⁽²⁾ The present value of the accumulated benefit is based on the age of 63 and 10 months for Mr. Sprowls and 65 for Mr. George. Mr. Sprowls and Mr. George have the right to receive benefits upon retirement equivalent to benefits they would have been entitled to receive as a participant in the supplemental retirement plan if the supplemental retirement plan had been amended to provide for five years of credited service with the company, for vesting but not for benefit purposes, under the terms of separate agreements. If we had assumed that Mr. Sprowls would retire at age 65, the present value of the accumulated benefit under the terms of the separate agreement would be $109,535.
⁽³⁾ The present value of the accumulated benefit for Mr. Harris and Ms. Kruger is based on the age when he or she would be eligible to retire with full benefits, which is at 62. If we had assumed that each of them would retire at age 65, the normal retirement age under each of these plans, the present value of the accumulated benefit under the pension plan would instead be $428,761 and $167,813, for Mr. Harris and Ms. Kruger, respectively, and the present value of the accumulated benefit under the supplemental retirement plan would be $181,076 and $62,737, for Mr. Harris and Ms. Kruger, respectively.
⁽⁴⁾ Mr. Harris was eligible to retire with a 42.9% reduction in benefits at December 31, 2007. If we had assumed that Mr. Harris retired at December 31, 2007, the present value of his accumulated benefit for the pension plan and the supplemental retirement plan would instead be $490,263 and $209,253, respectively.
____________________

     Each of our executive officers is a participant in the pension plan. This plan is a defined benefit pension plan available to all eligible employees who are 21 years or older and have completed 1,000 hours of service in the first year of employment or in any subsequent plan year. The normal retirement benefit is 2% of an employee’s five highest consecutive years’ average earnings multiplied by the number of years of credited service, up to a maximum of 40 years, reduced by a percentage of primary social security benefits. Normal retirement age is 65. An employee must have five years of service in order to receive benefits under this plan. For purposes of this plan, compensation includes an executive’s salary and all other reportable compensation received by the executive, except bonuses, the imputed value of the personal use of company-owned vehicles, unused vacation pay, severance pay and long-term incentive program payments, up to the maximum amount permitted under the Internal Revenue Code (which was $230,000 at January 1, 2008).

     We also provide each of our executive officers additional pension benefits under the supplemental retirement plan. Each executive, other than Mr. Wicks, has the right to receive a benefit under the terms of this plan equal to the sum of 2% of compensation for each year of service before 2006 plus 3% of compensation for each year of service after 2005, up to a combined maximum of 60% of compensation, less a percentage of primary social security benefits and amounts payable to the executive under the pension plan. For participants who were employed by the company on January 1, 2006, the benefit is the greater of the benefit under the formula described in the previous sentence or the benefit under the previous formula. Under the previous formula, each executive was entitled to receive a benefit equal to the sum of 2% of compensation for each year of service, up to maximum of years. Mr. Wicks’ benefit is based on 3% of compensation per credited years of service commencing January 13, 1988, up to a maximum of 60% of compensation, less a percentage of primary social security benefits and amounts payable to him under the pension plan. For the purpose of this calculation, compensation includes all compensation paid to the executive, including amounts paid pursuant to a “cash pay” annual performance incentive plan (other than an extraordinary bonus, such as a holiday, year end, anniversary or signing bonus) and dividend equivalents paid in cash to an executive in connection with awards made under the 2000 plan prior to 2006 and without regard to Internal Revenue Code limits. Mr. Sprowls and Mr. George have the right to receive benefits upon retirement equivalent to benefits they would have been entitled to receive as a participant in the supplemental retirement plan if the plan had been amended to provide them with five years of credited service with the company for vesting, but not benefit purposes, under the terms of separate agreements.

     Under the terms of each of these plans, an employee who is vested may retire and receive benefits at age 55 with a reduction in benefits of 50%. An employee, who retires after age 55, but prior to age 65, will receive a lesser reduction in benefits depending upon the age at which the executive retires, unless the sum of the executive’s age and years of service equals 80. Mr. Wicks is

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currently eligible to retire with full retirement benefits under these plans. Mr. Harris is currently eligible to retire with a benefit reduction of 42.9%.

     We did not make any payments to any named executive officer under either of our pension plans or any of the separate retirement arrangements during the last year.

     We also provide a Medicare supplement insurance policy for each employee who we hired prior to February 1, 1995 and his or her spouse at or after age 65. Each of our named executive officers has a right to this benefit after reaching age 65, other than Mr. Sprowls and Mr. George who we hired after February 1, 1995.

Are any of these executive officers participants in a non-qualified deferred compensation plan?

     None of our named executive officers are participants in a defined contribution or non-qualified deferred compensation plan, other than our 401(k) Investment Incentive Program, which is a tax-qualified defined contribution plan available to our employees generally, and the supplemental retirement plan and arrangements described above.

What are the terms of employment agreements with executive officers?

     We entered into employment agreements with Mr. Wicks and Mr. George in 2007.

Retention Agreement with Mr. Wicks

     Under the terms of our agreement with Mr. Wicks, he will continue to serve as our President and Chief Executive Officer through December 31, 2008, unless either party terminates the agreement upon 90 days notice. The agreement may also be extended by mutual agreement for up to a year. We agreed, at this time, to:

• pay Mr. Wicks an annual base salary of at least $540,000,
   
• consider paying total compensation to him after 2007 within the 60^th to 75^th percentile of total compensation paid to chief executive officers of our peer group, and
   
• recommend to the compensation committee that we grant him equity incentives in 2008 with a fair value of $200,000, with 50% of the grant in the form of stock options and 50% of the grant in the form of restricted stock units.

     In January 2008, the compensation committee approved an increase in Mr. Wicks’ annual base salary to $565,000 and a bonus based upon his performance in 2007 of $80,000. The committee also granted him stock awards with a fair value of $200,000 which will proportionately vest over a three year period, with 50% of the grant in the form of stock options and 50% of the grant in the form of restricted stock units.

     In addition, we agreed that, for the purposes of our supplemental pension plan, we will calculate Mr. Wicks' benefit based on 3% of compensation (as defined in the plan) per credited years of service commencing January 13, 1988, up to a maximum limit of 60% of compensation, less a percentage of primary social security benefits and amounts payable to him under the pension plan. Mr. Wicks will otherwise generally continue to have the same benefits that he currently enjoys.

     Mr. Wicks has agreed to serve as a consultant to us, in certain circumstances, in order to assist us in our operations on an as-needed basis at the rate of one-half of his monthly base salary on the date of termination of employment, plus $250 per hour for each hour in excess of 40 hours during any month, for a period of six months if we do not elect to extend the term of the retention agreement and his employment with us ends prior to June 30, 2009.

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     If we terminate Mr. Wicks' employment prior to December 31, 2008 for any reason other than death, disability, good cause or a change in control or Mr. Wicks voluntarily terminates his employment for good reason, we must pay him additional severance benefits. Mr. Wicks must execute a general release of claims against us in order to receive these severance benefits.

     Mr. Wicks may terminate his employment for good reason if we:

• significantly change the nature or scope of his authority or overall working environment or assign him duties materially inconsistent with his present duties,
   
•  we change the principal location where he is required to perform services to a location outside southern California,
   
• we remove him as a director during the term of the retention agreement,
   
• reduce Mr. Wicks’ total cash compensation and long-term incentives in breach of the retention agreement, or
   
• materially breach any other terms of the retention agreement if the breach remains uncured for more than 15 days following written notice by Mr. Wicks to the board identifying the material breach.

     Assuming that Mr. Wicks’ employment with us was terminated on December 31, 2007, other than for cause, death or disability or as a result of a change in control, and based on the assumptions set forth below, we estimate that we would make the following payments to Mr. Wicks:

• a base salary benefit of $540,000, payable in a lump sum upon termination of employment,
   
• an aggregate health benefit coverage benefit of $26,184 for Mr. Wicks and his eligible dependents, payable monthly for a period of three years, and
   
• a consulting agreement benefit of $135,000, payable in equal installments over a period of six months.

     For purposes of making this calculation, we have assumed that:

• Mr. Wicks will be enrolled in our Medicare supplemental plan upon reaching age 65 in accordance with the terms of the plan which is available to all employees employed by us prior to February 1995,
   
• prior to reaching age 65, Mr. Wicks will continue the same health, dental and vision plans that he is currently enrolled in,
   
• Mr. Wicks' wife will be enrolled in our Medicare supplemental plan upon reaching age 65 in accordance with the terms of the plan which is available to family members of all employees employed by us prior to February 1995,
   
• prior to reaching age 65, Mr. Wicks' wife will continue the same health, dental and vision plans that she is currently enrolled in,
   
• there is no increase in the amount which an employee enrolled in the Medicare supplemental plan will pay during the three year period,

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• the amount an employee pays for the health, dental and vision plans that Mr. Wicks and his family is currently enrolled in will increase by 15% annually on June 1, 2008, 2009 and 2010, and
   
• Mr. Wicks does not work more than 40 hours during any month.

     We also agreed to modify Mr. Wicks’ change in control arrangements as described under the heading “What are the terms of change in control agreements with executive officers?”

Employment Agreement with Mr. George

     In February 2007, we extended a formal offer of employment to Mr. George. Under the terms of our employment agreement with Mr. George, we have agreed to:

• pay Mr. George an annual base salary of $375,000,
   
• recommend to the compensation committee that we grant him equity incentives in 2007, 2008 and 2009 with a fair value of $125,000 which would vest proportionately over a three year period from the grant date, with 50% of the grant in the form of stock options and 50% of the grant in the form of restricted stock units,
   
• provide him with 26 days of vacation a year,
   
• provide him sick benefits based on his prior years of service in the water industry,
   
• reimburse him up to $2,200 per month for temporary housing in the San Dimas area until May 5, 2008, plus a tax gross-up payment to cover any portion of this reimbursement that would be included in his taxable income,
   
• reimburse him for and reasonable commuting expenses between Ross, California and San Dimas, California until February 11, 2008, plus a tax gross-up payment to cover any portion of this reimbursement that would be included in his taxable income, and
   
• reimburse him for up to $75,000 in moving expenses plus a tax gross-up payment to cover any portion of this reimbursement that would be included in his taxable income.

     The compensation committee also granted Mr. George the right to receive benefits upon retirement equivalent to benefits he would have been entitled to receive as a participant in the supplemental retirement plan if the plan had been amended to provide him with five years of credited service with the company for vesting, but not benefit purposes.

What are the terms of change in control agreements with executive officers?

     Each of our named executive officers is a party to a change in control agreement which provides for certain benefits in the event of a change in control of the company if the executive officer’s employment is terminated other than for cause or disability or the executive terminates employment for good reason. A change in control under these agreements will generally include:

• any sale or other change in ownership of substantially all of our assets, unless our business is continued by another entity in which the holders of our voting securities immediately before the event own more than 55% of the continuing entity’s voting securities,
   
• any reorganization or merger, unless the holders of our voting securities immediately before the event own more than 55% of the continuing entity’s securities and at least a

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majority of the members of the board of directors of the surviving entity were members of our board of directors at the time of execution of the agreement or approval by our board of directors,

• an acquisition by any person, entity or group acting in concert of more than 55% of our voting securities, unless the holders of our voting securities immediately before the event own more than 55% of the acquirer’s voting securities immediately after the acquisition,
   
• a tender offer or exchange offer by any person, entity or group which results in such person, entity or group owning more than 25% of our voting securities, unless the tender offer is approved by a majority of the members of our board of directors who were in office at the beginning of the 12-month period preceding the commencement of the tender offer,
   
• a change of one-half or more of the members of our board of directors within a 12-month period, unless at least two-thirds of the directors then still in office at the beginning of the 12-month period approved the election or nomination for election of the new directors, or
   
• any failure by any successor to assume the change in control agreement.

     In addition, an acquisition by a person or group acting in concert of more than 45% of our voting securities will be a change in control under Mr. Wicks’ change in control agreement, unless the holders of our voting securities immediately before the event own more than 55% of our voting securities after the event.

     Each executive, other than Mr. Wicks, may terminate his or her employment for good reason if following the change in control:

• the executive is assigned duties inconsistent in any respect with the executive’s position or the executive is not re-appointed to the same position,
   
• the executive’s salary or benefits are reduced (including the elimination of any cash incentive or other cash bonus plan, without providing adequate substitutes), or
   
• the executive is located at an office that increases the distance from the executive’s home by more than 35 miles.

     Mr. Wicks may terminate his employment for good reason if within 12 months following a change in control:

• we remove him from any of his current positions or reduce his responsibilities,
   
• we assign him duties inconsistent with his position,
   
• we move our principal place of business to a location outside southern California, or
   
• we breach any of our obligations under the retention agreement.

     Under the change in control agreements with each executive officer, other than Mr. Wicks, we have generally agreed to pay each executive a cash lump sum payment equal to 2.99 times the sum of (i) the executive’s highest annual base salary during the preceding three years, (ii) the average of the amount paid to the executive pursuant to a “cash pay” incentive plan (excluding any extraordinary bonus, such as a holiday, year end, anniversary or signing bonus) during the five calendar years preceding the date of termination of employment, and (iii) the average of the amount of cash received by the executive, with respect to dividend equivalents credited to the account of the

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executive during the five calendar years preceding the date of termination of employment. We have also agreed to pay the executive in a cash lump sum the difference between (i) the single sum actuarial equivalent of the executive’s benefits under the pension plan and the supplemental retirement plan, if the executive were credited with three additional years of service, and (ii) the single sum actuarial equivalent of the executive’s accrued benefits under the pension plan and the supplemental retirement plan at the time of the executive’s termination of employment.

     Under Mr. Wicks’ change in control arrangements, we have agreed to pay Mr. Wicks 2.99 times his total cash compensation in effect on the date of termination if his employment terminates within 12 months following a change in control. We also agreed to pay Mr. Wicks an additional retirement benefit based on 3% of compensation per credited years of service commencing January 13, 1988, up to a maximum of 60% of compensation, less a percentage of primary social security benefits and amounts payable to Mr. Wicks under the pension plan in lieu of the benefits payable to him under the supplemental retirement plan. Mr. Wicks is currently entitled to the maximum benefit under the retention agreement.

     In addition, all unvested options and restricted stock units will vest on the earlier of the change in control date or the date on which the executive’s employment is terminated. For each of the executive officers, other than Mr. Wicks, a change in control will occur in the circumstances described in his or her change in control agreement. For Mr. Wicks, a change in control will occur in the circumstances described in the 2000 plan. The 2000 plan generally requires a change in ownership of more than 50% of the voting power of the company in order for there to be a change in control. The change in control agreements generally require a change in ownership of more than 45% of the voting power of the company in order for there to be a change in control.

     Each of these executives, other than Mr. Wicks, also has coverage under our health and welfare benefit plans for a period of two years after termination (three years for Mr. Sprowls). Mr. Wicks is entitled to the health coverage benefits previously described under the heading “What are the terms of employment agreements with executive officers?” Each executive will also receive a gross-up payment if the executive officer is required to pay an excise tax under Section 4999 of the Internal Revenue Code.

     If we are unable to deduct any payments we make under a change in control agreement, other than Mr. Wicks’ retention agreement, due to the limitations imposed by Section 162(m) of the Internal Revenue Code, we will defer such payments to the extent necessary to enable us to deduct the payments. Each executive will be entitled to interest on any deferred payments at the applicable federal tax rate under the Internal Revenue Code (which changes monthly). Under Section 162(m) of the Internal Revenue Code, we may generally not deduct for federal income tax purposes annual compensation in excess of $1,000,000 paid to any named executive officer, unless it qualifies as “performance-based.”

     In addition, if we are required to make any payment under a change in control agreement which would be subject to Section 409A of the Internal Revenue Code, we will defer such payments until six months following the date of termination of the executive’s employment. Section 409A of the Internal Revenue Code sets forth requirements applicable to deferred compensation arrangements and imposes harsh penalties on executives for non-compliance. Payments made under a change in control agreement may, in certain cases, be subject to the requirements of Section 409A.

What do we estimate we will pay each of these executive officers in the event his or her employment is terminated as a result of a change in control?

     Assuming that each of our executive’s employment was terminated on December 31, 2007, a change in control occurred on that date under the change in control agreements and the 2000 plan and based on the assumptions set forth in the footnotes below, we estimate that we would have made the following payments to our named executive officers:

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CHANGE IN CONTROL BENEFITS ⁽¹⁾

	Floyd E.	Robert J.	Michael P.	McClellan	Denise L.
Payments and Benefits	Wicks	Sprowls	George	Harris III	Kruger
Payments
Base Salary Benefit	$1,614,600	$911,950	$1,121,250	$833,313	$807,300
Consulting Agreement(2)	135,000	-	-	-	-
Bonus Benefit	-	55,956	-	45,413	56,292
Dividend Equivalent Rights Benefit	-	48,659	-	70,346	63,565
Excess Supplemental Executive	-	89,699	222,419	161,745	52,239
Retirement Plan Benefit(3)
Benefits
Welfare and Fringe Benefits(4)	26,184	39,593	26,395	18,936	26,395
Purchase of Automobile Benefit(5)	-	4,955	9,195	7,385	9,195
Stock Options Benefit(6)	60,397	45,111	-	25,988	62,572
Restricted Stock Units Benefit(7)	180,299	90,131	61,833	67,636	67,636
Tax Gross Up Payment(8)	-	450,455	564,066	-	406,599
Total	$2,016,480	$1,736,509	$2,005,158	$1,230,762	$1,551,793

⁽¹⁾ We have assumed, for purposes of preparing this table, that we make all change in control payments to each executive officer by January 31, 2008. As a result, we have not included any interest for deferral of any payments that would not be deductible under Section 162(m) of the Internal Revenue Code. 
⁽²⁾ We have agreed to pay Mr. Wicks $135,000 over a period of six months in the event that we terminate his employment prior to December 31, 2008 for any reason. We have assumed, for the purpose of this calculation that Mr. Wicks would not work more than 40 hours a month during this period. 
⁽³⁾ In calculating the single sum actuarial equivalent, we used an interest rate equal to 6%, and the mortality table named and described in detail in Section A.1 of the pension plan, after reduction, if any, of the benefit using the “Regular Factors” under Section A.4 of the pension plan, each executive officer’s age at December 31, 2007, less a percentage of primary social security benefits, as required by the terms of each executive officer’s change in control agreement. 
⁽⁴⁾ Welfare benefits cover 85% of dental, medical and vision insurance premiums paid by the company for each named executive officer, other than Mr. Wicks, under the insurance plans currently offered by the company, and each named executive officer’s pro rata share of the group term life insurance and accidental death and dismemberment premiums based on premiums currently paid by the company for a period of three years after termination of the employment of Mr. Wicks and Mr. Sprowls, and two years after termination of employment for each of the other named executive officers. We describe the assumptions that we used in calculating Mr. Wicks’ healthcare benefit under the heading “What are the terms of employment agreements with executive officers?” Mr. Wicks would not be entitled to any other welfare benefits as a result of the termination of his employment on December 31, 2007. 
⁽⁵⁾ We have estimated the value of this benefit as the difference between (i) the wholesale value of the company car which the executive officer has the right to purchase at the wholesale value, and (ii) the retail value of the car as shown in a national auto research publication. 
⁽⁶⁾ We measured the fair value of options which were not vested at December 31, 2007 using the difference between the exercise prices of the option grants and the price of our common shares on the date of each executive’s termination of employment, which we assumed was December 31, 2007. The closing price of our common shares as reported on The Wall Street Journal website (www.wsjonline.wsj.com) on December 31, 2007 was $37.68. 
⁽⁷⁾ We measured the fair value of restricted stock units which were not vested at December 31, 2007 assuming the price of our common shares on the date of each executive’s termination of employment was $37.68.
⁽⁸⁾ We used 4.61% as the interest rate for determining the present value of the accelerated vesting of stock options and restricted stock units. As prescribed by the applicable regulations under Section 280G, this rate is equal to 120% of the applicable federal tax rate (compounded semiannually) for short-term periods for December 31, 2007 as set forth in Revenue Ruling 2007-70. If we make change-in-control payments to any executive officer that is in excess of three time his or her average taxable income from the company, then a 20% excise tax will be imposed under Section 4999 of the Internal Revenue Code on a portion of those payments, i.e., the excess parachute payments. In that event, we will make a tax gross up payment to the executive officer such

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that the executive officer will receive an amount (after payment of income and excise taxes) equal to the amount as if the executive officer did not have to pay the 20% excise tax on the excess parachute payments. We assumed that the executive officers would have a marginal combined federal and state income tax rate of 44.2467% for payments over $1 million and 43.5577% for under $1 million.
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PROPOSAL 2: APPROVAL OF 2008 STOCK INCENTIVE PLAN

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE 2008 STOCK INCENTIVE PLAN

     In order to meet the objectives of our executive compensation program described under the heading “Compensation, Discussion and Analysis,” the compensation committee makes stock awards to executive officers. As of March 21, 2008, only 131,846 of our common shares were available for the grant of new awards under the 2000 plan. Of this amount, we estimate that we will need approximately 2,250 shares for issuance of stock units pursuant to dividend equivalent rights granted to our executive officers in 2006, 2007 and 2008 and 1,500 shares for the issuance of common shares pursuant to grants made to two managers on March 26, 2008. We are not permitted to make any additional awards under the 2000 plan after January 26, 2010.

     Effective on April 1, 2008, our board adopted, subject to shareholder approval, the 2008 Stock Incentive Plan, or 2008 plan, in order to enable the compensation committee to continue to make stock awards to eligible employees in a manner consistent with the executive compensation program adopted by the compensation committee in 2006.

     Our board also approved an amendment to the 2000 plan to prohibit the award of additional awards, other than pursuant to dividend equivalent rights granted to our executive officers as of March 31, 2008. This amendment will only be effective if shareholders approve the 2008 plan. If shareholders do not approve the 2008 plan, the compensation committee will continue to grant stock awards under the 2000 plan until January 26, 2010 to the extent that common shares are available for issuance under the 2000 plan.

What are the terms of the 2008 plan?

     We provide a brief summary of the terms of the 2008 plan below, which is qualified in its entirety by the full text of the 2008 plan. We suggest that you review the 2008 plan, which is attached to the end of this proxy statement, for the complete terms of the 2008 plan.

     The 2008 plan is similar, in most respects, to the 2000 plan. We briefly describe the differences between the two plans under the heading “How do the terms of the 2008 plan differ from the terms of the 2000 plan?”

Purpose

     The purpose of the 2008 plan is to provide stock-based incentives as a means of promoting our success by attracting, motivating, rewarding, retaining and aligning the interests of employees (including officers) with those of shareholders generally.

Eligible Employees

     Our officers and key employees are generally eligible for awards under the 2008 plan. We may also grant awards to any person who becomes an employee in connection with the acquisition of another entity on terms necessary to preserve the intrinsic value of prior outstanding awards issued by the other entity, or on other terms authorized by the 2008 plan. No awards may be made to non-employee directors under the 2008 plan. Instead, we make stock awards to non-employee directors under the 2003 Non-Employee Directors Stock Plan. We describe the terms of this plan under the heading “How did we compensate directors in 2007?”

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Administration

     If the 2008 plan is approved by shareholders, the compensation committee will administer the 2008 plan and will make all awards under the 2008 plan. The compensation committee will have broad authority under the 2008 plan:

• to select the participants in the 2008 plan,
   
• to determine the number of shares subject to awards and the terms and conditions of each award, including the price (if any) to be paid for the shares or the award and the date of grant of the award (which may be a designated date after but not before the date of the committee’s action),
   
• to permit the recipient of any award to pay the exercise or purchase price of the common shares or award in cash, by the delivery of previously owned common shares or by notice and third party payment,
   
• to amend the terms of an award, to accelerate the receipt or vesting of benefits and to extend benefits under an award, subject to applicable limitations under Section 409A of the Internal Revenue Code,
   
• to determine the fair market value of the common shares underlying an award and/or the manner in which such value will be determined,
   
• to make certain adjustments to an outstanding award and authorize the conversion, succession or substitution of an award in connection with certain reorganizations or change in control events (as generally described below under the heading “Change in Control; Acceleration of Awards; Possible Early Termination of Awards”), and
   
• to interpret the 2008 plan and make all determinations and take all other actions as may be necessary or advisable for the administration of the 2008 plan.

     In no case, will we make an adjustment to a stock option award under the 2008 plan (by amendment, cancellation and regrant, exchange or other means) that would constitute a repricing of the per share exercise or base price of the award, unless due to an adjustment to reflect a stock split or similar event or a repricing approved by shareholders.

Share Limits

     The maximum number of our common shares that we may issue or transfer pursuant to awards under the 2008 plan equals the sum of:

• 1,100,000 shares, plus
   
• the number of shares available for issuance under the 2000 plan on March 31, 2011 in excess of the number of shares underlying outstanding grants awarded under the 2000 plan, less
   
• any shares that we withhold after March 21, 2008 to satisfy tax withholding obligations with respect to awards granted under the 2000 plan and any shares that underlie awards that are cancelled, forfeited, failed to vest or for any reason are not paid or delivered under the 2000 plan after March 21, 2008.

     We will count 2.45 shares of restricted stock or common shares for each actual share underlying a stock unit against these share limits in connection with any award of restricted stock

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or stock unit. For example, if 100 shares underlie a restricted stock award under the 2008 plan, we will charge 245 shares against the share limit with respect to that award.

     In addition, we may not deliver more than 187,500 common shares in the aggregate pursuant to options granted as incentive stock options under the 2008 plan or grant options to any individual in any calendar year to purchase more than 50,000 of our common shares.

     Share subject to awards that are not paid or exercised before they expire or are terminated, shares withheld to satisfy tax withholding obligations, and shares delivered upon payment of the exercise price will not increase the number of shares available for issuance under the 2008 plan”.

Types of Awards

     The 2008 plan authorizes the grant of awards which may be in the form of stock options, restricted stock or stock units. Generally speaking, an option will expire, and any other award will vest or be forfeited, not more than 10 years after the date of grant. The compensation committee will determine the vesting schedule, if any, for each award. The compensation committee may authorize settlement of awards in cash or common shares or other awards, subject to preexisting rights of participants or commitments evidenced by an award agreement.

Transfer Restrictions

     Subject to customary exceptions, participants in the 2008 plan may not transfer an award other than by will or the laws of descent and distribution. Generally, only the recipient of the award may exercise the award. The compensation committee may, however, permit certain transfers of an award if the recipient of the award presents satisfactory evidence that the transfer is for estate and/or tax planning purposes to certain related persons or entities for no or only nominal consideration.

Adjustments

     As is customary in incentive plans of this nature, the number and kind of shares available under the 2008 plan and the outstanding awards, as well as exercise or purchase prices and other share limits, are subject to adjustment in the event of certain reorganizations, mergers, combinations, consolidations, recapitalizations, reclassifications, stock splits, stock dividends, asset sales or other similar events, or extraordinary dividends or distributions of property to our shareholders.

Stock Options

     An option is the right to purchase our common shares at a future date at a fixed or variable exercise price during a specified term not to exceed 10 years. The compensation committee must designate each option granted as either an incentive stock option or a nonqualified stock option.

     The compensation committee will determine the option exercise price at the time of grant, subject to limitations in the 2008 plan. Under the 2008 plan, we may not grant an option with an exercise price that is less than 100% of the fair market value of a common share on the date of grant (110% in the case of an incentive stock option granted to a beneficial holder of more than 10% of the total combined voting power of all classes of our stock). A recipient of a stock option must make full payment for shares purchased on the exercise of an option and must pay any related taxes at the time of exercise, in cash, shares already owned, or other lawful consideration, including payment through authorized third party payment procedures, as permitted by the terms of the award agreement.

     The right to exercise an option will terminate if the recipient’s employment with us is terminated for cause. The compensation committee may determine the effect of a termination of service for other reasons (including retirement) on the rights and benefits under the option and in doing so may make distinctions based upon the cause of termination.

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Restricted Stock Awards

     A restricted stock award is an award typically for a fixed number of common shares that are subject to restrictions. The compensation committee will, at the time of award, specify the price, if any, or services the recipient must provide for the shares of restricted stock, the conditions on vesting (which may include, among others, the passage of time or specified performance objectives or both) and any other restrictions (for example, restrictions on transfer) imposed on the common shares. Unless otherwise provided in the applicable award agreement, a restricted stock award will confer voting as well as dividend rights prior to vesting of the restricted stock. If the restricted stock does not vest, the recipient must return the restricted stock to us.

Stock Unit Awards

     A stock unit award is for a fixed number of common shares that will be issued to the recipient upon satisfaction of the vesting requirements (if any) of the award. The compensation committee, will at the time of the award, specify the price, if any, or services the recipient must provide for the issuance of common shares, the conditions on vesting (which may include, among others, the passage of time or specified performance objectives or both) and any other restrictions. Unlike an award of restricted stock, the recipient will not have the right to vote the underlying shares. The compensation committee may at the time of the award also grant dividend equivalent rights based on the amount of dividends declared on the underlying common shares between the date of grant and the date on which the stock unit award expires (or such earlier date as may be specified in the award agreement). Dividend equivalent rights may be payable in cash or in common shares.

Change in Control; Acceleration of Awards, Possible Early Termination of Awards

     Upon the occurrence of a change in control event, each option will become immediately exercisable and each restricted stock award and stock unit may immediately vest free of restrictions, unless the compensation committee otherwise provides. Under the 2008 plan, a change in control event generally includes:

• our dissolution or liquidation, unless or business is continued by another entity in which the holders of our voting securities immediately before the event own, either directly or indirectly, more than 55% of the continuing entity’s voting securities immediately after the event,
   
• any sale or other change in ownership of substantially all of our assets, unless our business is continued by another entity in which the holders of our voting securities immediately before the event own more than 55% of the continuing entity’s voting securities,
   
• any reorganization or merger, unless the holders of our voting securities immediately before the event own more than 55% of the continuing entity’s securities and at least a majority of the members of the board of directors of the surviving entity were members of our board of directors at the time of execution of the agreement or approval by our board of directors,
   
• an acquisition by any person, entity or group acting in concert of more than 45% of our voting securities, unless the holders of our voting securities immediately before the event own more than 55% of the acquirer’s voting securities immediately after the acquisition,
   
• a tender offer or exchange offer by any person, entity or group which results in such person, entity or group owning more than 25% of our voting securities, unless the tender offer is approved by a majority of the members of our board of directors who were in

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office at the beginning of the 12-month period preceding the commencement of the tender offer, or

• a change of one-half or more of the members of our board of directors within a 12-month period, unless at least two-thirds of the directors then still in office at the beginning of the 12-month period approved the election or nomination for election of the new directors.

     In certain circumstances, we may terminate awards that are fully accelerated and that are not exercised or settled at or prior to a change in control event, subject to any provisions for assumption, substitution or settlement. If the vesting of an award has been accelerated expressly in anticipation of an event or subject to shareholder approval of an event and the compensation committee or the board later determines that the event will not occur, the compensation committee may rescind the effect of the acceleration as to any then outstanding and unexercised or otherwise unvested awards. If any participant’s employment is terminated by us upon or within one year following a change in control event, then all outstanding options and other awards that have not previously vested will vest immediately prior to the severance date and, if permitted under Section 409A of the Internal Revenue Code, all stock units will become payable upon the severance date (or, to the extent required under Section 409A, upon the date that is six months after the severance date), unless otherwise provided in the award agreement with respect to a change in control event.

Termination of or Changes to the 2008 Plan and Awards

     The board may amend or terminate the 2008 plan at any time and in any manner, including a manner that increases, within 2008 plan aggregate limits, awards to officers. Under the rules of the New York Stock Exchange, we may not make any material revisions to the 2008 plan without obtaining shareholder approval of the revisions. The compensation committee may not make any new awards under the 2008 plan after March 31, 2018, although the applicable plan provisions and authority of the compensation committee will continue as to any then outstanding awards, including the authority to amend outstanding options or other awards to the extent permitted by the 2008 plan.

     Generally, we may not amend outstanding options and other awards without the consent of the holder if the amendment materially and adversely affects the holder.

Securities Underlying Awards

     The closing price of our common shares on March 20, 2008, as set forth on the Wall Street Journal website (www.online.wsj.com), was $36.02 per share. We plan to register our common shares available for issuance under the 2008 plan with the Securities and Exchange Commission under the Securities Act of 1933, prior to the time that we issue any shares under the 2008 plan.

     The compensation committee has not granted any awards under the 2008 plan subject to shareholder approval of the 2008 plan.

Non-Exclusive Plan

     The 2008 plan does not limit the authority of the compensation committee to grant awards or authorize any other compensation, with or without reference to our common shares, under any other plan or authority. However, under the rules of the New York Stock Exchange, with limited exceptions, we are not permitted to make awards under any equity compensation arrangement which has not been approved by you. We may currently only make equity compensation awards to our employees pursuant to the 2000 plan.

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Other Specific Benefits

     The grant of awards under the 2008 plan in the future and the nature of any such awards are subject to the compensation committee’s discretion. While the number, amount and type of awards to be received by or allocated to eligible employees under the 2008 plan cannot be determined specifically, we expect to make grants similar to those made under the 2000 plan. For information regarding 2007 award grants under the 2000 plan, refer to the “Grants of Plan-Based Awards in 2007” table above.

How do the terms of the 2008 plan differ from the terms of the 2000 plan?

     The terms of the two plans are substantially similar except:

• 1,050,000 shares were initially authorized for issuance under the 2000 plan, of which 129,686 shares remain available for grant; an additional 1,100,000 shares will be available for grant under the 2008 plan if the 2008 plan is approved by shareholders,
   
• the term of the 2008 plan expires on March 31, 2018, while the term of the 2000 plan expires on January 26, 2010,
   
• the grant of restricted stock or stock units reduces the number of shares available for issuance under the 2008 plan by 2.45 shares; under the 2000 plan, the grant of restricted stock or stock units reduces the number of shares available for issuance by one share,
   
• common shares subject to awards that are not paid or exercised before they expire or are terminated or withheld to satisfy tax obligations will not be available for future grants under the 2008 plan; if the 2008 plan is not approved by shareholders, common shares will remain available for issuance under the 2000 plan in these circumstances,
   
• the 2008 plan does not allow participants to pay the exercise price of an option with a promissory note; it is permissible for eligible employees who are not executive officers to pay the exercise price of an option with a promissory note under the 2000 plan, if permitted by the terms of the award agreement; the compensation committee has never authorized the payment of the option exercise price with a promissory note, and
   
• the change in control definition in the 2008 plan has been changed to conform in most respects to the definition used in the change in control agreements we have executed with our executive officers; generally a change in ownership of more than 45% of the voting power will result in a change in control under the 2008 plan; the 2000 plan generally requires a change in ownership of more than 50% of the voting power.

What is the federal income tax treatment of awards under the 2008 plan?

     We summarize the federal income tax consequences of the 2008 plan under current federal law based upon general tax principles applicable to the 2008 plan. We do not intend this summary to be exhaustive or to constitute tax advice to any shareholder. Among other considerations, we do not describe the deferred compensation provisions of Section 409A of the Internal Revenue Code to the extent an award is subject to and does not satisfy those rules, nor do we describe state or local tax consequences that may be applicable to a shareholder.

     We are generally entitled to deduct, and the participant recognizes taxable income in an amount equal to, the difference between the option price and the fair market value of the shares at the time of exercise of a nonqualified stock option. With respect to incentive stock options, we are generally not entitled to a deduction nor does the participant recognize income, either at the time of grant or exercise or (provided the participant holds the shares at least two years after grant and one

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year after exercise) at any later time, although the participant may be subject to the U.S. federal alternative minimum tax. Rather, the participant receives capital gains treatment on the difference between his or her basis and the ultimate sales price.

     Restricted stock and stock units are taxed at the time of vesting, although employees may elect earlier taxation and convert future gains to capital gains. We will generally have a corresponding deduction at the time the participant recognizes income.

     If an award is accelerated under the 2008 plan in connection with a change in control (as this term is used under the Internal Revenue Code), we may not be permitted to deduct the portion of the compensation attributable to the acceleration in excess of average annual base salary if that portion exceeds certain threshold limits under the Internal Revenue Code. Certain related excise taxes also may be triggered. Furthermore, if compensation attributable to awards is not “performance-based” within the meaning of Section 162(m) of the Internal Revenue Code, we may not be permitted to deduct aggregate compensation to certain executive officers to the extent it exceeds $1,000,000 in any tax year.

What securities have we authorized for issuance under equity compensation plans?

     We have made stock awards to our executive officers and managers under the 2000 plan. We have also made stock awards to our non-employee directors under the 2003 Non-Employee Directors Stock Plan. We provide information regarding the securities which have been issued and which are available for issuance under these plans in the table set forth below as of December 31, 2007. This table does not include any common shares that may be issued under our 401(k) plan.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

					(c)(1)
					Number of securities
	(a)(1)		(b)		remaining available for
	Number of securities		Weighted-average		future issuance under equity
	to be issued upon exercise of		exercise price of		compensation plans
	outstanding options,		outstanding options,		(excluding securities
Plan category	warrants and rights		warrants and rights		reflected in column (a))
Equity compensation
plans approved by
security holders	469,390		$29.54		247,500
Equity compensation
plans not approved by
security holders	-		-
Total	469,390		$29.54		247,500

⁽¹⁾ Amounts shown are for options granted only. We granted 62,689 restricted stock units to employees and directors as of December 31, 2007. We may not grant restricted stock units with respect to more than 118,000 of our common shares under the 2003 Non-Employee Directors Stock Plan.
____________________

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PROPOSAL 3: RATIFICATION OF AUDITORS PROPOSAL

     The audit and finance committee has appointed PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ended December 31, 2008, subject to reconsideration if our shareholders do not ratify this appointment. We expect representatives of PricewaterhouseCoopers LLP to attend the 2008 annual meeting. They will have an opportunity to make a statement at the 2008 annual meeting, if they desire to do so. They will also be available to respond to appropriate questions from you if you attend the 2008 annual meeting.

What are the audit and finance committee’s pre-approval policies and procedures?

     The audit and finance committee adopted a policy statement on February 2, 2004 regarding the approval of audit, audit-related, tax and other services provided by our registered public accounting firm. This policy statement specifies guidelines and procedures we will use to assist us in maintaining the independence of our registered public accounting firm and complying with Sections 201 and 202 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated by the Securities and Exchange Commission. The audit and finance committee administers this policy statement. The policy statement established the four categories of permitted services described below, the reporting procedure for each category of permitted services, prohibited services and the pre-approval process we use for each category of permitted service.

     The audit and finance committee has reviewed the advisability and acceptability of utilizing our external auditor, PricewaterhouseCoopers LLP, for non-audit services. In reviewing this matter, the committee focused on the ability of our external auditor to maintain its independence. Based on input from management and the committee’s review of procedures established by PricewaterhouseCoopers LLP, the committee finds that it is both advisable and acceptable to employ our external auditor for certain limited non-audit services from time-to-time.

Principal Accounting Fees and Services

     We have estimated the aggregate fees billed or we expect to be billed to us by PricewaterhouseCoopers LLP for the years ended December 31, 2007 and 2006 as follows:

Type of Fee	2006	2007
Audit Fees	$1,145,846	$1,203,147
Audit-Related Fees	-	-
Tax Fees	317,945	350,846
All Other Fees	-	-
Total	$1,463,791	$1,553,993

     Audit Fees

     Audit fees represent the aggregate fees billed, or which we expect we will be billed, for professional services rendered in connection with the audit of our annual financial statements, a review of our financial statements included in our Form 10-Qs filed with the Securities and Exchange Commission and services normally provided by our accountants in connection with statutory or regulatory filings and engagements. In 2007, audit fees also include $443,690 for attestation services rendered in connection with the Sarbanes-Oxley Act of 2002 and out-of-pocket expenses incurred in providing audit services.

     Audit-Related Fees

     Audit-related fees represent the aggregate fees billed, or which we expect we will be billed, for assurance and related services that were reasonably related to the performance of the audit or

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review of our financial statements and are not included in audit fees. On a quarterly basis, the audit and finance committee pre-approves a specific quarterly limit on the amount of audit related fees for non-audit services. Management is also required to report the specific engagements to the committee and obtain specific pre-approval from the committee. All fees listed above have been pre-approved by the audit and finance committee.

     Tax Fees

     Tax fees represent the aggregate fees billed, or which we expect we will be billed, for professional services for tax compliance, tax advice and tax planning, including tax return review, review of tax laws and regulations and cases and other support in connection with complying with federal and state tax reporting and payment requirements.

     All Other Fees

     We have not been billed and do not expect to be billed for other products or services not included in the categories discussed above.

OTHER MATTERS

     Our management knows of no business, other than that mentioned above, to be transacted at the 2008 annual meeting. Unless otherwise instructed, the named proxies intend to vote in favor of any proposal to adjourn the 2008 annual meeting to enable management to continue to solicit proxies in favor of any proposal set forth in this proxy statement that has not obtained the requisite vote in favor of the proposal on the date of the 2008 annual meeting, and in accordance with their judgment on any other matter that may properly come before the 2008 annual meeting.

OBTAINING ADDITIONAL INFORMATION FROM US

     This proxy statement incorporates by reference certain information from our financial statement footnotes in our Form 10-K for the year ended December 31, 2007. We undertake, on written or oral request, to provide you (or a beneficial owner of our securities entitled to vote), without charge, a copy of our annual report on Form 10-K for the year ended December 31, 2007 as filed with the Securities and Exchange Commission, including our financial statements and schedules. You should address your requests to the corporate secretary at American States Water Company, 630 East Foothill Boulevard, San Dimas, California 91773, telephone number 909-394-3600.

     We also undertake, upon written or oral request, to deliver promptly a separate copy of this proxy statement to a security holder at a shared address to which a single copy of this proxy statement was delivered. If you share an address with another shareholder and wish to receive a single copy of this proxy statement, instead of multiple copies, you may direct this request to us at the address or telephone number listed above.

     You may also visit our website at http://www.aswater.com to view the charters of our audit and finance committee, nominating and governance committee and compensation committee. We also provide a copy of our code of conduct and guidelines on significant governance issues on this website. You can find this information on our website by clicking on “Investors” and then clicking on “Governance”. You may also request a copy of our code of conduct and guidelines on significant governance issues and the charters of our audit and finance committee, nominating and governance committee and compensation committee from us at the address set forth above.

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ATTACHMENT I

 

 

AMERICAN STATES WATER COMPANY
2008 STOCK INCENTIVE PLAN
(Effective April 1, 2008)

 

 

 

 

 

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TABLE OF CONTENTS

1.		THE PLAN	1
1.1		Purpose	1
1.2		Administration and Authorization; Power and Procedure	1
1.3		Participation	3
1.4		Shares Available for Awards; Share Limits	3
1.5		Grant of Awards	3
1.6		Award Period	4
1.7		Limitations on Exercise and Vesting of Awards	4
1.8		No Transferability; Limited Exception to Transfer Restrictions	4
2.		OPTIONS	5
2.1		Grants	5
2.2		Option Price	5
2.3		Limitations on Grant and Terms of Incentive Stock Options	5
2.4		Limits on 10% Holders	6
3.		RESTRICTED STOCK AWARDS	6
3.1		Grants	6
3.2		Restrictions	6
3.3		Return to the Corporation	7
4.		STOCK UNIT AWARDS	7
4.1		Grants	7
4.2		Payouts	7
4.3		Non-Transferability	7
4.4		Dividend Equivalent Rights	7
4.5		Cancellation of Restricted Stock Units	8
5.		OTHER PROVISIONS	8
5.1		Rights of Eligible Employees, Participants and Beneficiaries	8
5.2		Adjustments; Acceleration	8
5.3		Effect of Termination of Service on Awards	10
5.4		Compliance with Laws	11
5.5		Tax Matters	12
5.6		Plan Amendment, Termination and Suspension	12

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5.7		Privileges of Stock Ownership	13
5.8		Effective Date of the Plan	13
5.9		Term of the Plan	13
5.10		Governing Law/Construction/Severability	13
5.11		Captions	13
5.12		Stock-Based Awards in Substitution for Stock Options or Awards Granted by Other Corporation	14
5.13		Non-Exclusivity of Plan	14
5.14		No Corporate Action Restriction	14
5.15		Other Company Benefit and Compensation Program	14
6.		DEFINITIONS	15
6.1		Definitions	15

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AMERICAN STATES WATER COMPANY
2008 STOCK INCENTIVE PLAN
(Effective April 1, 2008)

THE PLAN

     1.1 Purpose

     The purpose of this Plan is to promote the success of the Company by providing an additional means through the grant of Awards to attract, motivate, retain and reward key employees, including officers, whether or not directors, of the Company with awards and incentives for high levels of individual performance and improved financial performance of the Company. Capitalized terms are defined in Article 6.

     1.2 Administration and Authorization; Power and Procedure.

          (a) Committee. This Plan shall be administered by and all Awards to Eligible Employees shall be authorized by the Committee. Action of the Committee with respect to the administration of this Plan shall be taken pursuant to a majority vote or by written consent of its members. With respect to Awards intended to satisfy the requirements of performance-based compensation under Section 162(m) of the Code, this Plan shall be administered by a committee consisting solely of two or more outside directors (as this requirement is applied under Section 162(m) of the Code); provided, however, that the failure to satisfy such requirement shall not affect the validity of the action of any committee otherwise duly authorized and acting in the matter. Award grants, and transactions in or involving Awards, intended to be exempt under Rule 16b-3 under the Exchange Act must be duly and timely authorized by the Board or a committee consisting solely of two or more non-employee directors (as this requirement is applied under Rule 16b-3 promulgated under the Exchange Act). To the extent required by any applicable listing agency, this Plan shall be administered by a committee composed entirely of independent directors (within the meaning of the applicable listing agency).

          (b) Plan Awards; Interpretation; Powers of Committee. Subject to the express provisions of this Plan, the Committee shall have the authority:

     (i) to determine eligibility and, from among those persons determined to be eligible, the particular Eligible Employees who will receive an Award;

     (ii) to grant Awards to Eligible Employees, determine the price at which securities will be offered or awarded and the number of securities to be offered or awarded to any of such persons, and determine the other specific terms and conditions of such Awards consistent with the express limits of this Plan, and establish the installments (if any) in which such Awards shall become exercisable or shall vest (which may include, without limitation, performance and/or time-based schedules), or determine that no delayed exercisability or vesting is required, and establish the events of termination or reversion of such Awards;

     (iii) to approve the forms of Award Agreements (which need not be identical either as to type of Award or among Participants);

     (iv) to construe and interpret this Plan and any agreements defining the rights and obligations of the Company and Participants under this Plan, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan or the Awards granted under this Plan;

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     (v) to cancel, modify, or waive the Corporation’s rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding Awards held by Eligible Employees, subject to any required consent under Section 5.6;

     (vi) to accelerate or extend the vesting or exercisability or extend the term of any or all such outstanding Awards (in the case of Options, within the original term of such Awards under Section 1.6), subject to Section 5.3;

     (vii) to adjust the number of shares of Common Stock subject to any Award, adjust the price of any or all outstanding Awards or otherwise previously imposed terms and conditions, in such circumstances as the Committee may deem appropriate, in each case subject to Sections 1.4 and 5.6, and provided that in no case (except due to an adjustment contemplated by Section 5.2 or any repricing that may be approved by shareholders) shall such an adjustment constitute a repricing (by amendment, substitution, cancellation and regrant, exchange or other means) of the per share exercise or base price of any Option;

     (viii) to determine the date of grant of an Award, which may be a designated date after but not before the date of the Committee’s action (unless otherwise designated by the Committee, the date of grant of an Award shall be the date upon which the Committee took the action granting the Award);

     (ix) to determine whether, and the extent to which, adjustments are required pursuant to Section 5.2 hereof and authorize the termination, conversion, substitution or succession of Awards upon the occurrence of an event of the type described in Section 5.2;

     (x) to determine the Fair Market Value of the Common Stock of Awards under this Plan from time to time and/or the manner in which such value will be determined; and

     (xi) to make all other determinations and take such other action as contemplated by this Plan or as may be necessary or advisable for the administration of this Plan and the effectuation of its purposes.

          (c) Binding Determinations/Liability Limitation. Any action taken by, or inaction of, the Corporation, any Subsidiary, the Board or the Committee relating or pursuant to this Plan and within its authority hereunder or under applicable law shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons. Neither the Board nor any Committee, nor any member thereof or person acting at the direction thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with this Plan (or any Award made under this Plan), and all such persons shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage that may be in effect from time to time.

          (d) Reliance on Experts. In making any determination or in taking or not taking any action under this Plan, the Committee or the Board, as the case may be, may obtain and may rely upon the advice of experts, including employees and professional advisors to the Corporation. No director, officer or agent of the Company shall be liable for any such action or determination taken or made or omitted in good faith.

          (e) Delegation. The Committee may delegate ministerial, non-discretionary functions to individuals who are officers or employees of the Company or to third parties.

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     1.3 Participation

     Awards may be granted by the Committee only to those persons that the Committee determines to be Eligible Employees. An Eligible Employee, who has been granted an Award may, if otherwise eligible, be granted additional Awards if the Committee shall so determine.

     1.4 Shares Available for Awards; Share Limits.

          (a) Shares Available. Subject to the provisions of Section 5.2, the capital stock that may be delivered under this Plan shall be shares of the Corporation’s authorized but unissued Common Stock. The shares may be delivered for any lawful consideration.

          (b) Share Limits. The maximum number of shares of Common Stock that may be delivered pursuant to Awards granted to Eligible Employees under this Plan (the “Share Limit”) is equal to the sum of the following: (i) 1,100,000 shares of Common Stock, plus (ii) the number of shares of Common Stock available for additional award grant purposes under the Corporation’s 2000 Stock Incentive Plan (the “2000 Plan”) on March 31, 2011 that are in excess of the number of shares of Common Stock then subject to outstanding awards granted under the 2000 Plan reduced by the number of shares that, at any time after March 21, 2008 are withheld to satisfy tax withholding obligations under the 2000 Plan and the number of shares that at any time after March 21, 2008 are subject to or underlie awards that expire or for any reason are cancelled, terminated or forfeited, or fail to vest or for any other reason are not paid or delivered under the 2000 Plan. Shares issued in respect of any “Full-Value Award” granted under this Plan shall be counted against the foregoing Share Limit as 2.45 shares for every one share actually issued in connection with such Award. (For example, if an Award of 100 Restricted Stock shares are granted under this Plan, 245 shares shall be charged against the Share Limit in connection with that Award.) For this purpose, a “Full-Value Award” means any Award under this Plan that is not an Option. The following limits also apply with respect to Awards granted under this Plan:

          (1) The maximum number of shares of Common Stock that may be delivered pursuant to Options qualified as Incentive Stock Options granted under this Plan is 187,500 shares.

          (2) The maximum number of shares of Common Stock subject to those Options that are granted during any calendar year to any individual under this Plan is 50,000 shares.

          (c) Share Reservation; Replenishment and Reissue of Unvested Awards. No Award may be granted under this Plan unless, on the date of grant, the sum of (i) the maximum number of shares issuable at any time pursuant to such Award, plus (ii) the number of shares that have previously been issued pursuant to Awards granted under this Plan, plus (iii) the maximum number of shares that may be issued at any time after such date of grant pursuant to Awards that are outstanding on such date, does not exceed the Share Limit. Shares that are subject to or underlie Awards which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under this Plan shall not be available for subsequent Awards under the Plan. Shares that are withheld by the Corporation to satisfy the tax withholding obligations related to the Award shall not be available for subsequent Awards under this Plan. Except as limited by law, if an Award is or may be settled only in cash, such Award need not be counted against any of the limits under this Section 1.4.

     1.5 Grant of Awards.

     Subject to the express provisions of this Plan, the Committee shall determine the number of shares of Common Stock subject to each Award and the price (if any) to be paid for the shares or the Award. Each Award shall be evidenced by an Award Agreement signed by the Corporation and, if required by the Committee, by the Participant.

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The Award Agreement shall set forth the material terms and conditions of the Award established by the Committee consistent with the specific provisions of this Plan.

     1.6 Award Period.

     Each Award and all executory rights or obligations under the related Award Agreement shall expire on such date (if any) as shall be determined by the Committee, but in the case of Options not later than ten (10) years after the Award Date.

     1.7 Limitations on Exercise and Vesting of Awards.

          (a) Provisions for Exercise. Unless the Committee otherwise expressly provides, no Award shall be exercisable or shall vest until at least six months after the initial Award Date, and once exercisable an Award shall remain exercisable until the expiration or earlier termination of the Award.

          (b) Procedure. Any exercisable Award shall be deemed to be exercised when the Secretary of the Corporation receives written notice of such exercise from the Participant, together with any required payment made in accordance with Section 2.2.

          (c) Fractional Shares/Minimum Issue. Fractional share interests shall be disregarded, but may be accumulated. The Committee, however, may determine in the case of Eligible Employees that cash, other securities, or other property will be paid or transferred in lieu of any fractional share interests. No fewer than 100 shares may be purchased on exercise of any Award at one time unless the number purchased is the total number at the time available for purchase under the Award.

     1.8 No Transferability; Limited Exception to Transfer Restrictions.

          (a) Limit On Exercise and Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 1.8, by applicable law and by the Award Agreement, as the same may be amended, (i) all Awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; (ii) Awards shall be exercised only by the Participant; and (iii) amounts payable or shares issuable pursuant to an Award shall be delivered only to (or for the account of) the Participant.

          (b) Exceptions. The Committee may permit Awards to be exercised by and paid only to certain persons or entities related to the Participant, including but not limited to members of the Participant’s immediate family, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant’s immediate family, pursuant to such conditions and procedures as the Committee may establish in writing. Any permitted transfer shall be (i) subject to compliance with applicable federal and state securities laws and (ii) subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for essentially estate and/or tax planning purposes on a gratuitous or donative basis and without consideration (other than nominal consideration or in exchange for an interest in a qualified transferee). Notwithstanding the foregoing or anything to the contrary in Section 1.8(c), Incentive Stock Options and Restricted Stock Awards shall be subject to any and all additional transfer restrictions under the Code.

          (c) Further Exceptions to Limits On Transfer. The exercise and transfer restrictions in Section 1.8(a) shall not apply to:

     (i) transfers to the Corporation,

     (ii) the designation of a beneficiary to receive benefits in the event of the Participant’s death or, if the Participant has died, transfers to or exercise by the

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Participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution,

     (iii) subject to applicable limits on Incentive Stock Options, transfers to a family member (or former family member) pursuant to a domestic relations order if approved or ratified by the Committee,

     (iv) if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by his or her legal representative, or

     (v) the authorization by the Committee of “cashless exercise” procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of Awards consistent with applicable laws and the express authorization of the Committee.

2. OPTIONS.

     2.1 Grants.

     One or more Options may be granted under this Article to any Eligible Employee. Each Option granted shall be designated in the applicable Award Agreement, by the Committee as either an Incentive Stock Option, subject to Section 2.3, or a Non-Qualified Stock Option.

     2.2 Option Price.

          (a) Pricing Limits. The purchase price per share of the Common Stock covered by each Option shall be determined by the Committee at the time of the Award, but shall not be less than 100% (110% in the case of an Incentive Stock Option granted to a Participant described in Section 2.4) of the Fair Market Value of the Common Stock on the date of grant.

          (b) Payment Provisions. The purchase price of any shares purchased on exercise of an Option granted under this Article shall be paid in full at the time of each purchase in one or a combination of the following methods: (i) in cash or by electronic funds transfer; (ii) by check payable to the order of the Corporation; (iii) by notice and third party payment in such manner as may be authorized by the Committee; or (iv) by the delivery of shares of Common Stock of the Corporation already owned by the Participant, provided, however, that the Committee may in its absolute discretion limit the Participant’s ability to exercise an Award by delivering such shares, and provided further that any shares delivered which were initially acquired upon exercise of a stock option must have been owned by the Participant at least six months as of the date of delivery. Shares of Common Stock used to satisfy the exercise price of an Option shall be valued at their Fair Market Value on the date of exercise and may not be used to increase the Share Limit.

     2.3 Limitations on Grant and Terms of Incentive Stock Options.

          (a) $100,000 Limit. To the extent that the aggregate “Fair Market Value” of stock with respect to which Incentive Stock Options first become exercisable by a Participant in any calendar year exceeds $100,000, taking into account both Common Stock subject to Incentive Stock Options under this Plan and stock subject to incentive stock options under all other plans of the Company, such options shall be treated as Nonqualified Stock Options. For this purpose, the “Fair Market Value” of the stock subject to Options shall be determined as of the date the Options were awarded. In reducing the number of Options treated as Incentive Stock Options to meet the $100,000 limit, the most recently granted Options shall be reduced first. To the extent a reduction of simultaneously granted Options is necessary to meet the $100,000 limit, the Committee may, in the manner and to the extent permitted by law,

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designate which shares of Common Stock are to be treated as shares acquired pursuant to the exercise of an Incentive Stock Option.

          (b) Option Period. Each Option and all rights thereunder shall expire no later than 10 years after the Award Date.

          (c) Other Code Limits. Incentive Stock Options may only be granted to Eligible Employees of the Corporation or a Subsidiary that satisfies the other eligibility requirements of the Code. There shall be imposed in any Award Agreement relating to Incentive Stock Options such other terms and conditions as from time to time are required in order that the Option be an “incentive stock option” as that term is defined in Section 422 of the Code.

     2.4 Limits on 10% Holders.

     No Incentive Stock Option may be granted to any person who, at the time the Option is granted, owns (or is deemed to own under Section 424(d) of the Code) shares of outstanding Common Stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation, unless the exercise price of such Option is at least 110% of the Fair Market Value of the stock subject to the Option and such Option by its terms is not exercisable after the expiration of five years from the date such Option is granted.

3. RESTRICTED STOCK AWARDS.

     3.1 Grants.

     The Committee may, in its discretion, grant one or more Restricted Stock Awards to any Eligible Employee. Each Restricted Stock Award Agreement shall specify the number of shares of Common Stock to be issued to the Participant, the date of such issuance, the consideration for such shares (but not less than the minimum lawful consideration under applicable state law) by the Participant, the extent (if any) to which and the time (if ever) at which the Participant shall be entitled to dividends, voting and other rights in respect of the shares prior to vesting, and the restrictions (which may be based on performance criteria, passage of time or other factors or any combination thereof) imposed on such shares and the conditions of release or lapse of such restrictions. Such restrictions shall not lapse earlier than six months after the Award Date, except to the extent the Committee may otherwise provide. Stock certificates evidencing shares of Restricted Stock pending the lapse of the restrictions (“Restricted Shares”) shall bear a legend making appropriate reference to the restrictions imposed hereunder and shall be held by the Corporation or by a third party designated by the Committee until the restrictions on such shares shall have lapsed and the shares shall have vested in accordance with the provisions of the Award and Section 1.7. Upon issuance of the Restricted Stock Award, the Participant may be required to provide such further assurance and documents as the Committee may require to enforce the restrictions.

     3.2 Restrictions.

          (a) Pre-Vesting Restraints. Except as provided in Section 3.1 and 1.8, Restricted Shares comprising any Restricted Stock Award may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered, either voluntarily or involuntarily, until the restrictions on such shares have lapsed and the shares have become vested.

          (b) Dividend and Voting Rights. Unless otherwise provided in the applicable Award Agreement, a Participant receiving a Restricted Stock Award shall be entitled to cash dividend and voting rights for all shares issued even though they are not vested, provided that such rights shall terminate immediately as to any Restricted Shares which cease to be eligible for vesting.

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          (c) Cash Payments. If the Participant shall have paid or received cash (including any dividends) in connection with the Restricted Stock Award, the Award Agreement shall specify whether and to what extent such cash shall be returned (with or without an earnings factor) as to any Restricted Shares which cease to be eligible for vesting.

     3.3 Return to the Corporation.

     Unless the Committee otherwise expressly provides, Restricted Shares that remain subject to restrictions at the time of termination of employment or are subject to other conditions to vesting that have not been satisfied by the time specified in the applicable Award Agreement shall not vest and shall be returned to the Corporation in such manner and on such terms as the Committee shall therein provide.

4. STOCK UNIT AWARDS

     4.1 Grants.

          The Committee may, in its discretion, (a) authorize and grant to any Eligible Employee a Stock Unit Award, (b) credit to any Eligible Employee Stock Units, (c) permit an Eligible Employee to irrevocably elect to defer by means of Stock Units or receive in Stock Units all or a portion of any Award hereunder, or (d) grant Stock Units in lieu of, in exchange for, in respect of, or in addition to any other compensation or Award under this Plan. The specific terms, conditions, and provisions relating to each Stock Unit grant or election, including the applicable vesting and payout provisions of the Stock Units and the form of payment to be made at or following the vesting thereof, shall be set forth in or pursuant to the applicable Award Agreement and any relevant Company bonus, performance or other service or deferred compensation plan, in form substantially as approved by the Committee, in each case subject to compliance with Section 409A of the Code.

     4.2 Payouts.

          Subject to compliance with Section 409A of the Code, the Committee in the applicable Stock Unit Award Agreement or other Award Agreement or the relevant Company deferred compensation plan may permit the Eligible Employee to elect the form and time of payout of vested Stock Units on such conditions or subject to such procedures as the Committee may impose, and may permit Stock Unit offsets or other provision for payment of any applicable taxes that may be due on the crediting, vesting or payment in respect of the Stock Units.

     4.3 Non-Transferability.

          Rights in respect of Stock Unit Awards may not be sold, pledged, assigned, hypothecated, transferred, or otherwise disposed of or encumbered, either voluntarily or involuntarily, other than by will or the laws of descent or distribution.

     4.4 Dividend Equivalent Rights.

          In its discretion, the Committee may grant to any Eligible Employee “Dividend Equivalent Rights” concurrently with the grant of any Stock Unit Award, on such terms as set forth by the Committee in the Stock Unit Agreement or other applicable Award Agreement. Dividend Equivalent Rights shall be based on all or part of the amount of dividends declared on shares of Common Stock and shall be credited as of dividend payment dates, during the period between the date of grant (or such later date as the Committee may set in the Award Agreement) and the date the Stock Unit Award expires (or such earlier date as the Committee may set in the Award Agreement), as determined by the Administrator. Dividend Equivalent Rights shall be payable in cash or shares at the same time as the Stock Units to which they relate, and may be subject to such conditions, as may be determined by the Administrator.

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     4.5 Cancellation of Restricted Stock Units.

          Unless the Committee otherwise expressly provides, Restricted Stock Units that remain subject to conditions to vesting at the time of termination of employment or service or are subject to other conditions to vesting that have not been satisfied by the time specified in the applicable Award Agreement shall not vest and shall be cancelled, unless the Committee otherwise provides in or by amendment to the applicable terms of the Award.

5. OTHER PROVISIONS

     5.1 Rights of Eligible Employees, Participants and Beneficiaries.

          (a) Employment Status. Status as an Eligible Employee shall not be construed as a commitment that any Award will be made under this Plan to an Eligible Employee or to Eligible Employees generally.

          (b) No Employment Contract. Nothing contained in this Plan (or in any other documents under this Plan or in any Award) shall confer upon any Eligible Employee or Participant any right to continue in the employ or other service of the Company, constitute any contract or agreement of employment or other service or affect an employee’s status as an employee at will, nor shall interfere in any way with the right of the Company to change a person’s compensation or other benefits, or to terminate his or her employment or other service, with or without cause. Nothing in this Section, however, is intended to adversely affect any express independent right of such person under a separate employment or service contract other than an Award Agreement.

          (c) Plan Not Funded. Awards payable under this Plan shall be payable in shares or from the general assets of the Corporation, and (except as provided in Section 1.4(c)) no special or separate reserve, fund or deposit shall be made to assure payment of such Awards. No Participant, Beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly otherwise provided) of the Company by reason of any Award hereunder. Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company and any Participant, Beneficiary or other person. To the extent that a Participant, Beneficiary or other person acquires a right to receive payment pursuant to any Award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.

     5.2 Adjustments; Acceleration.

          (a) Adjustments.

     (1) Upon (or, as may be necessary to effect the adjustment, immediately prior to): any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split; any merger, combination, consolidation, or other reorganization; any spin-off, split-up or similar extraordinary dividend distribution in respect of the Common Stock; or any exchange of Common Stock or other securities of the Corporation, or any similar, unusual or extraordinary corporate transaction in respect of the Common Stock; then the Committee shall equitably and proportionately adjust (1) the number and type of shares of Common Stock (or other securities) that thereafter may be made the subject of Awards (including the specific share limits, maximums and numbers of shares set forth elsewhere in this Plan), (2) the number, amount and type of shares of Common Stock (or other securities or property) subject to any outstanding Awards, (3) the grant, purchase or exercise price of any outstanding Awards, and/or (4) the securities, cash or other property deliverable upon

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exercise or payment of any outstanding Awards, in each case to the extent necessary to preserve (but not increase) the level of incentives intended by the Plan and the then-outstanding Awards.

     Unless otherwise expressly provided in the applicable Award Agreement, upon (or, as may be necessary to effect the adjustment, immediately prior to) any event or transaction described in the preceding paragraph or a sale of all or substantially all of the business or assets of the Corporation as an entirety, the Committee shall equitably and proportionately adjust the performance standards applicable to any then-outstanding performance-based Awards to the extent necessary to preserve (but not increase) the level of incentives intended by the Plan and the then-outstanding performance-based Awards.

     It is intended that, if possible, any adjustments contemplated by the preceding two paragraphs be made in a manner that satisfies applicable legal, tax (including, without limitation and as applicable in the circumstances, Section 424 of the Code, Section 409A of the Code and Section 162(m) of the Code) and accounting (so as to not trigger any charge to earnings with respect to such adjustment) requirements.

     Without limiting the generality of Section 1.2, any good faith determination by the Committee as to whether an adjustment is required under the circumstances pursuant to this Section 5.2(a)(1), and the extent and nature of any such adjustment, shall be conclusive and binding on all persons.

     (2) Corporate Transactions-Assumption or Termination of Awards. Upon the occurrence of any of the following: any merger, combination, consolidation, or other reorganization; any exchange of Common Stock or other securities of the Corporation; a sale of all or substantially all the business, stock or assets of the Corporation; a dissolution of the Corporation; or any other event in which the Corporation does not survive (or does not survive as a public company in respect of its Common Stock); then the Committee may make provision for a cash payment in settlement of, or for the assumption, substitution or exchange of any or all outstanding share-based Awards or the cash, securities or property deliverable to the holder of any or all outstanding share-based Awards, based upon, to the extent relevant under the circumstances, the distribution or consideration payable to holders of the Common Stock upon or in respect of such event.

     The Committee may adopt such valuation methodologies for outstanding Awards as it deems reasonable in the event of a cash or property settlement and, in the case of Options or similar rights, but without limitation on other methodologies, may base such settlement solely upon the excess if any of the per share amount payable upon or in respect of such event over the exercise or base price of the Award.

     In any of the events referred to in this Section 5.2(a)(2), the Committee may take such action contemplated by this Section 5.2(a)(2) prior to such event (as opposed to on the occurrence of such event) to the extent that the Committee deems the action necessary to permit the participant to realize the benefits intended to be conveyed with respect to the underlying shares.

     Without limiting the generality of Section 1.2, any good faith determination by the Committee pursuant to this Section 5.2(a)(2) shall be conclusive and binding on all persons.

          (b) Possible Early Termination of Accelerated Awards. If any Option or other right to acquire Common Stock under this Plan has been fully accelerated as required or permitted by Section 5.2(c) but is not exercised prior to (1) a dissolution of the Company, or (2) an event described in Section 5.2(a) that the Company does not survive, or (3) the consummation of an event described in Section 5.2(a)

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involving a Change in Control Event approved by the Board, such Option or right shall terminate, subject to any provision that has been expressly made by the Board or the Committee, through a plan of reorganization or otherwise, for the survival, substitution, assumption, exchange or other settlement of such Option or right.

          (c) Acceleration of Awards Upon Change in Control. Unless prior to a Change in Control Event the Committee determines that, upon its occurrence, benefits under any or all Awards shall not be accelerated or determines that only certain or limited benefits under any or all Awards shall be accelerated and the extent to which they shall be accelerated, and/or establishes a different time in respect of such Change in Control Event for such acceleration, then upon the occurrence of a Change in Control Event:

     (1) Each Option shall become immediately exercisable, and

     (2) Restricted Stock shall immediately vest free of restrictions, and

     (3) Restricted Stock Units shall immediately vest free of restrictions and become payable.

     The Committee may override the limitations on acceleration in this Section 5.2(c) by express provision in the Award Agreement and may accord any Eligible Employee a right to refuse any acceleration, whether pursuant to the Award Agreement or otherwise, in such circumstances as the Committee may approve. Any acceleration of Awards shall comply with applicable legal requirements and, if necessary to accomplish the purposes of the acceleration or if the circumstances require, may be deemed by the Committee to occur (subject to Section 5.2(d)) a limited period of time not greater than 30 days before the event. Without limiting the generality of the foregoing, the Committee may deem an acceleration to occur immediately prior to the applicable event and/or reinstate the original terms of an Award if an event giving rise to acceleration does not occur. Notwithstanding the foregoing, an Award shall not be accelerated and/or become payable pursuant to this Section 5.2(c) to the extent that such acceleration and/or payment would cause the holder of such Award to be subject to additional tax under Section 409A of the Code with respect to such Award.

          (d) Possible Rescission of Acceleration. If the vesting of an Award has been accelerated expressly in anticipation of an event or upon shareholder approval of an event and the Committee or the Board later determines that the event will not occur, the Committee may rescind the effect of the acceleration as to any then outstanding and unexercised or otherwise unvested Awards.

          (e) Acceleration Upon Termination of Service Following a Change in Control. If any Participant’s employment is terminated by the Company upon or within one year after a Change in Control Event, and the termination is not the result of death, Total Disability, Retirement or a termination for Cause, then, subject to the other provisions of this Section 5.2 (including without limitation Section 5.2(b) and Section 5.4), all outstanding Options and other Awards held by the Participant shall be deemed fully vested immediately prior to the Severance Date and Stock Units shall become payable upon such Severance Date (or, to the extent applicable under Section 409A, upon the date that is six months after such Severance Date), unless the Award Agreement specifies a different result in the case of a Change in Control Event. Notwithstanding the foregoing, an Award shall not be accelerated and/or become payable pursuant to this Section 5.2(e) to the extent that such acceleration and/or payment would cause the holder of such Award to be subject to additional tax under Section 409A of the Code with respect to such Award.

     5.3 Effect of Termination of Service on Awards.

          (a) General. The Committee shall establish the effect of a termination of employment on the rights and benefits under each Award under this Plan and in so doing may make distinctions based upon the cause of termination.

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          (b) Options - Resignation or Dismissal. If the Participant’s employment by the Company terminates for any reason (the date of such termination being referred to as the “Severance Date”) other than Retirement, Total Disability or death, or for Cause (as determined in the discretion of the Committee), the Participant shall have, unless otherwise provided in the Award Agreement and subject to earlier termination pursuant to or as contemplated by Section 1.6 or 5.2, three months after the Severance Date to exercise any Option to the extent it shall have become exercisable on the Severance Date. In the case of a termination for Cause, the Option shall terminate on the Severance Date. In other cases, the Option, to the extent not exercisable on the Severance Date, shall terminate.

          (c) Options - Death or Disability. If the Participant’s employment by the Company terminates as a result of Total Disability or death, the Participant, Participant’s Personal Representative or his or her Beneficiary, as the case may be, shall have, unless otherwise provided in the Award Agreement and subject to earlier termination pursuant to or as contemplated by Section 1.6 or 5.2, until 12 months after the Severance Date to exercise any Option to the extent it shall have become exercisable by the Severance Date. Any Option to the extent not exercisable on the Severance Date shall terminate.

          (d) Options - Retirement. If the Participant’s employment by the Company terminates as a result of Retirement, the Participant, Participant’s Personal Representative or his or her Beneficiary, as the case may be, shall have, unless otherwise provided in the Award Agreement and subject to earlier termination pursuant to or as contemplated by Section 1.6 or 5.2, until 12 months after the Severance Date to exercise any Option to the extent it shall have become exercisable by the Severance Date. The Option, to the extent not exercisable on the Severance Date, shall terminate.

          (e) Events Not Deemed Terminations of Service. Unless Company policy or the Committee otherwise provides, the employment relationship shall not be considered terminated in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence authorized by the Company or the Committee; provided that unless reemployment upon the expiration of such leave is guaranteed by contract or law, such leave is for a period of not more than 90 days. In the case of any Eligible Employee on an approved leave of absence, continued vesting of the Award while on leave from the employ of the Company shall be suspended, unless the Committee otherwise provides or applicable law otherwise requires. In no event shall an Award be exercised after the expiration of the term set forth in the Award Agreement.

          (f) Effect of Change of Subsidiary Status. For purposes of this Plan and any Award, if an entity ceases to be a Subsidiary a termination of employment shall be deemed to have occurred with respect to each Eligible Employee in respect of the Subsidiary who does not continue as an Eligible Employee in respect of another entity within the Company.

          (g) Committee Discretion. Notwithstanding the foregoing provisions of this Section 5.3, in the event of, or in anticipation of, a termination of employment with the Company for any reason, other than discharge for Cause, the Committee may, in its discretion, increase the portion of the Participant’s Option available to the Participant, or Participant’s Beneficiary or Personal Representative, as the case may be, or, subject to the provisions of Section 1.6, extend the exercisability period upon such terms as the Committee shall determine and expressly set forth in or by amendment to the Award Agreement; provided, however, that in no event shall any such extension of the exercisability period extend such period beyond the earlier of the following dates: (i) the latest date the Option could have expired by its original terms or (ii) the 10^th anniversary of the Award Date.

     5.4 Compliance with Laws.

     This Plan, the granting and vesting of Awards under this Plan, the offer, issuance and delivery of shares of Common Stock and/or the payment of money under this Plan or under Awards are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law) and to such approvals by any listing, regulatory or governmental

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authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. The person acquiring any securities under this Plan will, if requested by the Company, provide such assurances and representations to the Company as the Committee may deem necessary or desirable to assure compliance with all applicable legal and accounting requirements.

     5.5 Tax Matters.

     (a) Provision for Tax Withholding or Offset. Upon any exercise, vesting, or payment of any Award or upon the disposition of shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option prior to satisfaction of the holding period requirements of Section 422 of the Code, the Company shall have the right at its option to (i) require the Participant (or Personal Representative or Beneficiary, as the case may be) to pay or provide for payment of the minimum amount of any taxes which the Company may be required to withhold with respect to such Award event or payment or (ii) deduct from any amount payable in cash the minimum amount of any taxes which the Company may be required to withhold with respect to such cash payment. In any case where a tax is required to be withheld in connection with the delivery of shares of Common Stock under this Plan, the Committee may in its sole discretion (subject to Section 5.4) grant (either at the time of the Award or thereafter) to the Participant the right to elect, pursuant to such rules and subject to such conditions as the Committee may establish, to have the Corporation reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares valued at their Fair Market Value, necessary to satisfy such minimum withholding obligation, determined in each case as of the trading day next preceding the applicable date of exercise, vesting or payment. In no event shall shares be withheld in excess of the minimum whole number required for tax withholding under applicable law.

     5.6 Plan Amendment, Termination and Suspension.

          (a) Board Authorization. The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part. No Awards may be granted during any suspension of this Plan or after termination of this Plan, but the Committee shall retain jurisdiction as to Awards then outstanding in accordance with the terms of this Plan.

          (b) Shareholder Approval. To the extent then required by applicable law or any applicable listing agency or required under Sections 162, 422 or 424 of the Code to preserve the intended tax consequences of the Plan, or deemed necessary or advisable by the Board, any amendment to this Plan shall be subject to shareholder approval.

          (c) Amendments to Awards. Without limiting any other express authority of the Committee under (but subject to) the express limits of this Plan, the Committee by agreement or resolution may waive conditions of or limitations on Awards to Participants that the Committee in the prior exercise of its discretion has imposed, without the consent of a Participant, and (subject to the requirements of Section 1.2(b) and 5.6(d)) may make other changes to the terms and conditions of Awards that do not affect in any manner materially adverse to the Participant, the Participant’s rights and benefits under an Award. Any amendment or other action that would constitute a repricing of an Award is subject to the limitations set forth in Section 1.2(b)(viii).

          (d) Limitations on Amendments to Plan and Awards. No amendment, suspension or termination of this Plan or change affecting any outstanding Award shall, without written consent of the Participant, affect in any manner materially adverse to the Participant any rights or benefits of the Participant or obligations of the Company under any Award granted under this Plan prior to the effective date of such change. Changes contemplated by Section 5.2 shall not be deemed to constitute changes or amendments for purposes of this Section 5.6.

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     5.7 Privileges of Stock Ownership.

     Except as otherwise expressly authorized by the Committee or this Plan, a Participant shall not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by the Participant. No adjustment will be made for dividends or other rights as a shareholder for whom a record date is prior to such date of delivery.

     5.8 Effective Date of the Plan.

     This Plan is effective as of April 1, 2008. The Plan shall be submitted for and subject to shareholder approval no later than twelve months after the effective date.

     5.9 Term of the Plan.

     No Award will be granted under this Plan after March 31, 2018 (the “termination date”). Unless otherwise expressly provided in this Plan or in an applicable Award Agreement, any Award granted prior to the termination date may extend beyond such date, and all authority of the Committee with respect to Awards hereunder, including the authority to amend an Award, shall continue during any suspension of this Plan and in respect of Awards outstanding on the termination date.

     5.10 Governing Law/Construction/Severability.

          (a) Choice of Law. This Plan, the Awards, all documents evidencing Awards and all other related documents shall be governed by, and construed in accordance with the laws of the State of California.

          (b) Severability. If a court of competent jurisdiction holds any provision invalid and unenforceable, the remaining provisions of this Plan shall continue in effect.

          (c) Plan Construction.

     (1) Rule 16b-3. It is the intent of the Corporation that the Awards and transactions permitted by Awards be interpreted in a manner that, in the case of Participants who are or may be subject to Section 16 of the Exchange Act, satisfies the applicable requirements for exemptions under Rule 16b-3. The exemption will not be available if the authorization of actions by any Committee of the Board with respect to such Awards does not satisfy the applicable conditions of Rule 16b-3. Notwithstanding the foregoing, the Corporation shall have no liability to any Participant for Section 16 consequences of Awards or events under Awards.

     (2) Section 162(m). It is the further intent of the Company that (to the extent the Company or Awards under this Plan may be or become subject to limitations on deductibility under Section 162(m) of the Code), Options granted with an exercise or base price not less than Fair Market Value on the date of grant will qualify as performance-based compensation or otherwise be exempt from deductibility limitations under Section 162(m) of the Code, to the extent that the authorization of the Award (or the payment thereof, as the case may be) satisfies any applicable administrative requirements thereof.

     5.11 Captions.

     Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof.

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     5.12 Stock-Based Awards in Substitution for Stock Options or Awards Granted by Other Corporation.

     Awards may be granted to Eligible Employees under this Plan in substitution for employee stock options, stock appreciation rights, restricted stock or other stock-based awards granted by other entities to persons who are or who will become Eligible Employees in respect of the Company, in connection with a distribution, merger or other reorganization by or with the granting entity or an affiliated entity, or the acquisition by the Company, directly or indirectly, or all or a substantial part of the stock or assets of the employing entity. The awards so granted need not comply with other specific terms of this Plan, provided the awards reflect only adjustments giving effect to the assumption nor substitution consistent with the conversion applicable to the Common Stock in the transaction and any change in the issuer of the security. Any shares that are delivered and any awards that are granted by, or become obligations of, the Corporation, as a result of the assumption by the Corporation of, or in substitution for, outstanding awards previously granted by an acquired company (or previously granted by a predecessor employer (or direct or indirect parent thereof) in the case of persons that become employed by the Corporation or one of its Subsidiaries in connection with a business or asset acquisition or similar transaction) shall not be counted against the Share Limit in Section 1.4 or other limits on the number of shares available for issuance under the Plan.

     5.13 Non-Exclusivity of Plan.

     Nothing in this Plan shall limit or be deemed to limit the authority of the Board or the Committee to grant awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority.

     5.14 No Corporate Action Restriction.

     The existence of the Plan, the Award Agreements and the Awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the shareholders of the Corporation to make or authorize: (a) any adjustment, recapitalization, reorganization or other change in the Corporation’s or any Subsidiary’s capital structure or its business, (b) any merger, amalgamation, consolidation or change in the ownership of the Corporation or any subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stock ahead of or affecting the Corporation’s or any Subsidiary’s capital stock or the rights thereof, (d) any dissolution or liquidation of the Corporation or any Subsidiary, (e) any sale or transfer of all or any part of the Corporation or any Subsidiary’s assets or business, or (f) any other corporate act or proceeding by the Corporation or any Subsidiary. No Participant, Beneficiary, Personal Representative or any other person shall have any claim under any Award or Award Agreement against any member of the Board or the Committee, or the Corporation or any employees, officers or agents of the Corporation or any Subsidiary, as a result of any such action.

     5.15 Other Company Benefit and Compensation Program.

     Payments and other benefits received by a Participant under an Award made pursuant to this Plan shall not be deemed a part of a Participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Corporation or any Subsidiary, except where the Committee or the Board expressly otherwise provides or authorizes in writing. Awards under this Plan may be made in addition to, in combination with, as alternatives to or in payment of grants, awards or commitments under any other plans or arrangements of the Corporation or the Subsidiaries.

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6. DEFINITIONS.

     6.1 Definitions.

          (a) “Award” means an award of any Option, Restricted Stock or Stock Unit or any combination thereof, whether alternative or cumulative, authorized by and granted under this Plan.

          (b) “Award Agreement” means any writing setting forth the terms of an Award that has been authorized by the Committee.

          (c) “Award Date” means the date upon which the Committee took the action granting an Award or such later date as the Committee designates as the Award Date at the time of the Award.

          (d) “Award Period” means the period beginning on an Award Date and ending on the expiration date of such Award.

          (e) “Beneficiary” means the person, persons, trust or trusts designated by a Participant or, in the absence of a designation, entitled by will or the laws of descent and distribution, to receive the benefits specified in the Award Agreement and under this Plan in the event of a Participant’s death, and shall mean the Participant’s executor or administrator if no other Beneficiary is designated and able to act under the circumstances.

          (f) “Board” means the Board of Directors of the Corporation.

          (g) “Cause” with respect to a Participant means (unless otherwise expressly provided in the applicable Award Agreement or another applicable contract with the Participant) a termination of employment based upon a finding by the Company, acting in good faith and based on its reasonable belief at the time, that the Participant:

     (1) has failed to render services to the Company where such failure amounts to gross negligence or misconduct of the Participant’s responsibility and duties; or

     (2) has committed an act of fraud or been dishonest against the Company or any affiliate of the Company; or

     (3) has been convicted of a felony or other crime involving moral turpitude.

A termination for Cause shall be deemed to occur (subject to reinstatement upon a contrary final determination by the Committee) on the date on which the Company first delivers written notice to the Participant of a finding of termination for Cause.

          (h) “Change in Control Event” means any of the following events:

     (1) the dissolution or liquidation of the Corporation, unless its business is continued by another entity in which holders of the Corporation’s voting securities immediately before the event own, either directly or indirectly, more than 55% of the continuing entity’s voting securities immediately after the event;

     (2) any sale, lease, exchange or other change in ownership (in one or a series of transactions) of all or substantially all of the assets of the Corporation, unless its business is continued by another entity in which holders of the Corporation’s voting securities immediately before the event own, either directly or indirectly, more than fifty-five percent (55%) of the continuing entity’s voting securities immediately after the event;

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     (3) any reorganization or merger of the Corporation, unless (i) the holders of the Corporation’s voting securities immediately before the event own, either directly or indirectly, more than fifty-five percent (55%) of the continuing or surviving entity’s voting securities immediately after the event, and (ii) at least a majority of the members of the Board of Directors of the surviving entity resulting from such reorganization or merger were members of the incumbent Board of Directors of the Corporation at the time of the execution of the initial agreement or of the action of such incumbent Board of Directors providing for such reorganization or merger;

     (4) an acquisition by any person, entity or group acting in concert of more than forty-five percent (45%) of the voting securities of the Corporation, unless the holders of the Corporation’s voting securities immediately before the event own, either directly or indirectly, more than fifty-five percent (55%) of the acquirer’s voting securities immediately after the acquisition;

     (5) the consummation of a tender offer or exchange offer by an individual, entity or group which results in such individual, entity or group beneficially owning (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) twenty-five percent (25%) or more of the voting securities of the Corporation, unless the tender offer is made by the Corporation or any of its subsidiaries or the tender offer is approved by a majority of the members of the Board of Directors of the Corporation who were in office at the beginning of the twelve-month period preceding the commencement of the tender offer; or

     (6) a change of one-half or more of the members of the Board of Directors of the Corporation within a twelve-month period, unless the election or nomination for election by shareholders of new directors within such period constituting a majority of the applicable Board was approved by the vote of at least two-thirds (2/3) of the directors then still in office who were in office at the beginning of the twelve-month period.

          (i) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

          (j) “Commission” means the Securities and Exchange Commission.

          (k) “Committee” means the Board or one or more committees appointed by the Board to administer all or certain aspects of this Plan, each committee to be comprised solely of one or more directors or such number as may be required under applicable law.

          (l) “Common Stock” means the Common Shares of the Corporation and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 5.2 of this Plan.

          (m) “Company” means, collectively, the Corporation and its Subsidiaries.

          (n) “Corporation” means American States Water Company, a California corporation, and its successors.

          (o) “Eligible Employee” means an officer (whether or not a director) or key employee of the Company.

          (p) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

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          (q) “Fair Market Value” on any date means (1) if the stock is listed or admitted to trade on a national securities exchange, the closing price of the stock listed on The Wall Street Journal website (www.online.wsj.com), of the principal national securities exchange on which the stock is so listed or admitted to trade, on such date, or, if there is no trading of the stock on such date, then the closing price of the stock as quoted on such website on the next preceding date on which there was trading in such shares; (2) if the stock is not listed or admitted to trade on a national securities exchange, the last price for the stock on such date, as furnished by the National Association of Securities Dealers, Inc. (“NASD”) through the NASDAQ National Market Reporting System or a similar organization if the NASD is no longer reporting such information; (3) if the stock is not listed or admitted to trade on a national securities exchange and is not reported on the National Market Reporting System, the mean between the bid and asked price for the stock on such date, as furnished by the NASD or a similar organization; or (4) if the stock is not listed or admitted to trade on a national securities exchange, is not reported on the National Market Reporting System and if bid and asked prices for the stock are not furnished by the NASD or a similar organization, the value as established by the Committee at such time for purposes of this Plan.

          (r) “Incentive Stock Option” means an Option which is intended, as evidenced by its designation, as an incentive stock option within the meaning of Section 422 of the Code, the award of which contains such provisions and is made under such circumstances and to such persons as may be necessary to comply with that section.

          (s) “Nonqualified Stock Option” means an Option that is designated as a Nonqualified Stock Option and shall include any Option intended as an Incentive Stock Option that fails to meet the applicable legal requirements thereof. Any Option granted hereunder that is not designated as an incentive stock option shall be deemed to be designated a Nonqualified Stock Option under this Plan and not an incentive stock option under the Code.

          (t) “Option” means an option to purchase Common Stock granted under this Plan. The Committee shall designate any Option granted to an Eligible Employee as a Nonqualified Stock Option or an Incentive Stock Option.

          (u) “Participant” means an Eligible Employee who has been granted an Award under this Plan.

          (v) “Personal Representative” means the person or persons who, upon the disability or incompetence of a Participant, shall have acquired on behalf of the Participant, by legal proceeding or otherwise, the power to exercise the rights or receive benefits under this Plan and who shall have become the legal representative of the Participant.

          (w) “Plan” means this 2008 Stock Incentive Plan, as it may be amended from time to time.

          (x) “Restricted Shares” or “Restricted Stock” means shares of Common Stock awarded to a Participant under this Plan, subject to payment of such consideration, if any, and such conditions on vesting (which may include, among others, the passage of time, specified performance objectives or other factors) and such transfer and other restrictions as are established in or pursuant to this Plan and the related Award Agreement, for so long as such shares remain unvested under the terms of the applicable Award Agreement.

          (y) “Restricted Stock Unit” means a Stock Unit subject to such conditions on vesting and payout as the Committee may determine.

          (z) “Retirement” means retirement from active service as an employee or officer of the Company on or after attaining age 65.

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          (aa) “Rule 16b-3” means Rule 16b-3 as promulgated by the Commission pursuant to the Exchange Act, as amended from time to time.

          (bb) “Section 16 Person” means a person subject to Section 16(a) of the Exchange Act.

          (cc) “Securities Act” means the Securities Act of 1933, as amended from time to time.

          (dd) “Stock Unit” means a bookkeeping entry that serves as a unit of measurement relative to a share of Common Stock for purposes of determining the payment of the Stock Unit grant. Stock Units are not outstanding shares of Common Stock and do not entitle a grantee to any dividend, voting or other rights in respect of any Common Stock. Stock Units may, however, by express provision in the applicable Award Agreement, entitle a Participant to dividend equivalent rights, credited in the form of cash or additional Stock Units, as determined by the Committee. Stock Units are payable in shares of Common Stock.

          (ee) “Subsidiary” means any corporation or other entity a majority of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Corporation.

          (ff) “Total Disability” means a “permanent and total disability” within the meaning of Section 22(e)(3) of the Code and such other disabilities, infirmities, afflictions or conditions as the Committee by rule may include.

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630 East Foothill Boulevard, San Dimas, California 91773

909-394-3600 www.aswater.com

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AMERICAN STATES WATER COMPANY
OFFICE OF THE TREASURER
630 EAST FOOTHILL BOULEVARD
SAN DIMAS, CALIFORNIA 91773

	PROXY SOLICITED BY BOARD OF DIRECTORS MAY 20, 2008

VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.   ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS If you would like to reduce the costs incurred by American States Water Company, in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.   VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.   VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to American States Water Company, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

 

 

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:	AMSTW1		KEEP THIS PORTION FOR YOUR RECORDS
			DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

AMERICAN STATES WATER COMPANY
	The Board of Directors recommends that shareholders vote FOR each of the nominees for class II directors listed below and FOR each of the proposals.
	Election of Directors
	1.	To elect four class II directors to the Board of Directors of the Company to serve until their successors are elected and qualified. The Board of Directors has nominated the following individuals for election as class II directors (1) N.P. Dodge, (2) Robert F. Kathol, (3) Gary F. King, and (4) Lloyd E. Ross.

For All	Withhold All	For All Except		To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
o	o	o

				For	Against	Abstain
	2.	To approve the American States Water Company 2008 Stock Incentive Plan.		o	o	o
	3.	To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm.		o	o	o
	4.	To transact any other business, which may properly come before the meeting, or any adjournment thereof.		o	o	o
	Please sign exactly as name(s) appear(s) hereon. When shares are held by joint tenants, both should sign. When signing as attorney or executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. If a limited liability company, please sign in name of limited liability company by authorized person.

	For address changes and/or comments, please check this box and write them on the back where indicated.			o
	Please indicate if you plan to attend this meeting.	o	o
		Yes	No

	Signature [PLEASE SIGN WITHIN BOX]	Date			Signature (Joint Owners)	Date

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INFORMATION ABOUT ATTENDING We will hold the Annual Meeting at the Pasadena Hilton, 168 South Los Robles Avenue, Pasadena, California. Shareholders must present a ticket to be admitted to the Annual Meeting. For shareholders of record, your admission ticket is the detachable portion of your proxy form. Please have your ticket out and available when you reach the registration area at the Annual Meeting.

For shareholders who hold shares through a brokerage firm, bank or other holder of record, your ticket is the copy of the latest account statement showing the American States Water Company investment. Please present this account statement to the Company representative at the Annual Meeting. You will not, however, be entitled to vote these shares at the Annual Meeting, unless you have obtained a legal proxy from your broker, bank or other shareholder of record. A copy of this account statement is not sufficient for this purpose.

AMERICAN STATES WATER COMPANY
2008 ANNUAL MEETING OF SHAREHOLDERS
MAY 20, 2008
  This Proxy is solicited on behalf of the Board of Directors

The undersigned hereby appoints Lloyd E. Ross and N.P. Dodge, Jr., and each or any of them, proxies of the undersigned, each with full power of substitution, to vote in their discretion at the Annual Meeting of Shareholders of the Company (the “Annual Meeting”) and any adjournments thereof. The Annual Meeting will be held on Tuesday, May 20, 2008 at 10:00 a.m., Pacific Time at the Hilton Pasadena, 168 South Los Robles Avenue, Pasadena, California.

This proxy, when properly executed, will be voted in the manner described herein by the undersigned shareholder(s) and the named proxies will, in their sole discretion, vote such shares on any other matters that may properly come before the meeting or any adjournments thereof. If no direction is made, this proxy will be voted FOR the listed Nominees and FOR each of the Proposals. Further, if cumulative voting rights for the election of directors (Item 1) are exercised at the meeting, the proxies will cumulatively vote the shares as provided in the proxy statement. If a proposal is made to adjourn the meeting in order to enable management to continue to solicit proxies in favor of any of the above proposals, the proxies will be voted in favor of adjournment, unless otherwise directed.

Address Changes/Comments:

(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)

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