**Exhibit 10.4**

 

**AMENDMENT TO THE**

**AMENDED AND RESTATED STOCK OPTION PLAN**

**FOR NON-EMPLOYEE DIRECTORS**

**OF**

**SOUTHWEST WATER COMPANY**

 

This Amendment (“Amendment”) to the Amended and Restated StockOption Plan for Non-Employee Directors of Southwest Water Company (the “Plan”)is adopted by Southwest Water Company, a Delaware corporation (the “Company”),effective as of May 13, 2004.

 

**RECITALS**

 

WHEREAS, the Board of Directors (the “Board”) originally adoptedthe Stock Option Plan for Non-Employee Directors on March 27, 1996 and thePlan, as amended, was approved by the stockholders on May 23, 2000;

 

WHEREAS, Section 7.2 of the Plan provides that the Plan may beamended from time to time by the Board, subject in certain circumstances tostockholder approval of such amendment; and

 

WHEREAS, the Board believes it is in the best interests of thestockholders to: (i) increase the number of shares issuable under the Plan byan additional 250,000 shares, (ii) increase the number of options to purchaseshares automatically granted to Non-Employee Directors upon initial election orappointment and annually (subject to continued service on the Board) to 10,000shares, subject to adjustment in the event of future stock splits, stockdividends or stock combinations, and (iii) extend the Plan’s termination dateto May 13, 2014.

 

NOW, THEREFORE, the following amendments to the Plan are adopted by theCompany.

 

**AMENDMENTS**

 

Effective as of May 13, 2004, Section 2.1 of the Plan is herebyamended and replaced in its entirety as follows:

 

Section 2.1                                      “SharesSubject to Restated Director Option Plan.

 

Subject to Section 4.6 (relating toadjustments in shares upon a Recapitalization, as defined therein), the sharesof stock subject to Options shall be shares of Common Stock.  The aggregate number of shares of CommonStock which may be issued upon exercise of Options shall not exceed Six HundredEighty Seven Thousand Five Hundred Fifty Five (687,555).  The foregoing gives effect to stock splitsand stock dividends through February 12, 2004.

 

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Effective as of May 13, 2004, the Section 3.2 of the Plan ishereby amended and replaced in its entirety as follows:

 

“Subject to Section 3.3 below, effectiveas of the 2004 Annual Meeting of Stockholders, each person who is aNon-Employee Director immediately as of and following the 2004 Annual Meetingof Stockholders shall be granted automatically on the date of the 2004 AnnualMeeting of Stockholders an additional option to purchase 10,000 of CommonStock.  Each person who first becomes aNon-Employee Director after the 2004 Annual Meeting of Stockholders by electionor appointment to the Board shall be granted automatically on the date of suchperson’s election or appointment to the Board, an initial Option to purchase10,000 shares of Common Stock. Each Non-Employee Director shall thereafter beautomatically granted on the date of each subsequent Company Annual Meeting ofStockholders as of and following which such person continues as a Non-EmployeeDirector, an additional option to purchase 10,000 shares of Common Stock.  The 10,000 share option grants provided bythis paragraph are subject to anti-dilution adjustments in connection with anystock split, stock dividend, or stock combination as governed by Section 4.6hereof.”

 

Effective as of May 13, 2004, Section 4.6 of the Plan is herebyamended and replaced in its entirety as follows:

 

“Section 4.6 – Adjustments in Outstanding Securities

 

In the event that the outstanding shares ofthe Common Stock subject to Options are changed into or exchanged for adifferent number or kind of shares of the Company or other securities of theCompany by reason of merger (including reincorporation by means of merger),consolidation, recapitalization, reclassification, stock split-up, stockdividend or combination of shares (a “Recapitalization”), the Board shall makean appropriate and equitable adjustment in (i) the number and kind of shares asto which all outstanding Options, or portions thereof then unexercised, shallbe exercisable, to the end that after such event the Optionee’s proportionateinterest shall be maintained as before the occurrence of such event; (ii) thelimitations Section 2.1 above on the maximum number and kind of shareswhich may be issued under this Plan; and (iii) the number of options specifiedin Section 3.2 automatically granted to Directors.  Any adjustment in an outstanding Optionshall be made without change in the total price applicable to the Option or theunexercised portion of the Option (except for any change in the aggregate priceresulting from rounding-off of share quantities or prices) and with anynecessary corresponding adjustment in option price per share.  Any such adjustment made by the Board shallbe final and binding upon all Optionees, the Company and all other interested persons.”

 

Effective as of May 13, 2004, the last sentence of Section 7.2 ofthe Plan is hereby amended and replaced in its entirety as follows:

 

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“No Option may be granted during any periodof suspension nor after termination of the Restated Director Option Plan, andin no event may any Option be granted under this Restated Director Option Planafter May 13, 2014.”

 

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The undersigned, Shelley A. Farnham, Secretary of the Company, herebycertifies that amendments described above were adopted by the Board onFebruary 12, 2004, and that the amendment increasing the number of sharesauthorized under the Plan was approved by the Company’s stockholders on May 13,2004.

 

Executed at Los Angeles, California this 13th day of May,2004.

 
|   | Southwest Water Company, |
|--------|--------------------------|
|   | a Delaware corporation   |
|   |                     |
|   |                     |
|   | By:                      |   |   |
|   |                     | Shelley A. Farnham |
|   |                     | Secretary |

 

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