Document:

Exhibit 10.2

 

APROPOS TECHNOLOGY, INC.

One Tower Lane

Suite 2850

Oakbrook Terrace, IL  60181

 

July 30, 2004

 

Mr. David E. McCrabb, Jr.

17600 Bruce Avenue

Los Gatos, CA  95030

 

Dear Mr. McCrabb:

 

It is my pleasure to confirm with you our offer to you for the position
of President and Chief Executive Officer of Apropos Technology, Inc. (the “Company”).  The points below set forth the terms of your
employment which will be effective as of August 16, 2004:

 

•                                          Your
annualized salary will be $300,000, payable in accordance with the standard
payroll practice of the Company.

 

•                                          As
you know, the Company has recently instituted the 2004 Incentive Bonus Award
Program (the “Program”) for Senior Executives. 
You are hereby granted a Target Award of $200,000 pursuant to the terms
of the Program, as modified by this letter. 
In lieu of the “Total Revenue” test contained in the Program, the
following “Total Revenue” test will be applicable:

 

	
  Combined
  GAAP Revenue for

  Q3 and Q4 2004

  	
   

  	
  Percent of

  Target Award

  	
   

  
	
  Less than
  $10,609,347

  	
   

  	
  0

  	
  %

  
	
  $10,609,348
  - $11,213,410

  	
   

  	
  20

  	
  %

  
	
  $11,213,411
  - $11,616,119

  	
   

  	
  50

  	
  %

  
	
  $11,616,120
  - $12,018,827

  	
   

  	
  75

  	
  %

  
	
  $12,018,828
  and over

  	
   

  	
  100

  	
  %

  

 

Assuming you remain employed by the Company at December 31, 2004, you
will receive not less than a $100,000 minimum payment, even if the performance
criteria are not satisfied.  In addition,
in the event of a Change of Control (as defined in the Program) prior to year
end, you will receive your entire Target Award of $200,000.

 

 

•                                          We
understand that you will periodically be commuting from your home in
California.  The Company will reimburse
you for reasonable travel expenses and temporary living expenses while in
Chicago.  These expenses will include a
short-term apartment conveniently located near the Company’s office, as well as
automobile expense and reimbursement for coach airfare between Chicago and
California.

 

•                                          You
will assume the role of President and Chief Executive Officer on August 16,
2004, in a full-time capacity, at which time your compensation also will
commence.

 

•                                          You
will be entitled to all customary benefits provided to Company employees,
including vacation, subject to the right of the Company to amend, modify or
terminate any benefit plans or policies.

 

•                                          It
is expected that you will devote all of your customary working hours to the
attention of the affairs and activities of the Company.

 

•                                          You
represent that you are not breaching any contractual relationship or other
obligation toward any other person or entity by entering into this employment
relationship with the Company and performing the duties contemplated hereby.

 

•                                          By
executing this Agreement, you agree to the confidentiality, ownership of
invention, noncompetition and related provisions contained on Annex A
hereto.  The term “Employee” in the Annex
refers to you.

 

Your employment is at will and may be terminated by you or the Company
upon thirty days advance written notice (or pay in lieu of such notice) for any
reason or no reason.  All payments
described above are subject to applicable withholding requirements.  This Agreement shall be governed by the
substantive laws of the State of Illinois and not the conflict of law
rules.  This letter is intended to
confirm the benefits and terms of our offer and represents our entire
agreement.  It may be executed in
counterparts.  You have not relied on any
representation other than as contained in this letter.  No amendment of these terms is effective if
not in writing.  Your execution of this
letter will convey your agreement to those benefits and terms.  We look forward to working together.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  APROPOS TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Keith Crandell

  
	
   

  	
   

  	
  Keith Crandell

  
	
   

  	
   

  	
  Chairman; Compensation Committee

  
	
   

  	
   

  
	
  Accepted and Agreed:

  	
   

  
	
   

  	
   

  
	
  /s/ David E. McCrabb, Jr.

  	
   

  
	
  By: David E. McCrabb, Jr.

  	
   

  

 

 

ANNEX A

 

1.             Confidentiality.   Employee understands and agrees that
Employee’s employment creates a relationship of confidence and trust between
Employee and the Company with respect to (a) all Proprietary Information (as
defined below), and (b) the confidential information of others with which the
Company has a business relationship.  The
information referred to in clauses (a) and (b) of the preceding sentence is
referred to in this Agreement, collectively, as “Confidential Information”.  At all times, both during Employee’s
employment with the Company and after its termination, Employee will keep in
confidence and trust all such Confidential Information, and will not use or
disclose any such Confidential Information without the written consent of the
Company, except as may be necessary in the ordinary course of performing
Employee’s duties to the Company.  The
restrictions set forth in this Section will not apply to information which is
generally known to the public or in the trade, unless such knowledge results
from an unauthorized disclosure by Employee, but this exception will not affect
the application of any other provision of this Agreement to such information in
accordance with the terms of such provision.

 

2.             Ownership
of Inventions.   Employee
agrees that all Inventions (as defined below) which Employee conceives or
develops, in whole or in part, either alone or jointly with others, prior to or
during the term of Employee’s employment with the Company which may relate in
any manner to the actual or anticipated business, work, research, development
or investigations of the Company, or which result, to any extent, from the work
performed by Employee for the Company, or use of the Company’s Proprietary
Information, premises or property (the foregoing being hereinafter collectively
referred to as “Company Inventions”) will be the sole property of the
Company.  The Company will be the sole
owner of all patents, copyrights and other proprietary rights in and with
respect to such Company Inventions.  To
the fullest extent permitted by law, such Company Inventions will be deemed
works made for hire.  Employee hereby
transfers and assigns to the Company or its designee any proprietary rights
which Employee may have or acquire in any such Company Inventions, and Employee
waives any moral rights or other special rights Employee may have or accrue
therein.  Employee agrees promptly to
disclose to the Company, or any persons designated by it, all Company
Inventions which are or may be subject to the provisions of this Section.  Employee agrees to execute any documents and
take any actions that may be required to effect and confirm such transfer and
assignment and waiver.  The provisions of
this Section will apply to all Company Inventions which are conceived or
developed during the term of Employee’s employment with the Company, whether
before or after the date of this Agreement, and whether or not further
development or reduction to practice may take place after termination of
Employee’s employment.  The provisions of
this Section will not apply, however, to any Inventions which may be disclosed
in a separate Schedule attached to this Agreement prior to its acceptance by
the Company, representing Inventions made by Employee prior to employment by
the Company.  The foregoing restrictions
do not apply to an invention for which no equipment, supplies, facility or
trade secret information of the Company was used and which was developed
entirely on Employee’s own time, unless (a) the invention relates (i) to the
business of the Company or (ii) to the Company’s actual or demonstrably
anticipated research or development,

 

 

or (b) the invention results from or is the product of any work
performed by Employee for the Company in the scope of Employee’s efforts on
behalf of the Company.

 

3.             Noncompetition.  Employee agrees that, while employed by
Company and for a period of eighteen (18) months following termination of his
employment with Company, regardless of the circumstances under which Employee’s
employment is terminated and regardless of whether the termination was
voluntary or involuntary or with or without cause, Employee shall not, directly
or indirectly, whether as a partner, owner, principal, agent, advisor,
employee, employer, officer, director, shareholder or in any other capacity:

 

(a)           Engage in, advise or provide services in the
Territory to any person or entity engaged in any business that is in any
material way directly competitive with the business conducted by the
Company.  The Territory shall mean the
United States and those countries in Europe in which the Company distributes
products.

 

(b)           Solicit for
employment or employ or otherwise engage any person employed by the Company
during Employee’s term of employment or request, or advise any such person to leave
such employment or service of the Company.

 

Notwithstanding the foregoing, Employee may make investments in
publicly-held corporations if such investment is limited to not more than five
percent (5%) of the outstanding issue of such security.

 

Employee agrees that if he breaches this agreement, then the eighteen
(18) month restrictive period shall be extended and shall not expire until
eighteen (18) months after Employee permanently ceases to breach this
Agreement.

 

4.             Enforcement.

 

(a)           Employee acknowledges that, for the
breach of any of the covenants contained in this Annex, the Company will suffer
irreparable damages for which the remedy at law will be inadequate, and that,
an injunction may be entered against Employee by any court having jurisdiction,
restraining Employee from breaching or continuing the breach.  Employee consents to the personal
jurisdiction of DuPage County, Illinois, and the United States District Court
for the Northern District of Illinois for purposes of enforcement of this Annex.  Resort to such equitable relief, however,
shall not be construed to be a waiver by the Company of any other rights or
remedies that the Company may have for damages or otherwise.  Should a court determine that either the
scope or territory covered by the covenants is unreasonably extensive or the
period of the covenants unreasonably long, it may amend the terms of such
covenants so as to make such covenants reasonable and enforceable.

 

(b)           Employee hereby acknowledges the
necessity of protection of the Company against Employee’s competition and that
the nature and scope of such protection has been carefully considered by
Employee and the Company.  Employee and
the Company hereby agree that the unique nature of the business of the Company

 

 

requires the protection specified in this Agreement.  The consideration provided for these
covenants is deemed to be sufficient and adequate to compensate Employee for
agreeing to the restrictions contained herein. 
Employee acknowledges and represents that Employee can continue to earn
sufficient compensation without breaching any of the foregoing
restrictions.  The scope and period
provided and the area covered are expressly represented and agreed by the
Employee to be fair, reasonable and necessary.

 

(c)           The covenants and provisions of this
Agreement are severable.  The Company and
the Employee agree that the restrictions imposed herein are reasonably
necessary to protect the legitimate business interests of the Company.   However, if any provision or covenant of this
Agreement were held to be unenforceable as written, then the Company and the
Employee agree that the provision or covenant shall be construed in order that
it shall be enforced to the greatest extent possible and, if such construction
and enforcement is not possible, then the remainder of this Agreement shall be
enforced as if such invalid covenant or provision were not contained in this
Agreement.

 

*     *     *

 

Proprietary Information.   As used in this Annex, “Proprietary
Information” means information which the Company possesses or to which the
Company has rights which has commercial value. 
Proprietary Information includes, by way of example and without
limitation, trade secrets, product ideas, designs, configurations, processes,
techniques, formula, software, source and object code, domain names,
improvements, inventions, data, know-how, copyrightable materials, marketing
plans and strategies, sales and financial reports and forecasts, and customer
lists.  Proprietary Information includes
information developed by Employee to be used in the business of the Company,
whether before or in the course of Employee’s employment by the Company or
otherwise relating to Inventions which belong to the Company, as well as other
information to which Employee may have access in connection with Employee’s
employment.

 

Inventions.   As used in this Annex, “Inventions” means
any and all inventions, developments, creative works and useful ideas of any
description whatsoever, whether or not patentable.  Inventions include, by way of example and
without limitation, discoveries and improvements that consist of or relate to
any form of Proprietary Information.

 

Company. 
For purposes of this Annex, all references to the “Company” will be
deemed to include Apropos Technology, Inc., its successors, and its direct or
indirect subsidiaries and affiliates.Exhibit
10.1

 

RETENTION
AGREEMENT

 

This Agreement between Richard J. Shields (“Executive”)
and Southwest Water Company (“Company”) has been entered into effective as of
November 9, 2004 (“Effective Date”). 
This Agreement promises the Executive severance benefits if he is
terminated without Cause or resigns for Good Reason during the Term of this
Agreement, and in certain other circumstances as provided herein.

1.                                      Purpose

The Company considers a sound and vital management
team to be essential. The Company wishes to encourage the Executive to remain
an employee of the Company through the Term of this Agreement, and the Company
is willing to provide a retention bonus to Executive, to be paid from its
general assets, under the terms and conditions provided in this Agreement.

2.                                      Events That
Trigger Severance Benefits

2.1           Executive will receive
Severance Benefits under this Agreement if: (a) Executive’s employment is
terminated by the Company without Cause during the Term of this Agreement; (b)
Executive resigns his employment for Good Reason during the Term of this
Agreement; (c) Executive dies during the term of this Agreement; (d) Executive
resigns his employment for any reason during the period beginning on the fifth
day after the Company files its 2004 Form 10-K with the Securities and Exchange
Commission and ending on the thirtieth day after the Company files such Form
10-K.

2.2           For purposes of this
Agreement, “Cash Benefit” means a payment in the gross amount of $225,000, less
applicable taxes and other mandated payroll deductions.  In addition, Executive may elect to continue
to participate in Company’s standard medical benefits through COBRA for up to
14 months following the date of the commencement of Severance Benefits if:  (1) Executive provides written notice of such
election to Company within the time prescribed in the “COBRA Notice”; and (2)
Executive pays Company monthly an amount equal to Executive’s current
contribution for such benefits (the “Medical Benefit”).  As used herein the term “Severance Benefits”
means the Cash Benefit and the Medical Benefit (if the Medical Benefit is
elected).

2.3           For purposes of this
Agreement, “Cause” means any of the following: (a) Executive willfully and
negligently fails to perform his material duties for the Company; (b) Executive’s
act or omission constituting fraud, embezzlement or misappropriation of funds
under the laws of the State of California or the United States of America; and
(c) the willful, negligent or reckless failure by Executive to adhere to any
significant Company policy.

2.4           “Good Reason” means the
occurrence of any of the following without his express written consent: (a)
Executive’s base compensation or benefits are substantially

 

reduced; or (b) Executive is directed to fulfill the
responsibilities of his position in an unlawful manner.  However, an event that is or would constitute
Good Reason shall cease to be Good Reason if: (a) Executive does not terminate
employment within the later of 30 days after Executive has knowledge of an act
or omission which constitutes Good Reason, or 30 days after the termination of
efforts to resolve Executive’s differences with the Company related to the acts
or omissions which constitute Good Reason; or (b) Executive caused the Good
Reason event for the purpose of obtaining Severance Benefits rather than for
reasons which are in the best interests of the Company.

2.5           In
the event the Executive becomes disabled during the term of this Agreement, he
shall receive a payment in the gross amount of $75,000, less applicable taxes
and other mandated payroll deductions, and salary continuation until the
thirtieth day after the Company files its 2004 Form 10-K with the Securities
and Exchange Commission.  For purposes of
this Agreement, Executive shall be deemed to have become disabled if he suffers
a physical or mental disability which, in the reasonable opinions of Executive’s
treating physician and the Company’s designated physician, causes the Executive
to be unable to perform his duties with the Company with reasonable
accommodations for a period exceeding 60 days.

3.                                      Events That Do
Not Trigger Severance Benefits

Executive will not be entitled to Severance Benefits
if his employment ends because he is terminated for Cause or because he resigns
without Good Reason, except as otherwise set forth in Section 2.  Except as provided in Section 2(b), the
Executive will not be entitled to Severance Benefits while he is protected by
this Agreement and remains employed by the Company, its affiliates, or their
successors.

4.                                      Term of Agreement

The “Term” of this Agreement begins on the Effective
Date and ends on the thirtieth day after the Company files its 2004 Form 10-K
with the Securities and Exchange Commission.

5.                                      Termination
Procedures

If the Company
terminates Executive’s employment during the Term of this Agreement, the
Company will provide written notice that will indicate the reason for
termination (“Termination Notice”).  If
the termination by the Company is for Cause, the Termination Notice will state
the facts and circumstances claimed to provide a basis for the Cause
determination.  If Executive terminates
his employment during the Term of this Agreement, Executive will provide the
written notice that will indicate the reason for the termination (“Executive’s
Termination Notice”).  If the termination
by Executive is for Good Reason, the Executive’s Termination Notice will state
the facts and circumstances claimed to provide a Good Reason basis for the
termination.

 

2

 

6.                                      Condition to
Receiving Severance Benefits

If the Executive becomes entitled to Severance
Benefits under this Agreement, Executive will receive those Severance Benefits
following his termination of employment only if he delivers to the Company an
executed Separation Agreement and General Release of Claims (“Release Agreement”)
in the form attached to this Agreement.

7.                                      Golden Parachute
Limitation

The Executive’s payments and benefits under this
Agreement and all other contracts, arrangements, or programs shall not exceed
the maximum amount that may be paid without triggering golden parachute
penalties under Section 280G and related provisions of the Internal Revenue
Code, as determined in good faith by the Company’s independent auditors.  If any payments or benefits must be cut back
to avoid triggering such penalties, they will be cut back in the priority order
designated by Executive or, if he fails to designate an order within a
reasonable time specified by the Company, in the priority order designated by the
Company.  Executive and the Company agree
to cooperate with each other reasonably in connection with any administrative
or judicial proceedings concerning the existence or amount of golden parachute
penalties on payments or benefits the Executive receives.

8.                                      Time for Payment

                Executive may choose to receive the Cash
Benefit either (a) as a lump sum payable by the later of 10 business days after
he provides an executed Release Agreement or the date specified in the Release
Agreement or (b) subject to Section 6, payable in accordance with the Company’s
regular payroll practices, at the rate of Executive’s current base
compensation, until such Cash Benefit has been paid in full.  In the event Executive elects to receive the
Cash Benefit in accordance with clause (b) above, Executive may at any time
upon written notice to the Company elect to receive any unpaid Cash Benefit as
a lump sum payable by the later of 10 business days after he provides such
written notice or the date specified in the Release Agreement.

 

9.                                      Relation to Other
Bonus and Severance Programs or Agreements

The Executive’s
Severance Benefits under this Agreement are instead of any bonus for which
Executive may be eligible or any severance or similar benefits that may be
payable to the Executive under any other employment or severance agreement or
other arrangement, including without limitation the letter agreements related
to severance dated March 22, 2004 and May 13, 2004.

 

3

 

10.                               Amendments

This Agreement may be modified only by a written
agreement executed by Executive and the Chief Executive Officer or the
President and Chief Operating Officer of the Company that is approved by the
Board of Directors of the Company.

11.                               Governing Law

It is the intention of the parties that the laws of
the State of California will govern the validity of this Agreement, the
construction of its terms, and the interpretation of the rights and duties of
the parties under this Agreement. 
Executive and the Company agree that venue for all disputes shall be in
Los Angeles County, California.  The
Executive and the Company further agree and acknowledge that they are subject
to personal jurisdiction in Los Angeles County, California.

12.                               Limitation on Executive
Rights

This Agreement does not give the Executive the right
to be retained in the service of the Company.

13.                               Validity

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

14.                               Counterparts

This Agreement may be executed in several
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument. 
Fax signatures shall be valid and binding.

15.                               Giving Notice

Any notices or other communications required or
permitted to be given hereunder shall be given sufficiently only if in writing
and served personally or sent by overnight courier or by certified mail,
postage prepaid and return receipt requested, addressed as follows:

	
  To Employer:

  	
   

  	
  Southwest
  Water Company

  
	
   

  	
   

  	
  624 South
  Grand Avenue

  
	
   

  	
   

  	
  Suite 2900

  
	
   

  	
   

  	
  Los Angeles,
  CA 90017

  
	
   

  	
   

  	
  Attention:

  	
   

  	
  President,
  Southwest Water Company or

  
	
   

  	
   

  	
   

  	
   

  	
  CEO,
  Southwest Water Company

  
	
   

  	
   

  	
  Facsimile
  No.:

  	
   

  	
  (213)
  929-1890

  

 

 

 

4

 

	
  To Executive:

  	
   

  	
  Richard J. Shields

  
	
   

  	
   

  	
  32 New Haven

  
	
   

  	
   

  	
  Laguna Niguel, CA 92677

  

 

Any notice or communication that is addressed as
provided in this Section shall be deemed given (a) upon delivery, if delivered
personally; or (b) on the first business day of the receiving party after the
transmission if by facsimile or after the timely delivery to the courier, if
delivered by overnight courier.  Either
the Company or the Executive may change the address for purposes of this Agreement
by giving written notice to the other party in accordance with this Section.

16.                               Severability

In case any one or more of the provisions contained in this
Agreement is found to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions in this
Agreement will remain in effect and will not in any way be affected or
impaired.

17.                               Assignment; Binding
Effect

The Executive and the Company agree that this Agreement is
personal to the Executive and is not assignable, in whole or in part, by the
Executive for any reason.  This Agreement
will bind the Executive and the Company, and their successors, assigns,
beneficiaries, survivors, executors, administrators and transferees.

18.                               Headings.

Headings in this Agreement are inserted for reference and
convenience only and shall not be deemed a part of this Agreement.

19.                               Entire Agreement;
Modification and Waiver.

This Agreement supersedes any and
all other agreements, whether oral or in writing, between the Company and
Executive with respect to the termination of his employment or any severance
payments.  The Company and the Executive
each acknowledges that no representations, inducements, promises, or
agreements, oral or written, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding.  Any modification of this
Agreement shall be effective only if it is in writing signed by the parties to
this Agreement.  No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver.  No waiver shall be
binding unless executed in writing by the party making the waiver.

 

5

 

20.                               Arbitration

20.1         Subject to the exceptions
described in this Agreement, any controversy, dispute or claim arising out of
or relating to this Agreement or any breach of it (each a “Claim”), shall be
settled by binding arbitration in Los Angeles, California in accordance with
the Employment Dispute Resolution Procedures of any recognized arbitration
organization selected by the parties to resolve any Claim.  The Claims covered by this agreement include,
without limitation, claims for wages and other compensation, claims for breach
of contract (express or implied), tort claims, claims for discrimination
(including, but not limited to, race, sex, sexual orientation, religion,
national origin, age, marital status, medical condition, and disability),
harassment (including, but not limited to race, sex, sexual orientation,
religion, national origin, age, marital status, medical condition, and
disability), and claims for violation of any federal, state, or other
government law, statute, regulation, or ordinance.  This provision shall not apply, however, to
claims for workers’ compensation or unemployment insurance benefits or claims;
nor shall it restrict the Executive’s right to submit claims to the Equal
Employment Opportunity Commission or the Department of Fair Employment and
Housing, as appropriate.

20.2         The parties may select an
arbitrator mutually agreeable to each party from any of the recognized
arbitration associations (including without limitation, AAA, JAMS, ADR).  If the parties cannot agree on an arbitrator
within 30 days of the demand for arbitration, the parties shall request from
one of the organizations a list of five (5) names drawn from its panel of
employment arbitrators and each party shall strike arbitrators pursuant to the
strike procedures of that organization.

20.3         The demand for arbitration must
be in writing and made within the applicable statue of limitations period.  The parties shall be entitled to conduct
reasonable discovery, including conducting depositions and requesting
documents.  The arbitrator shall have the
authority to resolve discovery disputes including, but not limited to,
determining what constitutes reasonable discovery.  The arbitrator shall have all powers
conferred by law, and shall prepare in writing and provide to the parties a
decision and award which includes factual findings and the conclusions upon
which such an award is based.

20.4         Except
as otherwise required by law, the decision of the arbitrator shall be binding
and conclusive on the parties.  Judgment
upon the award rendered by the arbitrator may be entered in any court having
proper jurisdiction.  If required by law,
the fees for the arbitrator and the arbitration forum shall be paid by the
Employer.  Each party shall bear its or
his own attorneys’ fees and costs incurred in connection with the arbitration,
except for any attorneys’ fees or costs which are awarded by the Arbitrator
pursuant this Agreement or statute which provides for recovery of such fees
and/or costs; however, the Executive shall not be required to bear any type of
expense that the Executive would not be required to bear if he were bringing
the action in court.

 

6

 

Notwithstanding any other
agreement between the parties, any statutorily imposed remedies awarded to
either the Executive or the Employer, pursuant to arbitration under this
provision shall not be limited.

 

20.5         The Employer and the Executive
understand and agree that by using arbitration to resolve any claims between
the Executive and the Employer they are giving up any right that they may have
to a judge or jury trial with regard to those claims.  Both parties acknowledge that they are
entering into this Agreement voluntarily and have independently negotiated and
agreed upon this Arbitration Agreement.

20.6         The arbitration provision shall
not apply to any action by Employer or Executive for workers’ compensation
benefits, unemployment insurance or injunctive or other provisional relief
(including for breaches or threatened breach of any of the confidentiality and
non-disclosure agreements).

21.                               Attorneys’ Fees.

In any action at law,
including arbitration proceedings, or in equity to enforce or construe any
provisions or rights under this Agreement, the unsuccessful party or parties to
such litigation, as determined by the courts or arbitrator pursuant to a final
judgment or decree, shall pay the successful party or parties all costs,
expenses, and reasonable attorneys’ fees incurred by such successful party or
parties (including, without limitation, such costs, expenses, and fees on any
appeals), and if such successful party or parties shall recover judgment in any
such action or proceedings, such costs, expenses, and attorneys’ fees shall be
included as part of such judgment.

22.                               Resignation from Board
of Directors and All Offices.

Immediately upon the termination of the Executive’s
employment with the Company, the Executive will tender a written notice of the
Executive’s resignation from any and all offices of the Company and all
subsidiaries, affiliates or clients in which the Executive represents the
Company in the capacity of an officer or director.  Notwithstanding any failure by the Executive
to provide the Company with such written notice of resignation within three
days after the date of the termination of the Executive’s employment with the
Company, the Executive hereby authorizes and directs the Board of Directors to
accept the Executive’s resignation from all said positions effective as of the
date of termination of the Executive’s employment.

23.                               Representation by
Counsel; Interpretation.

The Company and the Executive each
acknowledge the opportunity to be represented by counsel in connection with
this Agreement and the matters contemplated by this Agreement.  Accordingly, any rule of law or decision that
would require interpretation of any claimed ambiguities in this Agreement
against the party that drafted

 

7

 

it has no application and is expressly waived.  The provisions of this Agreement shall be
interpreted in a reasonable manner to affect the intent of the parties.

[SIGNATURE PAGE FOLLOWS]

 

8

 

IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement to be effective as of the date first written above.

	
  “Executive”

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Rich
  Shields

  	
   

  	
  DATE:  November
  9, 2004

  
	
  RICHARD J. SHIELDS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SOUTHWEST
  WATER COMPANY

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Anton C.
  Garnier

  	
   

  	
  DATE:  November
  9, 2004

  
	
  By:

  	
  Anton C.
  Garnier

  	
   

  	
   

  
	
  Its:

  	
  Chief
  Executive Officer

  	
   

  	
   

  

 

9

 

ATTACHMENT TO RETENTION AGREEMENT OF RICHARD J. SHIELDS

 

SEPARATION AGREEMENT AND GENERAL RELEASE OF CLAIMS

 

                This Separation Agreement and General Release
(“Release Agreement”) is made by Richard J. Shields on behalf of himself, his agents, assignees, heirs, executors,
administrators, beneficiaries, trustees and legal representatives (“Executive”)
and Southwest Water Company (“Company”) and is entered into effective as of            ,
200  .

REASONS
FOR AGREEMENT

                Executive’s employment with the Company is
terminating, effective as of            ,  200  .  The Executive and the Company (collectively
the “Parties”) want to resolve and settle any and all claims, asserted or
unasserted, that Executive may have against the Company arising out of facts or
events, known or unknown, occurring up to and including the date of execution
of this Release Agreement.

                Therefore, in consideration of the promises in this Release Agreement,
the adequacy of which is acknowledged, Executive and the Company agree as
follows:

 

AGREEMENT

1.             Severance Benefits.

                (a)           In
exchange for the promises and commitments made by Executive in this Release
Agreement, and only upon the expiration of the Revocation Period set forth
below, the Company will pay to Executive the gross amount of $225,000, less
applicable taxes and other mandated payroll deductions, as a “Cash Benefit.”  In addition, Executive may elect to continue
to participate in Company’s standard medical benefits through COBRA for up to
14 months following the date of the commencement of Severance Benefits if:  (1) Executive provides written notice of such
election to Company within the time prescribed in the “COBRA Notice”; and (2)
Executive pays Company monthly an amount equal to Executive’s current
contribution for such benefits (the “Medical Benefit”).  As used herein the term “Severance Benefits”
means the Cash Benefit and the Medical Benefit (if the Medical Benefit is
elected).

                (b)           Executive
may choose to receive the Cash Benefit either (a) as a lump sum or (b) payable
in accordance with the Company’s regular payroll practices, at the rate of
Executive’s current base compensation, until such Cash Benefit has been paid in
full.  In the event Executive elects to
receive the Cash

 

 

Benefit in accordance with
clause (b) above, Executive may at any time upon written notice to the Company
elect to receive any unpaid Cash Benefit as a lump sum payable by the later of
10 business days after he provides such written notice or expiration of the
Revocation Period.

2.             Release of all Claims. In
consideration of the Severance Benefits, Executive agrees to release the
Company and any parent, subsidiary, affiliated, and related entities, including
their past, present, or future managers, directors, administrators, officers,
employees, agents, insurance companies, attorneys, representatives,
predecessors, and assigns, and each of them (collectively, “Released Parties”)
from all known and unknown claims, liabilities, and obligations of every kind
(including, without limitation, attorneys’ fees and costs) that Executive has
ever had or now may have against the Company arising out of or relating to
facts, events, occurrences, or omissions up to and including the date Executive
signs this Release Agreement.

3.             Claims Released.  The claims that Executive is releasing
include, but are not limited to all: (a) claims arising out of his employment
with the Company and his separation from the Company; (b) claims arising under
the Company’s policies, plans, or practices, including without limitation,
promotion, compensation, bonuses, stock options, severance pay or benefits; (c)
claims for breach of express or implied contract or covenant of good faith and
fair dealing; (d) all claims for violation of public policy; (e) claims
for constructive discharge; (f) claims for wrongful discharge; (g) claims for
retaliation; (h) claims for violation of state or federal common law or
statutory law, including without limitation, all claims arising under the
California Fair Employment and Housing Act, 
the California Labor Code § 132a, Title VII of the Civil Rights Act of
1964, as amended, the Fair Labor Standards Act, the Employee Retirement Income
Security Act, the National Labor Relations Act, the Family and Medical Leave
Act, the Americans with Disabilities Act, the Age Discrimination in Employment
Act,  the Sarbanes-Oxley Act of 2002, or
other federal, state, or local laws relating to employment or separation from
employment or benefits associated with employment or separation from
employment; (i) claims for harassment; (j) claims for emotional distress,
mental anguish, humiliation, personal injury; and (k) claims that may be
asserted on Executive’s behalf by others, as well as any and all claims that
were asserted or that could have been asserted by Executive.  Excluded from this Release are claims that
cannot be waived or released by law.

4.             Representation of No Action
Filed and Agreement Not to Sue.  As a
condition of receiving the Severance Benefits, Executive agrees not to sue any
of the Released Parties regarding any claim that has been released in this
Agreement.  Executive represents and
warrants that he has not initiated, and will not initiate any claim, charge,
lawsuit, or other action against any of the Released

 

2

 

Parties (and that he has not
transferred or assigned that right to any other person or entity).

5.             No Further Recovery.  Executive understands and agrees that the
Company and the Released Parties shall neither make nor cause to be made any
additional relief to Executive, his beneficiaries or dependents, or otherwise
on his behalf, except as specifically referenced in this Release
Agreement.  Should any third party,
including any state or federal agency, bring any action or claim against the
Company on Executive’s behalf, either collectively or individually, Executive
acknowledges and agrees that this Release Agreement provides him with full
relief and he will not accept any other relief. 
In addition, except to the extent such agreement is prohibited by
applicable law, Executive agrees that if he attempts to avoid or set aside the
terms of this Release Agreement, he will first return any and all benefits
received pursuant to this Release Agreement, including but not limited to the
Severance Benefits and that he shall be liable for reimbursing the Company for
the reasonable costs and attorneys’ fees in defending against such action.

6.             Executive’s Participation in
Litigation   Except to the extent
prohibited by applicable law, Executive agrees that: (a) he will not persuade,
support, or convince others to raise claims against the Company or any Released
Party; (b) he will not participate in any litigation involving the Company or
any of the Released Parties except at the request of the Company or unless he
is compelled by subpoena or court order to participate in a legal proceeding;
and (c) If he should be compelled to participate, he will notify the Company
immediately by contacting the Human Resources Director and will cooperate by
making himself reasonably available to discuss the subject of any testimony
with the Company and its counsel. 
Executive further agrees to make himself available upon reasonable
notice by the Company to assist with any litigation matters involving the
Company

7.             No Further Obligations of the
Company.  Executive acknowledges that
the Severance Payment and other consideration is provided to him in full and
complete satisfaction and discharge of any and all obligations that the Company
and/or any Released Party has or may have to him and that that he has been paid
all the wages, bonuses and benefits that are due to him.  Notwithsatanding the foregoing, Executive
shall continue to enjoy rights to indemnifiaction as set forth in Article VIII
of the Company’s Amended and Restated Bylaws.

 

8.             No Employment.  Executive acknowledges that his employment
with the Company has terminated and he further acknowledges and agrees that he
is releasing any right he may have to reinstatement of his employment.

 

3

 

Executive hereby represents and
warrants that he will not seek, and waives any right or claim to, employment
now or in the future by the Company or any of the Released Parties.

 

9.             Waiver
of Section 1542.  Executive
acknowledges and expressly waives any and all rights under California Civil
Code Section 1542 which provides as follows:

 

“A general release
does not extend to claims which the creditor does not know or suspect to exist
in his favor at the time of executing the release, which if known to him must
have materially affected his settlement with the debtor.”

 

Executive waives and releases any rights
that he may have under Section 1542 to the full extent that all such rights may
lawfully be waived.  He understands and
acknowledges that the significance and consequence of this waiver of Section
1542 is that (a) even if he should eventually suffer additional damage, loss or
injury arising out of the facts and circumstances of his employment or the
termination of that employment, he will not be able to make any claim for those
damages, losses or injuries; and (b) He will not be able to make any claim
for any damage, loss or injury which may exist as of the date of this Release
Agreement, but which he may not know or realize to exist and which if known,
would materially affect his decision to execute this Release Agreement,
regardless of whether that lack of knowledge is the result of ignorance,
oversight, error, negligence or any other cause.

 

10.           Adequate
Opportunity to Consider and Revocation. 
Executive acknowledges that he has had the opportunity to consider this
Release Agreement for a full twenty-one (21) days before executing it, whether
or not he has taken that amount of time. 
Executive also understand that he has a full seven (7) days following
the execution of this Release Agreement to revoke it (“Revocation Period”).  Executive understands that this Release
Agreement shall not become effective or enforceable until the Revocation Period
has expired.  For any revocation to be
effective it must be delivered by hand or overnight courier before 5:00 p.m. on
the seventh day to Human Resources Director Shelley Farnham. The Severance
Benefits described above will be paid only following the expiration of the
revocation period and only if Executive does not revoke this Release Agreement.

 

11.           Confidentiality
and Non-Disparagement.  Executive
agrees to keep the facts and terms of this Release Agreement in strict
confidence, unless and only to the extent that he has been authorized in
writing by the Company to make such disclosure or unless compelled by law or
Court Order.  It shall not be a

 

4

 

violation of this Release
Agreement for Executive to disclose this Release Agreement or its terms to his
lawyer, spouse, accountants, or income tax preparers.  To the extent Executive does disclose any of
the terms of this Release Agreement in accordance with this paragraph, he
agrees to require, and warrants that any person receiving this information,
including but not limited to his counsel shall maintain its
confidentiality.  Executive also agrees
that he will not publicly criticize, denigrate, or otherwise publicly speak
adversely against the Company.  This
Release Agreement may be used as evidence in any subsequent proceeding alleging
a breach of this Release Agreement.

 

12.           No
Admission.  Executive understands and
agrees that the Company expressly denies any wrongdoing or liability to
Executive, that this Release Agreement is the compromise of disputed claims;
and that the settlement referred to herein was made by the Company only to
avoid the expense, inconvenience, and disruption that would result from
investigation and litigation.

 

13.           Severability.  If any portion of this Release Agreement is
void or deemed unenforceable for any reason, the unenforceable portion shall be
deemed severed from the remaining portions of this Release Agreement, which
shall otherwise remain in full force.

 

14.           Applicable
Law.  This Release Agreement shall be
interpreted in accordance with California law.

 

15.           Multiple
Counterparts.  This Release Agreement
may be executed in two or more counterparts, each of which will be deemed an
original, but all of which together shall constitute one and the same
instrument.  Faxed copies shall be
effective and binding.

 

16.           Arbitration.   Subject to the exceptions described in this
Release Agreement, any controversy, dispute or claim arising out of or relating
to this Release Agreement or any breach of it (each a “Claim”), shall be
settled by binding arbitration in Los Angeles, California in accordance with
the Employment Dispute Resolution Procedures of any recognized arbitration
organization selected by the parties to resolve any Claim.  The Claims covered by this agreement include,
without limitation, claims for wages and other compensation, claims for breach
of contract (express or implied), tort claims, claims for discrimination
(including, but not limited to, race, sex, sexual orientation, religion,
national origin, age, marital status, medical condition, and disability),
harassment (including, but not limited to race, sex, sexual orientation,
religion, national origin, age, marital status, medical condition, and
disability), and claims for violation of any federal, state, or other government
law, statute, regulation, or ordinance. 
This provision shall not apply, however, to claims for workers’
compensation or

 

5

 

unemployment insurance benefits
or claims; nor shall it restrict the Executive’s right to submit claims to the
Equal Employment Opportunity Commission or the Department of Fair Employment
and Housing, as appropriate.

 

The parties may select an arbitrator mutually
agreeable to each party from any of the recognized arbitration associations
(including without limitation, AAA, JAMS, ADR). 
If the parties cannot agree on an arbitrator within 30 days of the
demand for arbitration, the parties shall request from one of the organizations
a list of five (5) names drawn from its panel of employment arbitrators
and each party shall strike arbitrators pursuant to the strike procedures of
that organization.

The demand for arbitration must be in writing and made
within the applicable statue of limitations period.  The parties shall be entitled to conduct
reasonable discovery, including conducting depositions and requesting
documents.  The arbitrator shall have the
authority to resolve discovery disputes including, but not limited to,
determining what constitutes reasonable discovery.  The arbitrator shall have all powers
conferred by law, and shall prepare in writing and provide to the parties a
decision and award that includes factual findings and the conclusions upon
which such an award is based.

Except as otherwise required by law, the decision of
the arbitrator shall be binding and conclusive on the parties.  Judgment upon the award rendered by the
arbitrator may be entered in any court having proper jurisdiction.  If required by law, the fees for the
arbitrator and the arbitration forum shall be paid by the Employer.  Each party shall bear its or his own
attorneys’ fees and costs incurred in connection with the arbitration, except
for any attorneys’ fees or costs which are awarded by the Arbitrator pursuant
this Agreement or statute which provides for recovery of such fees and/or
costs; however, the Executive shall not be required to bear any type of expense
that the Executive would not be required to bear if he were bringing the action
in court.  Notwithstanding any other
agreement between the parties, any statutorily imposed remedies awarded to
either the Executive or the Employer, pursuant to arbitration under this
provision shall not be limited.

The Employer and the Executive understand and agree
that by using arbitration to resolve any claims between the Executive and the
Employer they are giving up any right that they may have to a judge or jury
trial with regard to those claims.  Both
parties acknowledge that they are entering into this Agreement voluntarily and
have independently negotiated and agreed upon this Arbitration Agreement.

The arbitration
provision shall not apply to any action by Employer or Executive for workers’
compensation benefits, unemployment insurance or

 

6

 

injunctive or other provisional
relief (including for breaches or threatened breach of any of the
confidentiality and non-disclosure agreements.)

 

17.           Representation
by Counsel; Interpretation.  The
Company and the Executive each acknowledge the opportunity to be represented by
counsel in connection with this Release Agreement and the matters contemplated
by this Agreement.  Accordingly, any rule
of law or decision that would require interpretation of any claimed ambiguities
in this Agreement against the party that drafted it has no application and is
expressly waived.  The provisions of this
Agreement shall be interpreted in a reasonable manner to affect the intent of
the parties.

 

18.           Representation
by Counsel and Entire Agreement. 
Executive acknowledges that this Release Agreement constitutes the
entire agreement of the Parties and that in executing this Release Agreement,
he does not rely and has not relied upon any representation or statement not
set forth herein with regard to the subject matter, basis, or effect of this Release
Agreement.  Executive represents that
before executing this Release Agreement, he has had the opportunity to consult
with competent legal counsel of his own choosing, has carefully read the
Release Agreement, and has been fully and fairly advised as to its terms.  Executive further represents and warrants
that he has been given adequate time to consider this Release Agreement before
executing it and that he executes this Release Agreement as his own free act and
deed.

 

WHEREFORE, Executive and the Company,
by their signatures below acknowledge that there exist no other promises,
representations, or agreements relating to this settlement, except as
specifically set forth herein and that they voluntarily enter into this Release
Agreement with the intent to be legally bound thereby.

 

	
  “Executive”

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DATE:
             , 200

  
	
  RICHARD J.
  SHIELDS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SOUTHWEST
  WATER COMPANY

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DATE:
             , 200

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  	
   

  

 

 

7

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