Exhibit
10.1(c)


 


FORM
OF



NONQUALIFIED STOCK OPTION AGREEMENT



FOR NON-EMPLOYEE DIRECTORS


 


THIS AGREEMENT, dated
                   ,
is made by and between Southwest Water Company, a Delaware corporation
hereinafter referred to as the “Company,” and                       ,
a non-employee director of the Company or Subsidiary of the Company,
hereinafter referred to as “Optionee”:


 


WHEREAS, the Company
wishes to afford the Optionee the opportunity to purchase shares of its $.01
par value Common Stock;


 


WHEREAS, the Company
wishes to carry out its Amended and Restated Stock Option Plan for Non-Employee
Directors (the “Plan”) (the terms of which are hereby incorporated by reference
and made a part of this Agreement); and


 


WHEREAS, the Plan
provides for the grant of the Non-Qualified Stock Option set forth herein to
the Optionee as an inducement to enter into or remain in the service of the
Company or its Subsidiaries and as an incentive for increased efforts during
such service, and has advised the Company thereof and instructed the
undersigned officers to issue said Option;


 


NOW, THEREFORE, in
consideration of the mutual covenants herein contained and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto do hereby agree as follows:


 


ARTICLE I.


DEFINITIONS


 


Whenever the following
terms are used in this Agreement, they shall have the meaning specified below
unless the context clearly indicates to the contrary.  The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates.


 


Section 1.1             Board


 


“Board” shall mean the
Board of Directors of the Company as constituted from time to time.


 


Section 1.2             Code


 


“Code” shall mean the
Internal Revenue Code of 1986, as amended from time to time.


 

















 


Section 1.3             Common Stock


 


“Common Stock” shall mean
the common stock of the Company, par value $.01 per share, of the Company.


 


Section 1.4             Company


 


“Company” shall mean
Southwest Water Company, a Delaware corporation, or any successor entity.


 


Section 1.5             Director


 


“Director” shall mean a
person who is a member of the Board as constituted at that time.


 


Section 1.6             Employee


 


“Employee” shall mean any
employee (as defined in accordance with the Regulations and Revenue Rulings
then applicable under Section 3401(c) of the Code) of the Company, or of
any corporation which is then a Subsidiary or a Parent Corporation, whether
such employee is so employed at the time the Plan is adopted or becomes so
employed subsequent to the adoption of the Plan.


 


Section 1.7             Exchange Act


 


“Exchange Act” shall mean
the Securities Exchange Act of 1934, as amended.


 


Section 1.8             Fair Market Value


 


“Fair Market Value” of a
share of Common Stock as of a given date shall be (i) the closing price of a
share of Common Stock on the principal exchange on which shares of Common Stock
are then trading, if any (or as reported on any composite index which includes
such principal exchange), on the trading day preceding such date, or if shares
were not traded on the trading day preceding such date, then on the next
preceding trading day during which a sale occurred, or (ii) if the Common Stock
is not traded on an exchange (x) the last sales price of a share of the
Common Stock on The Nasdaq Stock Market (if the stock is then traded on The
Nasdaq Stock Market) on the trading day preceding such date, or, if shares were
not traded on the day preceding such date, then on the next preceding trading
day during which a sale occurred; or (y) the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
next preceding such date as reported by the National Association of Securities
Dealers, Inc. through NASDAQ or a successor quotation system or, if shares were
not quoted on the day immediately preceding such date, then on the next
preceding trading day during which a quote occurred, or (iii) if the Common
Stock is not publicly traded on an exchange and prices are not provided through
The Nasdaq Stock Market, NASDAQ or a successor quotation system, the mean
between the closing bid and asked prices for the Common Stock on the trading
day next preceding such date as determined in good faith by the Board; or (iv)
if the Common Stock is not publicly traded, the fair market value of the Common
Stock established by the Board acting in good faith.


 

















 


Section 1.9             Non-Employee
Director


 


“Non-Employee Director”
shall mean any Director who is not at the same time an Employee.


 


Section 1.10           Option


 


“Option” shall mean a
non-qualified stock option to purchase Common Stock of the Company granted
under this Agreement and Article 3 of the Plan.


 


Section 1.11           Optionee


 


“Optionee” shall mean a
Non-Employee Director to whom an Option is granted under this Agreement and the
Plan.


 


Section 1.12           Parent Corporation


 


“Parent Corporation”
shall have the meaning given in Section 424(e) of the Code.


 


Section 1.13           Plan


 


“Plan” shall mean the
Amended and Restated Stock Option Plan for Non-Employee Directors of Southwest
Water Company, as the same may be amended or restated from time to time.


 


Section 1.14           Rule 16b-3


 


“Rule 16b-3” shall mean
that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended
from time to time.


 


Section 1.15           Secretary


 


“Secretary” shall mean
the Secretary of the Company.


 


Section 1.16           Securities Act


 


“Securities Act” shall
mean the Securities Act of 1933, as amended.


 


Section 1.17           Subsidiary


 


“Subsidiary” shall mean
any corporation in an unbroken chain of corporations beginning with the Company
if each of the corporations other than the last corporation in the unbroken
chain then owns stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.


 

















 


Section 1.18           Termination as a Non-Employee Director


 


“Termination as a
Non-Employee Director” shall mean the time when the Optionee who is a
Non-Employee Director ceases to be a member of the Board by reason of such
Optionee’s death or disability (within the meaning of Section 22(e)(3) of
the Code), retirement, resignation or for any other reason.


 


ARTICLE II.


GRANT OF OPTION


 


Section 2.1             Grant of Option


 


In consideration of the
Optionee’s agreement to serve as a Non-Employee Director of the Company or its
Subsidiaries until the next annual meeting of stockholders of the Company and
for other good and valuable consideration, effective as of «Award_Date», the Company irrevocably
grants to the Optionee the option to purchase any part or all of an aggregate
of «Shares» shares of its $.01 par
value Common Stock upon the terms and conditions set forth in this Agreement.


 


Section 2.2             Purchase Price


 


The price per share of
the Common Stock subject to each Option shall be «Exercise_Price_» per share (which is the Fair Market Value of
a share of Common Stock on the date of the granting of this Option) without
commission or other charge.


 


Section 2.3             Consideration to Company


 


In consideration of the
granting of this Option by the Company, the Optionee agrees to render faithful
and efficient services to the Company or a Subsidiary, with such duties and
responsibilities as the Company shall from time to time prescribe, until the
next annual meeting of stockholders of the Company.  Nothing in the Plan or this Agreement shall confer upon any
Optionee any right to continue as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge the Optionee at any time for any
reason whatsoever, with or without good cause.


 


Section 2.4             Adjustments in Option


 


In the event that the
outstanding shares of the Common Stock subject to the Option are changed into
or exchanged for a different number or kind of shares of the Company or other
securities of the Company by reason of merger (including reincorporation by
means of merger), consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination of shares (a “Recapitalization”), the
Board shall make an appropriate and equitable adjustment in the number and kind
of shares as to which the Option, or portions thereof then unexercised, shall
be exercisable, to the end that after such event the Optionee’s proportionate
interest shall be maintained as before the occurrence of such event.  Such adjustment in the Option may include
any necessary corresponding


 

















 


adjustment in the Option
price per share, but shall be made without change in the total price applicable
to the Option or the unexercised portion of the Option (except for any change
in the aggregate price resulting from rounding-off of share quantities or
prices).  Any such adjustment made by
the Board shall be final and binding upon the Optionee, the Company and all
other interested persons.


 


Section 2.5             Merger, Consolidation, Exchange,
Acquisition, Liquidation or Dissolution


 


The Board may provide by
the terms of the Option that the Option cannot be exercised after the merger or
consolidation of the Company into another corporation, the exchange of all or
substantially all of the assets of the Company for the securities of another
corporation, the acquisition by another corporation of 80% or more of the
Company’s then outstanding voting stock or the liquidation or dissolution of
the Company; or the Board may, in its absolute discretion and on such terms and
conditions as it deems appropriate, also provide that the Option shall be
assumed or an equivalent option substituted by any successor corporation of the
Company, or the Board may, in its absolute discretion and upon such terms and
conditions as it deems appropriate, provided by resolution adopted prior to the
occurrence of such merger, consolidation, exchange, acquisition, liquidation or
dissolution, that, for some period of time prior to such event, that such
Option shall be exercisable as to all shares covered thereby, notwithstanding
anything to the contrary in Sections 3.1(a) or 3.1(b) below.  Any determinations made by the Board
pursuant to this Section shall be applied uniformly to all Options
outstanding on the date of such determination.


 


ARTICLE III.


PERIOD OF EXERCISABILITY


 


Section 3.1             Commencement of Exercisability


 


(a)           The Option may not be exercised in
whole or in part during the first year after the date of grant of the Option.


 


(b)           Subject to the provisions of
Sections 3.1(a) and 3.1(c), the Option shall become exercisable in two (2)
cumulative installments as follows:


 


(i)            The first installment shall consist
of fifty percent (50%) of the shares covered by the Option and shall become
exercisable on the first anniversary of the date the Option is granted.


 


(ii)           The second installment shall consist
of fifty percent (50%) of the shares covered by the Option and shall become
exercisable on the second anniversary of the date the Option is granted.


 


(c)           Subject to Section 3.1(a), the
portion, if any, of an Option which is unexercisable on the date of Termination
as a Non-Employee Director shall become immediately exercisable.


 

















 


Section 3.2             Duration of Exercisability


 


The installments provided
for in Section 3.1 are cumulative. 
Each such installment which becomes exercisable pursuant to
Section 3.1 shall remain exercisable until it becomes unexercisable under
Section 3.3.


 


Section 3.3             Expiration of Option


 


The Option may not be
exercised to any extent by anyone after the first to occur of the following
events:


 


(a)           The expiration of a period of seven
years and one day from the date the Option was granted; or


 


(b)           The expiration of one year from the
date of the Optionee’s Termination as a Non-Employee Director for any reason,
unless the Optionee dies within said one year period; or


 


(c)           The expiration of one year from the
date of the Optionee’s death.


 


ARTICLE IV.


EXERCISE OF OPTION


 


Section 4.1             Person Eligible to Exercise


 


During the lifetime of
the Optionee, only the Optionee may exercise the Option or any portion thereof;
provided, however, that nothing in this Section 4.1 shall prevent the
exercise of the Option by a person to whom the Option was lawfully transferred,
in whole or in part, pursuant to a qualified domestic relations order (as
defined in the Code).  After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by
his personal representative or by any person empowered to do so under the
Optionee’s will or under the then applicable laws of descent and distribution
or if the Optionee has made a permitted transfer pursuant to
Section 5.2(ii) to a family member the Option may be exercised by such
family member.


 


Section 4.2             Partial Exercise


 


Any exercisable portion
of the Option or the entire Option, if then wholly exercisable, may be
exercised in whole or in part at any time and from time to time prior to the
time when the Option or portion thereof becomes unexercisable under
Section 3.3; provided, however, that each partial exercise shall be for
not less than one hundred (100) shares and shall be for whole shares only.


 

















 


Section 4.3             Manner of Exercise


 


The Option, or any
exercisable portion thereof, shall be exercised solely by delivery to the
Secretary or his office of all of the following prior to the time when the
Option or such portion becomes unexercisable under Section 3.3:


 


(a)           Notice in writing signed by the
Optionee or the other person then entitled to exercise the Option or portion,
stating that the Option or portion is thereby exercised, such notice complying
with all applicable rules established by the Board;


 


(b)           The payment to the Company of the
aggregate Option exercise price for the shares with respect to which such
Option or portion is exercised in:


 


(i)            Cash;


 


(ii)           With the consent of the Board, (A)
shares of the Company’s Common Stock owned by the Optionee duly endorsed for
transfer to the Company or (B) shares of the Company’s Common Stock issuable to
the Optionee upon exercise of the Option, with a Fair Market Value on the date
of Option exercise equal to the aggregate purchase price of the shares with
respect to which such Option or portion is exercised;


 


(iii)          With the consent of the Board, a
full recourse promissory note bearing interest (at no less than such rate as
shall then preclude the imputation of interest under the Code or successor
provision) and payable upon such terms as may be prescribed by the Board.  The Board may also prescribe the form of
such note and the security to be given for such note.  The Option may not be exercised, however, by delivery of a
promissory note or by a loan from the Company when or where such loan or other
extension of credit is prohibited by law; or


 


(iv)          With the consent of the Board, any
combination of the consideration provided in the foregoing subparagraphs (i),
(ii) and (iii);


 


(c)           Full payment to the Company (or
other employer corporation) of all amounts which, under federal, state or local
law, it is required to withhold in connection with the exercise of the Option
or a portion thereof; all or any part of such payment may be made, with the
consent of the Board, (i) with shares of the Company’s Common Stock owned by
the Optionee duly endorsed for transfer, or (ii) with shares of the Company’s
Common Stock issuable to the Optionee upon exercise of the Option, in each
case, having a Fair Market Value at the date of Option exercise equal to the
sums required to be withheld;


 


(d)           Such representations and documents
as the Board, in its absolute discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act and any
other Federal or state securities laws or regulations.  The Board may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer orders to transfer agents and registrars; and


 

















 


(e)           In the event the Option or portion
thereof shall be exercised pursuant to Section 4.1 by any person or
persons other than the Optionee, appropriate proof of the right of such person
or persons to exercise the Option.


 


(f)            Notwithstanding anything herein to
the contrary, the Optionee may satisfy the requirements of subsections (b) and
(c) of this Section 4.3 concerning payment for the shares and all
applicable withholding taxes, with the consent of the Board, through the
delivery to the Secretary or his office of (i) an irrevocable written exercise
notice containing instructions to the Company to deliver to Optionee’s broker
the certificate(s) representing the shares with respect to which the Option or
portion is thereby exercised and (ii) a copy of Optionee’s irrevocable written
instructions to such broker to deliver to the Company, within five business
days from the date of the Company’s receipt of such exercise notice, full
payment (in cash or by check) for the shares with respect to which such Option
or portion is thereby exercised and all amounts which the Company is required
to withhold under federal, state or local law in connection with the exercise
of the Option or portion thereof. 
Provided the Optionee complies with clauses (i) and (ii) above and the
Company receives such full payment the Optionee shall be deemed to have such
exercised such Option on the date of the Company’s receipt of the deliveries
specified in clauses (i) and (ii) above. 
Notwithstanding anything to the contrary in this Section 4.3, the
Board shall not take any discretionary action which will result in the failure
of the Plan to satisfy any exemptive condition imposed by Rule 16b-3 of the
code with respect to the effected Option.


 


Section 4.4             Conditions to Issuance of Stock
Certificates


 


The shares of stock
issuable and deliverable upon the exercise of the Option, or any portion
thereof, may be either previously authorized but unissued shares or issued
shares which have then been reacquired by the Company.  Such shares shall be fully paid and nonassessable.  The Company shall not be required to issue
or deliver any certificate or certificates for shares of stock purchased upon
the exercise of the Option or portion thereof prior to fulfillment of all of
the following conditions:


 


(a)           The admission of such shares to
listing on all stock exchanges on which such class of stock is then listed;


 


(b)           The completion of any registration
or other qualification of such shares under any state or federal law or under
rulings or regulations of the Securities and Exchange Commission or of any
other governmental regulatory body, which the Board shall, in its absolute
discretion, deem necessary or advisable;


 


(c)           The obtaining of any approval or
other clearance from any state or federal governmental agency which the Board
shall, in its absolute discretion, determine to be necessary or advisable;


 


(d)           The receipt by the Company of full
payment for such shares, including payment of all amounts which, under federal,
state or local tax law, it is required to withhold upon exercise of the Option;
and


 

















 


(e)           The lapse of such reasonable period
of time following the exercise of the Option as the Board may establish from
time to time for reasons of administrative convenience.


 


Section 4.5             Rights as Stockholder


 


The holder of the Option
shall not be, nor have any of the rights or privileges of, a stockholder of the
Company in respect of any shares purchasable upon the exercise of any part of
the Option unless and until certificates representing such shares shall have
been issued by the Company to such holder.


 


ARTICLE V.


OTHER PROVISIONS


 


Section 5.1             Administration


 


With respect to this
Option, the full Board, acting by a majority of its members in office, shall
have the power to interpret the Plan and this Agreement and to adopt such rules
for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret or revoke any such rules.  All actions taken and all interpretations
and determinations made by the Board in good faith shall be final and binding
upon the Optionee, the Company and all other interested persons.  No member of the Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or the Option.


 


Section 5.2             Option Not Transferable


 


Neither the Option nor
any interest or right therein or part thereof shall be liable for the debts,
contracts or engagements of the Optionee or his successors in interest or shall
be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that nothing in this Section 5.2 shall prevent (i)
transfers by will or by the applicable laws of descent and distribution, or, to
the extent not prohibited by the Code, pursuant to a qualified domestic relations
order (as defined in the Code) or (ii) with the prior written consent of the
Board, by gift or as a contribution, to a family member of the Optionee, (as
defined under the instructions to use of Form S-8), provided, that an Option
that has been so transferred shall continue to be subject to all of the terms
and conditions as applicable to the original Optionee, and the transferee shall
execute any and all such documents requested by the Board in connection with
the transfer, including without limitation to evidence the transfer and to
satisfy any requirements for an exemption for the transfer under applicable
federal and state securities laws.


 

















 


Section 5.3             Shares to Be Reserved


 


The Company shall at all
times during the term of the Option reserve and keep available such number of
shares of stock as will be sufficient to satisfy the requirements of this
Agreement.


 


Section 5.4             Notices


 


Any notice to be given
under the terms of this Agreement to the Company shall be addressed to the
Company in care of its Secretary, and any notice to be given to the Optionee
shall be addressed to him at the address given beneath his signature
hereto.  By a notice given pursuant to
this Section 5.4, either party may hereafter designate a different address
for notices to be given to him.  Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee’s personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. 
Any notice shall be deemed duly given when enclosed in a properly sealed
envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in
a post office or branch post office regularly maintained by the United States
Postal Service.


 


Section 5.5             Titles


 


Titles are provided
herein for convenience only and are not to serve as a basis for interpretation
or construction of this Agreement.


 


Section 5.6             Construction


 


This Agreement shall be
administered, interpreted and enforced under the laws of the State of
California.


 


Section 5.7             Conformity to Securities Laws


 


The Optionee acknowledges
that the Plan and this Option grant are intended to conform to the extent
necessary with all provisions of the Securities Act and the Exchange Act and
any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3.  Notwithstanding anything herein to the
contrary, the Plan shall be administered, and the Option is granted and may be
exercised, only in such a manner as to conform to such laws, rules and
regulations.  To the extent permitted by
applicable law, the Plan and this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.


 

















 


IN WITNESS WHEREOF, this
Agreement has been executed and delivered by the parties hereto.


 


	
   

  	
  SOUTHWEST WATER
  COMPANY,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Anton C. Garnier,
  President & CEO

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Peter J. Moerbeek, EVP
  & Secretary

  



 


 


	
   

  	
   

  
	
  «Name_», Director
  Optionee

  



 


 


Optionee’s
Taxpayer


Identification
Number:


Shares Awarded:


Award Date:


Exercise Price: