Document:

Exhibit 10.23

 

CHANGE IN CONTROL AGREEMENT

 

September 25,
2009

 

Aaron
Erkan Akyuz

3121
West 69th Street

Apt.
218

Edina,
MN  55345

 

Dear Erkan:

 

In
connection with your hiring as the Executive Vice President of Research and
Development of Vital Images, Inc., a Minnesota corporation (the “Company”),
we hereby offer you valuable and unique benefits.  The Company considers the establishment and
maintenance of a sound and vital management to be essential to protecting and
enhancing the best interests of the Company and its shareholders.  In this connection, the Company recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change in Control may arise and that such possibility and the uncertainty and
questions which it may raise among management may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders.

 

Accordingly, the Board has determined that
appropriate steps should be taken to minimize the risk that Company management
will depart prior to a Change in Control, thereby leaving the Company without
adequate management personnel during such a critical period, and that
appropriate steps also be taken to reinforce and encourage the continued
attention and dedication of members of the Company’s management to their
assigned duties without distraction in circumstances arising from the
possibility of a Change in Control.  In
particular, the Board believes it important, should the Company or its
shareholders receive a proposal for transfer of control, that you be able to
continue your management responsibilities without being influenced by the
uncertainties of your own personal situation.

 

The Board recognizes that continuance of your
position with the Company involves a substantial commitment to the Company in
terms of your personal life and professional career and the possibility of
foregoing present and future career opportunities, for which the Company
receives substantial benefits.  Therefore,
to induce you to remain in the employ of the Company, this Agreement, which has
been approved by the Board, sets forth the benefits which the Company agrees
will be provided to you in the event your employment with the Company is
terminated in connection with a Change in Control under the circumstances
described below.

 

The following terms will have the meaning set
forth below unless the context clearly requires otherwise.  Terms defined elsewhere in this Agreement
will have the same meaning throughout this Agreement.

 

 

ARTICLE
I.

DEFINITIONS

 

1.                                       “Affiliate”
means (i) any corporation more than 50% of whose outstanding securities
ordinarily having the right to vote at elections of directors is owned directly
or indirectly by the Company or (ii) any other form of business entity in
which the Company, by virtue of a direct or indirect ownership interest, has
the right to elect a majority of the members of such entity’s governing body.

 

2.                                       “Agreement”
means this letter agreement as amended, extended or renewed from time to time
in accordance with its terms.

 

3.                                       “Board”
means the board of directors of the Company duly qualified and acting at the
time in question.  On and after the date
of a Change in Control, any duty of the Board in connection with this Agreement
is nondelegable and any attempt by the Board to delegate any such duty is
ineffective.

 

4.                                       “Cause”
means:

 

a.                                       your gross
misconduct;

 

b.                                      your willful
and continued failure to perform substantially your duties with the Company
(other than any such failure (1) resulting from your Disability or
incapacity due to bodily injury or physical or mental illness or (2) relating
to changes in your duties after a Change in Control which constitute Good
Reason) after a demand for substantial performance is delivered to you by the
chair of the Board which specifically identifies the manner in which you have
not substantially performed your duties and provides for a reasonable period of
time within which you may take corrective actions; or

 

c.                                       your conviction
(including a plea of nolo contendere) of willfully engaging in illegal conduct
constituting a felony or gross misdemeanor under federal or state law which is
materially and demonstrably injurious to the Company or which impairs your
ability to perform substantially your duties for the Company.

 

An act or failure to act
will be considered “gross” or “willful” for this purpose only if done, or
omitted to be done, by you in bad faith and without reasonable belief that it
was in, or not opposed to, the best interests of the Company.  Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Company’s board of
directors (or a committee thereof) or based upon the advice of counsel for the
Company will be conclusively presumed to be done, or omitted to be done, by you
in good faith and in the best interests of the Company.  It is also expressly understood that your
attention to matters not directly related to the business of the Company will
not provide a basis for termination

 

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for Cause so long as the
Board did not expressly disapprove in writing of your engagement in such
activities either before or within a reasonable period of time after the Board
knew or could reasonably have known that you engaged in those activities.  Notwithstanding the foregoing, you may not be
terminated for Cause unless and until there has been delivered to you a copy of
a resolution duly adopted by the affirmative vote of not less than a majority
of the entire membership of the Board at a meeting of the Board called and held
for the purpose (after reasonable notice to you and an opportunity for you,
together with your counsel, to be heard before the Board), finding that in the
good faith opinion of the Board you were guilty of the conduct set forth above
in clauses a., b. or c. of this definition and specifying the particulars
thereof in detail.

 

5.                                       “Change in
Control” means any of the following:

 

a.                                       the sale,
exchange or other transfer, directly or indirectly, of all or substantially all
of the assets of the Company to any Person in one transaction or in a series of
related transactions which occur during the twelve-month period ending on the
date of the most recent purchase or other acquisition by such Person;

 

b.                                      any Person is
or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of (1) 30 percent or more, but not
more than 50 percent, of the combined voting power of the outstanding
securities of the Company ordinarily having the right to vote at elections of
directors, unless the transaction resulting in such ownership has been approved
in advance by the “continuing directors” or (2) more than 50 percent of
the combined voting power of the outstanding securities of the Company ordinarily
having the right to vote at elections of directors (regardless of any approval
by the continuing directors);

 

d.                                      a merger or
consolidation to which the Company is a party if the shareholders of the
Company immediately prior to the effective date of such merger or consolidation
have, solely on account of ownership of securities of the Company at such time,
“beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act)
immediately following the effective date of such merger or consolidation of
securities of the surviving company representing less than 50 percent of the
combined voting power of the surviving corporation’s then outstanding
securities ordinarily having the right to vote at elections of directors
(regardless of any approval by the continuing directors); or

 

e.                                       the continuing
directors cease for any reason to constitute at least a majority of the Board.

 

For purposes of this Section 1(e),
a “continuing director” means any individual who is a member of the Board on October 1,
2009, while he or she is a member of the Board, and any individual who
subsequently becomes a member of the Board whose election or nomination for
election by the Company’s shareholders was approved by a vote of at least a
majority of 

 

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the directors who are
continuing directors (either by a specific vote or by approval of the proxy
statement of the Company in which such individual is named as a nominee for
director without objection to such nomination).

 

In all cases, the
determination of whether a Change in Control has occurred shall be made in
accordance with Code Section 409A and the regulations, notices and other
guidance of general applicability issued thereunder.

 

6.                                       “Code”
means the Internal Revenue Code of 1986, as amended.  Any reference to a specific provision of the
Code includes a reference to such provision as it may be amended from time to
time and to any successor provision.

 

7.                                       “Company”
means Vital Images, Inc. and/or any Affiliate.

 

8.                                       “Confidential
Information” means information which is proprietary to the Company or
proprietary to others and entrusted to the Company, whether or not trade
secrets. It includes information relating to business plans and to business as
conducted or anticipated to be conducted, and to past or current or anticipated
products or services.  It also includes,
without limitation, information concerning research, development, purchasing,
accounting, marketing and selling.  All
information which you have a reasonable basis to consider confidential is
Confidential Information, whether or not originated by you and without regard
to the manner in which you obtain access to that and any other proprietary
information.

 

9.                                       “Date of
Termination” following a Change in Control (or prior to a Change in Control
if your termination was either a condition of the Change in Control or was at
the request or insistence of any Person related to the Change in Control)
means:

 

a.                                       if your
employment is to be terminated for Disability, 30 days after Notice of
Termination is given (provided that you have not returned to the performance of
your duties on a full-time basis during such 30-day period);

 

b.                                      if your
employment is to be terminated by the Company for Cause or by you for Good
Reason, the date specified in the Notice of Termination, which date may not be
less than 30 days or more than 60 days after the date on which the Notice of
Termination is given unless you and the Company otherwise expressly agree;

 

c.                                       if your
employment is to be terminated by the Company for any reason other than Cause,
Disability, death or Retirement, the date specified in the Notice of
Termination, which in no event may be a date earlier than 90 days after the
date on which a Notice of Termination is given, unless an earlier date has been
expressly agreed to by you in writing either in advance of, or after; receiving
such Notice of Termination; or

 

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d.                                      if your
employment is terminated by reason of death or Retirement, the date of death or
Retirement, respectively.

 

In the case of termination
by the Company of your employment for Cause, if you have not previously
expressly agreed in writing to the termination, then within 30 days after
receipt by you of the Notice of Termination with respect thereto, you may
notify the Company that a dispute exists concerning the termination, in which
event the Date of Termination will be the date set either by mutual written
agreement of the parties or by the judge or arbitrators in a proceeding as
provided in Article VII Section 6 of this Agreement.  During the pendency of any such dispute, you
will continue to make yourself available to provide services to the Company and
the Company will continue to pay you your full compensation and benefits in
effect immediately prior to the date on which the Notice of Termination is
given (without regard to any changes to such compensation or benefits which
constitute Good Reason) and until the dispute is resolved in accordance with Article VII
Section 6 of this Agreement.  You
will be entitled to retain the full amount of any such compensation and
benefits without regard to the resolution of the dispute unless the judge or
arbitrators decide(s) that your claim of a dispute was frivolous or
advanced by you in bad faith.

 

10.                                 “Disability”
means a disability as defined in the Company’s long-term disability plan as in
effect immediately prior to the Change in Control or; in the absence of such a
plan, means permanent and total disability as defined in section 22(e)(3) of
the Code.

 

11.                                 “Exchange
Act” means the Securities Exchange Act of 1934, as amended.  Any reference to a specific provision of the
Exchange Act or to any rule or regulation thereunder includes a reference
to such provision as it may be amended from time to time and to any successor
provision.

 

12.                                 “Good Reason”
means:

 

a.                                       change in your status, position(s), duties or responsibilities as an
executive of the Company as in effect immediately prior to the Change in
Control which, in your reasonable judgment, is an adverse change (other than,
if applicable, any such change directly attributable to the fact that the
Company is no longer publicly owned) except in connection with the termination
of your employment for Cause, Disability or Retirement or as a result of your
death or by you other than for Good Reason;

 

b.                                      a reduction by the Company in your base salary (or an adverse change in
the form or timing of the payment thereof) as in effect immediately prior to
the Change in Control or as thereafter increased;

 

c.                                       the failure by
the Company to continue in effect any Plan in which you (and/or your family)
are eligible to participate at any time during the 90-day period immediately
preceding the Change in Control (or Plans providing you (and/or your family)
with at least substantially similar benefits) other than as a result of the
normal expiration 

 

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of any such Plan in
accordance with its terms as in effect immediately prior to the 90-day period
immediately preceding the time of the Change in Control, or the taking of any
action, or the failure to act, by the Company which would adversely affect your
(and/or your family’s) continued eligibility to participate in any of such
Plans on at least as favorable a basis to you (and/or your family) as is the
case on the date of the Change in Control or which would materially reduce your
(and/or your family’s) benefits in the future under any of such Plans or
deprive you (and/or your family) of any material benefit enjoyed by you (and/or
your family) at the time of the Change in Control;

 

d.                                      the Company’s
requiring you to be based more than 30 miles from where your office is located
immediately prior to the Change in Control, except for required travel on the
Company’s business, and then only to the extent substantially consistent with
the business travel obligations which you undertook on behalf of the Company
during the 90-day period immediately preceding the Change in Control (without
regard to travel related to or in anticipation of the Change in Control);

 

e.                                       the failure by
the Company to obtain from any Successor the assent to this Agreement
contemplated by Article VI of this Agreement;

 

f.                                         any purported
termination by the Company of your employment which is not properly effected
pursuant to a Notice of Termination and pursuant to any other requirements of
this Agreement, and for purposes of this Agreement, no such purported
termination will be effective;

 

g.                                      any refusal by
the Company to continue to allow you to attend to matters or engage in
activities not directly related to the business of the Company which, at any
time prior to the Change in Control, you were not expressly prohibited in
writing by the Board from attending to or engaging in; or

 

h.                                      the termination
of your employment by the Company for any reason other than death,  Cause, Disability or Retirement during the
twelve (12) months following the month in which a Change in Control occurs.

 

13.                                 “Notice of
Termination” means a written notice given on or after the date of a Change
in Control (unless your termination before the date of the Change in Control
was either a condition of the Change in Control or was at the request or
insistence of any Person related to the Change in Control) which indicates the
specific termination provision in this Agreement pursuant to which the notice
is given.  Any purported termination by
the Company or by you for Good Reason on or after the date of a Change in
Control (or before the date of a Change in Control if your termination was
either a condition of the Change in Control or was at the request or insistence
of any Person related to the Change in Control) must be communicated by written
Notice of Termination to be effective; provided, that your failure to provide
Notice of Termination will not limit any of your rights under this 

 

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Agreement except to the
extent the Company demonstrates that it suffered material actual damages by
reason of such failure.

 

14.                                 “Person”
means any individual, corporation, partnership, group, association or other “person,”
as such term is used in section 14(d) of the Exchange Act, other than the
Company, any Affiliate or any employee benefit plan(s) sponsored by the
Company or an Affiliate.

 

15.                                 “Plan”
means any compensation plan, program, policy or agreement (such as a stock
option, restricted stock plan or other equity-based plan), any bonus or
incentive compensation plan, program, policy or agreement, any employee benefit
plan, program, policy or agreement (such as a thrift, pension, profit sharing,
medical, dental, disability, accident, life insurance, relocation, salary
continuation, expense reimbursements, vacation or fringe benefits plan or
policy) or any other plan, program, policy or agreement of the Company intended
to benefit employees (and/or their families) generally, management employees
(and/or their families) as a group or you (and/or your family) in particular.

 

16.                                 “Retirement”
means termination of employment on or after the day on which you attain the age
of 65.

 

17.                                 “Successor”
means any Person that succeeds to, or has the practical ability to control
(either immediately or solely with the passage of time), the Company’s business
directly, by merger, consolidation or other form of business combination, or
indirectly, by purchase of the Company’s outstanding securities ordinarily
having the right to vote at the election of directors or, all or substantially
all of its assets or otherwise.

 

ARTICLE II.

TERM OF AGREEMENT

 

This Agreement is effective immediately and will
continue in effect until October 1, 2010; provided, however; that
commencing on October 1, 2010 and each October 1st thereafter, the term of this
Agreement will automatically be extended for 12 additional months beyond the
expiration date otherwise then in effect, unless at least 90 calendar days
prior to any such October 1st, the
Company or you has given notice that this Agreement will not be extended; and,
provided, further; that if a Change in Control has occurred during the term of
this Agreement, this Agreement will continue in effect beyond the termination
date then in effect for a period of 12 months following the month during which
the Change in Control occurs or, if later, until the date on which the Company’s
obligations to you arising under or in connection with this Agreement have been
satisfied in full.

 

ARTICLE III.

CHANGE IN CONTROL BENEFITS

 

1.                                       Benefits upon a
Change in Control Termination.  You will become entitled to the payments and
benefits described in clauses (a) and (b) of this Section 1 of Article III,
subject to the 

 

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limitations described in
clause (c) of this Section 1 of Article III, and to the benefit
of the provisions described in clause (c), if and only if (i) your
employment with the Company is terminated by the Company for any reason other
than death, Cause, Disability or Retirement, or if you terminate your
employment with the Company for Good Reason; and (ii) the termination
occurs either within the period beginning on the date of a Change in Control
and ending on the last day of the twelfth month that begins after the month
during which the Change in Control occurs or prior to a Change in Control if
your termination was either a condition of the Change in Control or was at the
request or insistence of a Person related to the Change in Control.

 

a.                                       Cash Payment.  Within ten (10) business days following
the Date of Termination or, if later, within ten (10) business days
following the date of the Change in Control, the Company will make a lump-sum
cash payment to you in an amount equal to your annual base salary in effect on
the date of the Change in Control.

 

b.                                      Welfare Plans. The Company
will maintain in full force and effect, for the continued benefit of you and
your dependents for a period terminating 24 months after the Date of
Termination, all insured and self-insured employee welfare benefit Plans
(including, without limitation, medical, life, dental, vision and disability
plans) in which you were eligible to participate at any time during the 90-day
period immediately preceding the Change in Control, provided that your
continued participation is possible under the general terms and provisions of
such Plans and any applicable funding media and without regard to any
discretionary amendments to such Plans by the Company following the Change in
Control (or prior to the Change in Control if amended as a condition or at the
request or insistence of a Person (other than the Company) related to the
Change in Control) and provided that you continue to pay an amount equal to
your regular contribution under such Plans for such participation (based upon
your level of benefits and employment status most favorable to you at any time
during the 90-day period immediately preceding the Change in Control).  The continuation period under federal and
state continuation laws, to the extent applicable, will begin to run from the
date on which coverage pursuant to this clause (b) ends.  If, at the end of the 24-month period, you
have not previously received or are not then receiving equivalent benefits from
a new employer (including coverage for any pre-existing conditions), the
Company, pursuant to federal and state law, will provide, for a period of
eighteen (18) months (the “COBRA Period”), a continuation of your and your
dependents’ coverage under such Plans (the “COBRA Coverage”), provided that you
will be required to pay for such benefits during the COBRA Period, should you
elect to receive COBRA Coverage.

 

c.                                       Limitation on
Payments and Benefits. 
Notwithstanding anything in this Agreement to the contrary, if any of
the payments or benefits to be made or provided in connection with this
Agreement, together with any other payments, benefits or awards which you have
the right to receive from the Company, or any corporation

 

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which is a member of an “affiliated
group” (as defined in section 1504(a) of the Code without regard to
section 1504(b) of the Code) of which the Company is a member (“Affiliate”),
constitute an “excess parachute payment” (as defined in section 280G(b) of
the Code), two calculations will be performed. 
In the first calculation, the payments, benefits or awards will be
reduced by the amount the Company deems necessary so that none of the payments
or benefits under the Agreement (including from the existing Stock Option and
Incentive Plan) are excess parachute payments. 
In the second calculation, the payments will not be reduced so as to
eliminate an excess parachute payment, but will be reduced by the amount of the
applicable excise tax as imposed by section 4999 of the Code.  The two calculations will be compared and the
calculation providing the largest net payment to the employee will be
utilized.  The calculations must be made in
good faith by legal counsel or a certified public accountant selected by the
Company, and such determination will be conclusive and binding upon you and the
Company.  If a reduction in payments or
benefits is required by the comparison above, the payments or benefits under
the Agreement shall be reduced in the order that minimizes the amount of total
reduction in payments and benefits under the Agreement as a result of this
provision.

 

d.                                      409A
Restrictions. 
Notwithstanding the foregoing, if any of the payments or other benefits
described in this Article III are subject to the requirements of Code Section 409A
and the Company determines that you are a “specified employee” as defined in
Code Section 409A as of the Date of Termination, such payments shall not
be paid or commence earlier than the first day of the seventh month following
the Date of Termination.

 

2.                                       Disposition.  If, on or after the date of a Change in
Control, an Affiliate is sold, merged, transferred or in any other manner or
for any other reason ceases to be an Affiliate or all or any portion of the
business or assets of an Affiliate are sold, transferred or otherwise disposed
of and the acquiror is not the Company or an Affiliate (a “Disposition”), and
you remain or become employed by the acquiror or an affiliate of the acquiror
(as defined in this Agreement but substituting “acquiror” for “Company”) in
connection with the Disposition, you will be deemed to have terminated
employment on the effective date of the Disposition for purposes of this
section unless (a) the acquiror and its affiliates jointly and severally expressly
assume and agree, in a manner that is enforceable by you, to perform the
obligations of this Agreement to the same extent that the Company would be
required to perform if the Disposition had not occurred and (b) the
Successor guarantees, in a manner that is enforceable by you, payment and
performance by the acquiror.  This Section 2
of Article III shall be applied in accordance with Code Section 409A
and the regulations, notices and other guidance of general applicability issued
thereunder.

 

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ARTICLE
IV.

INDEMNIFICATION

 

Following a Change in Control, the Company
will indemnify and reimburse you to the full extent permitted by law and the
Company’s articles of incorporation and bylaws for damages, costs and expenses
(including, without limitation, judgments, fines, penalties, settlements and
reasonable fees and expenses of your counsel) incurred in connection with all
matters, events and transactions relating to your service to or status with the
Company or any other corporation, employee benefit plan or other entity with
whom you served at the request of the Company.

 

ARTICLE
V.

CONFIDENTIALITY

 

You will not use, other than in connection
with your employment with the Company, or disclose any Confidential Information
to any person not employed by the Company or not authorized by the Company to
receive such Confidential Information, without the prior written consent of the
Company; and you will use reasonable and prudent care to safeguard and protect and
prevent the unauthorized disclosure of Confidential Information. Nothing in
this Agreement will prevent you from using, disclosing or authorizing the
disclosure of any Confidential Information: (a) which is or hereafter
becomes part of the public domain or otherwise becomes generally available to
the public through no fault of yours; (b) to the extent and upon the terms
and conditions that the Company may have previously made the Confidential
Information available to certain persons; or (c) to the extent that you
are required to disclose such Confidential Information by law or judicial or
administrative process.

 

ARTICLE
VI.

SUCCESSORS

 

The Company will seek to have any Successor,
by agreement in form and substance satisfactory to you, assent to the fulfillment
by the Company of the Company’s obligations under this Agreement. Failure of
the Company to obtain such assent at least three business days prior to the
time a Person becomes a Successor (or where the Company does not have at least
three business days’ advance notice that a Person may become a Successor,
within one business day after having notice that such Person may become or has
become a Successor) will constitute Good Reason for termination by you of your
employment.  The date on which any such succession
becomes effective will be deemed the Date of Termination and Notice of
Termination will be deemed to have been given on that date.  A Successor has no rights, authority or power
with respect to this Agreement prior to a Change in Control.

 

ARTICLE
VII.

OTHER
PROVISIONS

 

1.                                       Binding
Agreement.  This
Agreement inures to the benefit of, and is enforceable by, you, your personal
and legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you die while any amount would still be
payable to you under this Agreement if you had continued to live, all such
amounts, unless otherwise 

 

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provided in this Agreement,
will be paid in accordance with the terms of this Agreement to your devisee,
legatee or other designee or; if there be no such designee, to your estate.

 

2.                                       No Mitigation.  You will not be required to mitigate the
amount of any payments or benefits the Company becomes obligated to make or
provide to you in connection with this Agreement by seeking other employment or
otherwise. The payments or benefits to be made or provided to you in connection
with this Agreement may not be reduced, offset or subject to recovery by the
Company by any payments or benefits you may receive from other employment or
otherwise.

 

3.                                       No Setoff.  The Company has no right to delay or setoff
payments or benefits owed to you under this Agreement against amounts owed or
claimed to be owed by you to the Company under this Agreement or otherwise.

 

4.                                       Taxes.  All payments and benefits to be made or
provided to you in connection with this Agreement will be subject to required
withholding of federal, state and local income, excise and employment-related
taxes.

 

5.                                       Notices.  For the purposes of this Agreement, notices
and all other communications provided for in, or required under, this Agreement
must be in writing and will be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified mail, return
receipt requested, postage prepaid and addressed to each party’s respective
address set forth on the first page of this Agreement (provided that all
notices to the Company must be directed to the attention of the chair of the
Board), or to such other address as either party may have furnished to the
other in writing in accordance with these provisions, except that notice of
change of address will be effective only upon receipt.

 

6.                                       Disputes.  If you so elect, any dispute, controversy or
claim arising under or in connection with this Agreement will be settled
exclusively by binding arbitration administered by the American Arbitration
Association in Minneapolis, Minnesota in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in
effect.  Judgment may be entered on the
arbitrator’s award in any court having jurisdiction; provided, that you may
seek specific performance of your right to receive payment or benefits until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.  The Company will be entitled to seek an
injunction or restraining order in a court of competent jurisdiction (within or
without the State of Minnesota) to enforce the provisions of Article V of
this Agreement.

 

7.                                       Jurisdiction.  Except as specifically provided otherwise in
this Agreement, the parties agree that any action or proceeding arising under
or in connection with this Agreement must be brought in a court of competent
jurisdiction in the State of Minnesota, and hereby consent to the exclusive
jurisdiction of said courts for this purpose and agree not to assert that such
courts are an inconvenient forum

 

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8.                                       Related
Agreements.  To the
extent that any provision of any other Plan or agreement between the Company
and you limits, qualifies or is inconsistent with any provision of this
Agreement, then for purposes of this Agreement, while such other Plan or
agreement remains in force, the provision of this Agreement will control and
such provision of such other Plan or agreement will be deemed to have been
superseded, and to be of no force or effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose.  Nothing in this Agreement prevents or limits
your continuing or future participation in any Plan provided by the Company and
for which you may qualify, and nothing in this Agreement limits or otherwise
affects the rights you may have under any Plans or other agreements with the
Company.  Amounts which are vested
benefits or which you are otherwise entitled to receive under any Plan or other
agreement with the Company at or subsequent to the Date of Termination will be
payable in accordance with such Plan or other agreement.

 

9.                                       No Employment
or Service Contract.  Nothing in
this Agreement is intended to provide you with any right to continue in the
employ of the Company for any period of specific duration or interfere with or
otherwise restrict in any way your rights or the rights of the Company, which
rights are hereby expressly reserved by each, to terminate your employment at
any time for any reason or no reason whatsoever, with or without cause.

 

10.                                 Funding and
Payment.  Benefits payable under this
Agreement will be paid only from the general assets of the Company.  No person has any right to or interest in any
specific assets of the Company by reason of this Agreement.  To the extent benefits under this Agreement
are not paid when due to any individual, he or she is a general unsecured
creditor of the Company with respect to any amounts due.  The Company with whom you were employed
immediately before your Date of Termination has primary responsibility for
benefits to which you or any other person are entitled pursuant to this
Agreement but to the extent such Company is unable or unwilling to provide such
benefits, the Company and each other Affiliate are jointly and severally
responsible therefor to the extent permitted by applicable law.  If you were simultaneously employed by more
than one Company immediately before your Date of Termination, each such Company
has primary responsibility for a portion of the benefits to which you or any
other person are entitled pursuant to this Agreement that bears the same ratio
to the total benefits to which you or such other person are entitled pursuant
to this Agreement as your base pay from the Company immediately before your
Date of Termination bears to your aggregate base pay from all such Companies.

 

11.                                 Survival.  The respective obligations of, and benefits
afforded to, the Company and you which by their express terms or clear intent
survive termination of your employment with the Company or termination of this
Agreement, as the case may be, including without limitation the provisions of
Articles III, IV, V and VI and Sections 3, 4, 5 and 6 of Article VII of
this Agreement, will survive termination of your employment with the Company or
termination of this Agreement, as the case may be, and will remain in full
force and effect according to their terms.

 

12

 

ARTICLE
VIII.

MISCELLANEOUS

 

1.                                       Modification
and Waiver.  No
provision of this Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in a writing signed by you and
the chair of the Board. No waiver by any party to this Agreement at any time of
any breach by another party to this Agreement of, or of compliance with, any
condition or provision of this Agreement to be performed by such party will be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. 
Notwithstanding anything in this Agreement to the contrary, the Company
expressly reserves the right to amend this Agreement to the extent necessary to
comply with Code Section 409A, as it may be amended from time to time, and
the regulations, notices and other guidance of general applicability issued
thereunder.

 

2.                                       Entire Agreement.  No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter to this
Agreement have been made by any party which are not expressly set forth in this
Agreement.

 

3.                                       Governing Law.  This Agreement and the legal relations among
the parties as to all matters, including, without limitation, matters of
validity, interpretation, construction, performance and remedies, will be
governed by and construed exclusively in accordance with the internal laws of
the State of Minnesota (without regard to the conflict of laws principles of
any jurisdiction).

 

4.                                       Headings.  Headings are for purposes of convenience only
and do not constitute a part of this Agreement.

 

5.                                       Further Acts.  The parties to this Agreement agree to perform,
or cause to be performed, such further acts and deeds and to execute and
deliver or cause to be executed and delivered, such additional or supplemental
documents or instruments as may be reasonably required by the other party to
carry into effect the intent and purpose of this Agreement.

 

6.                                       Severability.  The invalidity or unenforceability of all or
any part of any provision of this Agreement will not affect the validity or
enforceability of the remainder of such provision or of any other provision of
this Agreement, which will remain in full force and effect.

 

7.                                       Counterparts.  This Agreement may be executed in several
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same instrument.

 

This agreement supersedes and succeeds the
Canadian employment agreements signed on August 13, 2009 titled EMPLOYEE
OFFER LETTER and the CONFIDENTIALITY, ASSIGNMENT 

 

13

 

AND NON-COMPETITION AGREEMENT.  The Canadian employment agreements will no
longer be of effect between the parties as of the date of effectiveness of this
agreement.

 

If this letter correctly sets forth our
agreement on the subject matter discussed above, kindly sign and return to the
Company the enclosed copy of this letter which will then constitute our
agreement on this subject.

 

	
  Sincerely,

  	
   

  
	
   

  	
  VITAL IMAGES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael H. Carrel

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Michael H. Carrel

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President & CEO

  
	
   

  	
   

  	
   

  
	
   

  	
  Agreed to this 25th day of September, 2009.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Aaron Akyuz

  
	
   

  	
  Aaron
  Erkan Akyuz

  

 

14Exhibit 10.1

 

SECURITIES
PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”)
is dated as of March 16, 2010 between SouthWest Water Company, a Delaware
corporation (the “Company”), and SW Merger Acquisition Corp., a Delaware
corporation (the “Parent”).

 

WHEREAS, the Company, the Parent and SW Merger Sub
Corp., a Delaware corporation, are parties to that certain Agreement and Plan
of Merger dated March 2, 2010 (the “Merger Agreement”); and

 

WHEREAS, subject to the terms and conditions set forth
in this Agreement and pursuant to Section 4(2) of the Securities Act,
and Rule 506 promulgated thereunder, the Company desires to issue and sell
to the Parent, and the Parent desires to purchase from the Company, securities
of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and the Parent agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1       Definitions.  In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined
herein have the meanings given to such terms in the Merger Agreement, and (b) the
following terms have the meanings set forth in this Section 1.1:

 

“Affiliate” means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 405 under the Securities Act.

 

“Board of Directors”
means the board of directors of the Company.

 

“Business Day”
means any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental
action to close.

 

“Closing” means
the closing of the purchase and sale of the Purchased Stock pursuant to Section 2.1.

 

“Closing Date”
means the date of this Agreement, which is the date upon which the Closing
shall occur.

 

“Commission” means
the Securities and Exchange Commission.

 

 

“Common Stock”
means the common stock of the Company, par value $0.01 per share.

 

“Company Disclosure
Schedule” shall mean the Company’s disclosure schedule attached to the
Merger Agreement, as defined in the introductory paragraph of Article III
of the Merger Agreement.

 

“Company Material
Adverse Effect” shall have the meaning ascribed to such term in the Merger
Agreement, except that the references in such definition to “the Merger” or “this
Agreement” shall instead be deemed to refer to “the sale of the Purchased Stock”
and “this Agreement,” as such terms are defined herein, respectively.

 

“Effective Date”
means the date that the initial Registration Statement filed by the Company
pursuant to the Investor Rights Agreement is first declared effective by the
Commission.

 

“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

 

“Indemnified Party”
shall have the meaning ascribed to such term in Section 4.5.

 

“Investor Rights
Agreement” means the Investor Rights Agreement, dated the date hereof,
between the Company and the Parent.

 

“Liens” means a
lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.

 

“Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.

 

“Purchase Price”
shall have the meaning ascribed to such term in Section 2.1.

 

“Purchased Stock”
shall have the meaning ascribed to such term in Section 2.1.

 

“Registration
Statement” means a registration statement meeting the requirements set
forth in the Investor Rights Agreement and covering the resale of the Purchased
Stock by the Parent, as provided for in the Investor Rights Agreement.

 

“Representatives”
means, with respect to any Person, such Person’s officers, directors,
employees, accountants, auditors, attorneys, consultants, legal counsel,
agents, investment bankers, financial advisors and other representatives.

 

“Rule 144”
means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.

 

2

 

“Securities Act”
means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Short Sales”
means all “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).

 

“Subsidiary” means
any subsidiary of the Company.

 

“Trading Day”
means a day on which the NASDAQ Global Select Market is open for trading.

 

“Trading Market”
means the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: 
the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global
Select Market, or the New York Stock Exchange.

 

“Transaction Documents”
means this Agreement, the Investor Rights Agreement, all exhibits and schedules
hereto and thereto and any other documents or agreements executed in connection
with the sale of the Purchased Stock.

 

“Transfer Agent”
means the Company’s then current transfer agent.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1       Closing.  On the Closing Date, the Company agrees to
sell, and the Parent agrees to purchase, 2,700,000 shares of Common Stock (the “Purchased
Stock”) for a per share purchase price of Six Dollars ($6.00), or an
aggregate purchase price of Sixteen Million Two Hundred Thousand Dollars
($16,200,000) (the “Purchase Price”). 
The Parent shall deliver to the Company, via wire transfer, immediately
available funds equal to the Purchase Price and the Company shall deliver to
the Parent the Purchased Stock, and the Company and the Parent shall deliver
the other items set forth in Section 2.2 deliverable at the Closing.  Upon satisfaction of the conditions set forth
in Sections 2.2 and 2.3, the Closing shall occur at the offices of Locke Lord
Bissell & Liddell LLP, 300 S. Grand Avenue, Suite 2600, Los
Angeles, California  90071, or such other
location as the parties shall mutually agree.

 

2.2       Deliveries.On the Closing Date,
the Company shall deliver or cause to be delivered to the Parent the following:

 

(i)         this
Agreement duly executed by the Company;

 

(ii)        the
Investor Rights Agreement duly executed by the Company;

 

(iii)       the
certificate referenced in Section 2.3(b)(i), executed by the Company’s
chief executive officer and chief financial officer; and

 

(iv)       the
stock certificate or other instrument evidencing the Purchased

 

3

 

Stock.

 

(b)        On the Closing Date,
the Parent shall deliver or cause to be delivered to the Company the following:

 

(i)         this Agreement duly
executed by the Parent;

 

(ii)        the Purchase Price by
wire transfer to such account as is specified in writing by the Company; and

 

(iii)       the Investor Rights
Agreement duly executed by the Parent.

 

2.3       Closing Conditions.

 

(a)         The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:

 

(i)         the accuracy in all
material respects on the Closing Date of the representations and warranties of
the Parent contained in Section 3.2 hereof;

 

(ii)        all obligations,
covenants and agreements of the Parent required to be performed under this
Agreement at or prior to the Closing Date shall have been performed in all
material respects; and

 

(iii)       the delivery by the
Parent of the items set forth in Section 2.2(b) of this Agreement.

 

(b)         The
obligations of the Parent hereunder in connection with the Closing are subject
to the following conditions being met:

 

(i)         Except as set forth on
Schedule A attached hereto and subject to the qualifications and modifications
set forth in the introductory paragraph of Article III of the Merger
Agreement and without giving effect to the 
Transaction Documents and the transactions contemplated thereby, each of
the representations and warranties of the Company (i) set forth in Section 3.8
of the Merger Agreement (Absence of Certain Changes or Events) shall be true
and correct in all respects as of the Closing Date as if made at and as of the
Closing Date, (ii) set forth in Section 3.1(a) of the Merger
Agreement (Organization and Qualification) and Section 3.3 of the Merger
Agreement (Capitalization), disregarding all qualifications contained therein
relating to materiality or Company Material Adverse Effect, shall be true and
correct in all material respects as of the Closing Date as if made at or as of
the Closing Date (or, if given as of a specific date, at and as of such date),
and (iii) set forth in Article III of the Merger Agreement (other
than the Sections of Article III of the Merger Agreement described in
clauses (i) and (ii) above, and other than Sections 3.4, 3.5, 3.18,
3.19, 3.20, 3.21 and 3.25 of the Merger Agreement (with respect to which no
representations or warranties are made herein)), disregarding all
qualifications contained therein relating to materiality or Company Material
Adverse Effect, shall have been true

 

4

 

and correct when
made and shall be true and correct at and as of the Closing Date as if made at
and as of the Closing Date (except for any such representations and warranties
that expressly speak only as of a specific date or time, which only need to be
so true and correct as of such date or time), in each case except where the
failure of such representations and warranties to be so true and correct has
not had and would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, and the Parent shall have
received a certificate signed on behalf of the Company by its chief executive
officer and its chief financial officer to such effect;

 

(ii)        the accuracy of the
representations and warranties of the Company contained in Section 3.1
hereof, in each case except where the failure of such representations and
warranties to be accurate has not had and would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect;

 

(iii)       all obligations,
covenants and agreements of the Company required to be performed under this
Agreement at or prior to the Closing Date shall have been performed in all
material respects; and

 

(iv)       the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement.

 

ARTICLE III.

REPRESENTATIONS
AND WARRANTIES

 

3.1       Representations and Warranties of the Company.  The
Company hereby makes the following representations and warranties as of the
Closing Date to the Parent:

 

(a)        Issuance
of the Purchased Stock.  The
Purchased Stock is duly authorized and, when issued and paid for in accordance
with this Agreement, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company, other than
the restrictions on transfer provided for in this Agreement, the Investor
Rights Agreement and the Merger Agreement.

 

(b)        Authority
Relative to the Sale of the Purchased Stock.  The Company has all necessary corporate power
and authority to execute and deliver the Transaction Documents, to perform its
obligations thereunder, and to consummate the sale of the Purchased Stock and
other transactions contemplated thereby. 
The execution and delivery by the Company of the Transaction Documents
and the consummation by the Company of the purchase of the Purchased Stock and
other transactions contemplated thereby have been duly and validly authorized
by all necessary corporate action, and no other corporate proceedings on the
part of the Company are necessary to authorize the Transaction Documents or to
consummate the sale of the Purchased Stock and other transactions contemplated
thereby.  The Transaction Documents have
been duly and validly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by the Parent, constitute the legal,
valid and binding obligation of

 

5

 

the Company, enforceable against the Company in
accordance with their terms, subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting
creditors’ rights generally, the effect of general principles of equity
(regardless of whether considered in a proceeding at law or in equity) and
discretion of any Governmental Authority (as hereinafter defined) before which
a proceeding is brought.  The Board of
Directors, at a meeting duly called and held, has (i) approved and
declared advisable the Transaction Documents and the sale of the Purchased
Stock and other transactions contemplated thereby (such approval and
declaration having been made in accordance with the DGCL) and (ii) approved
the execution, delivery and performance of the Transaction Documents and the
consummation by the Company of the transactions contemplated thereby, including
the issuance, sale and delivery of the Purchased Stock.

 

(c)        No
Conflict.  The execution and delivery
by the Company of the Transaction Documents do not, and the performance by the
Company of the Transaction Documents will not, (i) conflict with or
violate the charter of the Company (as currently in effect, the Restated
Certificate of Incorporation dated May 12, 2005, as amended by the
Certificate of Amendment to the Restated Certificate of Incorporation dated May 20,
2008), the bylaws of the Company (as currently in effect, the Amended and
Restated Bylaws dated December 31, 2001, as amended by Amendment No. 2
effective February 12, 2004, Amendment No. 3 effective May 16,
2006, Amendment No. 4 effective December 11, 2006, Amendment No. 5
effective May 20, 2008 and Amendment No. 6 effective August 10,
2009) or the charter or bylaws or similar organizational document of any
Subsidiary, (ii) conflict with or violate any statute, law, ordinance,
regulation, rule or code (each, a “Law”) or any order, judgment or
decree (each, an “Order”) applicable to the Company or any Subsidiary or
by which any property, right or asset of the Company or any Subsidiary is bound
or affected, or (iii) except as set forth in Section 3.5(a) of
the Company Disclosure Schedule, result in any breach of, constitute a default
(or an event which, with notice or lapse of time or both, would become a
default), or loss of a benefit,  under,
or give to others any right of termination, amendment, acceleration or
cancellation of, or result in an alteration of the rights under, or the
creation of a Lien on any property, right or asset of the Company or any
Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Subsidiary is a party or by which the Company or
any Subsidiary or any property, right or asset of either of them is bound or
affected, except, with respect to clause (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which has not had and would
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.

 

(d)        Required
Filings and Consents.  The execution
and delivery by the Company of the Transaction Documents do not, and the
performance by the Company of the Transaction Documents and the transactions contemplated
thereby will not, require any consent, approval, order, registration with,
declaration,  authorization or permit of,
or filing with or notification to, any United States federal, state, county or
local government, governmental, regulatory or administrative authority, agency,
instrumentality or commission or any court, tribunal, or judicial or arbitral
body (including (x) a state public utility commission, state public
service commission or similar state regulatory body or

 

6

 

(y) any departments of public health or
departments of health or similar state regulatory bodies or body having
jurisdiction over environmental protection or environmental conservation or
similar matters under applicable Laws) (any of the foregoing, a “Governmental
Authority”), except (i) filings required pursuant to Section 4.3,
(ii) the filing with the Commission of the Registration Statement (and any
amendments or other filings related thereto, including a prospectus or prospectus
supplement), (iii) the notice and/or application(s) to each
applicable Trading Market for the issuance and sale of the Purchased Stock and
the listing of the Purchased Stock for trading thereon in the time and manner
required thereby, (iv) the filing of Form D with the Commission and
such filings as are required to be made under applicable state securities laws.

 

(e)        Certain
Fees.  No brokerage or finder’s fees
or commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement.  The Parent shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this paragraph that
may be due in connection with the transactions contemplated by this Agreement

 

(f)         Private
Placement.  Assuming the accuracy of
the Parent’s  representations and
warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Purchased Stock by the Company to
the Parent as contemplated hereby.

 

(g)        Investment
Company. The Company is not, and is not an Affiliate of, and immediately
after receipt of payment for the Purchased Stock, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.  The
Company shall conduct its business in a manner so that it will not become subject
to the Investment Company Act of 1940, as amended.

 

(h)        Listing
and Maintenance Requirements.  The
Common Stock is registered pursuant to Section 12(b) of the Exchange
Act, and except as contemplated by the Merger Agreement the Company has taken
no action designed to terminate the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is currently contemplating terminating such registration.

 

(i)         Application
of Takeover Protections.  The Company
and the Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation or federal
laws in the U.S. that is or could become applicable to the Parent as a result
of the Parent and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation as a
result of the Company’s issuance of the Purchased Stock and the Parent’s
ownership of the Purchased Stock.

 

7

 

(j)         No Integrated Offering. Assuming
the accuracy of the Parent’s representations and warranties set forth in Section 3.2,
neither the Company, nor any of its Affiliates, nor any Person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would cause this offering of the Purchased Stock to be integrated with prior
offerings by the Company for purposes of (i) the Securities Act which
would require the registration of any such securities under the Securities Act,
or (ii) any applicable shareholder approval provisions of any Trading
Market on which any of the securities of the Company are listed or designated.

 

(k)        No
General Solicitation. Neither the Company nor any Person acting on behalf
of the Company has offered or sold any of the Purchased Stock by any form of
general solicitation or general advertising. 
The Company has offered the Purchased Stock for sale only to the Parent.

 

(l)         No
Other Representation or Warranty. The Company acknowledges and agrees that,
except for the representations and warranties made by Parent that are expressly
set forth in Section 3.2 of this Agreement, Parent does not make, and has
not made, any representations or warranties in connection with the purchase of
the Purchased Stock and the transactions contemplated hereby.  Except as expressly set forth herein, no
Person has been authorized by Parent to make any representation or warranty relating
to Parent or its respective businesses, or otherwise in connection with the
purchase of the Purchased Stock and the transactions contemplated hereby and,
if made, such representation or warranty may not be relied upon as having been
authorized by Parent.

 

3.2       Representations and Warranties of the
Parent.  The Parent represents and
warrants as of the Closing Date to the Company as follows:

 

(a)        Organization; Authority.  The Parent is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution
and delivery of the Transaction Documents and performance by the Parent of the
transactions contemplated by the Transaction Documents have been duly
authorized by all necessary corporate or similar action on the part of the
Parent.  Each Transaction Document to
which it is a party has been duly executed by the Parent, and when delivered by
the Parent in accordance with the terms hereof, will constitute the valid and
legally binding obligation of the Parent, enforceable against it in accordance
with its terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ rights
generally and subject to the effect of general principles of equity (regardless
of whether considered in a proceeding at law or in equity).

 

(b)        Authority Relative to the Purchase of
the Purchased Stock.  The Parent has
all necessary corporate power and authority to execute and deliver the
Transaction Documents, to perform its obligations thereunder, and to consummate
the purchase of the Purchased Stock and other transactions contemplated
thereby.  The execution and

 

8

 

delivery by the
Parent of the Transaction Documents and the consummation by the Parent of the
purchase of the Purchased Stock and other transactions contemplated thereby
have been duly and validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of the Parent are necessary to
authorize the Transaction Documents or to consummate the purchase of the
Purchased Stock and other transactions contemplated thereby.  The Transaction Documents have been duly and
validly executed and delivered by the Parent and, assuming the due
authorization, execution and delivery by the Company, constitute the legal,
valid and binding obligation of the Parent, enforceable against the Parent in
accordance with their terms, subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting
creditors’ rights generally, the effect of general principles of equity
(regardless of whether considered in a proceeding at law or in equity) and
discretion of any Governmental Authority before which a proceeding is
brought.  The Parent’s board of
directors, at a meeting duly called and held, has (i) approved and
declared advisable the Transaction Documents and the purchase of the Purchased
Stock and other transactions contemplated thereby (such approval and
declaration having been made in accordance with the DGCL) and (ii) approved
the execution, delivery and performance of the Transaction Documents and the
consummation by the Parent of the transactions contemplated thereby, including
the purchase of the Purchased Stock.

 

(c)        No Conflict.  The execution and delivery by the Parent of
the Transaction Documents do not, and the performance by the Parent of the
Transaction Documents will not, (i) conflict with or violate the charter
or the bylaws of the Parent, (ii) conflict with or violate any Law or Order
applicable to the Parent or by which any property, right or asset of the Parent
is bound or affected, or (iii) result in any breach of, constitute a
default (or an event which, with notice or lapse of time or both, would become
a default), or loss of a benefit, under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in an
alteration of the rights under, or the creation of a Lien on any property,
right or asset of the Parent pursuant to, any contract or obligation to which
the Parent is a party or by which the Parent or any property, right or asset of
Parent is bound or affected.

 

(d)        Required Filings and Consents.  The execution and delivery by the Parent of
the Transaction Documents do not, and the performance by the Parent of the
Transaction Documents and the transactions contemplated thereby will not,
require any consent, approval, order, registration with, declaration,
authorization or permit of, or filing with or notification to, any Governmental
Authority, except the filing with the Commission of an amendment to the Parent’s
recently filed Schedule 13D and the filing of a Form 4.

 

(e)        Own Account.  The Parent understands that the Purchased
Stock constitutes “restricted securities” within the meaning of the Securities
Act and has not been registered under the Securities Act or any applicable
state securities law, and the Parent is acquiring the Securities Act as
principal for its own account and not with a view to or for distributing or
reselling such Purchased Stock or any part thereof in violation of the
Securities Act or any applicable state securities law, has no present intention
of distributing any of such Purchased Stock in violation of the Securities Act
or any

 

9

 

applicable state
securities law and has no direct or indirect arrangements or understandings
with any other Persons to distribute or regarding the distribution of such
Purchased Stock (this representation and warranty not limiting the Parent’s
right to sell the Purchased Stock pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws) in
violation of the Securities Act or any applicable state securities law.

 

(f)         Parent
Status.  At the time the Parent was
offered the Purchased Stock, it was, and at the date hereof it is:  (i) an “accredited investor” as defined
in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under
the Securities Act.  The Parent is not
required to be registered as a broker-dealer under Section 15 of the
Exchange Act.

 

(g)        General
Solicitation.  The Parent is not
purchasing the Purchased Stock as a result of any advertisement, article,
notice or other communication regarding the Purchased Stock published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.

 

(h)        Short
Sales and Confidentiality Prior to the Date Hereof.  Other than consummating the transactions
contemplated hereunder, the Parent has not directly or indirectly, nor has any
Person acting on behalf of or pursuant to any understanding with the Parent,
executed any purchases or sales, including Short Sales, of the securities
of the Company during the period commencing from the time that the Parent first
proposed purchasing the Purchased Stock from the Company until the date hereof.

 

(i)         Brokers.  No broker, finder, investment banker or other
firm or Person is entitled to any brokerage, finder’s or other fee or
commission in connection with the offer and sale of the Purchased Stock or the
other transactions contemplated herein based upon arrangements made by or on
behalf of Parent for which the Company could have any liability.

 

(j)         Ownership
of Company Stock.  As of the date of
this Agreement, neither Parent nor any Affiliate of Parent beneficially owns
any shares of Common Stock, except that Water Asset Management, LLC
beneficially owns 1,173,969 shares of Common Stock.

 

(k)        Investigation
and Agreement by Parent; No Other Representations or Warranties.  Parent acknowledges and agrees that it has
made its own inquiry and investigation into, and, based thereon, has formed an
independent judgment concerning the Company and its Subsidiaries and their
businesses and operations.  Parent
acknowledges and agrees that it has had an opportunity to ask all questions of
and receive answers from the Company with respect to the Transaction Documents
and the transactions contemplated by the Transaction Documents.  Parent acknowledges and agrees that, except
as expressly set forth in the Transaction Documents, neither the Company or any
of its Subsidiaries, nor any of their respective Representatives, will have or
be subject to any liability or indemnification obligation to Parent, any of its

 

10

 

Representatives, or any other Person resulting from
the delivery, dissemination or any other distribution to Parent or any other
Person, or the use by Parent or any other Person, of any such information
provided or made available to them by or on behalf of the Company, its
Subsidiaries, or their respective Representatives, including any information,
documents, projections, forecasts, estimates, or other forward-looking
information, business plans, or other material provided for or made available
to Parent or any of its Representatives in any physical or on-line data rooms,
confidential information memoranda or in-person presentations or
teleconferences in connection with the transactions contemplated by the
Transactions Documents.  Parent
acknowledges and agrees that, except for the representations and warranties
made by the Company pursuant to Section 2.3(b)(i) or 3.1 of this
Agreement, the Company does not make, and has not made, and Parent has not
relied upon, any representation, warranty or statements by any Person on behalf
of the Company or any of its Subsidiaries in connection with the purchase of
the Purchased Stock and the transactions contemplated hereby.  Except as expressly set forth herein, no
Person has been authorized by the Company to make any representation or
warranty relating to the Company or any of its Subsidiaries or their respective
businesses, or otherwise in connection with the Transaction Documents and the
transactions contemplated thereby, and, if made, such representation or
warranty may not be relied upon as having been authorized by the Company.  Without limiting the generality of the
foregoing, Parent acknowledges and agrees that, except as provided pursuant to Section 2.3(b)(i) or
3.1 hereof, neither the Company or any of its Subsidiaries, nor any of their
respective Representatives, makes or has made any representation or warranty to
Parent or any of its Representatives or affiliates with respect to:

 

(i)         any forward-looking information such as
projections, forecasts, estimates, plans or budgets of future revenues,
expenses or expenditures, future results of operations (or any component
thereof), future cash flows (or any component thereof) or future financial
condition (or any component thereof) of the Company or any of its Subsidiaries
or the future business, operations or affairs of the Company or any of its
Subsidiaries heretofore or hereafter delivered to or made available to Parent
or its Representatives or affiliates; or

 

(ii)        any other information, statement or
documents heretofore or hereafter delivered to or made available to Parent or
its Representatives or affiliates, including the information in the on-line
data room maintained by the Company through Intralinks, Inc., with respect
to the Company or any of its Subsidiaries or the business, operations or
affairs of the Company or any of its Subsidiaries, except to the extent and as
expressly covered by a representation and warranty made by the Company pursuant
to Section 2.3(b)(i) or 3.1 hereof.

 

11

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1       Transfer Restrictions.

 

(a)        The
Purchased Stock may only be disposed of or resold in compliance with the terms
of the Investor Rights Agreement and applicable state and federal securities
laws, and cannot be disposed of or resold unless pursuant to an effective
Registration Statement under the Securities Act or an exemption from
registration is available.  In connection
with any transfer of Purchased Stock other than pursuant to an effective
registration statement or Rule 144 or to the Company, the Company may
require the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the form
and substance of which opinion shall be reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such
transferred Purchased Stock under the Securities Act.

 

(b)        The Parent agrees to the imprinting, so
long as is required by this Section 4.1, of a legend on any certificate or
other instrument evidencing the Purchased Stock in the following form:

 

THIS SECURITY IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN AN
INVESTOR RIGHTS AGREEMENT DATED MARCH 16, 2010.  THIS SECURITY HAS NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

 

(c)        Certificates
or other instruments evidencing the Purchased Stock shall not contain any
legend (including the legend set forth in Section 4.1(b) hereof): (i) while
a registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii) following
the sale of the Purchased Stock pursuant to Rule 144, or (iii) if all
of the applicable conditions under Rule 144 for sale of the Purchased
Stock have been satisfied, including satisfaction of the one-year holding
period provided for in Rule 144(d), or (iv) if such legend is not
required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal opinion to
the Transfer Agent promptly after the Effective Date if required by the
Transfer Agent to effect the removal of the legend hereunder.

 

12

 

(d)          The
Parent agrees that the Parent will sell any Purchased Stock pursuant to either
the registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom, and that if
Purchased Stock is sold pursuant to a Registration Statement, it will be sold
in compliance with the plan of distribution set forth therein, and acknowledges
that the removal of the restrictive legend from certificates representing
Purchased Stock as set forth in this Section 4.1 is predicated upon the
Company’s reliance upon this understanding.

 

4.2       Integration.  The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Purchased Stock to the Parent in a manner that would
require the registration under the Securities Act of the sale of the Purchased
Stock to the Parent or that would be integrated with the offer or sale of the
Purchased Stock for purposes of the rules and regulations of the Trading
Market.

 

4.3       Securities Laws Disclosure; Publicity.  The Company shall on the Trading Day
following the Closing Date issue a Current Report on Form 8-K disclosing
the material terms of the transactions contemplated hereby and attaching this
Agreement and the Investor Rights Agreement as exhibits thereto.  The Company and the Parent shall consult with
each other in issuing any press releases or other public statements or comments
with respect to the transactions contemplated by the Transaction Documents to
the same extent as provided in Section 6.9 of the Merger Agreement.

 

4.4       Use of Proceeds.  The Company shall use the net proceeds from
the sale of the Purchased Stock hereunder either (a) to reduce
indebtedness outstanding under that certain Amended and Restated Credit
Agreement dated February 15, 2008, by and between the Company, the several
lenders parties thereto, and Bank of America, N.A., as Administrative Agent (as
amended to date, the “Credit Agreement”), provided that it shall be
understood that the Company may subsequently redraw funds under the Credit
Agreement for capital expenditures, debt redemption and working capital
purposes or (b) directly for capital expenditures, debt redemption and
working capital purposes.

 

4.5       Indemnification of Parent.

 

(a)        Subject to the provisions of this Section 4.5,
the Company will indemnify and hold the Parent and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls the Parent (within the meaning of Section 15 of the Securities
Act and Section 20 of the Exchange Act), and the directors, officers,
shareholders, agents, members, partners or employees (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling
Person (each, an “Indemnified Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any the Indemnified
Parties may suffer or incur as a result of or relating to any breach of any of
the representations, warranties, 

 

13

 

covenants or
agreements made by the Company in this Agreement.  If any action shall be brought against any
Indemnified Party in respect of which indemnity may be sought pursuant to this
Agreement, the Indemnified Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with counsel
of its own choosing reasonably acceptable to the Indemnified Party.  Any Indemnified Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of the
Parent except to the extent that (i) the employment thereof has been
specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, (x) a material conflict on any material issue between
the position of the Company and the position of the Indemnified Party or (y) that
there may be legal defenses available to such Indemnified Party different from
or in addition to those available to the other party, in which case the Company
shall be responsible for the reasonable fees and expenses of no more than one
such separate counsel.  The Company will
not be liable to any Indemnified Party under this Agreement for any settlement
by an Indemnified Party effected without the Company’s prior written consent,
which shall not be unreasonably withheld or delayed.

 

(b)        The Company shall have liability under Section 4.5
hereof only if within the applicable survival period specified in Section 5.1
hereof, an Indemnified Party notifies the Company of a claim as provided in Section 4.5(a),
specifying the factual basis of the claim in reasonable detail to the extent
known by the Indemnified Party.

 

4.6       Listing of Purchased Stock.  The Company shall, if applicable: (i) prepare
and file with such Trading Market a listing of additional shares notification
covering the number of shares of Purchased Stock, (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing on
such Trading Market as promptly thereafter, (iii) provide to the Parent
evidence of such listing, and (iv) maintain the listing of such shares of
Purchased Stock.

 

4.7       Form D; Blue Sky Filings.  The Company agrees to timely file a Form D
with respect to the Purchased Stock as required under Regulation D of the
Securities Act and to provide a copy thereof, promptly upon request of the
Parent. The Company shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the
Purchased Stock for, sale to the Parent at the Closing under applicable
securities or “Blue Sky” laws of the states of the United States, and shall
provide evidence of such actions promptly upon request of the Parent.

 

4.8       Waiver.  Parent does hereby consent to the Company’s
entry into the Transaction Documents and the consummation of the transactions
contemplated thereby, including the issuance and sale of the Purchased Stock,
notwithstanding any prohibitions or restrictions with respect thereto contained
in the Merger Agreement.

 

14

 

ARTICLE V.

MISCELLANEOUS

 

5.1       Survival. All representations and
warranties contained in this Agreement shall survive the Closing for a period
of the earlier of (i) six (6) months from the termination of the
Merger Agreement pursuant to the terms thereunder or (ii) the Effective
Date under the Merger Agreement, at which time all such representations and
warranties will expire and terminate; provided that the representations and
warranties set forth in Section 3.1(a) (Issuance of Purchased Stock),
Section 3.1(b) (Authority Relative to the Sale of Purchased Stock), Section 3.1(c) (No
Conflicts), Section 3.1(e) (Certain Fees), Section 3.2(b) (Authority
Relative to the Purchase of Purchased Stock), Section 3.2(c) (No
Conflicts) or Section 3.2(i) (Brokers ) shall survive the Closing
indefinitely.

 

5.2       Termination.  This Agreement
may be terminated by mutual agreement of the Company, and shall automatically
terminate upon consummation of the Merger.

 

5.3       Fees and Expenses.  Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of the Transaction
Documents.  The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of the Purchased Stock to the Parent.

 

5.4       Entire Agreement.  The Transaction Documents, together with the
exhibits and schedules thereto (and, to the extent referenced herein, the
Merger Agreement), contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and
schedules.

 

5.5       Notices.  All notices and other communications required
or permitted by this Agreement shall be in writing and shall be effective, and
any applicable time period shall commence, when (a) delivered to the
following addresses by hand or by a nationally recognized overnight courier
service (costs prepaid and with proof of delivery) addressed to the following
addresses or (b) transmitted electronically to the following facsimile
numbers or e-mail addresses (receipt of which is confirmed) in each case marked
to the attention of the Persons (by name or title) designated below (or to such
other address, facsimile number, e-mail address, or Person as a party may
designate by notice given in accordance with this Section 5.5 to the other
party):

 

	
  if to Parent :

  	
  c/o IIF Subway
  Investment LP

  
	
   

  	
  245 Park Avenue, 2nd Floor

  
	
   

  	
  New York, NY 10167

  
	
   

  	
  Facsimile No.: (212)
  648-2033

  
	
   

  	
  E-mail:  andrew.f.walters@jpmorgan.com

  christian.p.porwoll@jpmorgan.com

  
	
   

  	
  Attention:

  	
  Andrew F. Walters

  
	
   

  	
   

  	
  Christian P. Porwoll

  

 

15

 

	
   

  	
  and

  
	
   

  	
   

  
	
   

  	
  c/o Water Asset
  Management, LLC

  
	
   

  	
  509 Madison Avenue,
  Suite 804

  
	
   

  	
  New York, NY 10022

  
	
   

  	
  Facsimile No.:  (212) 754-5101

  
	
   

  	
  E-mail:  m.robert@waterinv.com

  
	
   

  	
  Attention:  Marc Robert

  
	
   

  	
   

  
	
  with a copy to:

  	
  Simpson
  Thacher & Bartlett LLP

  
	
   

  	
  425 Lexington Avenue

  
	
   

  	
  New York, New York
  10017

  
	
   

  	
  Facsimile No.:  (212) 455-2502

  
	
   

  	
  E-mail:  aklein@stblaw.com

  
	
   

  	
  Attention:  Alan Klein

  
	
   

  	
   

  
	
  if to the Company:

  	
  Southwest Water Company

  
	
   

  	
  One Wilshire Building

  
	
   

  	
  624 South Grand Avenue,
  Suite 2900

  
	
   

  	
  Los Angeles, California
  90017-3782

  
	
   

  	
  Facsimile No.:  (213) 929-1888

  
	
   

  	
  E-mail:  mswatek@swwc.com

  
	
   

  	
  Attention:  Mark A. Swatek

  
	
   

  	
   

  
	
  with a copy to:

  	
  Locke Lord
  Bissell & Liddell LLP

  
	
   

  	
  300 S. Grand Avenue, Suite 2600

  
	
   

  	
  Los Angeles, California 90071

  
	
   

  	
  Facsimile No.:  (213) 341-6774

  
	
   

  	
  E-mail:  nbrockmeyer@lockelord.com

  
	
   

  	
  Attention:  Neal H. Brockmeyer

  

 

5.6       Amendments; Waivers.  No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Parent, or, in the case of a
waiver, by the party against whom enforcement of any such waived provision is
sought.  No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of any party to exercise any right hereunder in
any manner impair the exercise of any such right.

 

5.7       Headings.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.

 

5.8       Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns.  Neither the Company nor the
Parent may assign this Agreement or any rights or obligations hereunder without
the prior written consent of the other party.

 

16

 

5.9       No Third-Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.5.

 

5.10     Governing Law.  This Agreement, and all claims or causes
of action (whether in contract or tort) that may be based upon, arise out of or
relate to this Agreement, or the negotiation, execution or performance of this
Agreement, shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed in that State, without giving effect
to principles of conflicts of law.  All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined exclusively in the Court of Chancery of the State of
Delaware.  The parties hereby (a) submit
to the exclusive jurisdiction of such court for the purpose of any Action
arising out of or relating to this Agreement brought by any party hereto, (b) agree
that all claims in respect of such action or proceeding may be heard and
determined only in such court, (c) agree not to bring any action or
proceeding arising out of or relating to this Agreement or any of the
transactions contemplated by this Agreement in any other court and (d) irrevocably
waive, and agree not to assert by way of motion, defense, or otherwise, in any
such action, any claim that it is not subject personally to the jurisdiction of
such court, that its property is exempt or immune from attachment or execution,
that the action is brought in an inconvenient forum, that the venue of the
action is improper, or that this Agreement may not be enforced in or by such
court.  Each party hereto irrevocably
waives any and all right to trial by jury in any legal proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby.

 

5.11     Execution.  This Agreement may be executed in two
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. 
In the event that any signature is delivered by facsimile transmission
or by e-mail delivery of a “.pdf” format data file, such signature shall create
a valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.

 

5.12     Severability.
If any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.

 

5.13     Replacement of Purchased Stock.  If any certificate or instrument evidencing
any Purchased Stock is mutilated, lost, stolen or destroyed, the Company shall
issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt
of 

 

17

 

evidence
reasonably satisfactory to the Company of such loss, theft or destruction.  The applicant for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs (including customary indemnity) associated with the issuance of such
replacement Purchased Stock.

 

5.14     Company Disclosure Schedule.  Parent shall not be entitled to claim that
any fact or combination of facts constitutes a breach of any of the Company’s
representations or warranties made pursuant to Section 2.3(b)(i) or
3.1 of  this Agreement if and to the
extent that such fact or combination of facts has been disclosed in (i) any
Section of the Company Disclosure Schedule, which shall be deemed to be
disclosed with respect to any other Section of the Merger Agreement or
this Agreement to the extent that it is reasonably apparent that such
disclosure is applicable to such other Section or (ii) the Company
SEC Reports filed prior to the date of this Agreement in sufficient detail to
put a reasonable Person on notice of the relevance of the facts or
circumstances so disclosed.  The
inclusion of any information in the Company Disclosure Schedule shall not be
deemed to be an admission or acknowledgement, in and of itself, that such
information is required by the terms hereof to be disclosed, is material, has
resulted or is reasonably expected to result in a Company Material Adverse
Effect or is outside the ordinary course of business or that it would otherwise
be appropriate to include any such information.

 

5.15     Saturdays, Sundays, Holidays, etc. If
the last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall not be a Business Day, then such action
may be taken or such right may be exercised on the next succeeding Business
Day.

 

5.16     Construction. The parties agree that
each of them and/or their respective counsel has reviewed and had an
opportunity to revise the Transaction Documents and, therefore, the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of the Transaction
Documents or any amendments hereto.

 

 

 

(Signature Pages Follow)

 

18

 

IN WITNESS WHEREOF, the
parties hereto have caused this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.

 

	
  SOUTHWEST WATER COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Mark Swatek

  	
   

  
	
   

  	
  Mark Swatek, Chief
  Executive Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SW
  MERGER ACQUISITION CORP.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Andrew F. Walters

  	
   

  
	
   

  	
  Andrew F. Walters,
  Authorized Signatory

  	
   

  

 

 

Signature
Page to Securities Purchase Agreement

 

19

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