereto (provided that the
     Executive shall not have returned to the performance of the Executive's
     duties on a full-time basis during such thirty-(30) day period);

               (iii) if the Executive's employment is terminated for Cause
     pursuant to Section 5(c), the date specified in the Notice of Termination
     provided pursuant thereto; and

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<PAGE>
 
               (iv)  if the Executive's employment is terminated for any other
     reason, the date on which Notice of Termination is provided or any later
     date (within 30 days) set forth in such Notice of Termination.

          7. Compensation Upon Termination.
             ----------------------------- 

               (a)   Death.  If the Executive's employment with the Company is
                     -----                                                    
terminated on account of the Executive's death pursuant to Section 5(a), the
Company shall as soon as practicable pay to the Executive's estate or as may be
directed by the legal representatives of the Executive's estate any Base Salary
accrued and due to the Executive under Section 4(a) through the Executive's Date
of Termination and such prorated MIP payment, the amount, if any, of which shall
be determined in the sole discretion of the Compensation Committee of the Board
(the "Compensation Committee"). The Company shall provide the Executive through
the Date of Termination with continued participation in the employee benefit
plans provided to the Executive pursuant to Section 4(c) as of the Executive's
Date of Termination. Other than the foregoing, the Company shall have no further
obligations to the Executive hereunder.

               (b)   Disability.  If the Executive's employment with the Company
                     ----------       
is terminated on account of the Executive's Disability pursuant to Section 5(b),
the Company shall as soon as practicable pay the Executive any Base Salary
accrued and due to the Executive under Section 4(a) through the Executive's Date
of Termination and such prorated MIP payment, the amount, if any, of which shall
be determined in the sole discretion of the Compensation Committee. The Company
shall provide the Executive through the Executive's Date of Termination with
continued participation in the employee benefit plans provided to the Executive
pursuant to Section 4(c) as of the Executive's Date of Termination. Other than
the foregoing, the Company shall have no further obligations to the Executive
hereunder.

               (c)   By the Company for Cause or By the Executive Without Good 
                     ---------------------------------------------------------
Reason.  If the Executive's employment with the Company is terminated by the
------
Company for Cause pursuant to Section 5(c) or by the Executive without Good
Reason pursuant to Section 5(f), the Company shall as soon as practicable pay
the Executive any Base Salary accrued and due to the Executive under Section
4(a) through the Executive's Date of Termination and the Executive shall forfeit
his entire then unpaid MIP payment(s), if any. The Company shall provide the
Executive through his Date of Termination with continued participation in the
employee benefit plans provided to the Executive pursuant to Section 4(c) as of
his Date of Termination. Other than the foregoing, the Company shall have no
further obligations to the Executive hereunder.

               (d)   Termination By the Company Without Cause or By the 
                     --------------------------------------------------
Executive for Good Reason.  If the Executive's employment with the Company is 
------------------------- 
terminated by the Company (other than for Disability or Cause), or by the
Executive for Good Reason pursuant to Section 5(d), then the Company shall:
<PAGE>
 
          (i)   within 30 days of the Executive's Date of Termination, pay the
     Executive any Base Salary accrued and due the Executive under Section 4(a)
     through his Date of Termination and any unpaid MIP payment(s) for any
     previously completed calendar year(s);

          (ii)  (A) if the Executive's Date of Termination occurs within 24
     months following a Change of Control, as defined below, within 30 days of
     the Executive's Date of Termination, pay the Executive an amount equal to
     150% of his Base Salary in effect as of his Date of Termination, or (B) if
     the Executive's Date of Termination does not occur within 24 months
     following a Change of Control, as defined below, continue to pay the
     Executive his Base Salary in effect as of his Date of Termination for the
     18-month period immediately following his Date of Termination (or until
     such earlier time that the Executive violates the provisions of Section 8)
     at the times such payments would otherwise have been made under Section
     4(a);

          (iii) (A) if the Executive's Date of Termination occurs within 24
     months following a Change of Control, as defined below, within 30 days of
     the Executive's Date of Termination, pay the Executive an amount equal to
     150% of his then current "Cash Target Amount" under the MIP, or (B) if the
     Executive's Date of Termination does not occur within 24 months following a
     Change of Control, as defined below, continue to pay the Executive an
     annual MIP payment for the 18-month period immediately following his Date
     of Termination (or until such earlier time that the Executive violates the
     provisions of Section 8), each such payment in an amount based upon his
     current "Cash Target Amount" under the MIP, to be paid at the times such
     payments would otherwise have been made under the MIP; and

          (iv)  provide the Executive for the 18-month period commencing
     immediately following his Date of Termination (or until such earlier time
     that the Executive violates the provisions of Section 8), with continued
     participation (or equivalent benefits if such participation is not legally
     permissible (cash payments in the case of tax-qualified retirement plan
     benefits)) in the employee benefit plans provided to the Executive pursuant
     to Section 4(c) as of his Date of Termination.

Other than the foregoing, the Company shall have no further obligations to the
Executive hereunder.

          For purposes of this Agreement, a "Change of Control" of the Company
shall mean the first to occur of any of the following events:

          (i)   any "Person" (as defined in Section 3(a)(9) of the Securities
     Exchange Act of 1934, as amended (the "Exchange Act"), and as such term is
     modified in Sections 13(d) and 14(d) of the Exchange Act), excluding (A)
     the Company or any of its subsidiaries, (B) a trustee or any fiduciary
     holding securities under an employee benefit plan of the Company or any of
     its subsidiaries, or an underwriter temporarily holding securities 

                                      82
<PAGE>
 
     pursuant to an offering of such securities, in each case with respect to
     the securities so held, or (C) a corporation or other entity owned,
     directly or indirectly, by holders of voting securities of the Company in
     substantially the same proportions as their ownership of the Company, is or
     becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange
     Act), directly or indirectly, of securities of the Company (not including
     in the securities beneficially owned by such Person any securities acquired
     directly from the Company or its subsidiaries or other affiliates
     controlled by the Company or any such subsidiary) representing 20% or more
     of the combined ordinary (in the absence of contingencies) voting power of
     the Company's then outstanding securities; provided, however, that if such
                                                --------  -------
     "Person" shall be Suez Lyonnaise des Eaux or an affiliate thereof, solely
     for purposes thereof the above reference to "20%" shall instead be deemed
     to refer to the sum of the amount of the "Maximum Stockholder Investment
     Percentage" (as defined in Section 1.1 of the Governance Agreement between
     United Water Resources Inc. and Lyonnaise American Holding, Inc., dated as
     of April 22, 1994) plus two percentage points; or

          (ii)   during any period of not more than two consecutive calendar
     years (commencing January 1, 1998), individuals who at the beginning of
     such period constitute the Board, together with any new director (other
     than a director designated by a person who has entered into an agreement
     with the Company to effect a transaction triggering the operation of clause
     (i) or (iii) of this paragraph) whose election by the Board or nomination
     for election by the Company's shareholders was approved by a vote of at
     least two-thirds of the directors then still in office who either were
     directors at the beginning of the period or whose election or nomination
     for election was previously so approved, cease for any reason to constitute
     a majority thereof; or

          (iii)  the shareholders of the Company approve a merger or
     consolidation of the Company with any other entity, or a plan of
     liquidation of the Company or an agreement for the sale or disposition by
     the Company of its assets as an entirety or substantially as an entirety,
     other than (A) a transaction which would result in the voting securities of
     the Company outstanding immediately prior thereto continuing to represent
     (either by remaining outstanding, by being converted into voting securities
     of the surviving entity, or otherwise), in combination with the ownership
     by any trustee or other fiduciary of securities under an employee benefit
     plan of the Company, at least 80% of the combined voting power of the
     voting securities of the Company or such surviving entity outstanding
     immediately after such transaction, or (B) a transaction effected to
     implement a recapitalization of the Company (or similar transaction) in
     which no person acquires more than 20% of the combined voting power of the
     Company's then outstanding securities (or if such person so acquiring more
     than 20% of such combined voting power is Suez Lyonnaise des Eaux or an
     affiliate thereof, solely for the purposes thereof the above reference to
     "20%" shall instead be deemed to refer to the sum of the Maximum
     Stockholder Investment Percentage plus two percentage points).

                                      83
<PAGE>
 
          8.    Restrictions.
                ------------ 

                (a)  Reasonable Covenants.  It is expressly understood by and 
                     --------------------      
between the Company and the Executive that the covenants contained in this
Section 8 are an essential element of this Agreement and that but for the
agreement by the Executive to comply with these covenants and thereby not to
diminish the value of the organization and goodwill of the Company or any
affiliate of the Company, if any, including without limitation relations with
their employees, suppliers, customers and accounts, the Company would not enter
into this Agreement. The Executive has independently consulted with his legal
counsel and after such consultation agrees that such covenants are reasonable
and proper.

                (b)  Noncompetition; No Diversion of Customers; Etc.  During the
                     ----------------------------------------------        
Term and for 18 months after the Executive's Date of Termination, the Executive
shall not:

          (i)   engage directly, alone or in association with or as a
     shareholder, principal, agent, partner, officer, director, employee or
     consultant of any other organization or entity, in competition with the
     businesses of the Company and/or any of its affiliates as of the
     Executive's Date of Termination;

          (ii)  divert to any competitor of the Company or any of its
     affiliates, any customer of the Company or any of its affiliates or any
     "prospective customer" (as defined in the last paragraph of this Section
     8(b)) of the Company or any of its affiliates; or

          (iii) solicit or encourage any officer, employee or consultant of the
     Company or any of its affiliates to leave the employ of the Company or any
     of its affiliates for employment by or with any competitor of the Company
     or any of its affiliates;

provided, however, that the Executive may invest in stocks, bonds or other
--------  -------                                                         
securities of any competitor of the Company or any of its affiliates if:

                (A)  such stocks, bonds or other securities are listed on any
     national or regional securities exchange or have been registered under
     Section 11 (g) of the Securities Exchange Act of 1934;

                (B)  the Executive's investment does not exceed, in the case of
     any class of the capital stock of any one issuer, 1% of the issued and
     outstanding shares, or, in the case of other securities, 1% of the
     aggregate principal amount thereof issued and outstanding; and

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<PAGE>
 
                (C)  such investment would not prevent, directly or indirectly,
     the transaction of business by the Company and/or any of its affiliates
     with any state, district, territory or possession of the United States or
     any governmental subdivision, agency or instrumentality thereof by virtue
     of any statute, law, regulation or administrative practice.

          If, at any time, the provisions of this Section 8(b) shall be
determined to be invalid or unenforceable by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 8(b) shall
be considered severable and shall become and shall be immediately amended solely
with respect to such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter and the Executive agrees that this Section 8(b) as so amended
shall be valid and binding as though any invalid or unenforceable provision had
not been included herein.  Except as provided in this Section 8 and in Section
3, nothing in this Agreement shall prevent or restrict the Executive from
engaging in any business or industry in any capacity.

          For purposes of clause (ii) of this Section 8(b), the term
"prospective customer" shall mean any entity, business or individual included on
a list of prospective customers provided to the Executive by the Company within
15 days following his Date of Termination, which list contains the names of
those entities, businesses and individuals with whom the Company had been in
contact prior to the Executive's Date of Termination for purposes of
establishing a customer relationship therewith.  Any entity, business or
individual not appearing on the aforementioned list of prospective customers due
to the failure of the Executive to advise the Company of such contact shall be
considered a "prospective customer" for purposes of clause (ii) of this Section
8(b).

                (c)  Public Support and Assistance.  The Executive agrees that
                     -----------------------------                            
following any termination of his employment hereunder by the Company, the
Executive shall not disclose or cause to be disclosed any negative, adverse or
derogatory comments or information of a substantial nature about the Company or
its management, or about any product or service provided by the Company, or
about the Company's prospects for the future (including any such comments or
information with respect to affiliates of the Company).  The Company and/or any
of its affiliates may seek the assistance, cooperation or testimony of the
Executive following any such termination in connection with any investigation,
litigation or proceeding arising out of matters within the knowledge of the
Executive and related to the Executive's position as an officer or employee of
the Company, and in any such instance, the Executive shall provide such
assistance, cooperation or testimony and the Company shall pay the Executive's
reasonable costs and expenses in connection therewith; in addition, if such
assistance, cooperation or testimony requires more than a nominal commitment of
the Executive's time, the Company shall compensate the Executive for such time
as a per diem rate derived from the Executive's Base Salary at the time of the
Executive's Date of Termination.

                                      85
<PAGE>
 
               (d)  Nondisclosure of Confidential Information. During the Term,
                    -----------------------------------------          
the Executive shall hold in a fiduciary capacity for the benefit of the Company
and its affiliates all Confidential Information (as defined below). After
termination of the Executive's employment with the Company, the Executive shall
keep secret and confidential all Confidential Information and shall not use or
disclose to any third party in any fashion or for any purpose whatsoever, any
Confidential Information. As used herein, "Confidential Information" shall mean
any information regarding this Agreement, or any other information regarding the
Company or its affiliates which is not available to the general public, and/or
not generally known outside the Company or any such affiliate, to which the
Executive has or shall have had access at any time during the course of the
Executive's employment with the Company, including, without limitation, any
information relating to the Company's (and its affiliates'):


               (i) business, operations, plans, strategies, prospects or
     objectives;

               (ii) products, technologies, processes, specifications, research
     and development operations or plans;

               (iii) customers and customer lists

               (iv) sales, service, support and marketing practices and
     operations;
     
               (v) financial condition and results of operations;

               (vi) operational strengths and weaknesses; and

               (vii) personnel and compensation policies and procedures.

Notwithstanding the foregoing provisions of this Section 8, the Executive may
discuss this Agreement with the members of the Executive's immediate family and
with the Executive's personal legal and tax advisors.

               (e)  Specific Performance.  Without intending to limit the 
                    --------------------       
remedies available to the Company, the Executive agrees that damages at law
would be an insufficient remedy to the Company in the event that the Executive
violates any of the provisions of this Section 8, and that the Company may apply
for and, upon the requisite showing, have injunctive relief in any court of
competent jurisdiction to restrain the breach or threatened breach of or
otherwise to specifically enforce any of the covenants contained in this Section
8.

          9.    Excise Tax Gross-Up Payment.  If any payments to the Executive 
               ---------------------------                                      
by the Company under this Agreement ("Payments") are subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Payments and
all income taxes and Excise Tax upon such 

                                      86
<PAGE>
 
Company payment, shall be equal to the Payments. The determination of whether
any Payments are subject to the Excise Tax shall be based on the opinion of tax
counsel selected by the Company and reasonably acceptable to the Executive,
whose fees and expenses shall be paid by the Company. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal, state and local income taxes at the highest marginal rate of income
taxation applicable to any individual residing in the jurisdiction in which the
Executive resides in the calendar year in which the Gross-Up Payment is to be
made. In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay the Company, at the time that
the amount of such reduction of Excise Tax is finally determined, the portion of
the Gross-Up Payment attributable to such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid by the Executive to the
extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b) (2) (B) of the Code. In
the event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess) at
the time that the amount of such excess is finally determined. The Executive and
the Company shall each reasonably cooperate with the other in connection with
any administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Payments.

          10.  Notice.  For the purposes of this Agreement, notices, demands and
               ------                                                           
all other communications provided for herein shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:

          If to the Executive:

               Michael C.J. Fallon
               250 Titus Road
               North Salem, NY 10560

          If to the Company:

               Office of the General Counsel
               United Water Resources Inc.
               200 Old Hook Road
               Harrington Park, NJ 07640-1799

                                      87
<PAGE>
 
Or to such other address as either of the parties may have furnished to the
other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.

          11.  Successors.  Without the prior written consent of the Executive,
               ----------                                                      
this Agreement cannot be assigned by the Company except that it shall be binding
automatically on any successors and assigns of all or substantially all of the
business and/or assets of the Company (whether direct or indirect, by purchase,
merger, consolidation or otherwise).  In addition, without the prior written
consent of the Company, this Agreement cannot be assigned by the Executive,
except that the right to receive payments or benefits hereunder may be
transferred by will or the laws of descent and distribution.  This Agreement and
all rights of the Executive hereunder shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives.

          12.  Arbitration.  Except as provided in Section 8(e), all
               -----------                                          
controversies, claims or disputes arising out of or relating to this Agreement
shall be settled by binding arbitration under the rules of the American
Arbitration Association then in effect in the State of New Jersey, as the sole
and exclusive remedy of either party, and judgment upon any such award rendered
by the arbitrator(s) may be entered in any court of competent jurisdiction.  The
costs of arbitration shall be borne by the unsuccessful party or otherwise as
determined by the arbitrators in their discretion.

          13.  Governing Law.  The validity, interpretation, construction and
               -------------                                                 
performance of this Agreement shall be governed by the laws of the State of New
Jersey without regard to conflicts of law principles.

          14.  Amendments.  No provision of this Agreement may be modified,
               ----------                                                  
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Company as may be
specifically designated for such purpose by the Board.  No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.

          15.  Counterparts.  This Agreement may be executed in one or more
               ------------                                                
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

          16.  Entire Agreement.  This Agreement sets forth the entire agreement
               ----------------                                                 
of the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.  No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.

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<PAGE>
 
          17.  Indemnification.  The Company shall indemnify the Executive to
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the full extent permitted by the New Jersey Business Corporation Act and any
provision of the By-Laws of the Company, as amended from time to time, generally
applicable to officers and directors of the Company, for all amounts (including
without limitation, judgements, fines, settlement payments, expenses and
attorneys' fees) incurred or paid by the Executive in connection with any
action, suit, investigation or proceeding arising out of or relating to the
performance by the Executive of services for, or the actions by the Executive as
an officer or employee of,  the Company or any affiliate of the Company or any
other person or enterprise at the Company's request.  Nothing in this Section 17
or elsewhere in this Agreement is intended to prevent the Company from
indemnifying the Executive to any greater extent than is required by this
Section 17.

          18.  Severability.  The invalidity or unenforceability of any
               ------------                                            
provision of this Agreement shall not affect the validity or enforceability of
any other provision hereof.

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.


                              UNITED WATER RESOURCES INC.



                              By: _______________________________________
                                    Name:
                                    Title:


                              MICHAEL C.J. FALLON


 
                              ___________________________________________


                              MARCIA L. WORTHING


                              ___________________________________________
 
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