UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-K
 
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2007
 
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
Commission file number:  1-8966
 
SJW CORP.
 
(Exact name of registrant as specified in its charter)
 
California
 
77-0066628
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
374 West Santa Clara Street, San Jose,
   
California
 
95113
(Address of principal executive offices)
 
(Zip Code)
408-279-7800
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
 
Name of each exchange on which registered
 
 
Common Stock, $0.521 par value per share
 
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:   None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o   No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o   No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  o
Accelerated filer x
Non-accelerated filer o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No x
 
As of June 30, 2007, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $503,165,564 based on the closing sale price as reported on the New York Stock Exchange.
 
Indicate the number of shares outstanding of registrant’s common stock, as of the latest practicable date.
 
 
Class
 
Outstanding at February 8, 2008
 
 
Common Stock, $0.521 par value per share
 
18,381,980
 
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s Proxy Statement relating to the registrant’s Annual Meeting of Shareholders, to be held on April 30, 2008, are incorporated by reference into Part III of this Form 10-K where indicated.
 
 
TABLE OF CONTENTS
 
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Forward-Looking Statements
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PART I
 
  Forward-Looking Statements
 
This report contains forward-looking statements within the meaning of the federal securities laws relating to future events and future results of SJW Corp. and its subsidiaries that are based on current expectations, estimates, forecasts, and projections about SJW Corp. and the industries in which SJW Corp. operates and the beliefs and assumptions of the management of SJW Corp. Such forward-looking statements are identified by words such as “expect”, “estimate”, “anticipate”, “intends”, “seeks”, “plans”, “projects”, “may”, “should”, “will”, variation of such words, and similar expressions. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Important factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report under Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere, and in other reports SJW Corp. files with the Securities and Exchange Commission (the “SEC”), specifically the most recent reports on Form 10-Q and Form 8-K filed with the SEC, each as it may be amended from time to time.
 
SJW Corp. undertakes no obligation to update or revise the information contained in this report, including the forward-looking statements for any reason.
 
Item 1.
 
 
General Development of Business
 
SJW Corp. was incorporated in California on February 8, 1985. SJW Corp. is a holding company with three subsidiaries:
 
·
San Jose Water Company, a wholly owned subsidiary of SJW Corp., with its headquarters located at 374 West Santa Clara Street in San Jose, California 95113, was originally incorporated under the laws of the State of California in 1866. As part of a reorganization on February 8, 1985, San Jose Water Company became a wholly owned subsidiary of SJW Corp.  San Jose Water Company is a public utility in the business of providing water service to approximately 225,000 connections that serve a population of approximately one million people in an area comprising approximately 138 square miles in the metropolitan San Jose area. San Jose Water Company’s web site can be accessed via the Internet at http://www.sjwater.com.
 
·
SJW Land Company, a wholly owned subsidiary, was incorporated in 1985. SJW Land Company owns undeveloped land, has a 70% limited partnership interest in 444 West Santa Clara Street, L.P. and operates commercial buildings in the states of California, Florida, Connecticut, Texas, Arizona and Tennessee.
 
·
SJWTX, Inc., doing business as Canyon Lake Water Service Company (“CLWSC”), a 97.5% majority owned subsidiary, was incorporated in September 2005. CLWSC provides service to approximately 7,900 connections that serve approximately 36,000 residents in a service area comprising more than 78 square miles in the growing region between San Antonio and Austin, Texas.
 
SJW Corp. also owns 1,099,952 shares of California Water Service Group, which represents approximately 5% of its outstanding shares as of December 31, 2007 and it is accounted for under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” as an available-for-sale marketable security.
 
On January 31, 2007, the rental equipment and existing inventory of Crystal Choice Water Service LLC, a 75% owned subsidiary engaged in the sale and rental of water conditioning and purification equipment, was sold for $635,000. Crystal Choice Water Service LLC was liquidated in August 2007.
 
Together, San Jose Water Company and CLWSC are referred to as “Water Utility Services.”
 
Regulation and Rates
 
San Jose Water Company’s rates, service and other matters affecting its business are subject to regulation by the California Public Utilities Commission (“CPUC”).
 
 
Ordinarily, there are two types of rate increases which affect San Jose Water Company’s business: general rate increases and offset rate increases. General rate increases are authorized in [general] case decisions, which usually authorize an initial rate increase followed by two annual step increases designed to maintain the authorized return on equity over a three-year period. General rate applications are normally filed and processed during the last year covered by the most recent rate case as required by the CPUC so that regulatory lag is avoided.
 
The purpose of an offset rate increase is to compensate utilities for increases in specific offsettable expenses, primarily for purchased water, groundwater extraction charges or purchased power.
 
Pursuant to Section 792.5 of the California Public Utilities Code, a balancing account must be maintained for each expense item for which such revenue offsets have been authorized. The purpose of a balancing account is to track the under-collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense changes.
 
CLWSC is subject to the regulation of the Texas Commission on Environmental Quality (“TCEQ”). Ordinarily, the TCEQ authorizes rate increases after the filing of an Application for a Rate/Tariff Change. Such filings may be filed every twelve months following the resolution of the previous filing.
 
Please also see Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Financial Information about Industry Segments
 
See Part II, Item 7 for information regarding SJW Corp.’s business segments.
 
Description of Business
 
General
 
The principal business of the Water Utility Services consists of the production, purchase, storage, purification, distribution, and retail sale of water. San Jose Water Company provides water service to approximately 225,000 connections that serve customers in portions of the cities of Cupertino and San Jose and in the cities of Campbell, Monte Sereno, Saratoga and the Town of Los Gatos, and adjacent unincorporated territory, all in the County of Santa Clara in the State of California. It distributes water to customers in accordance with accepted water utility methods. CLWSC provides water service to approximately 7,900 connections that serve approximately 36,000 residents in a service area comprising more than 78 square miles in the growing region between San Antonio and Austin, Texas.
 
San Jose Water Company also provides nonregulated water related services under agreements with municipalities. These nonregulated services include full water system operations, cash remittances and maintenance contract services.
 
In October 1997, San Jose Water Company commenced operation of the City of Cupertino municipal water system under terms of a 25-year lease. The system is adjacent to the existing San Jose Water Company service area and has approximately 4,400 service connections. Under the terms of the lease, San Jose Water Company paid an up-front $6.8 million concession fee to the City of Cupertino that is amortized over the contract term. San Jose Water Company is responsible for all aspects of system operation including capital improvements.
 
The operating results from the water business fluctuate according to the demand for water, which is often influenced by seasonal conditions, such as summer temperatures or the amount and timing of precipitation in Water Utility Services service area. Revenue, production costs and income are affected by the changes in water sales and availability of surface water supply. Overhead costs, such as payroll and benefits, depreciation, interest on long-term debt, and property taxes, remain fairly constant despite variations in the amount of water sold. As a result, earnings are highest in the higher use, warm weather summer months and lowest in the cool winter months.
 
Water Supply
 
San Jose Water Company’s water supply consists of groundwater from wells, surface water from watershed run-off and diversion, and imported water purchased from the Santa Clara Valley Water District (“SCVWD”) under the terms of a master contract with SCVWD expiring in 2051. Purchased water provides approximately 40% to 45% of San Jose Water Company’s annual production. Surface supply, which during a year of normal rainfall satisfies about 6% to 8% of San Jose Water Company’s annual needs, provides approximately 1% of its water supply in a dry year and approximately 14% in a wet year. In dry years, the decrease in water from surface run-off and diversion, and the corresponding increase in purchased and pumped water, increases production costs substantially. San Jose Water Company pumps the remaining 40% to 50% of its water supply from the underground basin and pays a groundwater extraction charge to SCVWD.
 
 
The pumps and motors at San Jose Water Company’s groundwater production facilities are propelled by electric power. Over the last few years, San Jose Water Company has installed standby power generators at 18 of its strategic water production sites. In addition, the commercial office and operations control centers are equipped with standby generators that allow critical distribution and customer service operations to continue during a power outage. SCVWD has informed San Jose Water Company that its filter plants, which deliver purchased water to San Jose Water Company, are also equipped with standby generators. In the event of a power outage, San Jose Water Company believes it will be able to prevent an interruption of service to customers for a limited period by pumping water with its standby generators and by using the purchased water from SCVWD.
 
In 2007, the level of water in the Santa Clara Valley groundwater basin, which is the responsibility of SCVWD, remained comparable to the 30-year average level. On December 31, 2007, SCVWD’s 10 reservoirs were 41.5% full with 70,061 acre-feet of water in storage. The rainfall from July 1, 2007 to December 31, 2007 was about 60% of the 30-year average. In addition, the rainfall at San Jose Water Company’s Lake Elsman was measured at 29.37 inches for the period from July 1, 2007 through February 1, 2008, which is comparable to the five-year average. The delivery of California and federal contract water to SCVWD is expected to be met. San Jose Water Company believes that its various sources of water supply are sufficient to meet customer demand for the remainder of 2008.
 
On rare occasions, events may occur which are beyond the control of San Jose Water Company. Except for a few isolated cases when service had been interrupted or curtailed because of power or equipment failures, construction shutdowns, or other operating difficulties, San Jose Water Company has not had any interrupted or imposed mandatory curtailment of service to any type or class of customer. However, during the summer of 1989 through March 1993, rationing was imposed intermittently on all customers at the request of SCVWD.
 
On June 12, 2007, SCVWD issued a statement urging county residents and businesses to voluntarily cut back their water use by 10%. SJW Corp. continues to encourage its customers to use water wisely and has active programs in place to help customers achieve savings.
 
During 1989 through 1993 and in 2007, San Jose Water Company responded and cooperated with SCVWD in managing the water supply situation in its service area.
 
On December 11, 2007, US District Court Judge Oliver Wanger released a draft written order to reduce the amount of water pumped from the San Joaquin-Sacramento River Delta during the breeding season of the Delta Smelt, which commences in December and ends in June. SCVWD has advised San Jose Water Company that the draft order does not contain any new provisions that would alter SCVWD’s opinion on near term water supply impacts previously estimated in SCVWD’s water supply operations and contingency planning for 2008. While we do not believe this draft written order will have a near term impact on our water supply, its impact on future periods is uncertain and is contingent on dry to wet hydrologic conditions.
 
California faces long-term water supply challenges. San Jose Water Company actively works with SCVWD to meet the challenges by continuing to educate customers on responsible water use practices and to conduct long-range water supply planning.
 
CLWSC’s water supply consists of groundwater from wells and purchased raw water from the Guadalupe-Blanco River Authority (“GBRA”). CLWSC has long-term agreements with GBRA, which expire in 2044 and 2050. The agreements provide CLWSC with 6,000 acre-feet of water per year from Canyon Lake at prices to be adjusted periodically by GBRA.
 
Please also see further discussion under Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Franchises
 
The Water Utility Services hold franchise rights, water rights and rights-of-way in the communities it serves that it believes are necessary to operate and maintain its distribution network and facilities under and on the public streets.
 
 
Seasonal Factors
 
Water sales are seasonal in nature. The demand for water, especially by residential customers, is generally influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by residential customers to vary significantly.
 
Competition
 
San Jose Water Company and CLWSC are public utilities regulated by CPUC and TCEQ, respectively, and operate within a service area approved by the regulators. The statutory laws provide that no other investor-owned public utility may operate in the public utilities’ service areas without first obtaining from the regulator a certificate of public convenience and necessity. Past experience shows such a certificate will be issued only after demonstrating that service in such area is inadequate.
 
California law also provides that whenever a public agency constructs facilities to extend utility service to the service area of a privately-owned public utility, like San Jose Water Company, such an act constitutes the taking of property and is conditioned upon payment of just compensation to the private utility.
 
Under the statutory constitution, municipalities, water districts and other public agencies have been authorized to engage in the ownership and operation of water systems. Such agencies are empowered to condemn properties operated by privately-owned public utilities upon payment of just compensation and are further authorized to issue bonds (including revenue bonds) for the purpose of acquiring or constructing water systems. To the company’s knowledge, no municipality, water district or other public agency has pending any action to condemn any part of its water systems.
 
Environmental Matters
 
The Water Utility Service’s procedures produce potable water in accordance with all applicable county, state and federal environmental rules and regulations. Additionally, public utilities are subject to environmental regulation by various other state and local governmental authorities.
 
The Water Utility Services are currently in compliance with all of the United States Environmental Protection Agency’s (the “EPA”) surface water treatment performance standards, new drinking water standards for disinfection by-products and new primary maximum contaminant levels. These standards have been adopted and are enforced by the California Department of Public Health (“CDPH”) and the TCEQ for San Jose Water Company and CLWSC, respectively.
 
Other state and local environmental regulations apply to Water Utility Services operations and facilities. These regulations relate primarily to the handling, storage and disposal of hazardous materials and discharges to waterways.
 
Additionally, San Jose Water Company is currently in compliance with all state and local regulations governing hazardous materials, point and non-point source discharges and the warning provisions of the California Safe Drinking Water and Toxic Enforcement Act of 1986.
 
Please also see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Employees
 
As of December 31, 2007, SJW Corp. had 364 employees, of whom 328 were San Jose Water Company employees and 36 were CLWSC employees. At San Jose Water Company, 93 were executive, administrative or supervisory personnel, and 235 were members of unions. On February 7, 2008, San Jose Water Company reached a two-year collective bargaining agreement with the Utility Workers of America, representing the majority of all employees, and the International Union of Operating Engineers, representing certain employees in the engineering department, covering the period from January 1, 2008 through December 31, 2009. Both groups are affiliated with the AFL-CIO. The agreements include wage adjustments of approximately 3% and 3.3%, respectively, for union workers for calendar year 2008 and 2009 and minor benefit modifications. For new employees hired on or after March 31, 2008, a cash balance retirement plan will be adopted. As of December 31, 2007, CLWSC had 36 employees, of whom 9 were exempt and 27 were non-exempt. Non-exempt employees are subject to overtime but are not union represented.
 
 
Officers of the Registrant
 
Name
 
Age
 
Offices and Experience
G.J. Belhumeur
 
62
 
San Jose Water Company—Senior Vice President, Operations. From 1996 to 2003, Mr. Belhumeur was Vice President of Operations. Mr. Belhumeur has been with San Jose Water Company since 1970.
D. Drysdale
 
52
 
San Jose Water Company—Vice President, Information Systems. From 1998 to 1999, Mr. Drysdale was Director of Information Systems. From 1994 to 1998, Mr. Drysdale was Data Processing Manager. Mr. Drysdale joined San Jose Water Company in 1992.
A.J. Elliott
 
44
 
San Jose Water Company—Controller from November 2006. From July 2001 to November 2006, Ms. Elliott was the Special Projects Manager. From January 1995 to July 2001, she was the Controller. Ms. Elliott has been with San Jose Water Company since 1990.
P. Jensen
 
47
 
San Jose Water Company—Vice President, Regulatory Affairs from July 2007. From 1995 to July 2007, Mr. Jensen was the Director of Regulatory Affairs. Mr. Jensen has been with San Jose Water Company since 1995.
S. Papazian
 
32
 
SJW Corp. and San Jose Water Company—Corporate Secretary and Attorney. Ms. Papazian has served as Corporate Secretary and Attorney since February 14, 2005. She is also Corporate Secretary of SJW Land Company and SJWTX, Inc. She was admitted to the California State Bar in January 2000 and thereafter was an Associate Attorney at The Corporate Law Group from March 2000 until February 2005.
W.R. Roth
 
55
 
SJW Corp.—President and Chief Executive Officer of the Corporation, San Jose Water Company, SJW Land Company, and SJWTX, Inc. Mr. Roth was appointed Chief Executive Officer of SJW Corp. in 1999 and President in 1996. Mr. Roth has been with San Jose Water Company since 1990.
A. Yip
 
54
 
SJW Corp.—Chief Financial Officer and Treasurer since October 1996, and Senior Vice President of Finance, Chief Financial Officer and Treasurer of San Jose Water Company since April 2004. From January 1999 to April 2004, Ms. Yip served as Vice President of Finance, Chief Financial Officer and Treasurer of San Jose Water Company. She is also Chief Financial Officer and Treasurer of SJWTX, Inc. and Chief Financial Officer of SJW Land Company. Ms. Yip has been with San Jose Water Company since 1986.
R.S. Yoo
 
57
 
San Jose Water Company—Chief Operating Officer since July 2005. From April 2003 to July 2005, Mr. Yoo was Senior Vice President, Administration. From April 1996 to April 2003, Mr. Yoo was Vice President, Water Quality. Mr. Yoo has served as President of Crystal Choice Water Service LLC from January 2001 to August 2005 and Manager from January 2001 to January 2007. Mr. Yoo was appointed Vice President of SJWTX, Inc. in September 2005. Mr. Yoo has been with San Jose Water Company since 1985.

Financial Information about Foreign and Domestic Operations and Export Sales
 
SJW Corp.’s revenue and expense are derived substantially from operations located in the County of Santa Clara in the State of California and Comal County in the State of Texas.
 
Website Access to Reports
 
SJW Corp.’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, are made available free of charge through SJW Corp.’s website at http://www.sjwater.com, as soon as reasonably practicable, after SJW Corp. electronically files such material with, or furnish such material to, the SEC.
 
Item 1A.
Risk Factors
 
Investors should carefully consider the following risk factors and warnings before making an investment decision. The risks described below are not the only ones facing SJW Corp. Additional risks that SJW Corp. does not yet know of or that it currently thinks are immaterial may also impair its business operations. If any of the following risks actually occur, SJW Corp.’s business, operating results or financial condition could be materially harmed. In such case, the trading price of SJW Corp.’s common stock could decline and you may lose all or part of your investment. Investors should also refer to the other information set forth in this Form 10-K, including the financial statements and the notes thereto.
 
 
The business of SJW Corp. and its subsidiaries may be adversely affected by new and changing legislation, policies and regulations.
 
New legislation and changes in existing legislation by federal, state and local governments and administrative agencies can affect the operations of SJW Corp. and its subsidiaries. The operating revenue of San Jose Water Company results from the sale of water at rates authorized by CPUC. The operating revenue of CLWSC results from the sale of water at rates authorized by TCEQ. The CPUC and TCEQ set rates that are intended to provide revenues sufficient to recover operating expenses and produce a reasonable return on common equity.
 
On November 11, 2006, CPUC issued its final decision in San Jose Water Company’s 2006 General Rate Case proceeding. The decision authorized San Jose Water Company rate increases of approximately $3,500,000 or 2.0% for 2007, $5,400,000 or 3.0% for 2008, and $4,000,000 or 2.2% for 2009. The rate increases for 2008 and 2009 are subject to adjustments based upon the inflation escalation factors realized at the time of the increase. The decision also authorizes additional rate recoveries to be phased in as capital projects are completed over the three-year period and the recovery of approximately $450,000 from San Jose Water Company’s balancing and memorandum accounts. These rate increases are designed to produce a return on common equity of 10.13%, which is comparable with recent authorized returns for water utilities in California.
 
On November 7, 2007, San Jose Water Company filed an advice letter with CPUC requesting implementation of the general rate increase for 2008 of $5,700,000. These rates subsequently became effective January 1, 2008. Additionally, as of December 31, 2007, San Jose Water Company has been authorized all of its offset rate requests.
 
On October 14, 2007, CLWSC filed a request for a rate increase with the TCEQ of $450,000, or about 10%. This rate increase, subject to refund, became effective December 14, 2007.
 
Although the Water Utility Services believe that the rates currently in effect provide it with a reasonable rate of return, there is no guarantee such rates will be sufficient to provide a reasonable rate of return in the future. There is no guarantee that the Water Utility Service’s future rate filings will be able to obtain a satisfactory rate of return in a timely manner.
 
In addition, the Water Utility Services rely on policies and regulations promulgated by the regulators in order to recover capital expenditures, maintain favorable treatment on gains from the sale of real property, offset its production and operating costs, recover the cost of debt, maintain an optimal equity structure without over-leveraging, and have financial and operational flexibility to engage in nonregulated operations. If the regulators implement policies and regulations that will not allow San Jose Water Company and CLWSC to accomplish some or all of the items listed above, the Water Utility Services future operating results may be adversely affected.
 
Recovery of regulatory assets is subject to adjustment by the regulatory agency and could impact the operating results of the Water Utility Services.
 
Generally-accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation.” In accordance with SFAS No. 71, the Water Utility Services record deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recovered in the ratemaking process in a period different from when the costs and credits were incurred. If the assessment of the probability of recovery in the ratemaking process is incorrect, the regulatory assets or liabilities would need to be adjusted which could have an adverse effect on our financial results.
 
Changes in water supply, water supply costs or the mix of water supply could adversely affect the operating results and business of Water Utility Services.
 
San Jose Water Company’s supply of water primarily relies upon three main sources: water purchased from SCVWD, surface water from its Santa Cruz Mountains Watershed, and pumped underground water. Changes and variations in quantities from each of these three sources affect the overall mix of the water supply, thereby affecting the cost of the water supply. Surface water is the least costly source of water. If there is an adverse change to the mix of water supply and San Jose Water Company is not allowed by CPUC to recover the additional or increased water supply costs, its operating results may be adversely affected.
 
 
SCVWD receives an allotment of water from state and federal water projects. If San Jose Water Company has difficulties obtaining a high quality water supply from SCVWD due to availability, environmental or legal restrictions (see discussion under Item 1. “Business”, “Water Supply”), it may not be able to fully satisfy customer demand in its service area and its operating results and business may be adversely affected. Additionally, the availability of water from San Jose Water Company’s Santa Cruz Mountains Watershed depends on the weather and fluctuates with each season. In a normal year, surface water supply provides 6% to 8% of the total water supply of the system. In a season with little rainfall, water supply from surface water sources may be low, thereby causing San Jose Water Company to increase the amount of water purchased from outside sources at a higher cost than surface water, thus increasing water production costs.
 
In addition, San Jose Water Company’s ability to use surface water is subject to regulations regarding water quality and volume limitations. If new regulations are imposed or existing regulations are changed or given new interpretations, the availability of surface water may be materially reduced. A reduction in surface water could result in the need to procure more costly water from other sources, thereby increasing the water production costs and adversely affecting the operating results of San Jose Water Company.
 
Because the extraction of water from the groundwater basin and the operation of the water distribution system require a significant amount of energy, increases in energy prices could increase operating expenses of San Jose Water Company. In the aftermath of the attempt to deregulate the California energy market, energy costs still remain in flux, with resulting uncertainty in San Jose Water Company’s ability to contain energy costs into the future.
 
San Jose Water Company continues to utilize Pacific Gas & Electric’s time of use rate schedules to minimize its overall energy costs primarily for groundwater pumping. During the winter months, typically 90% or more of the groundwater is produced during off-peak hours when electrical energy is consumed at the lowest rates. Optimization and energy management efficiency is achieved through the implementation of Supervisory Control and Data Acquisition system software applications that control pumps based on demand and cost of energy. An increase in demand or a reduction in the availability of surface water or import water could result in the need to pump more water during peak hours adversely affecting the operating results of San Jose Water Company.
 
CLWSC’s primary water supply is 6,000 acre-feet of water which is pumped from Canyon Lake at two lake intakes, in accordance with the terms of its contracts with the GBRA which are long-term take-or-pay contracts. This supply is supplemented by groundwater pumped from wells. Texas, similar to California, faces similar operating challenges as described above and long-term water supply constraints.
 
Fluctuations in customer demand for water due to seasonality, restrictions of use, weather, and lifestyle can adversely affect operating results.
 
The Water Utility Services operations are seasonal. Thus, results of operations for one quarter do not indicate results to be expected in subsequent quarters. Rainfall and other weather conditions also affect the operations of the Water Utility Services. Most water consumption occurs during the third quarter of each year when weather tends to be warm and dry. In drought seasons, if customers are encouraged and required to conserve water due to a shortage of water supply or restriction of use, revenue tends to be lower. Similarly, in unusually wet seasons, water supply tends to be higher and customer demand tends to be lower, again resulting in lower revenues. Furthermore, certain lifestyle choices made by customers can affect demand for water. For example, a significant portion of residential water use is for outside irrigation of lawns and landscaping. If there is a decreased desire by customers to maintain landscaping for their homes, residential water demand could decrease, which may result in lower revenues. Conservation efforts and construction codes, which require the use of low-flow plumbing fixtures, could diminish water consumption and result in reduced revenue.
 
A contamination event or other decline in source water quality could affect the water supply of the Water Utility Services and therefore adversely affect the business and operating results.
 
The Water Utility Services are subject to certain water quality risks relating to environmental regulations. Through water quality compliance programs, the Water Utility Services continually monitor for contamination and pollution of its sources of water. In addition, a Watershed Management Program provides a proactive approach to minimize potential contamination activities. In the event of a contamination, the Water Utility Services will likely have to procure water from more costly sources and increase future capital expenditures. Although the costs would likely be recovered in the form of higher rates, there can be no assurance that the regulators would approve a rate increase to recover the costs.
 
 
The Water Utility Services are subject to litigation risks concerning water quality and contamination.
 
Although the Water Utility Services have not been and are not a party to any environmental and product-related lawsuits, such lawsuits against other water utilities have increased in frequency in recent years. If the Water Utility Services are subject to an environmental or product-related lawsuit, they might incur significant legal costs and it is uncertain whether they would be able to recover the legal costs from ratepayers or other third parties.  The Water Utility Services have product liability coverage for bodily injury and property damage. However, pollution is excluded from this coverage. Our pollution liability policy does not extend coverage for product liability. Currently, the CPUC in California has preemptive jurisdiction over regulated water utilities for claims about compliance with environmental quality matters.
 
New or more stringent environmental regulations could increase the Water Utility Services operating costs and affect its business.
 
The Water Utility Services operations are subject to water quality and pollution control regulations issued by the EPA and environmental laws and regulations administered by the respective states and local regulatory agencies.
 
Stringent environmental and water quality regulations could increase Water Utility Services water quality compliance costs, hamper the Water Utility Service’s available water supplies, and increase future capital expenditure.
 
Under the federal Safe Drinking Water Act, the Water Utility Services are subject to regulation by the EPA of the quality of water it sells and treatment techniques it uses to make the water potable. The EPA promulgates nationally applicable standards, including maximum contaminant levels for drinking water. The Water Utility Services are currently in compliance with all of the 87 primary maximum contaminant levels promulgated to date. Additional or more stringent requirements may be adopted by each state. There can be no assurance that the Water Utility Services will be able to continue to comply with all water quality requirements.
 
The Water Utility Services have implemented monitoring activities and installed specific water treatment improvements enabling it to comply with existing maximum contaminant levels and plan for compliance with future drinking water regulations. However, the EPA and the respective state agencies have continuing authority to issue additional regulations under the Safe Drinking Water Act. It is possible that new or more stringent environmental standards could be imposed that will raise the Water Utility Services operating costs. Future drinking water regulations may require increased monitoring, additional treatment of underground water supplies, fluoridation of all supplies, more stringent performance standards for treatment plants and procedures to further reduce levels of disinfection by-products. The Water Utility Services continues to seek mechanisms for recovery of government-mandated environmental compliance costs. There are currently limited regulatory mechanisms and procedures available to the company for the recovery of such costs and there can be no assurance that such costs will be fully recovered.
 
Costs associated with security precautions may have an adverse effect on the operating results of the Water Utility Services.
 
Water utility companies have generally been on a heightened state of alert since the threats to the nation’s health and security in the fall of 2001. San Jose Water Company has taken steps to increase security at its water utility facilities and continues to implement a comprehensive security upgrade program for production and storage facilities, pump stations and company buildings. San Jose Water Company also coordinates security and planning information with SCVWD, other Bay Area water utilities and various governmental and law enforcement agencies.
 
San Jose Water Company conducted a system-wide vulnerability assessment in compliance with federal regulations Public Law 107-188 imposed on all water utilities. The assessment report was filed with the EPA on March 31, 2003. San Jose Water Company has also actively participated in the security vulnerability assessment training offered by the American Water Works Association Research Foundation and the EPA.
 
 
The vulnerability assessment identified system security enhancements that impact water quality, health, safety, and continuity of service totaling approximately $2,300,000. These improvements were incorporated into the capital budgets and were completed as of December 31, 2006. San Jose Water Company has and will continue to bear costs associated with additional security precautions to protect its water utility business and other operations. While some of these costs are likely to be recovered in the form of higher rates, there can be no assurance that CPUC will approve a rate increase to recover all or part of such costs and, as a result, the company’s operating results and business may be adversely affected.
 
CLWSC is evaluating its security measures to mitigate any potential vulnerabilities.
 
The Water Utility Services rely on information technology and systems that are key to business operations, therefore a disruption in service could adversely effect business operations.
 
Information technology is key to the operation of the Water Utility Services, including but not limited to bill printing, bill remittance processing, providing customer service and the use of Supervisory Control and Data Acquisition systems to operate the distribution system. A disruption of a business system that supports any of these functions could significantly impact our ability to provide services to our customers.
 
SJW Land Company’s significant increase in its real estate portfolio.
 
SJW Land Company owns a diversified real estate portfolio in multiple states. The risks in investing directly in real estate vary depending on the investment strategy and investment objective.
 
·
Liquidity risk—real estate investment is illiquid. The lag time to build or reduce its portfolio is long.
 
·
Obsolescence risk—real estate property is location specific. Location obsolescence can occur due to a decline of a particular sub-market or neighborhood. Functional obsolescence can also occur from physical depreciation, wear and tear, and other architectural and physical features which could be curable or incurable.
 
·
Market and general economic risks—real estate investment is tied to overall domestic economic growth and, therefore, carries market risk which cannot be eliminated by diversification. Generally, all property types benefit from national economic growth, though the benefits range according to local factors such as local supply and demand and job creation. Because real estate leases are typically staggered and last for multiple years, there is generally a lag effect in the performance of real estate in relation to the overall economy. This lag effect can insulate or deteriorate the financial impact to SJW Land Company in a downturn or an improved economic environment.
 
Vacancy rates can climb and market rents can be impacted and weakened by general economic forces, therefore affecting income to SJW Land Company.
 
The value of real estate can drop materially due to a deflationary market, decline in rental income, market cycle of supply and demand, long lag time in real estate development, legislative and governmental actions, environmental concerns, and fluctuation of interest rates, eroding any unrealized capital appreciation and, potentially, invested capital.
 
·
Credit risk—the risk of a tenant declaring bankruptcy and seeking relief from its contractual rental obligation could affect the income and the financial results of SJW Land Company. Diversification of many tenants across many properties may mitigate the risk, but can never eliminate it. This risk is most prevalent in a recessionary environment.
 
The success of SJW Land Company’s real estate investment strategy depends largely on ongoing local, state and federal land use development activities and regulations, future economic conditions, the development and fluctuations in the sale of the undeveloped properties, the ability to identify the developer/potential buyer of the available for sale real estate, the timing of the transaction, favorable tax law, the ability to identify and acquire high quality, relatively low risk replacement property at reasonable terms and conditions, and the ability to maintain and manage the replacement property.
 
Other factors that could affect operating results.
 
Other factors that could adversely affect the operating results of SJW Corp. and its subsidiaries include the following:
 
·
SJW Corp.’s growth strategy depends on its ability to acquire water systems in order to broaden its service areas, SJW Land Company’s ability to continue to develop and invest in real estate investments at favorable terms, and San Jose Water Company’s ability to continue to broaden and expand its nonregulated contract services in the metropolitan San Jose area. The execution of SJW Corp.’s growth strategy will expose it to different risks than those associated with the current utility operations. Costs are incurred in connection with the execution of the growth strategy and risks are involved in potential integration of acquired businesses/properties which could require significant costs and cause diversion of management’s time and resources. Any future acquisition SJW Corp. decides to undertake may involve risks and have a material adverse effect on SJW Corp.’s core business, impact SJW Corp.’s ability to finance its business and affect its compliance with regulatory requirements. Any businesses SJW Corp. acquires may not achieve sales, customer growth and projected profitability that would justify the investment. Any difficulties SJW Corp. encounters in the integration process, including the integration of controls necessary for internal control and financial reporting, could interfere with its operations, reduce its operating margins and adversely affect its internal controls.
 
 
 
 ·
The level of labor and non-labor operating and maintenance expenses as affected by inflationary forces and collective bargaining power could adversely affect the operating and maintenance expenses of SJW Corp.
 
 
 ·
The City of Cupertino lease operation could be adversely affected by: (1) the level of capital requirements, (2) the ability of San Jose Water Company to raise rates through the Cupertino City Council, and (3) the level of operating and maintenance expenses.
 
Item 1B.
Unresolved Staff Comments
 
None.
 
Item 2.
 
The properties of San Jose Water Company consist of a unified water production system located in the County of Santa Clara in the State of California. In general, the property is comprised of franchise rights, water rights, necessary rights-of-way, approximately 7,000 acres of land held in fee (which is primarily non-developable watershed), impounding reservoirs with a capacity of approximately 2.256 billion gallons, diversion facilities, wells, distribution storage of approximately 240 million gallons, and all water facilities, equipment, office buildings and other property necessary to supply its customers.
 
San Jose Water Company maintains all of its properties in good operating condition in accordance with customary practice for a water utility. San Jose Water Company’s groundwater pumping stations have a production capacity of approximately 239 million gallons per day and the present capacity for taking purchased water is approximately 172 million gallons per day. The surface water collection system has a physical delivery capacity of approximately 35 million gallons per day. During 2007, a maximum and average of 195 million gallons and 135 million gallons of water per day, respectively, were delivered to the system.
 
The Water Utility Services hold all its principal properties in fee, subject to current tax and assessment liens, rights-of-way, easements, and certain minor defects in title which do not materially affect their use.
 
SJW Land Company owns approximately 92 acres of property in the states of Connecticut, Florida, Texas, Arizona and Tennessee and approximately five undeveloped acres of land and two acres of land with commercial properties primarily in the San Jose metropolitan area. In May 2007, SJW Land Company sold its 1265 South Bascom Avenue building to San Jose Water Company. San Jose Water Company intends to use the building as its engineering headquarters. In February 2007, SJW Land Company purchased real estate investment in the State of Tennessee. SJW Land Company also owns a 70% limited partnership interest in 444 West Santa Clara Street, L.P., a real estate limited partnership that owns and operates an office building. SJW Land Company consolidates its limited partnership interest in 444 West Santa Clara Street, L.P. as a variable interest entity under Financial Accounting Standards Board Interpretation No. 46R ("FIN46R"), "Consolidation of Variable Interest Entities." The following table is a summary of SJW Land Company properties described above:
 
 
Description
  
Location
  
Acreage
  
Square Footage
  
Percentage of SJW Land Company Revenue
2 Commercial buildings
 
San Jose, California
 
2
  
 
28,000
 
16%
 
Warehouse building
 
Windsor, Connecticut
 
17
 
 
170,000
 
11%
Warehouse building
 
Orlando, Florida
 
8
 
 
147,000
 
  7%
Retail building
 
El Paso, Texas
 
2
  
 
14,000
 
  5%
Warehouse building
 
Phoenix, Arizona
 
11
 
 
176,000
 
13%
Warehouse building
 
Knoxville, Tennessee
 
29
 
 
346,000
 
20%
Commercial building
 
Knoxville, Tennessee
 
15
 
 
148,000
 
 
28%
Undeveloped land
 
Knoxville, Tennessee
 
10
 
 
N/A
 
N/A
Undeveloped land
 
San Jose, California
 
5
 
 
N/A
 
N/A

 
Item 3.
Legal Proceedings
 
SJW Corp. is subject to litigation incidental to its business. However, there are no pending legal proceedings to which SJW Corp. or any of its subsidiaries is a party or to which any of its properties is the subject that are expected to have a material effect on SJW Corp.’s financial position, results of operations or cash flows.
 
Item 4.
Submission of Matters to a Vote of Security Holders
 
None.
 
 
PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
 
Market Information
 
SJW Corp.’s common stock is traded on the New York Stock Exchange under the symbol SJW. Information as to the high and low sales prices for SJW Corp.’s common stock for each quarter in the 2007 and 2006 fiscal years is contained in the section captioned “Market price range of stock” in the tables set forth in Note 16 of “Notes to Consolidated Financial Statements” in Part II, Item 8.
 
As of December 31, 2007, there were 563 record holders of SJW Corp.’s common stock.
 
 
Dividends
 
Dividends have been paid on SJW Corp.’s and its predecessor’s common stock for 257 consecutive quarters and the annual dividend amount has increased in each of the last 40 years. Additional information as to the cash dividends paid on common stock in 2007 and 2006 is contained in the section captioned “Dividend per share” in the tables set forth in Note 16 of “Notes to Consolidated Financial Statements” in Part II, Item 8. Future dividends will be determined by the Board of Directors after consideration of various financial, economic and business factors.
 
 
 
Five-Year Performance Graph
 
The following performance graph compares the changes in the cumulative shareholder return on SJW Corp.’s common stock with the cumulative total return on the Water Utility Index and the Standard & Poor’s 500 Index during the last five years ended December 31, 2007. The comparison assumes $100 was invested on December 31, 2002 in SJW Corp.’s common stock and in each of the foregoing indices and assumes reinvestment of dividends.
 
GRAPH

 
The following descriptive data is supplied in accordance with Rule 304(d) of Regulation S-T:
 
 
2002
 
2003
 
2004
 
2005
 
2006
 
2007
SJW Corp.
100
 
118
 
149
 
192
 
333
 
303
Water Utility Index
100
 
125
 
141
 
180
 
179
 
168
S&P500
100
 
129
 
143
 
150
 
173
 
183
 
The Water Utility Index is the 11 water company Water Utility Index prepared by A.G. Edwards & Sons, Inc.
 
 
Item 6.
Selected Financial Data
 
FIVE YEAR STATISTICAL REVIEW
 
SJW Corp. and Subsidiaries
 
   
2007
 
2006
 
2005
 
2004
 
2003
CONSOLIDATED RESULTS OF OPERATIONS (in thousands)
                             
                                         
Operating revenue
  $ 206,601       189,238       180,105       166,911       150,454  
Operating expense:
                                       
Purchased water
    48,596       44,896       44,953       41,220       36,708  
Power
    7,532       5,170       4,318       5,511       5,296  
Groundwater extraction charges
    30,141       18,737       17,362       21,773       17,931  
Administrative and general
    22,334       21,108       20,697       17,285       16,202  
Other
    14,907       15,095       14,183       12,892       12,585  
Maintenance
    11,628       10,189       9,475       8,674       7,724  
Property taxes and other nonincome taxes
    6,307       5,893       5,673       5,314       5,065  
Depreciation and amortization
    22,854       21,299       19,654       18,481       15,225  
    Income taxes
    12,549       15,298       14,773       11,644       10,523  
Total operating expense
    176,848       157,685       151,088       142,794       127,259  
Operating income
    29,753       31,553       29,017       24,117       23,195  
Interest expense, other income and deductions
    (10,430 )     7,028       (7,177 )     (4,331 )     (4,518 )
Net income
    19,323       38,581       21,840       19,786       18,677  
Dividends paid
    11,089       10,549       9,777       9,319       8,861  
Invested in the business
  $ 8,234       28,032       12,063       10,467       9,816  
                                         
CONSOLIDATED PER SHARE DATA (BASIC)
                                       
                                         
Net income
  $ 1.05       2.11       1.20       1.08       1.02  
Dividends paid
  $ 0.60       0.57       0.53       0.51       0.49  
Shareholders’ equity at year-end
  $ 12.92       12.48       10.73       10.11       9.11  
                                         
CONSOLIDATED BALANCE SHEET (in thousands)
                                       
                                         
Utility plant and intangible assets
  $ 816,310       740,419       664,117       619,590       583,709  
Less accumulated depreciation and amortization
    255,025       234,173       208,909       189,221       174,985  
Net utility plant
    561,285       506,246       455,208       430,369       408,724  
Real estate investment
    84,195       40,565       34,850       31,987       32,569  
Total assets
    767,326       705,864       587,709       552,152       516,244  
Capitalization:
                                       
Shareholders’ equity
    236,934       228,182       195,908       184,691       166,368  
Long-term debt
    216,312       163,648       145,279       143,604       143,879  
Total capitalization
  $ 453,246       391,830       341,187       328,295       310,247  
                                         
OTHER STATISTICS—WATER UTILITY SERVICES
                                       
                                         
Customers at year-end
    233,300       231,700       222,400       220,800       220,100  
Average revenue per customer
  $ 860.23       809.56       792.08       733.76       664.99  
Investment in utility plant per customer
  $ 3,499       3,196       2,986       2,806       2,652  
Miles of main at year-end
    2,743       2,739       2,447       2,434       2,430  
Water production (million gallons)
    51,922       49,302       48,198       51,082       49,593  
Maximum daily production (million gallons)
    205       229       201       192       211  
Population served (estimate)
    1,051,600       1,044,400       1,002,400       995,000       992,000  
 
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Description of Business
 
SJW Corp. is a publicly traded company and is a holding company with three subsidiaries:
 
San Jose Water Company, a wholly owned subsidiary, is a public utility in the business of providing water service to approximately 225,000 connections that serve a population of approximately one million people in an area comprising approximately 138 square miles in the metropolitan San Jose, California area. The United States water utility industry is largely fragmented and is dominated by municipal-owned water systems. The water industry is regulated, and provides a life-sustaining product. This makes water utilities subject to lower business cycle risks than nonregulated industries.
 
SJW Land Company, a wholly owned subsidiary, owns undeveloped land, has a 70% limited partnership interest in 444 West Santa Clara Street, L.P. and operates commercial buildings in the states of California, Florida, Connecticut, Texas, Arizona and Tennessee.
 
SJWTX, Inc., doing business as Canyon Lake Water Service Company, a 97.5% majority-owned subsidiary, was incorporated in September 2005. CLWSC provides service to approximately 7,900 connections that serve approximately 36,000 residents in a service area comprising more than 78 square miles in the growing region between San Antonio and Austin, Texas.
 
SJW Corp. also owns 1,099,952 shares or approximately 5% of California Water Service Group as of December 31, 2007.
 
On January 31, 2007, the rental equipment and existing inventory of Crystal Choice Water Service LLC, a 75% owned subsidiary engaged in the sale and rental of water conditioning and purification equipment, was sold for $635,000.  Crystal Choice Water Service LLC was liquidated in August 2007.
 
Together, San Jose Water Company and CLWSC are referred to as “Water Utility Services.”
 
  Business Strategy
 
SJW Corp. focuses its business initiatives in four strategic areas:
 
(1)
Regional regulated water utility operations.
 
(2)
Regional nonregulated water utility related services provided in accordance with the guidelines established by the CPUC.
 
(3)
Real estate investment activities in SJW Land Company.
 
(4)
Out-of-region water and utility related services, primarily in the Western United States.
 
Regional Regulated Activities
 
SJW Corp.’s regulated utility operation is conducted through San Jose Water Company, a wholly owned water utility subsidiary that provides water service to the greater metropolitan San Jose area and CLWSC, a 97.5% owned regulated utility subsidiary in the State of Texas. SJW Corp. plans and applies a diligent and disciplined approach to improving and maintaining its water system infrastructure. It also seeks to acquire regulated water systems adjacent to or near its existing service territory.
 
Regional Nonregulated Activities
 
Operating in accordance with guidelines established by CPUC, San Jose Water Company provides nonregulated water services under agreements with municipalities and other utilities. Nonregulated services include water system operations, billings and cash remittance processing, maintenance services and telecommunication antenna leasing.
 
San Jose Water Company also seeks appropriate nonregulated business opportunities that complement its existing operations or that allow it to extend its core competencies beyond existing operations. San Jose Water Company seeks opportunities to fully utilize its capabilities and existing capacity by providing services to other regional water systems, benefiting its existing regional customers through increased efficiencies.
 
 
Real Estate Investment
 
SJW Land Company’s real estate investments diversifies SJW Corp.’s asset base and balances SJW Corp.’s concentration in regulated assets. SJW Land Company implements its real estate investment strategy by exchanging selected real estate assets for relatively low risk investments with a capital structure and risk and return profile that is consistent with SJW Corp.’s consolidated capital structure and risk and return profile.
 
Out-of-Region Opportunities
 
SJW Corp. is also pursuing opportunities to participate in out-of-region water and utility related services, particularly regulated water businesses, in the Western United States. SJW Corp. evaluates out-of-region and out-of-state opportunities that meet SJW Corp.’s risk and return profile.
 
The factors SJW Corp. considers in evaluating such opportunities include:
 
·
regulatory environment;
 
·
synergy potential;
 
·
general economic conditions;
 
·
potential profitability;
 
·
additional growth opportunities within the region;
 
·
water quality and environmental issues; and
 
·
capital requirements.
 
SJW Corp. cannot be certain it will be successful in consummating any transactions relating to such opportunities. In addition, any transaction will involve numerous risks. These include the possibility of paying more than the value derived from the acquisition, the assumption of certain known and unknown liabilities related to the acquired assets, the risk of diverting management’s attention from normal daily operations of the business, negative impact to SJW Corp.’s financial condition and operating results, the risks of entering markets in which it has no or limited direct prior experience and the potential loss of key employees of any acquired company. SJW Corp. cannot be certain that any transaction will be successful and will not materially harm its operating results or financial condition.
 
Critical Accounting Policies
 
SJW Corp. has identified accounting policies delineated below as the policies critical to its business operations and the understanding of the results of operations. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. SJW Corp. bases its estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. The impact and any associated risks related to these policies on SJW Corp.’s business operations are discussed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect SJW Corp.’s reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 1 of “Notes to Consolidated Financial Statements.” SJW Corp.’s critical accounting policies are as follows:
 
Revenue Recognition
 
SJW Corp. recognizes its regulated and nonregulated revenue when services have been rendered, in accordance with SEC Staff Accounting Bulletin 104, “Revenue Recognition.”
 
Metered revenue of Water Utility Services include billing to customers based on meter readings plus an estimate of water used between the customers’ last meter reading and the end of the accounting period. The Water Utility Services read the majority of its customers’ meters on a bi-monthly basis and records its revenue based on its meter reading results. Unbilled revenue from the last meter reading date to the end of the accounting period is estimated based on the most recent usage patterns, production records and the effective tariff rates. Actual results could differ from those estimates, which would result in adjusting the operating revenue in the period which the revision to the Water Utility Services estimates are determined. As of December 31, 2007 and 2006, accrued unbilled revenue was $12,654,000 and $11,067,000, respectively. Unaccounted for water for 2007 and 2006 approximated 7% and 5.2%, respectively, as a percentage of production. The estimate is based on the results of past experience, the trend and efforts in reducing the Water Utility Services’ unaccounted-for water through customer conservation, main replacements and lost water reduction programs.
 
 
SJW Corp. recognizes its nonregulated revenue based on the nature of the nonregulated business activities. Revenue from San Jose Water Company’s nonregulated utility operations and billing or maintenance agreements are recognized when services have been rendered. Revenue from SJW Land Company is recognized ratably over the term of the leases.
 
Recognition of Regulatory Assets and Liabilities
 
Generally-accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation.” In accordance with SFAS No. 71, the Water Utility Services, to the extent applicable, records deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the ratemaking process in a period different from when the costs and credits are incurred. Accounting for such costs and credits is based on management’s judgment and prior historical ratemaking practices, that it is probable that these costs and credits will be recognized in the future revenue of the Water Utility Services through the ratemaking process. The regulatory assets and liabilities recorded by the Water Utility Services, in particular, San Jose Water Company, primarily relate to the recognition of deferred income taxes for ratemaking versus tax accounting purposes and the postretirement pension benefits, medical costs, accrued benefits for vacation and asset retirement obligation that have not been passed through rates. The disallowance of any asset in future ratemaking, including deferred regulatory assets, would require San Jose Water Company to immediately recognize the impact of the costs for financial reporting purposes. No disallowance was recognized at December 31, 2007 and December 31, 2006. The net regulatory assets recorded by San Jose Water Company were $44,712,000 and $50,483,000 as of December 31, 2007 and 2006, respectively. As of December 31, 2006, San Jose Water Company has recorded its expected postretirement benefit plan liabilities and a corresponding regulatory asset relating to the implementation of the SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans,” including a reclassification of benefit obligations previously recorded to comprehensive income, in the amount of $3,666,000, resulting in an increase to regulatory assets of $38,410,000. The decrease of regulatory assets from 2006 to 2007 was primarily attributable to the change in valuation of the expected postretirement benefit plan liabilities.
 
Pension Accounting
 
San Jose Water Company offers a defined benefit plan, an Executive Supplemental Retirement Plan and certain postretirement benefits other than pensions to employees retiring with a minimum level of service. Accounting for pensions and other postretirement benefits requires an extensive use of assumptions about the discount rate, expected return on plan assets, the rate of future compensation increases received by the employees, mortality, turnover and medical costs. See assumptions and disclosures detailed in Note 11 of “Notes to Consolidated Financial Statements.”
 
The Pension Plan is administered by a Committee that is composed of an equal number of Company and Union representatives. Investment decisions have been delegated by the Committee to an Investment Manager, presently Wachovia Securities, LLC. Investment guidelines provided to the Investment Manager require that at least 25% of plan assets be invested in bonds or cash. As of December 31, 2007, the plan assets consist of approximately 39% bonds, 2% cash and 59% equities. Furthermore, equities are to be diversified by industry groups and selected to achieve preservation of capital coupled with long-term growth through capital appreciation and income. They may not invest in commodities and futures contracts, private placements, options, letter stock, speculative securities, or hold more than 5% of assets of any one private corporation. They may only invest in bonds, commercial paper, and money market funds with acceptable ratings by Moody's or Standard & Poor’s. The Investment Manager is reviewed regularly regarding performance by the Investment Consultant who provides quarterly reports to the Committee for review.
 
The market values of the plan assets are marked to market at the measurement date. The investment trust assets incur unrealized market gains or losses from time to time. As a result the pension expense in 2007 included the amortization of unrealized market gains on pension assets. Both unrealized market gains and losses on pension assets are amortized over 13 years for actuarial expense calculation purposes. Market gains in 2006 decreased pension expense by approximately $223,000 in 2007 and market losses in 2005 increased pension expense by approximately $252,000 in 2006.
 
 
In 2006, San Jose Water Company utilized each plan’s projected benefit stream in conjunction with the “above the median” Citigroup Pension Discount Curve in determining the discount rate used in calculating the pension and other postretirement benefits liabilities at the measurement date. In 2007, San Jose Water Company determined that the Citigroup Pension Discount Curve was appropriate due to the fact that it is more representative of the AA market discount rates and therefore is more applicable to the discounting of pension liabilities. Any change in these assumptions would have an effect on the service costs, interest costs and benefit obligations. As a result of San Jose Water Company using the Citigroup Pension Discount Curve instead of the “above the median” Citigroup Pension Discount Curve, San Jose Water Company used a discount rate of 6.50% instead of 6.75% in calculating the pension and other postretirement liabilities as of December 31, 2007. The impact of utilizing the 6.50% discount rate is that the benefit liability increased by $2,300 as of December 31, 2007 and the 2008 net periodic benefit cost increased by $240. The composite discount rate used was 6.00% for the year ending December 31, 2006.
 
Income Taxes
 
SJW Corp. estimates its federal and state income taxes as part of the process of preparing the financial statements. The process involves estimating the actual current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes, including the evaluation of the treatment acceptable in the water utility industry and regulatory environment. These differences result in deferred tax assets and liabilities, which are included within the balance sheet. If actual results, due to changes in the regulatory treatment, or significant changes in tax-related estimates or assumptions or changes in law, differ materially from these estimates, the provision for income taxes will be materially impacted.
 
Balancing Account
 
Pursuant to Section 792.5 of the California Public Utilities Code, a balancing account must be maintained for each expense item for which revenue offsets have been authorized. The purpose of a balancing account is to track the under-collection or over-collection associated with expense changes and the revenue authorized by CPUC to offset those expense changes.
 
Within its regulatory regime, CPUC has established a balancing account mechanism for the purpose of tracking the under-collection or over-collection associated with expense changes and the revenue authorized by CPUC to offset those expense changes. A separate balancing account must be maintained for each offset expense item (e.g., purchased water, purchased power and groundwater extraction charges). The balancing account balance varies with the seasonality of the water utility business such that, during the summer months when the demand for water is at its peak, the account tends to reflect an under-collection while, during the winter months when demand for water is relatively lower, the account tends to reflect an over-collection. Since the balances have to be approved by CPUC before they can be incorporated into rates, San Jose Water Company does not recognize the balancing account in its revenue until CPUC authorizes the change in customers’ rates. However, had the balancing account been recognized in San Jose Water Company’s financial statements, San Jose Water Company’s retained earnings would be decreased by the amount of the account over-collection or increased by the amount of the account under-collection, less applicable taxes. Please also see Item 1A, “Risk Factors.”
 
As of December 31, 2007 and 2006, the total accrued balance in San Jose Water Company’s balancing account was an over-collection of $1,656,000 and $739,000, respectively, including interest. The balance for the period November 29, 2001 to December 31, 2004 has been reviewed and authorized for rate recovery by the CPUC. All the memorandum type balancing accounts will be reviewed by the CPUC in San Jose Water Company’s next general rate case.
 
 
The following is a summary of the balancing and memorandum accounts:
 
   
  December 31, 2007
 
  December 31, 2006
   
(in thousands)
Under-collected balancing account 11/29/2001 to 12/31/2004, including surcharge and interest
  $
43
     
402
 
Over-collected memorandum type balancing account 01/01/2005 to 12/31/2005
   
(154
)
   
(146
)
Over-collected memorandum type balancing account 01/01/2006 to 12/31/2006
   
(1,045
)
   
(995
)
Over-collected memorandum type balancing account 01/01/2007 to 12/31/2007
   
(500
)
   
–
 
Net (over)/under-collected balancing account
  $
(1,656
)
   
(739
)
 
Recognition of Gain/Loss on Utility, Nonutility Property and Real Estate Investments
 
In conformance with generally-accepted accounting principles for rate-regulated public utilities, the cost of retired utility plant, including retirement costs (less salvage), is charged to accumulated depreciation and no gain or loss is recognized for utility plant used and useful in providing water utility services to customers.
 
Utility property in the Water Utility Services is property that is used and useful in providing water utility services to customers and is included in rate base for rate-setting purposes. In California, real estate type utility property is subject to CPUC Code Section 851, which states any gain recognized will be divided with two-thirds going to the customers and one-third to the shareholders. Net gains or losses from the sale of utility property are recorded as a component of other (expense) income in the consolidated statement of income and comprehensive income.
 
Nonutility property in the Water Utility Services is property that is neither used nor useful in providing water utility services to customers and is excluded from the rate base for rate-setting purposes. San Jose Water Company recognized gain/loss on disposition of nonutility property in accordance with CPUC Code Section 790.
 
SJW Land Company owns real estate investment property which consists primarily of land and buildings. Net gains and losses from the sale of real estate investments are recorded as a component of other (expense) income in the consolidated statement of income and comprehensive income.
 
Results of Operations
 
SJW Corp.’s consolidated net income for the 12 months ending December 31, 2007 was $19,323,000, compared to $38,581,000 for the same period in 2006. The change of $19,258,000 or 50% includes an after-tax gain of $16,355,000 from the sale of the SJW Land Company and San Jose Water Company properties in 2006 and increased water production costs in 2007. Please refer to Note 13, “Sale of Real Estate Investments” under Notes to Consolidated Financial Statements.
 
SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., which operates commercial building rentals, are collectively referred to as “Real Estate Services.”
 
Operating Revenue
 
Operating revenue by segment was as follows:
 
Consolidated Operating Revenue
 
   
2007
 
2006
   
2005
   
(in thousands)
Water Utility Services
  $
200,004
       
183,809
       
175,524
 
Real Estate Services
   
6,486
       
4,317
       
3,324
 
All Other
   
111
       
1,112
       
1,257
 
    $
206,601
       
189,238
       
180,105
 
 
 
Operating revenue increased $17,363,000 or 9% in 2007 compared to 2006, and $9,133,000 or 5% in 2006 compared to 2005.
 
The change in consolidated operating revenue was due to the following factors:
 
   
2007 vs. 2006
 
2006 vs. 2005
   
Increase/(decrease)
 
Increase/(decrease)
   
(in thousands)
Water Utility Services:
                               
  Consumption increase
  $
2,784
     
1
%
  $
2,556
     
1
%
  New customers increase
   
3,002
     
2
%
   
3,120
     
2
%
  Rate increases
   
10,409
     
5
%
   
2,609
     
1
%
Real Estate Services
   
2,169
     
1
%
   
993
     
1
%
All Other
   
(1,001
)
   
—
     
(145
)
   
—
 
    $
17,363
     
9
%
  $
9,133
     
5
%

 
  2007 vs. 2006
 
Consolidated operating revenue for 2007 increased by $17,363,000 or 9%.  The revenue increase consists of $16,195,000 from Water Utility Services and $2,169,000 from Real Estate Services.  The revenue increases were offset by a $1,001,000 decrease in other revenues primarily due to the sale of the assets of Crystal Choice Water Service LLC on January 31, 2007.
 
The revenue increase for the Water Utility Services was primarily the result of increases in rates, consumption, customers and a full year of operation at CLWSC. The increase in SJW Land Company was primarily due to a $3,122,000 increase in rental income from the Tennessee warehouse and commercial property acquired in February 2007 and $404,000 is attributable to a full year of rental income from the Arizona warehouse property acquired in June 2006. The SJW Land Company revenue increases were offset by a $1,357,000 decrease in parking and rental revenue as a result of the sale of parking facilities in December 2006.
 
2006 vs. 2005
 
Consolidated operating revenue for 2006 increased by $9,133,000 or 5%. The revenue increase consists of $8,285,000 from Water Utility Services and $993,000 from Real Estate Services. The revenue increases were offset by a $145,000 decrease in all other.
 
The revenue increase in the Water Utility Services was primarily the result of increases in rates, consumption, customers and the acquisition of CLWSC on May 31, 2006. The increase in SJW Land Company was primarily due to a $688,000 increase in rental income from the Arizona warehouse property acquired in June 2006 and a full year of rental income from the Texas property acquired in November 2005. Additionally, parking lot revenue increased $405,000 in 2006 due to the increased number of events at the HP Pavilion.
 
Water Utility Services Operating Revenue and Customer Counts
 
The following tables present operating revenues and number of customers by customer group of the Water Utility Services:
 
Operating Revenue by Customer Group
 
   
2007
 
2006
 
2005
   
(in thousands)
 
Residential and business
  $ 182,917       169,251       161,619  
Industrial
    1,287       1,115       1,042  
Public authorities
    10,469       8,903       8,903  
Others
    5,331       4,540       3,960  
    $ 200,004       183,809       175,524  
 
 
Number of Customers
 
   
2007
 
2006
 
2005
Residential and business
    227,789       226,332       217,192  
Industrial
    79       83       85  
Public authorities
    1,715       1,725       1,715  
Others
    3,717       3,560       3,408  
      233,300       231,700       222,400  

 
Operating Expense
 
Operating expense by segment was as follows:
 
Consolidated Operating Expense
 
   
2007
 
2006
 
2005
   
(in thousands)
 
Water Utility Services
  $ 172,698       153,199       147,244  
Real Estate Services
    2,994       2,403       1,686  
All Other
    1,156       2,083       2,158  
    $ 176,848       157,685       151,088  

 
Operating expense increased $19,163,000 or 12% in 2007 compared to 2006, and $6,597,000 or 4% in 2006 compared to 2005.
 
The change in operating expense was due to the following:
 
   
2007 vs. 2006
Increase/(decrease)
 
2006 vs. 2005
Increase/(decrease)
   
(in thousands)
 
Water Production Costs:
                       
Change in surface water supply
  $ 8,685       6 %   $ (2,209 )     (1 )%
Usage and new customers
    3,967       2 %     1,661       1 %
Purchased water and groundwater extraction charge price increase
    4,393       3 %     2,448       2 %
Energy prices
    421       —       270       —  
Total water production costs
    17,466       11 %     2,170       2 %
Administrative and general
    1,226       1 %     411       —  
Other operating expense
    (188 )     —       912       1 %
Maintenance
    1,439       1 %     714       —  
Property taxes and other non-income taxes
    414       —       220       —  
Depreciation and amortization
    1,555       1 %     1,645       1 %
Income taxes
    (2,749 )     (2 )%     525       —  
    $ 19,163       12 %   $ 6,597       4 %

 
The various components of operating expenses are discussed below.
 
 
Water production costs
 
2007 vs. 2006
 
The lack of precipitation in 2007 adversely impacted the Water Utility Services’ operating results. Water production costs increased $17,466,000 primarily due to a decreased surface water supply necessitating $8,685,000 in additional purchased water, $4,393,000 in purchased water unit price increases and additional groundwater extraction charges and $3,967,000 due to increased usage by customers and new customers.
 
 
2006 vs. 2005
 
Water production costs increased $2,170,000 primarily due to increases in the unit cost of purchased water and increases in groundwater extraction charges, increase in usage and higher energy costs. The increases were offset by the greater availability of the less costly surface water resulting from significant rainfall in 2006.
 
Sources of Water Supply
 
The Water Utility Services water supply consists of groundwater from wells, surface water from watershed run-off and diversion, and water purchased from regional wholesalers. Surface water is the least expensive source of water. The following table presents the sources of water supply for the Water Utility Services:
 
   
Source of Water Supply
 
   
2007
 
2006
 
2005
   
(million gallons) (MG)
 
Purchased water
    28,688       27,722       29,215  
Groundwater
    21,766       14,488       13,649  
Surface water
    1,051       6,684       4,938  
Reclaimed water
    417       408       396  
      51,922       49,302       48,198  
Average water production cost per MG
  $ 1,661       1,396       1,382  

The following table represents the cost of purchased water and the groundwater extraction charge for water pumped from the groundwater basin, per million gallons, as of December 31:

   
2007
 
2006
 
2005
                   
Purchased water
  $ 1,765       1,642       1.565  
Groundwater extraction charge
  $ 1,458       1,335       1,289  
 
Water production in 2007 for the Water Utility Services increased 2,620 million gallons from 2006. Water production in 2006 increased 1,104 million gallons from 2005. The increases are primarily attributable to an increase in consumption by customers. The changes in operating expenses are consistent with the related water production changes.
 
Other Operating Expense
 
The following table represents components of other operating expense:
 
   
2007
 
2006
 
2005
   
(in thousands)
 
Water supply
  $ 1,137       1,197       966  
Water treatment and quality
    2,512       2,131       2,033  
Pumping
    2,066       1,913       1,639  
Transmission and distribution
    3,541       3,430       3,401  
Customer accounts
    5,416       4,820       4,824  
Other
    235       1,604       1,320  
Total other operating expenses
    14,907       15,095       14,183  

 
2007 vs. 2006
 
Other operating expense decreased $188,000 in 2007 or 1% in comparison to 2006. The decrease consisted primarily of: (1) $745,000 due to the sale of Crystal Choice Water Service in January 2007, (2) $252,000 due to the sale of SJW Land Company parking lots in 2006 and (3) $64,000 in miscellaneous expenses.   These decreases were offset by: (1) $436,000 increase in Canyon Lake Water Service Company due to an additional five months of activity and (2) $437,000 in San Jose Water Company due to salary increases and new hires.
 
2006 vs. 2005
 
Other operating expense increased $912,000 in 2006 or 6% in comparison to 2005. The increase consisted primarily of: (1) $372,000 in expenses as a result of the acquisition of Canyon Lake Water Supply Corporation on May 31, 2006, (2) $820,000 in salaries and wages in accordance with bargaining unit wage escalation and new hires which were incurred in all departments and (3) $83,000 in miscellaneous general office supplies and services. These increases were partially offset by a decrease of $363,000 in contracted work as a result of significant non-recurring repairs performed in 2005.
 
 
Administrative and General Expense
 
2007 vs. 2006
 
Administrative and general expense increased $1,226,000 in 2007 or 6% in comparison to 2006. The increase consisted primarily of: (1) $558,000 in group insurance costs due to a greater number of employees and higher premiums, (2) $387,000 in salaries and wages due to a greater number of employees and the wage increase s for the year, (3) $212,000 in property and liability insurance , (4) $204,000 in regulatory commission expense as a result of increased sales and (5) $116,000 in miscellaneous expenses.  These increases were offset by a $251,000 decrease in legal and accounting fees.
 
2006 vs. 2005
 
Administrative and general expense increased $411,000 in 2006 or 2% in comparison to 2005. The increase consisted primarily of:  (1) $906,000 in expenses as a result of the acquisition of Canyon Lake Water Supply Corporation on May 31, 2006 and (2) $777,000 in salaries, wages, medical benefits and other employee benefits in accordance with bargaining unit wage escalation and new hires which were incurred in all departments.  These increases were partially offset by decreases of: (1) $368,000 in property and liability insurance, (2) $705,000 from prior year’s workers’ compensation expense due to refund of premiums and (3) $199,000 in legal and accounting fees resulting from reduced auditing activities and other miscellaneous expenses.
 
 
Maintenance Expense
 
Maintenance expense in 2007 increased $1,439,000 or 14% in comparison to 2006, and $714,000 in 2006 or 8% in comparison to 2005. The increase in 2007 was primarily due to increased labor costs and an increase in water main and service leaks of approximately 41%. In addition, the level of maintenance expense varies with the level of public work projects instituted by the government, weather conditions and the timing and nature of general maintenance as needed for SJW Corp.’s facilities.
 
 
Property Taxes and Other Non-income Taxes
 
Property taxes and other non-income taxes for 2007 and 2006 increased $414,000 and $220,000, respectively, primarily due to increased utility property placed in service.
 
 
Depreciation
 
Depreciation expense increased $1,555,000 or 7% in 2007 in comparison to 2006 due to an increase in depreciable assets, of which $769,000 is applicable to the purchase of an office and distribution facility in Knoxville, Tennessee by SJW Land Company. Depreciation expense increased $1,645,000 or 8% in 2006 in comparison to 2005 due to higher investment in utility plant and the acquisition of Canyon Lake Water Supply Corporation.
 
 
Income Tax Expense
 
Income tax expense for 2007 was $12,549,000, compared to $15,298,000 in 2006, excluding taxes on the gain on sale of real estate investment of $11,248,000 for 2006.
 
The effective consolidated income tax rates for 2007, 2006 and 2005 were 40%, 41% and 42%, respectively. The higher effective income tax rate for years 2005 was due to the amount of reversal of certain income tax benefits resulting from accelerated tax depreciation. In 2006, tax benefits associated with the disposition of assets reduced the effective tax rate to 41%. Refer to Note 5, “Income Taxes,” of Notes to Consolidated Financial Statements for the reconciliation of actual income tax expense to expected income taxes.
 
 
Other Income and Expense
 
Interest expense, including interest on long-term debt and mortgages, increased $1,884,000 or 17% in 2007 compared to 2006. In 2007, SJW Land Company obtained a mortgage loan of approximately $13,500,000 for the acquisition of the Tennessee office and warehouse property. In addition, San Jose Water Company issued two senior notes each in the amount of $20,000,000. In 2006, SJW Land Company obtained a mortgage loan of approximately $3,825,000 for the acquisition of the Arizona warehouse property. SJWTX, Inc. issued a senior note in the amount of $15,000,000. SJW Corp.’s consolidated weighted-average cost of long-term debt, including the mortgages and the amortization of debt issuance costs was 6.9%, 7.3% and 7.4% for the years ended December 31, 2007, 2006 and 2005, respectively.
 
 
Other income for the year ended December 31, 2006 included an after-tax gain of $16,355,000 related to the sale of three properties. In January 2006, SJW Land Company and San Jose Water Company sold approximately one acre of nonutility property, resulting in an after-tax gain of $1,535,000. In December 2006, SJW Land Company sold two real estate investment properties totaling approximately 6.7 acres resulting in an after-tax gain of $14,820,000. Please refer to Note 13, “Sale of Real Estate Investments,” under Notes to Consolidated Financial Statements.
 
Other comprehensive loss in 2007 was $2,201,000, net of tax, which was primarily due to a decrease in the market value of the investment in California Water Service Group. Other comprehensive income in 2006 was $5,081,000, net of tax, which was primarily due to an increase in the market value of the investment in California Water Service Group of approximately $1,408,000 and the recognition of $3,666,000 transferred from accumulated other comprehensive loss to regulatory assets due to the implementation of the Financial Accounting Standards Board Statement No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans.”
 
Liquidity and Capital Resources
 
Water Utility Services budgeted capital expenditures for 2008, exclusive of capital expenditures financed by customer contributions and advances is as follows:
 
   
Budgeted Capital
Expenditures
2008
   
(in thousands)
 
Water treatment
  $ 884       2 %
Source of supply
    2,908       6 %
Reservoirs and tanks
    3,181       6 %
Facility plan projects
    3,927       8 %
Pump stations and equipment
    3,950       8 %
Equipment and other
    5,559       11 %
Distribution system
    29,040       59 %
    $ 49,449       100 %

 
The 2008 capital expenditures budget is concentrated in main replacements. Included in the distribution system budgeted capital expenditures of $29,040,000 is approximately $21,000,000 that will be spent to replace Water Utility Service’s pipes and mains.
 
Starting in 1997, San Jose Water Company began a four-phased Infrastructure Study establishing a systematic approach to replace its utility facilities. Phases I and II of the Infrastructure Study analyzed the company’s pipes and mains. Phases III and IV examined all other utility facilities. The Infrastructure Study which was completed in July 2002, is updated every three years and is used as a guide for future capital improvement programs. It will serve as the master plan for the company’s replacement program for the next 20 years.
 
The Water Utility Services capital expenditures are incurred in connection with normal upgrading and expansion of existing facilities and to comply with environmental regulations. Over the next five years, the Water Utility Services expects to incur approximately $263,311,000 in capital expenditures, which includes replacement of pipes and mains, and maintaining water systems. The Water Utility Services actual capital expenditures may vary from its projections due to changes in the expected demand for services, weather patterns, actions by governmental agencies and general economic conditions. Total additions to utility plant normally exceed company-financed additions as a result of new facilities construction funded with advances from developers and contributions in aid of construction.
 
A substantial portion of San Jose Water Company’s distribution system was constructed during the period from 1945 to 1980. Expenditure levels for renewal and modernization of this part of the system will grow at an increasing rate as these components reach the end of their useful lives. In most cases, replacement cost will significantly exceed the original installation cost of the retired assets due to increases in the costs of goods and services.
 
 
 
In 2007, the common dividends declared and paid on SJW Corp.’s common stock represented 57% of net income for 2007. Historically, SJW Corp. has maintained its dividend payout ratio at approximately 50% of its earnings.
 
Historically, the Water Utilitiy Service's write-offs for uncollectible accounts represent less than 1% of its total revenue. Management believes it can continue to collect its accounts receivable balances at its historical collection rate.
 
Sources of Capital
 
San Jose Water Company
 
San Jose Water Company’s ability to finance future construction programs and sustain dividend payments depends on its ability to attract external financing and maintain or increase internally generated funds. The level of future earnings and the related cash flow from operations is dependent, in large part, upon the timing and outcome of regulatory proceedings.
 
San Jose Water Company’s financing activity is designed to achieve a capital structure consistent with regulatory guidelines of approximately 50% debt and 50% equity. The average borrowing rate of San Jose Water Company’s long-term debt is 7.07%.
 
Company internally-generated funds, which include allowances for depreciation and deferred income taxes, have provided approximately 50% of the future cash requirements for San Jose Water Company’s capital expenditure. Funding for its future capital expenditure program will be provided primarily through internally-generated funds and long-term debt and will be consistent with the regulator’s guidelines.
 
On January 23, 2007, San Jose Water Company issued $20,000,000 of unsecured Senior Notes Series H, with an interest rate of 5.71% and interest-only payments until maturity, which is January 1, 2037. On December 17, 2007, San Jose Water Company issued $20,000,000 of unsecured Senior Notes Series I with an interest rate of 5.93% and interest-only payments until maturity, which is December 17, 2037. San Jose Water Company has outstanding $170,000,000 of unsecured senior notes as of December 31, 2007. The senior note agreements of San Jose Water Company generally have terms and conditions that restrict the company from issuing additional funded debt if (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar month period would be less than 175% of interest charges. As of December 31, 2007, San Jose Water Company’s funded debt was 50% of total capitalization and the net income available for interest charges was 393% of interest charges.
 
San Jose Water Company has a $1,967,000 loan from the California Department of Water Resources’ Safe Drinking Water State Revolving Fund (“SDWSRF”) for the retrofit of San Jose Water Company’s water treatment plant. Terms of this loan require semi-annual payments over 20 years of principal and interest at an annual rate of 2.39%. The outstanding balance as of December 31, 2007 is $1,847,000.
 
In 2004, the California Department of Water Resources approved San Jose Water Company’s application for a second loan under the SDWSRF program. The loan is for approximately $1,660,000 over a term of 20 years at an interest rate of 2.60%. Funds in the above amount will be used for water treatment plant improvements to meet increasing filtration standards. San Jose Water Company expects to receive the funding of this loan in 2008 when all documentation has been completed.
 
SJW Land Company
 
As of December 31, 2007, SJW Land Company’s outstanding balance on executed mortgages totaled $26,081,000 as a result of acquiring properties in various states. The mortgages have various payments, interest and amortization terms and all are secured by the respective properties.
 
In February 2007, SJW Land Company borrowed approximately $13,500,000 in connection with the purchase of the Tennessee warehouse and office property, which is included in the total executed mortgages noted above. The mortgage is due in 10 years, with a fixed interest rate of 5.61% and is secured by the office property. The loan agreement generally restricts the company from prepayment in the first three years and requires submission of periodic financial reports as part of the loan covenants. The property was leased to a large retail company for 19 years. The average borrowing rate of SJW Land Company mortgages is 6.07%.
 
As of December 31, 2007, SJW Land Company also had an outstanding mortgage loan in the amount of $4,006,000 borrowed by its subsidiary, 444 West Santa Clara Street, L.P. The mortgage loan is due April 2011 and is amortized over 25 years with an interest rate of 7.8%. The mortgage loan is secured by the partnership’s real property and is non-recourse to SJW Land Company.
 
 
SJWTX, Inc.
 
On November 2, 2006, SJWTX, Inc., doing business as Canyon Lake Water Service Company, issued senior notes, Series A, of $15,000,000 at 6.27%. The senior note agreement has terms and conditions that restrict the company from issuing additional funded debt if (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar month period would be less than 175% of interest charges. In addition, SJW Corp. is a guarantor of the senior note which has terms and conditions that restrict SJW Corp. from issuing additional funded debt if (1) the funded debt would exceed 66-2/3% of total capitalization, and, (2) the minimum net worth of SJW Corp. becomes less than $125,000,000 plus 30% of the Water Utility Services cumulative net income, since December 31, 2005.
 
SJW Corp. and its Subsidiaries
 
SJW Corp. and its subsidiaries consolidated long-term debt was 48% of total capitalization as of December 31, 2007. Management believes that the company is capable of obtaining future long-term capital to fund regulated and nonregulated growth opportunities and capital expenditure requirements.
 
SJW Corp. and its subsidiaries have an unsecured line of credit available allowing aggregate short-term borrowings of up to $35,000,000 at rates that approximate the bank’s prime or reference rate. At December 31, 2007, SJW Corp. and its subsidiaries had available unused short-term bank line of credit of $30,000,000. The cost of borrowing averaged 6.19% for 2007. The line of credit expires on June 1, 2008.
 
Off-Balance Sheet Arrangement/Contractual Obligations
 
SJW Corp. has no significant contractual obligations not fully recorded on its Consolidated Balance Sheet or fully disclosed in the Notes to Consolidated Financial Statements.
 
SJW Corp.’s contractual obligation and commitments as of December 31, 2007 are as follows:
 
   
Contractual Obligations Due in
   
Total
 
Less than
1 Year
 
1-5
Years
 
After 5 
Years
   
(in thousands)
 
Senior notes, Water Utility Services
  $ 185,000       —       —       185,000  
SJW Land Company mortgages
    26,081       480       2,234       23,367  
Advances for construction, San Jose Water Company
    74,518       2,219       8,491       63,808  
SDWSRF loan, San Jose Water Company
    1,847       41       349       1,457  
444 West Santa Clara Street, L.P. long-term debt (non-recourse to SJW Land Company)
    4,006       101       3,905       —  
Total contractual cash obligation
  $ 291,452       2,841       14,979       273,632  
Total interest on contractual obligations
  $ 286,420       14,726       58,069       213,625  
 
In addition to the obligations listed above, San Jose Water Company issued a standby letter of credit with a commercial bank in the amount of $2,000,000 in support of its $1,967,000 Safe Drinking Water State Revolving Fund loan which was funded in 2005. The letter of credit automatically renews for one year each December and the amount of coverage can be reduced as the principal balance decreases.
 
San Jose Water Company purchases water from SCVWD under terms of a master contract expiring in 2051. Delivery schedules for purchased water are based on a contract year beginning July 1, and are negotiated every three years under terms of a master contract with SCVWD expiring in 2051. For the years ending December 31, 2007, 2006 and 2005, San Jose Water Company purchased from SCVWD 22,600 million gallons ($38,500,000), 21,500 million gallons ($34,500,000) and 22,400 million gallons ($34,500,000), respectively. Based on current prices and estimated deliveries, San Jose Water Company expects to purchase a minimum of 90% of the delivery schedule, or 20,800 million gallons ($36,700,000) of water at the current contract water rate of $1,765 per million gallons from SCVWD in the contract year ending June 30, 2008. Additionally, San Jose Water Company purchases non-contract water from SCVWD on an “as needed” basis if the water supply is available from SCVWD. The contract water rates are determined by SCVWD. These rates are adjusted periodically and coincide with SCVWD’s fiscal year, which ends annually on June 30. The contract water rates for SCVWD’s fiscal year ended 2008, 2007 and 2006 were $1,765, $1,642 and $1,565, per million gallons, respectively.
 
San Jose Water Company also pumps water from the local groundwater basin. There are no delivery schedules or contractual obligations associated with the purchase of groundwater.  SCVWD determines the groundwater extraction charge and it is applied on a per unit basis. In addition to the SCVWD groundwater extraction charge, San Jose Water Company also incurs power costs to pump the groundwater from the basin.
 
 
San Jose Water Company sponsors a noncontributory defined benefit pension plan and provides health care and life insurance benefits for retired employees. In 2007, San Jose Water Company contributed $2,000,000 and $362,175 to the pension plan and other postretirement benefit plan, respectively. In 2008, San Jose Water Company expects to make a contribution of $3,000,000 and $400,000 to the pension plan and other post retirement benefit plan, respectively. The amount of required contributions for years thereafter is not actuarially determinable.
 
San Jose Water Company’s other benefit obligations include employees’ and directors’ postretirement contracts, an Executive Supplemental Retirement Plan and an Executive Special Deferral Election Plan. Under these benefit plans, San Jose Water Company is committed to pay approximately the aggregate of $341,000 annually to former officers and directors. Future payments may fluctuate depending on the life span of the retirees and as current officers and executives retire.
 
CLWSC purchases water from GBRA under terms of agreements expiring in 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSC 6,000 acre-feet per year of water supply from GBRA. The water rate may be adjusted by GBRA at any time, provided they give CLWSC 60 days’ written notice on the proposed adjustment.
 
444 West Santa Clara Street, L.P.
 
SJW Land Company owns a 70% limited partnership interest in 444 West Santa Clara Street, L.P., a real estate limited partnership. A real estate development firm, which is partially owned by an individual who also serves as the Chairman of the Board of SJW Corp., owns the remaining 30% limited partnership interest. A commercial building is constructed on the property of 444 West Santa Clara Street, L.P. and is leased to an international real estate firm under a 12-year lease. The partnership is being accounted for under FIN46R.
 
Impact of Recent Accounting Pronouncements
 
Effective January 1, 2007, SJW Corp. adopted Financial Accounting Standards Board Interpretation No. 48 (“Interpretation 48”), “Accounting for Uncertainty in Income Taxes,” as discussed in Note 5 of SJW Corp.’s accompanying consolidated financial statements.
 
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements.” SFAS 157 defines fair value and establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, however, for some entities, the application of SFAS 157 will change their current practice. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 is not expected to have a material impact on SJW Corp.’s financial position, results of operations or cash flows.
 
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. The adoption of SFAS 159 is not expected to have a material impact on SJW Corp.’s financial position, results of operations or cash flows.
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements.” SFAS 160 requires noncontrolling interests, previously referred to as minority interests, to be reported as a component of equity, net income and comprehensive income to be displayed for both the controlling and noncontrolling interests, along with other required disclosures and reconciliations. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. SJW Corp. is in the process of evaluating the impact of this accounting standard.
 
 
Quantitative and Qualitative Disclosures About Market Risk
 
SJW Corp. is subject to market risks in the normal course of business, including changes in interest rates and equity prices. Future financing is subject to the exposure to changes in interest rates. SJW Corp. also owns 1,099,952 shares of California Water Service Group and is exposed to the risk of changes in equity prices.
 
SJW Corp. has no material derivative financial instruments, financial instruments with significant off-balance sheet risks, or financial instruments with concentrations of credit risk. There is no material sensitivity to changes in market rates and prices.
 
 
Financial Statements and Supplementary Data
 
Report of Independent Registered Public Accounting Firm
 
The Shareholders and Board of Directors
 
SJW Corp.:
 
We have audited the accompanying consolidated balance sheets of SJW Corp. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SJW Corp. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
As discussed in Note 5 to the consolidated financial statements, effective January 1, 2007, the Company adopted the provisions of Statement of Financial Accounting Standards Board Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes .
 
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment . In addition, effective December 31, 2006, the Company adopted the initial funded status and related disclosure provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans . Also, as discussed in Note 1 to the consolidated financial statements, the Company changed its method of quantifying financial statement errors in 2006.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of internal control over financial reporting of SJW Corp. and subsidiaries as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 10, 2008 expressed an unqualified opinion on the effective operation of internal control over financial reporting.
 
/s/ KPMG LLP
 
Mountain View, California
March 10, 2008
 
 
Report of Independent Registered Public Accounting Firm
 
The Shareholders and Board of Directors
 
SJW Corp.:
 
We have audited SJW Corp.'s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). SJW Corp.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, SJW Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the COSO.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of SJW Corp. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007, and our report dated March 10, 2008 expressed an unqualified opinion on those consolidated financial statements.
 
/s/ KPMG LLP
 
Mountain View, California
March 10, 2008
 
 
 
SJW Corp. and Subsidiaries
 
CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share and per share data)
 
 
   
December 31,
   
2007
 
2006
Assets
           
Utility plant:
           
Land
  $ 5,695       4,837  
Depreciable plant and equipment
    778,277       716,679  
Construction in progress
    24,298       10,863  
Intangible assets
    8,040       8,040  
      816,310       740,419  
Less accumulated depreciation and amortization
    255,025       234,173  
      561,285       506,246  
Real estate investment
    88,029       43,868  
Less accumulated depreciation and amortization
    3,834       3,303  
      84,195       40,565  
Current assets:
               
Cash and cash equivalents
    2,354       3,788  
Accounts receivable:
               
Customers, net of allowances for uncollectible accounts of $196 in 2007 and $177 in 2006
    10,390       9,861  
Income tax
    2,557       678  
Other 
    1,222       1,028  
Accrued unbilled utility revenue
    12,654       11,067  
Sale proceeds held in trust account
    -       31,261  
Materials and supplies
    782       932  
Prepaid expenses
    1,632       1,538  
      31,591       60,153  
Other assets:
               
Investment in California Water Service Group
    40,720       44,438  
Unamortized debt issuance and reacquisition costs
    3,345       3,220  
Regulatory assets
    44,712       50,483  
Other
    1,478       1,437  
      90,255       99,578  
    $ 767,326       706,542  

 
See accompanying notes to consolidated financials statements.
 
 
SJW Corp. and Subsidiaries
 
CONSOLIDATED BALANCE SHEETS (Continued)
 
(in thousands, except share and per share data)
 
 
   
December 31,
   
2007
 
2006
Capitalization and Liabilities
           
Capitalization:
           
Shareholders’ equity:
           
Common stock, $0.521 par value; authorized 36,000,000 shares; issued and outstanding 18,361,733 shares in 2007 and 18,281,769 shares in 2006
  $ 9,564       9,522  
Additional paid-in capital
    18,723       16,267  
Retained earnings
    195,331       186,876  
Accumulated other comprehensive income
    13,316       15,517  
Total shareholders’ equity
    236,934       228,182  
Long-term debt, less current portion
    216,312       163,648  
      453,246       391,830  
Current liabilities:
               
Line of credit
    5,000       15,500  
Current portion of long-term debt
    622       485  
Accrued groundwater extraction charges and purchased water
    5,595       4,244  
Purchased power
    514       301  
Accounts payable
    9,268       7,267  
Accrued interest
    4,522       3,871  
Accrued taxes
    791       673  
Accrued payroll
    2,583       1,432  
Other current liabilities
    4,059       4,151  
      32,954       37,924  
Deferred income taxes
    74,643       81,552  
Unamortized investment tax credits
    1,735       1,795  
Advances for construction
    74,518       67,955  
Contributions in aid of construction
    100,649       95,225  
Deferred revenue
    1,313       1,262  
Postretirement benefit plans
    23,357       26,298  
Other noncurrent liabilities
    4,911       2,701  
Commitments and contingencies
    —       —  
    $ 767,326       706,542  
 
 
See accompanying notes to consolidated financials statements.
 
 
SJW Corp. and Subsidiaries
 
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
Years ended December 31 (in thousands, except share and per share data)
 
 
   
2007
 
2006
 
2005
Operating revenue
  $ 206,601       189,238       180,105  
Operating expense:
                       
Operation:
                       
Purchased water
    48,596       44,896       44,953  
Power
    7,532       5,170       4,318  
Groundwater extraction charges
    30,141       18,737       17,362  
Total production costs
    86,269       68,803       66,633  
Administrative and general
    22,334       21,108       20,697  
Other
    14,907       15,095       14,183  
Maintenance
    11,628       10,189       9,475  
Property taxes and other nonincome taxes
    6,307       5,893       5,673  
Depreciation and amortization
    22,854       21,299       19,654  
Income taxes
    12,549       15,298       14,773  
Total operating expense
    176,848       157,685       151,088  
Operating income
    29,753       31,553       29,017  
Other (expense) income:
                       
Interest on senior notes
    (10,912 )     (9,292 )     (9,283 )
Mortgage and other interest expense
    (2,097 )     (1,833 )     (910 )
Gain on sale of real estate investments, net of taxes of $11,248 in 2006 and $761 in 2005
    -       16,355       1,095  
Dividends
    1,276       1,265       1,254  
Other, net
    1,303       533       667  
Net income
  $ 19,323       38,581       21,840  
Other comprehensive income (loss):
                       
Unrealized income (loss) on investment, net of taxes of $1,529 in 2007, $984 in 2006 and $262 in 2005
    (2,201 )     1,415       376  
Minimum pension liability adjustment, net of taxes of $2,521 in 2006 and $1,570 in 2005
    -       3,666       (2,284 )
Other comprehensive income (loss)
    (2,201 )     5,081       (1,908 )
Comprehensive income
  $ 17,122       43,662       19,932  
Earnings per share
                       
—Basic
  $ 1.05       2.11       1.20  
—Diluted
  $ 1.04       2.08       1.18  
Weighted average shares outstanding
                       
—Basic
    18,334,352       18,275,505       18,271,280  
—Diluted
    18,552,228       18,528,896       18,480,202  

 
See accompanying notes to consolidated financials statements.
 
 
SJW Corp. and Subsidiaries
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 
(in thousands, except  per share amounts)
 

   
Common Stock
               
   
Number of Shares
 
Amount
 
Additional
 Paid-in
Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Shareholders’
Equity
Balances, December 31, 2004
    18,270,882     $ 9,516     $ 14,306     $ 148,525     $ 12,344     $ 184,691  
Net income
                            21,840               21,840  
Other comprehensive income
                                               
Unrealized gain on investment, net of tax effect of $262
                                    376       376  
Minimum pension liability adjustment, net of tax effect of $1,570
                                    (2,284 )     (2,284 )
Comprehensive income
                                            19,932  
Stock-based compensation
                    1,210                       1,210  
Exercise of stock options and similar instruments
    9,472               37                       37  
Common stock buyback
    (9,472 )              (185 )                     (185 )
Dividends paid ($.53 per share)
                            (9,777 )             (9,777 )
Balances, December 31, 2005
    18,270,882     $ 9,516     $ 15,368     $ 160,588     $ 10,436     $ 195,908  
Cumulative effect of adoption of SAB 108 (see Note 1)
                            (1,744 )             (1,744 )
Adjusted balances as of January 1, 2006
    18,270,882       9,516       15,368       158,844       10,436       194,164  
Net income
                            38,581               38,581  
Other comprehensive income
                                               
Unrealized gain on investment, net of tax effect of $984
                                    1,415       1,415  
Reclassification of minimum pension liability to Regulatory Asset, net of tax effect of $2,521, in conjunction with the implementation of SFAS 158 (see Note 11)
                                    3,666       3,666  
Comprehensive income
                                            43,662  
Stock-based compensation
                    633       (223 )             410  
Exercise of stock options and similar instruments
    1,939       1       35                       36  
Employee stock purchase plan
    8,948       5       231                       236  
Dividends paid ($.57 per share)
                            (10,326 )             (10,326 )
Balances, December 31, 2006
    18,281,769     $ 9,522     $ 16,267     $ 186,876     $ 15,517     $ 228,182  
Cumulative effect of adoption of FASB Interpretation No. 48 (see Note 5)
                            444               444  
Adjusted balances as of January 1, 2007
    18,281,769       9,522       16,267       187,320       15,517       228,626  
Net income
                            19,323               19,323  
Other comprehensive income
                                               
Unrealized loss on investment, net of tax effect of $1,529
                                    (2,201 )     (2,201 )
Comprehensive income
                                            17,122  
Stock-based compensation
                    655       (223 )             432  
Exercise of stock options and similar instruments
    65,223       34       1,316                       1,350  
Employee stock purchase plan
    14,741       8       485                       493  
Dividends paid ($.60 per share)
                            (11,089 )             (11,089 )
Balances, December 31, 2007
    18,361,733       9,564       18,723       195,331       13,316       236,934  
 
See accompanying notes to consolidated financials statements.
 
 
SJW Corp. and Subsidiaries
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Years ended December 31 (in thousands)
 
   
2007
 
2006
 
2005
Operating activities:
                 
Net income
  $ 19,323       38,581       21,840  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    22,854       21,299       19,654  
Deferred income taxes
    (6,909 )     10,773       1,918  
Stock-based compensation
    655       436       1,244  
Gain on sale of real estate investments, net of taxes
    —       (16,355 )     (1,095 )
Changes in operating assets and liabilities:
                       
Accounts receivable and accrued unbilled utility revenue
    (2,310 )     (1,570 )     (4,591 )
Accounts payable, purchased power and other current liabilities
    (731 )     1,488       4,504  
Accrued groundwater extraction charges and purchased water
    1,352       260       129  
Accrued taxes
    (1,760 )     (1,697 )     730  
Accrued interest
    652       253       (1 )
Accrued payroll
    1,151       (95 )     460  
Prepaid expenses and materials and supplies
    55       (176 )     (83 )
Postretirement benefits
    (2,847 )     13,085       3,854  
Regulatory assets
    5,771       (30,153 )     (4,973 )
Other noncurrent assets and noncurrent liabilities
    3,578       8,530       (1,436 )
Other changes, net
    1,197       (361 )     448  
Net cash provided by operating activities
    42,031       44,298       42,602  
Investing activities:
                       
Additions to utility plant
    (73,217 )     (58,028 )     (46,445 )
Additions to real estate investment
    (48,245 )     (12,718 )     (5,324 )
Cost to retire utility plant, net of salvage
    (1,160 )     (1,013 )     (158 )
Payments for business acquisitions, net of cash acquired
    —       4,083       —  
Proceeds from sale of real estate investment
    —       33,632       3,414  
Sale proceeds held in trust account
    31,261       (31,261 )     —  
Net cash used in investing activities
    (91,361 )     (65,305 )     (48,513 )
Financing activities:
                       
Cancellation of Canyon Lake Water Supply Corporation bonds
    —       (19,951 )     —  
Borrowings from line of credit
    31,400       37,000       —  
Repayments of line of credit
    (41,900 )     (21,500 )     —  
Long-term borrowings
    53,500       18,855       2,007  
Repayments of long-term borrowings
    (699 )     (334 )     (273 )
Dividends paid
    (11,089 )     (10,326 )     (9,777 )
Common stock buyback
    —       —       (185 )
Exercise of stock options and similar instruments
    1,298       226       24  
Tax benefits realized from share options exercised
    545       10       16  
Receipts of advances and contributions in aid of construction
    17,016       13,443       14,732  
Refunds of advances for construction
    (2,175 )     (2,026 )     (2,134 )
Net cash provided by financing activities
    47,896       15,397       4,410  
Net change in cash and cash equivalents
    (1,434 )     (5,610 )     (1,501 )
Cash and cash equivalents, beginning of year
    3,788       9,398       10,899  
Cash and cash equivalents, end of year
  $ 2,354       3,788       9,398  
Cash paid during the year for:
                       
Interest
  $ 13,142       11,332       10,490  
Income taxes
  $ 15,018       17,158       16,558  
Supplemental disclosure of non-cash activities:
                       
Increase in accrued payables for additions to utility plant
    2,849       —       —  
Decrease in real estate investments due to transfer to utility property
    3,035       —       —  
                                                                                                                                                                                  
See accompanying notes to consolidated financials statements.
 
 
SJW CORP. AND SUBSIDIAIRES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Years ended December 31, 2007, 2006 and 2005
 
(Dollars in thousands, except share data)
 
 
Note 1. Summary of Significant Accounting Policies
 
The accompanying consolidated financial statements include the accounts of SJW Corp. and its wholly owned and majority owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. A subsidiary in which SJW Corp. has a controlling interest is consolidated in the financial statements with the minority interest included as “other” in the Consolidated Statements of Income and Comprehensive Income and in “other non-current liabilities” in the Consolidated Balance Sheets.
 
SJW Corp.’s principal subsidiary, San Jose Water Company, is a regulated California water utility providing water service to the greater metropolitan San Jose area. San Jose Water Company’s accounting policies comply with the applicable uniform system of accounts prescribed by the CPUC and conform to generally accepted accounting principles for rate-regulated public utilities. Approximately 91% of San Jose Water Company’s revenues are derived from the sale of water to residential and business customers.
 
SJWTX, Inc., doing business as Canyon Lake Water Service Company, a 97.5% majority owned subsidiary, was incorporated in September 2005. On May 31, 2006, CLWSC purchased substantially all the assets of Canyon Lake Water Supply Corporation. CLWSC provides service to approximately 7,900 connections that serve approximately 36,000 residents in a service area comprising more than 78 square miles in the region between San Antonio and Austin, Texas.
 
SJW Land Company owned and operated parking facilities, which are located adjacent to San Jose Water Company’s headquarters and the HP Pavilion in San Jose, California, until December 15, 2006 when the real estate investments were sold to Adobe Systems Incorporated for an aggregate purchase price of $32,500. SJW Land Company also owns commercial properties, several undeveloped real estate properties, and warehouse properties in the states of California, Florida, Connecticut, Arizona, Texas and Tennessee and holds a 70% limited partnership interest in 444 West Santa Clara Street, L.P., which is accounted for under the Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R), “Consolidation of Variable Interest Entities” (see Note 9).
 
Together, San Jose Water Company and CLWSC are referred to as “Water Utility Services.”
 
 
Use of Estimates
 
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
 
Utility Plant
 
The cost of additions, replacements and betterments to utility plant is capitalized. The amount of interest capitalized in 2007, 2006 and 2005 was $527, $458 and $336, respectively. Construction in progress was $24,298 and $10,863 at December 31, 2007 and 2006, respectively.
 
The major components of depreciable plant and equipment as of December 31, 2007 and 2006 are as follows:
 
   
2007
 
2006
Equipment
  $ 145,188       121,733  
Transmission and distribution
    597,281       565,824  
Office buildings and other structures
    35,808       29,122  
Total depreciable plant and equipment
  $ 778,277       716,679  
 
Depreciation is computed using the straight-line method over the estimated service lives of the assets, ranging from 5 to 75 years. The estimated service lives of depreciable plant and equipment are as follows:
 
 
Useful Lives
Equipment
5 to 35 years
Transmission and distribution plant
35 to 75 years
Office buildings and other structures
7 to 50 years

 
For the years 2007, 2006 and 2005, depreciation expense was approximately 3.6% of the beginning of the year balance of depreciable plant for all years excluding certain items credited to depreciation expense. The cost of utility plant retired, including retirement costs (less salvage), is charged to accumulated depreciation and no gain or loss is recognized. Depreciation expense for utility plant for the years ended December 31, 2007, 2006 and 2005 was $20,956, $20,095 and $18,654, respectively.
 
 
Construction in Progress
 
On November 14, 2007, San Jose Water Company entered into a reverse exchange transaction for a property located in San Jose, California, which will be the replacement property for the property that San Jose Water Company has entered into an agreement with Adobe Systems Incorporated to sell (see Note 7). For Federal and state income tax purposes the exchange will receive treatment as an exchange of like-kind property under Internal Revenue Code Section 1031. The Exchange Accommodation Titleholder (“EAT”) has purchased the replacement property and will hold it until the relinquished property is sold or the expiration of the exchange period, whichever occurs first. The exchange period is 180 days. During the exchange period, the EAT is leasing the property to San Jose Water Company on a triple net lease basis with no monthly payments. San Jose Water Company is responsible for any expenses pertaining to the property and management of the property.

The EAT is a special purpose LLC whose sole material asset is the replacement property and the sole material liability is a loan from San Jose Water Company. Therefore, in accordance with Interpretation No. 46R, the EAT has been consolidated into SJW Corp. The property is recorded in construction in progress and will be transferred to utility plant once it is placed in service.
 
 
Utility Plant Intangible Assets
 
All intangible assets are recorded at cost and are amortized using the straight-line method over the legal or estimated economic life of the asset, ranging from 5 to 70 years.
 
 
Real Estate Investments
 
Real estate investments are recorded at cost and consist primarily of land and buildings. The major components of real estate investments as of December 31, 2007 and 2006 are as follows:
 
   
2007
 
2006
Land
  $ 22,369       8,947  
Buildings and improvements
    65,429       34,690  
Intangibles
    231       231  
Total real estate investment
  $ 88,029       43,868  

 
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 39 years.
 
Land and buildings and improvements include assets held for lease of $86,641 and $41,804 as of December 31, 2007 and 2006, respectively. The following schedule shows the future minimum rental payments required under operating leases that have remaining noncancelable lease terms in excess of one year as of December 31, 2007:
 
 
Year ending December 31:
 
Rental Payments
2008
  $
6,745
 
2009
   
6,846
 
2010
   
6,950
 
2011
   
7,056
 
2012
   
7,169
 

 
 
Impairment of Long-Lived Assets
 
In accordance with the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the long-lived assets of SJW Corp. are reviewed for impairment when changes in circumstances or events require adjustments to the carrying values of the assets. Long-lived assets consist primarily of utility plant in service, real estate investments, intangible assets, and regulatory assets.
 
 
Sale Proceeds Held in Trust Account
 
On December 15, 2006, SJW Land Company sold real estate investments to Adobe Systems Incorporated for an aggregate purchase price of $32,500. The proceeds from the transaction were placed in a trust account to enable SJW Land Company to have the time to identify replacement property in which to reinvest the proceeds and qualify the transaction as a like-kind property exchange for federal income tax purposes. On February 9, 2007, SJW Land Company reinvested the proceeds from the sale of real estate investments received on December 15, 2006 by purchasing approximately 54 acres of real estate investments with an office and distribution facility in Knoxville, Tennessee for approximately $47,625 (see Note 13).
 
 
Financial Instruments
 
The carrying amount of SJW Corp.’s current assets and liabilities that are considered financial instruments approximate their fair value as of the dates presented due to the short maturity of the instruments. The fair market value of long-term debt is discussed in Note 4.
 
 
Investment in California Water Service Group
 
SJW Corp.’s investment in California Water Service Group is accounted for under SFAS 115, “Accounting for Marketable Securities,” as an available-for-sale marketable security. The investment is recorded on the Consolidated Balance Sheet at quoted market price with the change in unrealized gain or loss reported, net of tax, as a component of other comprehensive income.
 
 
Other Assets
 
Debt reacquisition costs are amortized over the term of the related debt. Debt issuance costs are amortized to interest expense in the Statements of Income and Comprehensive Income.
 
 
Regulatory Assets and Liabilities
 
San Jose Water Company records regulatory assets for future revenues expected to be realized in customers’ rates when certain items are recognized as expenses for ratemaking purposes. The income tax temporary differences relate primarily to the difference between book and income tax depreciation on utility plant that was placed in service before CPUC adopted normalization for ratemaking purposes. Previously the tax effect was passed onto customers. In the future, when such timing differences reverse, San Jose Water Company believes it is probable that it will be able to include the impact of the deferred tax reversal in customer rates. The differences will reverse over the remaining book lives of the related assets. Although realization is not assured, management believes it is more likely than not that all of the regulatory asset will be realized. In addition, regulatory assets include items that are not recognized for ratemaking purposes, such as certain expenses related to postretirement benefits, accrued vacation obligation and asset retirement obligations which are expected to be recoverable in future customer rates.
 
 
Rate-regulated enterprises are required to charge a regulatory asset to earnings if and when that asset no longer meets the criteria for being recorded as a regulatory asset. San Jose Water Company continually evaluates the recoverability of regulatory assets by assessing whether the amortization of the balance over the remaining life can be recovered through expected and undiscounted future cash flows.
 
Regulatory liabilities reflect temporary differences provided at higher than the current tax rate, which will flow through to future ratepayers, and unamortized investment tax credits.
 
Regulatory assets and liabilities are comprised of the following as of December 31:
 
   
2007
 
2006
Regulatory assets:
           
Income tax temporary differences
  $ 12,135       12,740  
Postretirement pensions and other medical benefits
    30,349       38,410  
    Other obligations
    4,089       1,301  
Total regulatory assets
  $ 46,573       52,451  
Regulatory liabilities:
               
Future tax benefits to ratepayers
  $ 1,861       1,968  
Net Regulatory Assets included in Balance Sheet
  $ 44,712       50,483  

 
 
Income Taxes
 
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the effect of temporary differences between financial and tax reporting. Deferred tax assets and liabilities are measured using current tax rates in effect. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
 
To the extent permitted by CPUC, investment tax credits resulting from utility plant additions are deferred and amortized over the estimated useful lives of the related property.
 
 
Advances for Construction and Contributions in Aid of Construction
 
In California, customer advances for construction received after 1981 are being refunded ratably over 40 years. Estimated refunds for the next five years and thereafter are shown below:
 
   
Estimated Refunds
2008
  $
2,219
 
2009
   
2,145
 
2010
   
2,120
 
2011
   
2,115
 
2012
   
2,111
 
Thereafter
   
63,808
 

 
Contributions in aid of construction represent funds received from developers that are not refundable under applicable regulations. Depreciation applicable to utility plant constructed with these contributions is charged to contributions in aid of construction.
 
Customer advances and contributions in aid of construction received subsequent to 1986 and prior to June 12, 1996 generally must be included in federal taxable income. Taxes paid relating to advances and contributions are recorded as deferred tax assets for financial reporting purposes and are amortized over 40 years for advances, and over the tax depreciable life of the related asset for contributions. Receipts subsequent to June 12, 1996 are generally exempt from federal taxable income, unless specifically prescribed under treasury regulations.
 
Advances and contributions received subsequent to 1991 and prior to 1997 are included in state taxable income.
 
 
Asset Retirement Obligation
 
SJW Corp.’s asset retirement obligation is recorded as a liability included in other non-current liabilities. It reflects principally the retirement costs of wells, which by law, must be remediated upon retirement. Retirement costs have historically been recovered through rates at the time of retirement. As a result, the liability is offset by a regulatory asset. For the years ended December 31, 2007 and 2006, the asset retirement obligation is as follows:
 
 
   
2007
 
2006
Retirement obligation
  $ 3,698       4,427  
Discount rate
    6 %     6 %
Present value
    1,000       771  
Deferred tax
    688       530  
Regulatory asset
  $ 1,688       1,301  

 
 
Revenue
 
SJW Corp. recognizes its regulated and nonregulated revenue when services have been rendered, in accordance with SEC Staff Accounting Bulletin 104, “Revenue Recognition.”
 
Metered revenue of the Water Utility Services include billings to customers based on meter readings plus an estimate of water used between the customers’ last meter reading and the end of the accounting period. The Water Utility Services read the majority of its customers’ meters on a bi-monthly basis and record its revenue based on its meter reading results. Unbilled revenue from the last meter reading date to the end of the accounting period is estimated based on the most recent usage patterns, production records and the effective tariff rates. Actual results could differ from those estimates, which would result in adjusting the operating revenue in the period which the revision to Water Utility Services estimates are determined. Operating revenue in 2007, 2006 and 2005 includes $4,561, $4,045 and $3,891, respectively, from the operation of the City of Cupertino municipal water system.
 
Revenue from San Jose Water Company’s nonregulated utility operations and billing or maintenance agreements are recognized when services have been rendered. Revenue from SJW Land Company is recognized ratably over the term of the leases.
 
 
Balancing Account
 
For California, the CPUC has established a balancing account mechanism for the purpose of tracking the under-collection or over-collection associated with expense changes and the revenue authorized by CPUC to offset those expense changes. Since the balances have to be approved by CPUC before they can be incorporated into rates, San Jose Water Company does not recognize the balancing account in its revenue until CPUC authorizes the change in customers’ rates. As of December 31, 2007 and 2006, the total accrued in San Jose Water Company’s balancing account was an over-collection of $1,656 and $739, respectively, including interest.
 
 
Pension Accounting
 
In September 2006, the Financial Accounting Standards Board issued FASB Statement No. 158 (“Statement 158”), “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans.” As of December 31, 2006, SJW Corp. adopted Statement 158. Statement 158 requires employers to recognize on their balance sheets the funded status of pensions and other postretirement benefit plans.
 
 
Share-Based Payment
 
Effective January 1, 2006, SJW Corp. adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” using the modified prospective method of transition. Previously, awards were accounted for using SFAS No. 123. SJW Corp. utilizes the Black-Scholes option-pricing model, which requires the use of subjective assumptions, to compute the fair value of options at grant date, the fair value of options granted and is the basis for the share-based compensation for financial reporting purposes. In addition, SJW Corp. now estimates forfeitures for the share-based awards that are not expected to vest.
 
 
Maintenance Expense
 
Planned major maintenance projects are charged to expense as incurred. SJW Corp. does not accrue maintenance costs prior to periods in which they are incurred.
 
 
 
Earnings per Share
 
Basic earnings per share is calculated using income available to common shareholders, divided by the weighted average number of shares outstanding during the year. Diluted earnings per share is calculated based upon the weighted average number of common shares including both shares outstanding and shares potentially issued in connection with stock options and restricted common stock units granted under SJW Corp.’s Long-Term Incentive Plan, and income available to common shareholders. Anti-dilutive restricted common stock units and stock options of 146,104 and 3,956 as of December 31, 2007, 2006 and 2005, respectively, were excluded from the dilutive earnings per share calculation.
 
Note 2. Capitalization
 
SJW Corp. is authorized to issue 36,000,000 shares of common stock of $0.521 par value per share. At December 31, 2007 and 2006, 18,361,733 and 18,281,769, respectively, shares of common stock were issued and outstanding.
 
At December 31, 2007 and 2006, 176,407 shares of preferred stock of $25 par value per share were authorized and none were outstanding.
 
In September 2006, the SEC issued Staff Accounting Bulletin 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a potential accounting misstatement. In 2006, SJW Corp. had goodwill, included in other assets, in the amount of $1,744 representing the excess of cost over the fair market value of assets acquired in a 1992 acquisition. The assets acquired consisted of a small business and shares of California Water Service Group stock. The business was subsequently sold in 1995 and the goodwill remained on the balance sheet in error within “Other” in “Other Assets.” SJW Corp. elected to adjust the prior year error by recording $1,744 as a cumulative effect adjustment to beginning retained earnings. The error had previously been considered immaterial to SJW Corp.’s consolidated financial statements.
 
On January 31, 2006, SJW Corp. declared a two-for-one split on the Corporation’s common stock for holders of record on March 2, 2006. In connection with the stock split, the number of shares of common stock increased from 18,000,000 to 36,000,000 and the par value of each share of common stock decreased from $1.042 to $0.521. All share amounts have been adjusted to reflect this stock split.
 
Note 3. Line Of Credit
 
SJW Corp. and its subsidiaries have available an unsecured bank line of credit, allowing aggregate short-term borrowings of up to $35,000. This line of credit bears interest at variable rates and expires on June 1, 2008. As of December 31, 2007 and 2006, SJW Corp. has an outstanding balance on the line of credit of $5,000 and $15,500, respectively. Cost of borrowing averaged 6.19% and 6.37%, respectively, as of December 31, 2007 and 2006.
 
San Jose Water Company issued a standby letter of credit with a commercial bank in the amount of $2,000 in support of its Safe Drinking Water State Revolving Fund loan which was funded in 2005. The letter of credit automatically renews for one year each December unless the issuing bank elects not to renew it, and the amount of coverage can be reduced as the loan principal balance decreases.
 
 
Note 4. Long-Term Debt
 
Long-term debt as of December 31 was as follows:
 
Description
 
Due Date
 
2007
 
2006
Senior notes, San Jose Water Company:
                       
A 8.58%
   
2022
    $
20,000
     
20,000
 
B 7.37%
   
2024
     
30,000
     
30,000
 
C 9.45%
   
2020
     
10,000
     
10,000
 
D 7.15%
   
2026
     
15,000
     
15,000
 
E 6.81%
   
2028
     
15,000
     
15,000
 
F 7.20%
   
2031
     
20,000
     
20,000
 
G 5.93% 
   
2033
     
20,000
     
20,000
 
    H 5.71%
   
2037
     
20,000
     
–
 
     I 5.93%
   
2037
     
20,000
     
–
 
SJWTX, Inc. Series A 6.27%
   
2036
     
15,000
     
15,000
 
Total senior notes
   
 
    $
185,000
     
145,000
 
Mortgage loans 5.61% - 6.09%
   
2017
     
26,081
     
13,011
 
444 West Santa Clara Street, L.P. 7.80% (non-recourse to SJW Land Company)
   
2011
     
4,006
     
4,099
 
SDWSRF loan 2.39%, San Jose Water Company
   
2026
     
1,847
     
1,967
 
Other long-term debt 5.90%, SJWTX, Inc.
   
2012
     
–
     
56
 
Total debt
          $
216,934
     
164,133
 
Less: Current portion
           
622
     
485
 
Total long-term debt, less current portion
          $
216,312
     
163,648
 

 
Senior notes held by institutional investors are unsecured obligations of San Jose Water Company and SJWTX, Inc. (“SJWTX”) and require interest-only payments until maturity. To minimize issuance costs, all of the companies’ debt has historically been privately placed.
 
The senior note agreements of San Jose Water Company generally have terms and conditions that restrict the company from issuing additional funded debt if (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar month period would be less than 175% of interest charges.
 
The senior note agreement of SJWTX has terms and conditions that restrict  SJWTX from issuing additional funded debt if (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar month period would be less than 175% of interest charges. In addition, SJW Corp. is a guarantor of the senior note which has terms and conditions that restrict SJW Corp. from issuing additional funded debt if (1) the funded debt exceeds 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Corp. becomes less than $125,000 plus 30% of the Water Utility Services cumulative net income since December 31, 2005. As of December 31, 2007, SJW Corp. does not face any restrictions in issuing any future indebtedness as a result of these terms and conditions.
 
The mortgage loans, which are the obligations of SJW Land Company, are due in 2013, 2016 and 2017. These loans amortize over 25 years, are secured by four leased properties and carry a fixed interest rate with 120 monthly principal and interest payments. The loan agreements generally restrict the company from prepayment in the first three years and require submission of periodic financial reports as part of the loan covenants. An amortization schedule of the mortgage loans is as follows:
 
   
Amortization Schedule
Year
 
Total Payment
 
Interest
 
Principal
2008
  $ 1,992     $ 1,512     $ 480  
2009
    1,992       1,481       511  
2010
    1,992       1,450       542  
2011
    1,992       1,418       574  
2012
    1,992       1,385       607  
Thereafter
    27,058       3,691       23,367  
 
 
444 West Santa Clara Street, L.P., in which SJW Land Company owns a 70% limited partnership interest, has a mortgage loan in the outstanding amount of $4,006 as of December 31, 2007. The mortgage loan is due in April 2011 and amortized over 25 years with a fixed interest rate of 7.8%. The loan is secured by the partnership’s real property and is non-recourse to SJW Land Company. An amortization schedule of the mortgage loan is as follows:
 
   
Amortization Schedule
Year
 
Total Payment
 
Interest
 
Principal
2008
  $
410
    $
309
    $
101
 
2009
   
410
     
301
     
109
 
2010
   
410
     
292
     
118
 
2011
   
3,820
     
142
     
3,678
 

 
San Jose Water Company has a loan from the Safe Drinking Water State Revolving Fund (“SDWSRF”) at a rate of 2.39%. The outstanding loan balance as of December 31, 2007 is $1,847. San Jose Water Company issued a standby letter of credit with a commercial bank in the amount of $2,000 in support of this loan. The letter of credit automatically renews for one year each December unless the issuing bank elects not to renew it. The amount of coverage can be reduced as the principal balance decreases. An amortization schedule of the SDWSRF loan is as follows:
 
   
Amortization Schedule
Year
 
Total Payment
 
Interest
 
Principal
2008
  $
63
    $
22
    $
41
 
2009
   
127
     
43
     
84
 
2010
   
127
     
41
     
86
 
2011
   
127
     
39
     
88
 
2012
   
127
     
36
     
91
 
Thereafter
   
1,713
     
256
     
1,457
 

 
The fair value of long-term debt as of December 31, 2007 and 2006 was approximately $182,718 and $140,505, respectively, using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration.
 
Note 5. Income Taxes
 
The following table reconciles income tax expense to the amount computed by applying the federal statutory rate of 35% to income before income taxes:
 
   
2007
 
2006
 
2005
“Expected” federal income tax
  $ 11,155       22,795       13,081  
Increase (decrease) in taxes attributable to:
                       
State taxes, net of federal income tax benefit
    1,831       3,742       2,147  
Dividend received deduction
    (313 )     (310 )     (307 )
Other items, net
    (124 )     319       613  
    $ 12,549       26,546       15,534  
 
 
The components of income tax expense were:
 
   
2007
 
2006
 
2005
Current:
                 
Federal
  $ 10,981       12,157       13,493  
State
    3,346       3,616       3,689  
Deferred:
                       
Federal
    (1,148 )     8,768       (1,247 )
State
    (630 )     2,005       (401 )
    $ 12,549       26,546       15,534  

 
   
2007
 
2006
 
2005
Income taxes included in operating expenses
  $ 12,549       15,298       14,773  
Income taxes included in gain on sale or condemnation of real estate investment
    –       11,248       761  
    $ 12,549       26,546       15,534  

 
The components of the net deferred tax liability as of December 31 was as follows:
 
   
2007
 
2006
Deferred tax assets:
           
Advances and contributions
  $ 15,463       14,774  
Unamortized investment tax credit
    934       966  
Pensions and postretirement benefits
    4,058       3,209  
California franchise tax
    1,077       1,147  
Other
    670       492  
Total deferred tax assets
  $ 22,202       20,588  
Deferred tax liabilities:
               
Utility plant
  $ 50,930       51,916  
Pension and postretirement benefits
    12,370       15,663  
Investment in stock
    14,440       15,965  
Deferred gain-property transfer
    16,678       17,114  
Debt reacquisition costs
    793       843  
Other
    1,634       639  
Total deferred tax liabilities
    96,845       102,140  
Net deferred tax liabilities
  $ 74,643       81,552  

 
Based upon the level of historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes it is more likely than not SJW Corp. will realize the benefits of these deductible differences.
 
As of December 31, 2006, San Jose Water Company has revised its postretirement benefit plan liabilities and regulatory assets relating to the implementation of the Financial Accounting Standards Board Statement No. 158 (“Statement 158”), “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans,” resulting in an increase to regulatory assets of $38,410 and the deferred tax liabilities relating to the regulatory asset amount to $15,663.
 
SJW Corp. adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” on January 1, 2007. As a result, SJW Corp. recognized a decrease in its liability for unrecognized tax benefits of approximately $444 which was recorded as an increase to the January 1, 2007, balance of retained earnings. The total amount of unrecognized tax benefits, before the impact of deductions for state taxes, excluding interest and penalties was $1,413 and $1,438 as of January 1, 2007 and December 31, 2007. The amount of tax benefits, net of any federal benefits for state taxes and inclusive of interest that would impact the effective rate, if recognized, is approximately $669 as of December 31, 2007.
 
 
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
Balance at January 1, 2007
  $ 1,413  
Additions based on tax position related to the current year, including interest
    286  
Reductions for tax positions of prior year, including interest
    (202 )
Balance at December 31, 2007
  $ 1,497  
 
SJW Corp.’s policy is to classify interest and penalties associated with unrecognized tax benefits, if any, in tax expense. Accrued interest expense, net of the benefit of tax deductions which would be available on the payment of such interest, is approximately $70 as of December 31, 2007. SJW Corp. has not accrued any penalties for unrecognized tax benefits.
 
SJW Corp. anticipates that its unrecognized tax benefits balance will be reduced by approximately $106 within the next 12 months following December 31, 2007 due to the lapsing statute of limitations. As of December 31, 2007 a total of $202 reduction was recorded to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations.
 
SJW Corp. files U.S. federal income tax returns and income tax returns in various states. The open tax years for the jurisdictions in which SJW Corp. files are as follows:
 
Jurisdiction
Years Open
Federal
2004 – 2007
California
2003 – 2007
Arizona
2006 – 2007
Connecticut
2003 – 2007
Florida
2003 – 2007
Tennessee
2007
Texas
2005 – 2007

 
Note 6. Intangible Assets
 
Intangible assets consist of a concession fee paid to the City of Cupertino of $6,800 for operating the City of Cupertino municipal water system, and other intangibles of $1,240 primarily incurred in conjunction with SCVWD water contracts related to the operation of San Jose Water Company. All intangible assets are recorded at cost and are amortized using the straight-line method over the legal or estimated economic life of the asset ranging from 5 to 70 years.
 
Amortization expense for the intangible assets was $299 for the year ended December 31, 2007, $294 for the year ended December 31, 2006 and $288 for the year ended December 31, 2005. Amortization expense for 2008, 2009, 2010, 2011 and 2012 is anticipated to be $299 per year.
 
The costs of intangible assets as of December 31, 2007 and 2006 are as follows:
 
   
2007
 
2006
Concession fees
  $ 6,800       6,800  
Other intangibles
    1,240       1,240  
Intangible assets
    8,040       8,040  
Less: Accumulated amortization
               
Concession fees
    2,788       2,516  
Other intangibles
    446       419  
Net intangible assets
  $ 4,806       5,105  

 
Note 7. Commitments
 
San Jose Water Company purchases water from SCVWD. Delivery schedules for purchased water are based on a contract year beginning July 1, and are negotiated every three years under terms of a master contract with SCVWD expiring in 2051. For the years ending December 31, 2007, 2006 and 2005, San Jose Water Company purchased from SCVWD 22,600 million gallons ($38,500), 21,500 million gallons ($34,500) and 22,400 million gallons ($34,500), respectively, of contract water. Based on current prices and estimated deliveries, San Jose Water Company expects to purchase a minimum of 90% of the delivery schedule, or 20,800 million gallons ($36,700) of water at the current contract water rate of $1,765 per million gallons, from SCVWD in the contract year ending June 30, 2008. Additionally, San Jose Water Company purchases non-contract water from SCVWD on an “as needed” basis and if the water supply is available from SCVWD.
 
 
The contract water rates are determined by SCVWD. These rates are adjusted periodically and coincide with SCVWD’s fiscal year, which ends annually on June 30. The contract water rates, per million gallons, for SCVWD’s fiscal year ended 2008, 2007 and 2006 were $1,765, $1,642 and $1,565, respectively.
 
In 1997, San Jose Water Company entered into a 25-year contract agreement with the City of Cupertino to operate the City’s municipal water system. San Jose Water Company paid a one-time, up-front concession fee of $6,800 to the City of Cupertino which is amortized over the contract term. Under the terms of the contract agreement, San Jose Water Company assumed responsibility for all maintenance, operating and capital costs, while receiving all payments for water service. Water service rates are subject to approval by the Cupertino City Council.
 
CLWSC has long-term contracts with the Guadalupe-Blanco River Authority (“GBRA”). The terms of the agreements expire in 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSC with 6,000 acre-feet of water from Canyon Lake. The water rate may be adjusted by GBRA at any time, provided they give CLWSC 60 day’s written notice on the proposed adjustment.
 
As of December 31, 2007, San Jose Water Company had 328 employees, of whom 93 were executive, administrative or supervisory personnel, and of whom 235 were members of unions. On February 7, 2008, San Jose Water Company reached a two-year collective bargaining agreement with the Utility Workers of America, representing the majority of all employees, and the International Union of Operating Engineers, representing certain employees in the engineering department, covering the period from January 1, 2008 through December 31, 2009. Both groups are affiliated with the AFL-CIO. The agreements include wage adjustments of approximately 3% and 3.3%, respectively, for union workers for calendar year 2008 and 2009 and minor benefit modifications. For new employees hired on or after March 31, 2008, a cash balance retirement plan will be adopted.
 
On April 17, 2006, San Jose Water Company entered into an agreement with Adobe Systems Incorporated ( “ Adobe ” ) for Adobe to purchase approximately one acre of property and buildings located in San Jose, California for a total purchase price of approximately $4,000. The agreement includes an option for San Jose Water Company to lease-back the buildings until June 2008. The transaction needs to be approved by the CPUC since the property and buildings are utility plant assets. On November 14, 2007, San Jose Water Company entered into a reverse exchange transaction for a property in San Jose, California, which will be the replacement property (see Note 1). Until the replacement property is available for use and the CPUC approves the purchase, the current building is not available for immediate sale and therefore will continue to be classified as a utility plant asset, rather than as an asset held-for-sale, in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment of Disposal of Long-Lived Assets.”
 
Note 8. Contingency
 
SJW Corp. is subject to litigation incidental to its business. There are no pending legal proceedings to which SJW Corp. or any of its subsidiaries is a party or to which any of its properties is the subject that are expected to have a material effect on the SJW Corp.’s financial position, results of operations or cash flows.
 
Note 9. Partnership Interest
 
In September 1999, SJW Land Company formed 444 West Santa Clara Street, L.P., a limited partnership, with a real estate development firm whereby SJW Land Company contributed real property in exchange for a 70% limited partnership interest. The real estate development firm is partially owned by an individual who also serves as the Chairman of the Board of SJW Corp. A commercial building was constructed on the partnership property and is leased to an international real estate firm under a 12-year long-term lease.
 
The consolidated financial statements of SJW Corp. at December 31, 2007 and 2006 include the operating results of 444 West Santa Clara Street, L.P. Intercompany balances were eliminated. Minority interest of $72, $62 and $63 was included in other income in the Consolidated Statements of Income and Comprehensive Income at December 31, 2007, 2006 and 2005, respectively. Included in other non-current liabilities of SJW Corp.’s Consolidated Balance Sheet is minority interest of $23 at December 31, 2007 and 2006.
 
 
Note 10. Related Party Transaction
 
In 2006, San Jose Water Company issued a bid for a construction project which consisted of the replacement of two wells and the installation of two new wells. The bid was awarded to a contractor who then purchased materials and supplies from a company that is affiliated with two Directors of SJW Corp. The amount of materials and supplies purchased amounted to approximately $400.
 
Note 11. Employee Benefit Plans
 
 
Pension Plans
 
San Jose Water Company sponsors noncontributory defined benefit pension plans. Benefits under the plans are based on an employee’s years of service and highest consecutive 36 months of compensation. San Jose Water Company’s policy is to contribute the net periodic pension cost to the plans to the extent it is tax deductible.
 
The Pension Plan is administered by a committee that is composed of an equal number of company and union representatives. Investment decisions have been delegated by the committee to an Investment Manager, presently Wachovia Securities, LLC. Investment guidelines set forth in the Investment Policy Statement (“IPS”) require that at least 25% of plan assets be invested in bonds. Furthermore, equities are to be diversified by industry groups and selected to achieve preservation of capital coupled with long-term growth through capital appreciation and income. Since the Pension Plan's inception in 1984, the plan has achieved 11.70% return on their investments while the applicable benchmark was 11.12% for the same period. For the fiscal year 2007, the Investment Manager, following the required investment guidelines, achieved a 6.86% return on their investments, while the applicable benchmark was 5.91% for the same period.
 
Generally, it is expected of the Investment Manager that the performance of the Pension Plan Fund, computed on a total annual rate of return basis, should meet or exceed specific performance standards over a three-to-five-year period and/or full market cycle. These standards include a specific absolute and risk-adjusted performance standards over a three-to-five-year period and/or full market cycle.
 
General restrictions have been placed on the Investment Manager. They may not invest in commodities and futures contracts, private placements, options, letter stock, speculative securities, subprime mortgages, or hold more than 5% of assets of any one private corporation. They may only invest in bonds, commercial paper, and money market funds with acceptable ratings by Moody's or Standard & Poor’s. The Investment Manager is reviewed regularly regarding performance by the Investment Consultant who provides at least quarterly reports to the committee for review.
 
San Jose Water Company has an Executive Supplemental Retirement Plan, which is a defined benefit plan under which San Jose Water Company will pay supplemental pension benefits to key executives in addition to the amounts received under the retirement plan. The annual cost of this plan has been included in the determination of the net periodic benefit cost shown below. The plan, which is unfunded, had a projected benefit obligation of $6,791 and $6,768 as of December 31, 2007 and 2006, respectively, and net periodic pension cost of $767, $547 and $557 for 2007, 2006 and 2005, respectively.
 
 
Other Postretirement Benefits
 
In addition to providing pension and savings benefits, San Jose Water Company provides health care and life insurance benefits for retired employees. The plan is a flat dollar plan which is unaffected by variations in health care costs.
 
 
Flexible Spending Plan
 
Effective February 1, 2004, San Jose Water Company established a Flexible Spending Account for its employees for the purpose of providing eligible employees with the opportunity to choose from among the fringe benefits available under the plan. The flexible spending plan is intended to qualify as a cafeteria plan under the provisions of the Internal Revenue Code Section 125. The flexible spending plan allows employees to save pre-tax income in a Health Care Spending Account (“HCSA”) and/or a Dependent Care Spending Account ( “ DCSA ” ) to help defray the cost of out-of-pocket medical and dependent care expenses. The annual maximum limit under the HCSA and DCSA plans is $2.5 and $5, respectively.
 
 
Medicare
 
In December 2003, federal legislation was passed reforming Medicare and introducing the Medicare Part D prescription drug program. San Jose Water Company determined that the new legislation has no impact on its postretirement benefit plan under SFAS No. 116, “Employers’ Accounting for Postretirement Benefits—Other Than Pensions.” Because San Jose Water Company has a union contract with its employees whereby San Jose Water Company provides medical benefits at a fixed cost to its retirees, San Jose Water Company’s medical costs for postretirement benefits would not be affected by cost fluctuations resulting from the Medicare Part D prescription drug program.
 
 
 
Deferral Plan
 
San Jose Water Company sponsors a salary deferral plan that allows employees to defer and contribute a portion of their earnings to the plan. Contributions, not to exceed set limits, are matched by the San Jose Water Company. San Jose Water Company contributions were $896, $846 and $792 in 2007, 2006 and 2005, respectively.
 
 
Executive Special Deferral Election Plan
 
SJW Corp. adopted an Executive Special Deferral Election Plan effective January 1, 2005. The plan allows certain executives to defer a portion of their earnings each year and to realize an investment return on those funds during the deferral period. Executives have to make an election on the distribution and payment method of the deferrals before services are rendered. San Jose Water Company records the investment return on the deferred funds as compensation expense once the deferrals are made. Executives had deferred $1,192, $778 and $335 to the plan as of December 31, 2007, 2006 and 2005, respectively. San Jose Water Company recorded an investment return of $52, $37 and $22 as of December 31, 2007, 2006 and 2005, respectively, on the deferred funds as compensation expense.
 
 
Assumptions Utilized on Actuarial Calculations
 
Net periodic cost for the defined benefit plans and other postretirement benefits was calculated using the following weighted-average assumptions:
 
   
Pension Benefits
   
Other Benefits
 
   
2007
   
2006
   
2005
   
2007
   
2006
   
2005
 
   
%
   
%
   
%
   
%
   
%
   
%
 
Discount rate
    6.00       5.75       6.00       6.00       5.75       6.00  
Expected return on plan assets
    8.00       8.00       8.00       8.00       8.00       8.00  
Rate of compensation increase
    4.00       4.00       4.00       N/A       N/A       N/A  

 
Benefit obligation for the defined benefit plans and other postretirement benefits was calculated using the following weighted-average assumptions as of December 31:
 
   
Pension Benefits
 
Other Benefits
   
2007
 
2006
 
2007
 
2006
   
%
 
%
 
%
 
%
Discount rate
   
6.50
     
6.00
     
6.50
     
6.00
 
Rate of compensation increase
   
4.00
     
4.00
     
N/A
     
N/A
 

 
In 2006, San Jose Water Company utilized each plan’s projected benefit stream in conjunction with the “above the median” Citigroup Pension Discount Curve in determining the discount rate used in calculating the pension and other postretirement benefits liabilities at the measurement date. In 2007, San Jose Water Company determined that the Citigroup Pension Discount Curve was appropriate due to the fact that it is more representative of the AA market discount rates and therefore is more applicable to the discounting of pension liabilities. As a result of San Jose Water Company using the Citigroup Pension Discount Curve instead of the “above the median” Citigroup Pension Discount Curve, San Jose Water Company used a discount rate of 6.50% instead of 6.75% in calculating the pension and other postretirement liabilities as of December 31, 2007. The impact of utilizing the 6.50% discount rate is that the benefit liability increased by $2,300 as of December 31, 2007 and the 2008 net periodic benefit cost increased by $240.

Generally, it is expected of the Investment Manager that the performance of the Pension Plan Fund, computed on a total annual rate of return basis, should meet or exceed specific performance standards over a three-to-five-year period and/or full market cycle. As stated earlier, since the Pension Plan's inception in 1984, the plan has achieved 11.70% return on their investments while the applicable benchmark was 11.12% for the same period. In 2007, the Investment Manager, following the required investment guidelines, achieved a 6.86% return on their investments, while the applicable benchmark was 5.91% for the same period.
 
 
On August 17, 2006, the Pension Protection Act (the “Act”) was signed into law. The Act eliminates the scheduled expiration of changes to qualified pension plan rules that were enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). These changes included increases to the amount of plan compensation taken into account for benefit purposes and to the maximum limit on benefits payable under pension plans. SJW Corp. evaluated the impact of the Act on its defined pension benefit plans and has determined that the effect is not considered material.
 
 
Net Periodic Pension Costs
 
Net periodic costs for the defined benefit plans and other postretirement benefits for the years ended December 31 was as follows:
 
   
Pension Benefits
 
Other Benefits
 
 
2007
 
2006
 
2005
 
2007
 
2006
 
2005
Components of Net Periodic Benefit Cost
                                               
Service cost
  $ 2,282       2,113       1,919     $ 193       172       134  
Interest cost
    3,946       3,525       3,277       328       306       276  
Expected return on assets
    (3,445 )     (2,997 )     (2,756 )     (97 )     (79 )     (66 )
Amortization of transition obligation
    —       —       40       57       57       57  
Amortization of prior service cost
    451       467       478       166       173       158  
Recognized actuarial loss
    802       955       630       —       —       —  
Net periodic benefit cost
  $ 4,036       4,063       3,588     $ 647       629       559  
 
Reconciliation of Funded Status
 
For the defined benefit plans and other postretirement benefits, the benefit obligation is the projected benefit obligation and the accumulated benefit obligation, respectively. The actuarial present value of benefit obligations and the funded status of San Jose Water Company’s defined benefit pension and other postretirement plans as of December 31 were as follows:
 
   
Pension Benefits
 
Other Benefits
   
2007
 
2006
 
2007
 
2006
Change in Benefit Obligation
                       
Benefit obligation at beginning of year
  $ 65,992       61,135     $ 5,608       5,121  
Service cost
    2,282       2,113       193       172  
Interest cost
    3,946       3,525       328       306  
Amendments
    —       —       —       —  
Actuarial (gain) loss
    (3,690 )     1,428       (407 )     215  
Benefits paid
    (2,384 )     (2,209 )     (205 )     (206 )
Benefit obligation at end of year
  $ 66,146       65,992     $ 5,517       5,608  
Change in Plan Assets
                               
Fair value of assets at beginning of year
  $ 43,939       36,776     $ 1,124       898  
Actual return on plan assets
    2,699       4,433       52       39  
Employer contributions
    2,301       4,939       362       343  
Benefits paid
    (2,384 )     (2,209 )     (120 )     (156 )
Fair value of plan assets at end of year
    46,555       43,939       1,418       1,124  
Funded status
  $ (19,591 )     (22,053 )   $ (4,099 )     (4,484 )

 
The amounts recognized on the balance sheet as of December 31 were as follows:
 
   
Pension Benefits
 
Other Benefits
   
2007
 
2006
 
2007
 
2006
Amounts recognized in statement of financial position consist of:
                       
Noncurrent assets
    —       —       —       —  
Current liabilities
  $ 333       239       —       —  
Noncurrent liabilities
    19,258       21,814     $ 4,099       4,484  
Net amount recognized
  $ 19,591       22,053     $ 4,099       4,484  
 
 
The actual amount recognized in accumulated other comprehensive income for the year ended December 31, 2005 was $6,187. The 2007, 2006 and 2005 information shown in the table below were presented on a pro forma basis for comparison purposes only following the requirements of FASB Statement No. 158 (“Statement 158”), “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans.”
 
   
Pension Benefits
 
Other Benefits
   
2007
 
2006
 
2005
 
2007
 
2006
 
2005
Unrecognized net loss
  $ 12,407       16,153       17,116     $ 444       826       588  
Unrecognized prior service cost
    3,035       3,486       3,953       1,866       2,017       2,168  
Unrecognized transition obligation
    —       —       —       227       283       340  
Total amounts recognized in accumulated other comprehensive income
  $ 15,442       19,639       21,069     $ 2,537       3,126       3,096  

 
Upon implementation of Statement 158, San Jose Water Company recorded a regulatory asset, including a gross-up for taxes, on the projected benefit obligation of the postretirement benefit plans. The following table summarizes the change in regulatory assets:
 
   
2007
 
2006
Funded status of obligation
  $ 23,690       26,537  
Accrued benefit cost
    (5,711 )     (3,790 )
Amount to be recovered in future rates
    17,979       22,747  
Tax gross-up
    12,370       15,663  
Regulatory asset
  $ 30,349       38,410  

The estimated amortization for the year ended December 31, 2008 is as follows:
 
   
Pension Benefits
 
Other Benefits
Amortization of prior service cost
  $
389
     
—
 
Amortization of loss
   
470
     
—
 
Total
  $
859
     
—
 

 
 
Plan Assets
 
Plan assets for the years ended December 31 were as follows:
 
   
Pension Benefits
 
Other Benefits
   
2007
 
2006
 
2007
 
2006
Fair value of assets at end of year:
                       
Debt securities
  $ 18,120       15,673       —       199  
      38.9 %     35.6 %     —       17.8 %
Equity securities
  $ 27,731       26,107       —       —  
      59.6 %     59.4 %    
—
      —  
Cash and equivalents
  $ 704       2,159     $ 1,418       925  
      1.5 %     5.0 %     100 %     82.2 %
Total
  $ 46,555       43,939     $ 1,418       1,124  

 
In 2008, San Jose Water Company expects to make a contribution of $3,000 and $400 to the pension plan and other post retirement benefit plan, respectively.
 
 
Benefits expected to be paid in the next five years are:
 
   
Pension Plan
 
Other Postretirement 
Benefit Plan
  2008
  $
2,557
    $
220
 
  2009
   
2,732
     
228
 
  2010
   
2,971
     
246
 
  2011
   
3,317
     
273
 
  2012
   
3,607
     
313
 
2013 – 2017
   
23,989
     
2,068
 

 
Note 12. Long-Term Incentive Plan and Share-Based Payments
 
Common Shares
 
SJW Corp. has a Long-Term Stock Incentive Plan ("the Incentive Plan"), which has 1,800,000 common shares reserved for issuance. In 2007, the Incentive Plan included terms allowing non-employee directors of SJW Corp. to receive awards, authorizing the plan administrator to grant stock appreciation rights, and listing the performance criteria for performance shares. In addition, the Incentive Plan allows SJW Corp. to provide key employees, including officers, and non-employee directors, the opportunity to acquire an equity interest in SJW Corp. A participant in the Incentive Plan generally may not receive Incentive Plan awards covering an aggregate of more than 600,000 common shares in any calendar year. Additionally, awards granted under the Incentive Plan may be conditioned upon the attainment of specified performance goals. The types of awards included in the Incentive Plan are stock options, dividend units, performance shares, rights to acquire restricted stock and stock bonuses. In addition, shares are issued under the Employee Stock Purchase Plan (ESPP). As of December 31, 2007, 2006 and 2005, 87,700, 20,001 and 18,062 shares have been issued pursuant to the Incentive Plan, and 367,404, 400,659 and 372,382 shares are issuable upon the exercise of outstanding options, restricted stock units, and deferred restricted stock units for the years ended 2007, 2006 and 2005, respectively. The remaining shares available for issuance under the Incentive Plan are 1,344,896, 1,379,340, and 1,409,556 for the years ended 2007, 2006 and 2005, respectively.  The total compensation costs charged to income under the Incentive Plan were $655, $436 and $1,244 for 2007, 2006 and 2005, respectively.
 
Stock Options
 
SJW Corp. has adopted Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment (Statement 123R) since 2006, for all existing and new share-based compensation plans in accordance with the modified prospective transition method. Previously, SJW Corp. followed SFAS 123, Accounting for Stock-Based Compensation (Statement 123), in accounting for its share-based compensation plans. To estimate the fair value of options at grant date as the basis for the stock-based compensation awards, SJW Corp. utilizes the Black-Scholes option-pricing model, which requires the use of subjective assumptions. Further, as required under Statement 123R, SJW Corp. now estimates forfeitures for the share-based awards that are not expected to vest. Changes in these inputs and assumptions can affect the measure of estimated fair value of our share-based compensation. The weighted average assumptions utilized include:
 
 
2007
 
2006
 
2005
Expected dividend yield
N/A
 
N/A
 
   2.60%
 
Expected volatility
N/A
 
N/A
 
 24.30%
 
Risk-free interest rate
N/A
 
N/A
 
   3.67%
 
Expected holding period in years
N/A
 
N/A
 
5     
 

Awards in the form of stock option agreements under the Incentive Plan allow executives to purchase common shares at a specified price. Options are granted at an exercise price that is not less than the per share market price on the date of the grant. Options vest at a 25% rate on each annual date over four years and are exercisable over a 10 year period. No options were granted for the years ending December 31, 2007 and 2006, and 57,484 shares were granted during the year 2005, out of which 836 shares were forfeited due to an employee’s employment termination with SJW Corp. in December 2005. For the years ended 2007 and 2006, options covering 45,794 and 1,858 shares of common stock and options covering 5,849 and 81 shares of common stock from vested dividend equivalent rights were exercised.  In 2005, 1,060 option shares were issued upon exercise of options.
 
 
SFAS 123R requires the cash flows resulting from the tax benefits for tax deduction in excess of the compensation expense recorded for those options (excess tax benefits) to be classified as cash from financing activities. For the years ended December 31, 2007 and December 31, 2006, total cash received on exercise of options amounted to $1,072 and $36 and the tax benefit realized from stock options exercised amounted to $395 and $10. Shares subject to outstanding options under the Incentive Plan were 116,348, 162,142 and 165,902 as of December 31, 2007, 2006 and 2005, respectively.
 
For the year ended 2007, after taking into consideration the relevant facts and circumstances, SJW Corp. does not project any foreseeable terminations which could lead to forfeiture of unvested options.  SJW Corp. has recognized share-based compensation expense of $105, $130 and $121 for the stock options granted under the Incentive Plan for the years ended December 31, 2007, 2006 and 2005, respectively.
 
Stock Options
 
   
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Life In Years
 
Aggregate
Intrinsic
Value
Outstanding as of January 1, 2005
    109,478     $ 14.41       8.60     $ 415,478  
Granted
    57,484     $ 20.08      
—
     
—
 
Exercised
    (1,060 )   $ 14.00      
—
     
—
 
Forfeited
   
—
      —      
—
      —  
Outstanding as of January 1, 2006
    165,902     $ 16.38       8.20     $ 1,056,796  
Granted
   
—
    $ —       —       —  
Exercised
    (1,858 )   $ 14.12       —       —  
Forfeited
    (1,902 )     —       —       —  
Outstanding as of January 1, 2007
    162,142     $ 16.40       7.18     $ 3,624,737  
Granted
    —       —       —       —  
Exercised
    (45,794 )   $ 14.13       —       —  
Forfeited
    —       —       —      
—
 
Outstanding as of December 31, 2007
    116,348     $ 17.30       6.49     $ 2,020,924  
Options exercisable at December 31, 2007
    75,249     $ 16.66       6.32     $ 1,355,502  
Range of exercise prices
          $ 14.00-27.69                  
Weighted-average fair value of options granted during the year
 
 
—
     
—
   
 
—
     
—
 

A summary of the status of SJW Corp.’s nonvested stock options as of December 31, 2007 and changes during the three years ended December 31, 2007, are presented below:
 
 
   
Shares
 
Weighted
Grant-
Date Fair
Value
Nonvested as of January 1, 2005
    95,556     $ 2.63  
Granted
    57,484     $ 1.29  
Vested
    (27,500 )   $ 2.64  
Forfeited
    —       —  
Nonvested as of January 1, 2006
    125,540     $ 2.02  
Granted
    —       —  
Vested
    (41,272 )   $ 2.19  
Forfeited
    (1,902 )   $ 1.46  
Nonvested as of January 1 2007
    82,366     $ 1.95  
Granted
    —       —  
Vested
    (41,267 )   $ 3.16  
Forfeited
    —       —  
Nonvested as of December 31, 2007
    41,099     $ 3.65  

As of December 31, 2007, total unrecognized compensation costs related to stock options amounted to $69. These costs are expected to be recognized over a weighted-average period of 1.19 years.
 
Restricted Stock and Deferred Restricted Stock Plans
 
Under SJW Corp.’s Restricted Stock and Deferred Restricted Stock Program, SJW Corp. granted deferred restricted stock units to non-employee Board members in 2007. In addition, SJW Corp.’s Deferral Election Program, as amended on June 1, 2006 (the “Deferral Program”), also includes meeting fees earned for the 2007 calendar year to be deferred into deferred restricted stock units.  Previously, only retainer fees were allowed to be deferred under the Deferral Program. Such retainer fees and meeting fees are collectively referred to as the “Annual Service Fees.” The number of shares of each annual deferred restricted stock award is equal to the annual service fee as of the date of grant divided by (i) the fair market value of SJW Corp.’s common stock on the date of grant under the Stock Program or (ii) the fair market value of SJW Corp.’s common stock as of the last business day of the year under the Deferral Program.
 
On January 2, 2007, 7,742 deferred restricted stock units were granted to non-employee Board members, out of which 2,052 deferred restricted stock units were forfeited due to the retirement of a non-employee board member.
 
On April 27, 2007, a non-employee Board member retired from the Board of Directors and accordingly 11,331 shares of common stock were distributed upon his retirement.  Additionally, SJW Corp. paid cash in the amount of $1 to settle the dividend equivalent rights earned for those shares with a lump-sum payment arrangement.  The tax benefit realized from the stock issuance was $96.
 
On January 25, 2007, a total of 21,000 restricted and deferred restricted stock units were granted to a key employee of SJW Corp., of which 7,000 restricted stock units vest upon the achievement of certain market conditions related to the Company’s common stock.
 
On January 30, 2007, the first installment of restricted stock units for 3,500 shares, granted to a key employee of SJW Corp. in 2006 were vested, and the additional tax benefit realized from the stock issuance was $21.
 
On December 29, 2007, the first annual installment of restricted stock units for 1,225 shares, granted to several executives of SJW Corp. in 2006, were vested, and the tax deduction available from realizing the stock issuance was less than the deferred tax asset previously recognized by $2.
 
As of December 31, 2007, 2006, and 2005, SJW Corp. has recognized an aggregate share-based compensation expense of $330, $81 and $468, respectively, related to restricted and deferred restricted stock awards to the employees. As of December 31, 2007, 2006, and 2005, SJW Corp. has recognized an aggregate share-based compensation expense of $221, $225 and $458, respectively, related to restricted and deferred restricted stock awards to the non-employee Board members of SJW Corp.
 
 
Restricted and Deferred Restricted Stock
 
   
Units
 
Weighted-
Average Issue
Price
Outstanding as of January 1, 2005
    196,240     $ 14.16  
Issued
    5,936     $ 22.83  
Exercised
    (7,990 )   $ 19.13  
Forfeited
    —       —  
Outstanding as of January 1, 2006
    194,186     $ 14.28  
Issued
    23,646     $ 27.15  
Exercised
    —       —  
Forfeited
    —       —  
Outstanding as of January 1, 2007
    217,832     $ 15.68  
Issued
    28,742     $ 32.29  
Exercised
    (15,308 )   $ 19.55  
Forfeited
    (2,052 )   $ 38.76  
Outstanding as of December 31, 2007
    229,214     $ 17.36  
Shares vested as of December 31, 2007
    194,037     $ 15.13  

A summary of the status of SJW Corp.’s nonvested restricted and deferred restricted stock plans as of December 31, 2007, and changes during the three year period ended December 31, 2007, are presented below:
 
   
Units
 
Weighted
Grant-Date Fair
Value
Nonvested as of January 1, 2005
    102,276     $ 7.63  
Granted
    5,936     $ 18.20  
Vested
    (58,535 )   $ 14.53  
Nonvested as of January 1, 2006
    49,677     $ 14.12  
Granted
    23,646     $ 27.15  
Vested
    (54,421 )   $ 14.87  
Nonvested as of January 1, 2007
    18,902     $ 28.25  
Granted
    28,742     $ 32.29  
Vested
    (10,415 )   $ 38.76  
Forfeited
    (2,052 )   $ 38.76  
Nonvested as of December 31, 2007
    35,177     $ 29.64  

As of December 31, 2007, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $765. This cost is expected to be recognized over a weighted-average period of 2.20 years.
 
Dividend Equivalent Rights
 
Under the Incentive Plan, holders of options, restricted stock and deferred restricted stock awards have the right to receive dividend rights each time a dividend is paid on common shares after the grant date. Stock compensation on dividend equivalent rights is recognized as a liability and recorded against retained earnings on the date dividends are issued.
 
On April 2, 2007, the final dividend equivalent rights related to the 2003 option grants were converted to common stock units and 246 shares were credited into the participants’ option deferred stock unit accounts. Accordingly, on April 29, 2007, 5,849 shares of common stock attributed to the 2003 option grant were fully vested and issued under the Incentive Plan to participants. The tax benefit realized from the stock issuance was $35.
 

As of December 31, 2007, 2006 and 2005, a cumulative of 29,050, 21,296 and 12,722 dividend equivalent rights were converted, since inception, to deferred restricted stock awards, respectively.  For the years ended December 31, 2007 and 2006, $223 related to dividend equivalent rights was recorded against retained earnings and were accrued as a liability. For the year ended December 31, 2005, $197 related to dividend equivalent rights were recorded as compensation expense and were accrued as a liability.
 
Employee Stock Purchase Plan
 
The ESPP allows eligible employees to purchase shares of SJW Corp’s common stock at 85% of the fair market value of shares on the purchase date.  Under the ESPP, employees can designate up to a maximum of 10% of their base compensation for the purchase of shares of common stock, subject to certain restrictions. A total of 270,400 shares of common stock have been reserved for issuance under the ESPP.
 
Since its inception, there have been three purchase intervals.  As of December 31, 2007 and 2006, a total of 14,741 and 8,948 shares have been issued under the ESPP.  The ESPP has no look-back provisions.  As of December 2007 and 2006, cash received from employees towards the ESPP amounted to $424 and $179, respectively.
 
After considering the estimated employee terminations or withdrawals from the plan before the purchase date, for the years ended December 31, 2007 and 2006, SJW Corp. recorded expense of $74 and $61 related to the ESPP.
 
As of December 31, 2007, total unrecognized compensation costs related to the semi-annual offering period that ends January 31, 2008, for the ESPP is approximately $6. This cost is expected to be recognized during the first quarter of 2008.

 
Note 13. Sale of Real Estate Investments
 
On September 30, 2005, SJW Land Company sold 2.6 acres of property located at Reservoir Road, Los Gatos, California for $4,200. SJW Corp. recognized a gain on sale of real estate investment of $1,095, net of tax of $761. In November 2005, SJW Land Company reinvested the proceeds by purchasing an income-producing property in Texas at a purchase price of $4,690.
 
On January 20, 2006, SJW Land Company and San Jose Water Company sold approximately one acre of property and a building for $2,850. SJW Corp. recognized a gain on the sale of the property of approximately $1,535, net of tax of approximately $1,056. On February 1, 2006, San Jose Water Company reinvested the proceeds by purchasing utility property at a purchase price of $2,668.
 
On December 15, 2006, SJW Land Company sold a 2.2 acre property and a 4.5 acre property located in San Jose, California for an aggregate purchase price of $32,500. SJW Corp. recognized a gain on sale of real estate investment of $14,820, net of tax of $10,192. On February 9, 2007, SJW Land Company reinvested the proceeds from the sale of real estate investment by purchasing approximately 54 acres of real estate investment property with an office and distribution facilities in Knoxville, Tennessee for approximately $47,625.
 
 
Note 14. Nonregulated Businesses
 
The business activities of SJW Corp. consist primarily of its subsidiaries, San Jose Water Company, a public utility regulated by the CPUC that operates within a service area approved by the CPUC, and Canyon Lake Water Service Company, which is regulated by the TCEQ. Included in total operating revenue and operating expenses are the nonregulated business activities of SJW Corp. The nonregulated businesses of SJW Corp. are comprised of operating the City of Cupertino Municipal Water System, lease operations of several commercial buildings and properties of SJW Land Company, and the sale and rental of water conditioning and purification equipment of Crystal Choice Water Service LLC, until January 31, 2007 (see Note 15). The following tables represent the distribution of regulated and nonregulated business activities for the 12 months ended 2007, 2006 and 2005:
 
   
December 31, 2007
   
Regulated
 
Non Regulated
 
Total
Revenue
  $ 195,444       11,157       206,601  
Expenses
    169,062       7,786       176,848  
Operating income
  $ 26,382       3,371       29,753  

 
   
December 31, 2006
   
Regulated
 
Non Regulated
 
Total
Revenue
  $ 179,765       9,473       189,238  
Expenses
    149,990       7,695       157,685  
Operating income
  $ 29,775       1,778       31,553  

 
   
December 31, 2005
   
Regulated
 
Non Regulated
 
Total
Revenue
  $ 171,633       8,472       180,105  
Expenses
    144,278       6,810       151,088  
Operating income
  $ 27,355       1,662       29,017  

 
Note 15. Segment Reporting
 
SJW Corp. is a holding company with three subsidiaries: (i) San Jose Water Company, a water utility operation with both regulated and nonregulated businesses, (ii) SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., which operates commercial building rentals (“Real Estate Services”) and (iii) SJWTX, Inc. doing business as Canyon Lake Water Service Company, a regulated water utility located in Canyon Lake, Texas. The operating results of SJW Corp. include Crystal Choice Water Service LLC, a business providing the sale and rental of water conditioning and purification equipment which was sold on January 31, 2007 and subsequently liquidated in August 2007. In accordance with Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” SJW Corp. has determined that it has two reportable business segments. The first segment is that of providing water utility and utility-related services to its customers, provided through SJW Corp.’s subsidiaries, the Water Utility Services. The second segment is property management and investment activity conducted by SJW Land Company, the Real Estate Services.
 
SJW Corp.’s reportable segments have been determined based on information used by the chief operating decision maker. SJW Corp.’s chief operating decision maker is its President and Chief Executive Officer (“CEO”). The CEO reviews financial information presented on a consolidated basis that is accompanied by disaggregated information about operating revenue, net income and total assets.
 
 
The tables below set forth information relating to SJW Corp.’s reportable segments. Certain allocated assets, revenue and expenses have been included in the reportable segment amounts. Other business activity of SJW Corp.’s not included in the reportable segments is included in the ‘‘All Other’’ category.
 
 
  For twelve months ended December 31, 2007
 
  Water Utility Services
 
Real
Estate
Services
 
All Other*
 
  SJW Corp.
Operating revenue
 
$200,004
     
6,486
     
111
     
206,601
 
Operating expense
 
172,698
     
2,994
     
1,156
     
176,848
 
Net income
 
17,339
     
1,843
     
141
     
19,323
 
Depreciation and amortization
 
21,255
     
1,592
     
7
     
22,854
 
Interest expense
 
11,044
     
1,847
     
118
     
13,009
 
Income tax expense in operations income (loss)
 
11,767
     
1,081
     
(299
)
   
12,549
 
Assets
 
$641,823
     
84,707
     
40,796
     
767,326
 

 
 
  For twelve months ended December 31, 2006
 
  Water Utility Services
 
Real
Estate
Activities
 
All Other*
 
  SJW Corp.
Operating revenue
 
$183,809
     
4,317
     
1,112
     
189,238
 
Operating expense
 
153,199
     
2,403
     
2,083
     
157,685
 
Net income (loss)
 
22,571
     
16,104
     
(94
)
   
38,581
 
Depreciation and amortization
 
20,389
     
831
     
79
     
21,299
 
Interest expense
 
9,888
     
1,225
     
12
     
11,125
 
Income tax expense in operations income (loss)
 
14,940
     
887
     
(529
)
   
15,298
 
Assets
 
$591,803
     
70,856
     
43,883
     
706,542
 

 
 
  For twelve months ended December 31, 2005
 
  Water Utility Services
 
Real
Estate
Activities
 
All Other*
 
  SJW Corp.
Operating revenue
 
$175,524
     
3,324
     
1,257
     
180,105
 
Operating expense
 
147,244
     
1,686
     
2,158
     
151,088
 
Net income
 
20,781
     
841
     
218
     
21,840
 
Depreciation and amortization
 
18,942
     
640
     
72
     
19,654
 
Interest expense
 
9,300
     
899
     
(6
)
   
10,193
 
Income tax expense in operations income (loss)
 
14,878
     
287
     
(392
)
   
14,773
 
Assets
 
$504,618
     
38,116
     
44,975
     
587,709
 
 
________________________
 
*
The ‘‘All Other’’ category includes Crystal Choice Water Service LLC, which was sold and liquidated in 2007 and, without regard to its subsidiaries, SJW Corp.
 
 
Note 16. Unaudited Quarterly Financial Data
 
Summarized quarterly financial data is as follows:
 
   
2007 Quarter Ended
   
March
 
June
 
September
 
December
Operating revenue
  $
39,017
     
55,135
     
64,847
     
47,602
 
Operating income
   
4,409
     
8,060
     
10,731
     
6,553
 
Net income
   
2,122
     
5,406
     
8,011
     
3,784
 
Comprehensive income
   
772
     
4,867
     
8,653
     
2,830
 
Earnings per share:
                               
—Basic
   
0.12
     
0.30
     
0.44
     
0.21
 
—Diluted
   
0.11
     
0.29
     
0.43
     
0.20
 
Market price range of stock:
                               
—High
   
43.00
     
40.10
     
38.80
     
38.50
 
—Low
   
33.74
     
28.48
     
28.19
     
31.62
 
Dividend per share
   
0.15
     
0.15
     
0.15
     
0.15
 

 
   
2006 Quarter Ended
   
March
 
June
 
September
 
December
Operating revenue
  $
33,741
     
47,873
     
63,119
     
44,504
 
Operating income
   
4,781
     
8,637
     
11,401
     
6,734
 
Net income
   
4,203
     
6,471
     
8,858
     
19,050
 
Comprehensive income
   
8,629
     
429
     
9,630
     
24,975
 
Earnings per share:
                               
—Basic
   
0.23
     
0.35
     
0.48
     
1.04
 
—Diluted
   
0.23
     
0.35
     
0.48
     
1.03
 
Market price range of stock:
                               
—High
   
26.85
     
26.30
     
31.20
     
39.50
 
—Low
   
22.75
     
21.56
     
25.01
     
28.89
 
Dividend per share
   
0.14
     
0.14
     
0.14
     
0.14
 
 
 
SJW CORP.
FINANCIAL STATEMENT SCHEDULE
 
Schedule II
 
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years ended December 31, 2007 and 2006
 
Description
 
2007
 
2006
Allowance for doubtful accounts:
           
Balance, beginning of period
  $ 176,686       160,000  
Charged to expense
    286,038       242,883  
Accounts written off
    (305,052 )     (247,754 )
Recoveries of accounts written off
    38,179       21,557  
Balance, end of period
  $ 195,851       176,686  
Reserve for litigation and claims:
               
Balance, beginning of period
  $ 170,000       542,905  
Charged to expense
    255,365       150,073  
Revision to accrual, due to settlements
    (38,439 )     (482,413 )
Payments
    (115,104 )     (40,565 )
Balance, end of period
  $ 271,822       170,000  

 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 9A.
Controls and Procedures
 
Evaluation of Disclosure Control and Procedures
 
The Corporation’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Corporation believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
 
Management’s Report on Internal Control over Financial Reporting
 
SJW Corp.’s management is responsible for establishing and maintaining an adequate internal control structure over financial reporting and for an assessment of the effectiveness of internal control over financial reporting, as such items are defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.
 
Management has utilized the criteria established in "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to evaluate the effectiveness of internal control over financial reporting.
 
 
The Corporation’s management has performed an assessment of the effectiveness of internal control over financial reporting as of December 31, 2007. Based on this assessment, management has concluded SJW Corp.’s internal control over financial reporting as of December 31, 2007 is effective based on the criteria established by COSO.
 
KPMG LLP has audited the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2007. Their report is included in Item 8 of this Report.
 
Changes in Internal Controls
 
There has been no change in internal control over financial reporting during the fourth fiscal quarter of 2007 that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting of SJW Corp.
 
Item 9B.
Other Information
 
None.
 
PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance
 
The information required by this item is contained in part under the caption “Officers of the Registrant” in Part I of this report, and the remainder is contained in SJW Corp.’s Proxy Statement for its 2008 Annual Meeting of Shareholders to be held on April 30, 2008 (the “2008 Proxy Statement”) under the captions “Proposal No. 1 - Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” and is incorporated herein by reference.
 
Code of Ethics
 
SJW Corp. has adopted a code of ethics that applies to SJW Corp.’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The text of the code of ethics is available at the Corporation's website at http://www.sjwater.com. SJW Corp. intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of its code of ethics by posting such information on its website.
 
Corporate Governance Guidelines and Board Committee Charters
 
The Corporate Governance Guidelines and the charters for the board committees—the Audit Committee,  Executive Compensation Committee, Real Estate Committee, and Nominating & Governance Committee—are available at the Corporation’s website at http://www.sjwater.com. Shareholders may also request a free hard copy of the Corporate Governance Guidelines and the charters from the following address and phone number:
 
SJW Corp.
374 West Santa Clara Street
San Jose, CA 95113
Attn: Corporate Secretary
Phone: 800-250-5147
 
In 2007, SJW Corp. submitted an Annual CEO Certification to the New York Stock Exchange (“NYSE”), dated May 8, 2007 as required by Section 303A.12(a) of the NYSE Listed Company Manual.
 
The Corporation is filing as an exhibit to this Form 10-K for the year ended December 31, 2007, certifications pursuant to Sarbanes-Oxley Action Section 302 regarding the quality of the Company’s public disclosure.
 
Shareholder Proposals
 
On October 28, 2004, the Board of Directors approved the “Policies and Procedures of the Nominating & Governance Committee for Nomination for Directors” (the “Nomination Policies and Procedures”) which specify steps a shareholder must take in order to properly recommend director candidates which the Nominating & Governance Committee will consider. There has been no material change to the procedures by which the shareholders of SJW Corp. may recommend director candidates in the Nomination Policies and Procedures.
 
 
Item 11.
Executive Compensation
 
The information required by this item is contained in the 2008 Proxy Statement under the captions “Compensation of Directors,” “Executive Compensation and Related Information,” and “Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference.
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The information required by this item is contained in the 2008 Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans” and is incorporated herein by reference.
 
Item 13.
Certain Relationships and Related Transaction and Director Independence
 
The information required by this item is contained in the 2008 Proxy Statement under the caption “Certain Relationships and Related Transactions” and “Independent Directors” and is incorporated herein by reference.
 
 
Item 14.
Principal Accountant Fees and Services
 
The information required by this item is contained in the 2008 Proxy Statement under the caption “Principal Independent Accountants’ Fees and Services” and is incorporated herein by reference.
 
PART IV
 
Exhibits and Financial Statement Schedules
 
   
Page
(a)(1) Financial Statements
   
Reports of Independent Registered Public Accounting Firm
 
31
Consolidated Balance Sheets as of December 31, 2007 and 2006
 
34
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2007, 2006 and 2005
 
36
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005
 
37
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
 
38
Notes to Consolidated Financial Statements
 
39
(a)(2) Financial Statement Schedule
   
Valuation and Qualifying Accounts and Reserves, Years ended December 31, 2007 and 2006
 
68

 
All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
 
(a)(3) Exhibits required to be filed by Item 601 of Regulation S-K.
 
See Exhibit Index located immediately following this Item 15.
 
The exhibits filed herewith are attached hereto (except as noted) and those indicated on the Exhibit Index which are not filed herewith were previously filed with the Securities and Exchange Commission as indicated.
 
 
EXHIBIT INDEX
 
Exhibit No.
Description
   
3
Articles of Incorporation and By-Laws:
   
3.1
Restated Articles of Incorporation of SJW Corp. Incorporated by reference to Exhibit 3.1 to Form 10-K for year ended December 31, 2001.
   
3.2
Certificate of Amendment of the Restated Articles of Incorporation of SJW Corp., as filed with the Secretary of State of the State of California on February 22, 2006. Incorporated by reference to Exhibit 3.1 to Form 8-K filed on February 27, 2006.
   
By-Laws of SJW Corp., as amended on April 26, 2007.  (1)
   
4
Instruments Defining the Rights of Security Holders, including Indentures:
   
 
No current issue of the registrant's long-term debt exceeds 10 percent of its total assets.  SJW Corp. hereby agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of unregistered senior and subordinated debt of the company.
   
10
Material Contracts:
   
10.1
Water Supply Contract, dated January 27, 1981, between San Jose Water Works and the Santa Clara Valley Water District, as amended.  Incorporated by reference to Exhibit 10.1 to Form 10-K for the year ended December 31, 2001.
   
10.2
Registration Rights Agreement, entered into as of December 31, 1992, among SJW Corp., Roscoe Moss, Jr. and George E. Moss.  Incorporated by reference to Exhibit 2.1 to Form 10-K for the year ended December 31, 2003.
   
10.3
Limited Partnership Agreement of 444 West Santa Clara Street, L.P., entered into as of September 2, 1999, between SJW Land Company and Toeniskoetter & Breeding, Inc. Development.  Incorporated by reference to Exhibit 10.18 to Form 10-Q for the quarter ended September 30, 1999.
   
10.4
Resolution for Directors' Retirement Plan adopted by SJW Corp. Board of Directors as amended on September 22, 1999.  Incorporated by reference to Exhibit 10.15 to Form 10-Q for the quarter ended September 30, 1999. (2)
   
10.5
Resolution for Directors' Retirement Plan adopted by San Jose Water Company's Board of Directors as amended on September 22, 1999.  Incorporated by reference to Exhibit 10.16 to Form 10-Q for the quarter ended September 30, 1999.  (2)
 
 
10.6
Resolution for Directors' Retirement Plan adopted by SJW Land Company Board of Directors on September 22, 1999.  Incorporated by reference to Exhibit 10.17 to Form 10-Q for the quarter ended September 30, 1999.  (2)
   
San Jose Water Company Executive Supplemental Retirement Plan, as amended and restated effective as of January 1, 2008.  (1) (2)
   
SJW Corp. Executive Severance Plan, as amended and restated effective as of January 1, 2008. (1) (2)
   
10.9
SJW Corp. Long-Term Incentive Plan, as amended on January 31, 2006.  Incorporated by reference to Appendix B to the Proxy Statement filed on March 13, 2006.  (2)
   
10.10
Chief Executive Officer Employment Agreement, as restated on June 27, 2003.  Incorporated by reference to Exhibit 10.21 to Form 10-Q for the quarter ended June 30, 2003.  (2)
   
10.11
Standard Form of Stock Option Agreement, as adopted by SJW Corp. Board of Directors on April 29, 2003.  Incorporated by reference to Exhibit 10.22 to Form 10-Q for the quarter ended June 30, 2003.  (2)
   
10.12
Chief Executive Officer SERP Deferred Restricted Stock Award, as restated on June 27, 2003.  Incorporated by reference to Exhibit 10.23 to Form 10-Q for the quarter ended June 30, 2003.  (2)
   
Form of Stock Option Dividend Equivalent Rights Agreement, as amended and restated effective as of January 1, 2005, and further amended on January 1, 2008.  (1) (2)
   
Form of Stock Option Dividend Equivalent Rights Agreement (for new options).  (1) (2)
   
10.17
Form of Service-based Vesting Restricted Stock Unit Issuance Agreement (without dividend equivalent rights). Incorporated by reference to Exhibit 10.20 to Form 10-K for the year ended December 31, 2006. (2)
   
10.18
Form of Service-based Vesting Restricted Stock Unit Issuance Agreement (with dividend equivalent rights). Incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended December 31, 2006. (2)
   
10.19
Form of Performance-based Vesting Restricted Stock Unit Issuance Agreement. Incorporated by reference to Exhibit 10.22 to Form 10-K for the year ended December 31, 2006. (2)

 
Form of Service-based Vesting Restricted Stock Unit Issuance Agreement (for awards after December 31, 2007).  (1) (2)
   
SJW Corp. Amended and Restated Deferred Restricted Stock Program, effective as of December 6, 2007.  (1) (2)
   
SJW Corp. Deferral Election Program for Non-Employee Board Members, as amended and restated on January 30, 2006 and as further amended on June 1, 2006 and December 6, 2007.  (1) (2)
   
SJW Corp. Amended and Restated Director Compensation and Expense Reimbursement Policies, effective as of January 1, 2008.  (1) (2)
   
San Jose Water Company Special Deferral Election Plan, as amended and restated effective as of January 1, 2008.  (1) (2)
   
Form of Letter Amendment to SJW Corp. Director Pension Plan.  (1) (2)
   
10.26
Chief Executive Officer Restricted Stock Unit Issuance Agreement, dated January 30, 2006.  Incorporated by reference to Exhibit 10.25 to Form 10-K for the year ended December 31, 2005.  (2)
   
10.27
Asset Purchase Agreement by and between SJWTX, Inc. to purchase the assets of Canyon Lake Water Supply Corporation, a Texas nonprofit water supply corporation, dated October 4, 2005.  Incorporated by reference to Exhibit 10.1 to Form 10-Q for quarter ending September 30, 2005.  (2)
   
21.1
Subsidiaries of SJW Corp. filed as Exhibit 21 to the Annual Report on Form 10-K for the year ended December 31, 2002.
   
Consent of Independent Registered Public Accounting Firm.  (1)
   
Certification Pursuant to Rule 13a-14(a)/15d-14(a) by President and Chief Executive Officer.  (1)
   
Certification Pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial Officer and Treasurer.  (1)
   
Certification Pursuant to 18 U.S.C. Section 1350 by President and Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  (1)
   
Certification Pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer and Treasurer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  (1)
 
 
(1)
Filed currently herewith.

(2)         Management contract or compensatory plan or agreement.
 

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


SJW CORP.
 
 
Date:
    By   
/s/ Charles J. Toeniskoetter
 
       
CHARLES J. TOENISKOETTER,
 
       
Chairman, Board of Directors
 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Date:
   
By
 /s/ W. Richard Roth
 
       
W. RICHARD ROTH,
 
       
President, Chief Executive Officer and
 
       
Member, Board of Directors
 

 
Date:
   
By
/s/ Angela Yip
 
       
ANGELA YIP,
 
       
Chief Financial Officer and Treasurer
 


           
Date:
 
 
By
/s/ Andrea J. Elliott
 
       
ANDREA J. ELLIOTT,
 
       
Controller
 
 

Date:
   
By
/s/ Mark L. Cali
 
 
 
   
MARK L. CALI,
 
 
 
   
Member, Board of Directors
 

 
Date:
   
By
/s/ J. Philip DiNapoli
 
       
J. PHILIP DINAPOLI,
 
       
Member, Board of Directors
 

 
Date:
   
By
/s/ Douglas R. King
 
 
 
   
DOUGLAS R. KING,
 
 
 
   
Member, Board of Directors
 

 
Date:
   
By
/s/ George E. Moss
 
 
 
   
GEORGE E. MOSS,
 
 
 
   
Member, Board of Directors
 

 
Date:
   
By
/s/ Charles J. Toeniskoetter
 
 
 
   
CHARLES J. TOENISKOETTER,
 
 
 
   
Member, Board of Directors
 



Date:
   
By
/s/ Frederick R. Ulrich, Jr.
 
 
 
   
FREDERICK R. ULRICH, JR.
 
 
 
   
Member, Board of Directors
 


 

Date:
   
By
/s/ Robert A. Van Valer
 
 
 
   
ROBERT A. VAN VALER,
 
 
 
   
Member, Board of Directors
 
 
70

EXHIBIT 3.3
By-Laws Of
SJW Corp.

(A California Corporation)

Adopted April 16, 1985
As amended January 24, 1989,
October 20, 1994, September 22, 1999,
July 19, 2001, October 28, 2003,
April 29, 2004, May 3, 2005, April 27, 2006 and April 26, 2007

 
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ARTICLE I

OFFICES

Section 1.1            Principal Office.   The principal office for the transaction of the business of the corporation shall be located at 374 West Santa Clara Street, San Jose, California 95113.  The Board of Directors is hereby granted full power and authority to change said principal office to another location within or without the State of California.

Section 1.2           Other Offices.   One or more branch or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within or without the State of California, as it deems appropriate.
 

ARTICLE II

DIRECTORS

Section 2.1            Exercise of Corporate Powers.   Except as otherwise provided by the Articles of Incorporation, as amended, of the corporation (the " Articles') or by the laws of the State of California now or hereafter in force, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.  The Board may delegate the management of the day-to-day operation of the business of the corporation as permitted by law provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board.

Section 2.2            Number.   (a) The number of the corporation's directors shall not be less than seven nor more than eleven, the exact number of which shall be fixed by a By-Law duly adopted by the shareholders or by the Board of Directors. [As amended July 19, 2001; April 29, 2004]
(b) The number of directors set forth in clause (a) of this Section 2.2 shall constitute the authorized number of the corporation's directors until changed by an amendment of the Articles or of the By-Laws duly adopted by the shareholders.
(c) The exact number of directors of the corporation is fixed, within the limits set forth in clause (a) of this Section 2.2, at eight. [As amended October 20, 1994; July 19, 2001; April 29, 2004; April 27, 2006; April 26, 2007]

Section 2.3           Need Not Be Shareholders.   The directors of the corporation need not be shareholders of the corporation.

Section 2.4            Compensation.   Directors shall receive such compensation for their services as directors and such reimbursement for their expenses of attendance at meetings as may be determined from time to time by resolution of the Board.  Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefore.

Section 2.5            Election and Term of Office.   Except as otherwise provided in paragraph (l) of Section 4.1 of Article IV of the Articles, directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting, provided, that if for any reason, said annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose.  Except as otherwise provided in paragraph (l) of Section 4.1 of Article IV of the Articles, the term of office of the directors shall begin immediately after their election and shall continue until the expiration of the term for which elected and until their respective successors have been elected and qualified.  Unless otherwise determined by the Board, no individual who will attain the age of 75 years or more during the term of office commencing after the annual shareholders meeting shall be nominated for election. [As amended October 28, 2003; May 3, 2005]

 
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Section 2.6            Vacancies.   A vacancy or vacancies in the Board of Directors shall exist when any authorized position of director is not then filled by a duly elected director, whether caused by death, resignation, removal, change in the authorized number of directors (by the Board or the shareholders) or otherwise.  The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony.  Except for a vacancy created by the removal of a director, vacancies on the Board may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director.  A vacancy created by the removal of a director may be filled only by the approval of the shareholders.  The shareholders may elect a director at any time to fill any vacancy not filled by the directors, but any such election by written consent requires the consent of the holders of shares entitled to cast a majority of the votes entitled to be cast by the outstanding voting shares.  Any director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation.  If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.

Section 2.7            Removal .  (a) Any and all of the directors may be removed without cause if such removal is approved by the affirmative vote of a majority of the votes entitled to be cast by the outstanding voting shares at an election of directors, subject to the following:
(1) No director may be removed (unless the entire Board is removed) when the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected; and
(2) When by the provisions of the Articles, the holders of the shares of any class or series, voting as a class or series, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the holders of the shares of that class or series.
(b) Any reduction of the authorized number of directors does not remove any director prior to the expiration of such director's term of office.

Section 2.8            Emeritus Directors.   The Board of Directors may designate any former director or directors of the corporation as an Emeritus Director for such term as the Board of Directors shall deem appropriate.  Persons so designated shall not thereby become officers, directors or employees and shall have only such responsibilities and privileges as the Board of Directors may from time to time specifically determine.

 
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ARTICLE III

OFFICERS

Section 3.1            Election and Qualifications.   The officers of this corporation shall consist of a President, one or more Vice Presidents, a Secretary, and a Chief Financial Officer and Treasurer who shall be chosen by the Board of Directors and such other officers, including a Chairman of the Board, as the Board of Directors shall deem expedient, who shall be chosen in such manner and hold their offices for such terms as the Board of Directors may prescribe.  Any two or more of such offices may be held by the same person.  Any Vice President may exercise any of the powers of the President as directed by the Board of Directors and shall perform such other duties as are imposed upon such officer by the By-Laws or the Board of Directors.  The Chairman of the Board of Directors, if there be one, shall be chosen from the directors, but the other officers of the corporation mayor may not be directors.

Section 3.2            Term of Office and Compensation.   The term of office and salary of each of said officers and the manner and time of the payment of such salaries shall be fixed and determined by the Board of Directors and may be altered by said Board from time to time at its pleasure, subject to the rights, if any, of said officers under any contract of employment.

Section 3.3            Removal and Vacancies.   Any officer of the corporation may be removed at the pleasure of the Board of Directors at any meeting or by vote of shareholders entitled to exercise a majority of the voting power of the corporation at any meeting or at the pleasure of any officer who may be granted such power by a resolution of the Board of Directors.  Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.  If any vacancy occurs in any office of the corporation, the Board of Directors may elect a successor to fill such vacancy for the remainder of the un-expired term and until a successor is duly chosen and qualified.

ARTICLE IV

 
CHAIRMAN OF THE BOARD

Section 4.1            Powers and Duties.   If there be one, the Chairman of the Board of Directors shall preside at meetings of the shareholders and of the Board of Directors, and shall do and perform such other things as may from time to time be assigned to him by the Board of Directors.  He shall have the power and authority to affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, contracts, certificates and other papers and instruments in writing which have been authorized or directed by the Board of Directors or which, in his judgment, should be executed on behalf of the corporation. [As amended September 22, 1999]

 
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ARTICLE V

PRESIDENT

Section 5.1            Powers and Duties.   The President shall, subject to the Board of Directors, be the chief executive officer of the corporation.  The President shall do and perform such duties as may from time to time be assigned to him by the Board of Directors.  He shall have the power and authority to affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, contracts, certificates and other papers and instruments in writing which have been authorized or directed by the Board of Directors or which, in his judgment, should be executed on behalf of the corporation, and to sign certificates for shares of stock of the corporation.  In the event of the absence or disability of the Chairman of the Board of Directors, the President shall exercise the powers and perform the duties of the Chairman of the Board of Directors.  If there be no Chairman of the Board of Directors, the powers and duties of the President shall include those assigned to the Chairman of the Board of Directors by Article IV, as well as those assigned to the President by this Article. [As amended September 22, 1999]

Section 5.2            President Pro Tem.   If neither the Chairman of the Board, the President, nor any Vice President is present at any meeting of the Board of Directors, a President pro tem may be chosen to preside and act at such meeting.  If neither the President nor any Vice President is present at any meeting of the shareholders, a President pro tem may be chosen to preside at such meeting.

ARTICLE VI

VICE PRESIDENT

Section 6.1            Powers and Duties.   In case of the absence, disability or death of the President, the Vice President, or one of the Vice Presidents, shall exercise all the powers and perform all the duties of the President.  If there is more than one Vice President, the order in which the Vice Presidents shall succeed to the powers and duties of the President shall be as fixed by the Board of Directors. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be granted or prescribed by the Board of Directors.


ARTICLE VII

SECRETARY

Section 7.1            Powers and Duties.   The powers and duties of the Secretary are:
(a) To keep a book of minutes at the principal office of the corporation. or such other place as the Board of Directors may order, of all meetings of its directors and shareholders with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings and the proceedings thereof;

 
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(b) To keep the seal of the corporation and to affix the same to all instruments which may require it;
(c) To keep or cause to be kept at the principal office of the corporation, or at the office of the transfer agent or agents, a share register, or duplicate share registers, showing the names of the shareholders and their addresses, the number and classes; of shares held by each, the number and date of certificates issued for shares, and the number and date of cancellation of every certificate surrendered for cancellation;
(d) To keep a supply of certificates for shares of the corporation, to fill in all certificates issued and to make a proper record of each such issuance; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents;
(e) To transfer upon the share books of the corporation any and all shares of the corporation; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents and the method of transfer of each certificate shall be subject to the reasonable regulations of the transfer agent to which the certificate is presented for transfer and also, if the corporation then has one or more duly appointed and acting registrars, to the reasonable regulations of the registrar to which the new certificate is presented for registration; and provided further that no certificate for shares of stock shall be issued or delivered or, if issued or delivered, shall have any validity whatsoever until and unless it has been signed or authenticated in the manner provided in Section 12.4 hereof;
(f) To make service and publication of all notices that may be necessary or proper, and without command or direction from anyone.  In case of the absence, disability, refusal or neglect of the Secretary to make service or publication of any notices, then such notices may be served and/or published by the President or a Vice President, or by any person thereunto authorized by either of them or by the Board of Directors or by the holders of a majority of the outstanding shares of the corporation; and
(g) Generally to do and perform all such duties as pertain to the office of Secretary and as may be required by the Board of Directors.


ARTICLE VIII
 
CHIEF FINANCIAL OFFICER AND TREASURER

Section 8.1            Powers and Duties.   The powers and duties of the Chief Financial Officer and Treasurer are:
(a) To supervise and control the keeping and maintaining of adequate and correct accounts of the corporation's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares.  The books of account shall at all reasonable times be open to inspection by any director;
(b) To have the custody of all funds, securities, evidence of indebtedness and other valuable documents of the corporation and, at the discretion of the Chief Financial Officer and Treasurer, to cause any or all thereof to be deposited for the account of the corporation with such depositary as may be designated from time to time by the Board of Directors;

 
6
 

(c) To receive or cause to be received, and to give or cause to be given, receipts and acquittances for moneys paid in for the account of the corporation;
(d) To pay out of the corporation funds on hand all just debts of the corporation of whatever nature upon maturity of the same and to disburse, or cause to be disbursed, all funds of the corporation as may be directed by the Board of Directors, taking proper vouchers for such disbursements;
(e) To render to the Chairman of the Board, to the President and to the Board of Directors, whenever they may require, accounts of all transactions and of the financial condition of the corporation; and
(f) Generally to do and perform all such duties as pertain to the office of Chief Financial Officer and Treasurer and as may be required by the Board of Directors.

ARTICLE IX
 
COMMITTEES OF THE BOARD

Section 9.1            Appointment and Procedure.   The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, including an Audit Committee, each consisting of two or more directors, to serve at the pleasure of the Board.  The Board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee.

Section 9.2            Powers.   Any committee appointed by the Board of Directors, to the extent provided in the resolution of the Board or in these By-Laws, shall have all the authority of the Board except with respect to:
(a) The approval of any action, which requires the approval or vote of the shareholders;
(b) The filling of vacancies on the Board or on any committee;
(c) The fixing of compensation of the directors for serving on the Board or on any committee;
(d) The amendment or repeal of By-Laws or the adoption of new By-Laws;
(e) The amendment or repeal of any resolution of the Board, which by its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the Board; and
(g) The appointment of other committees of the Board or the members thereof.

Section 9.3            Executive Committee.   In the event that the Board of Directors appoints an Executive Committee, such Executive Committee shall include the Chairman of the Board, if any, as one of its members.  In all cases in which specific directions to the contrary shall not have been given by the Board of Directors, such Executive Committee shall have and may exercise, during the intervals between the meetings of the Board of Directors, all the power and authority of the Board of Directors in the management of the business and affairs of the corporation (except as provided in Section 9.2 hereof) in such manner as the Executive Committee may deem in the best interests of the corporation.

 
7
 
 
ARTICLE X
 
MEETINGS OF SHAREHOLDERS

Section 10.1          Place of Meetings.   Meetings (whether regular, special or adjourned) of the shareholders of the corporation shall be held at the principal office for the transaction of business as specified in accordance with Section 1.1 hereof, or any place within or without the State which may be designated by written consent of all the shareholders entitled to vote thereat, or which may be designated by the Board of Directors.

Section 10.2          Time of Annual Meetings.   The annual meeting of the shareholders shall be held at the hour of 10:00 o'clock in the forenoon on the third Tuesday in April in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day not a legal holiday, or such other time or date as may be set by the Board of Directors.

Section 10.3          Special Meetings.   Special meetings of the shareholders may be called by the Board of Directors, the Chairman of the Board, the President or the holders of shares entitled to cast not less than 10 percent of the vote at the meeting.

Section 10.4          Notice of Meetings.   (a) Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 nor more than 60 days before the day of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to the provisions of subdivision (b) any proper matter may be presented at the meeting for such action.  The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election.
(b) Any shareholder approval at a meeting, other than unanimous approval by those entitled to vote, on any of the matters listed below shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice:
(1) A proposal to approve a contract or other transaction between the corporation and one or more of its directors, or between the corporation and any corporation, firm or association in which one or more directors has a material financial interest;
(2) A proposal to amend the Articles;
(3) A proposal regarding a reorganization, merger or consolidation involving the corporation;
(4) A proposal to wind up and dissolve the corporation;
(5) A proposal to adopt a plan of distribution of the share, obligations or securities of any other corporation, domestic or foreign, or assets other than money which is not in accordance with the liquidation rights of any preferred shares as specified in the Articles.

Section 10.5          Delivery of Notice.   Notice of a shareholders' meeting or any report shall be given either personally or by mail or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located.  The notice or report shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication.  An affidavit of mailing of any notice or report in accordance with the provisions of this section, executed by the secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report.

 
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If any notice or report addressed to the shareholders at the address of such shareholder appearing on the books of the corporation is returned to the corporation by United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders.

Section 10.6          Adjourned Meetings.   When a shareholders' meeting is adjourned to another time or place, unless the By-Laws otherwise require and except as provided in this section, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken.  At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date if fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.

Section 10.7          Attendance at Shareholders' Meeting.   Attendance of a person at a meeting of shareholders shall constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the California General Corporation Law to be included in the notice but not so included in the notice if such objection is expressly made at the meeting.

Section 10.8          Quorum.   (a) The presence in person or by proxy at any meeting of persons entitled to cast a majority of the votes entitled to be cast by the outstanding voting shares shall constitute a quorum for the transaction of business.  If a quorum is present, the affirmative vote of a majority of the votes entitled to be cast by the shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by law or the Articles or these By-Laws and except as provided in subdivision (b).
(b) The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by an affirmative vote equal to at least a majority of the votes required to constitute a quorum.
(c) In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the votes entitled to be cast by the shares represented either in person or by proxy, but no other business may be transacted, except as provided in subdivision (b).

 
9
 
 
Section 10.9          Actions Without Meeting.   (a) Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided that, subject to the provisions of Section 2.6, directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors;
(b) Unless the consents of all shareholders entitled to vote have been solicited in writing:
(1) Notice of any shareholder approval on matters described in subparagraphs (1), (3) or (5) of subdivision (b) of Section 10.4 or respecting indemnification of agents of the corporation without a meeting by less than unanimous written consent shall be given at least ten (10) days before the consummation of the action authorized by such approval; and
(2) Prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent, to those shareholders entitled to vote who have not consented in writing; the provisions of Section 10.5 shall apply to such notice.

Section 10.10        Revocation of Consent.   Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary of the corporation, but may not do so thereafter.  Such revocation is effective upon its receipt by the secretary of the corporation.

Section 10.11        Voting Rights.   Except as provided in Section 10.13 or in the Articles or in the Certificate of Determination of Preferences of any series of preferred shares or in any statute relating to the election of directors or to other particular matters, each holder of preferred shares entitled to be voted shall be entitled to eight votes for each preferred share and each holder of common shares entitled to be voted shall be entitled to one vote for each common share with respect to each matter submitted to a vote of shareholders.  A fraction of a share shall not be entitled to any voting rights whatsoever. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining share; or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote.

Section 10.12        Determination of Holders of Record.   (a) In order that the corporation may determine the shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action.

 
10
 

(b) In the absence of any record date set by the Board of Directors pursuant to subdivision (a) above, then:
(1) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held;
(2) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given;
(3) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later.
(c) A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting.
(d) Shareholders on the record date are entitled to notice and to vote or to receive the dividend distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles or these By-Laws or by agreement or applicable law.

Section 10.13        Elections for Directors.   (a) Every shareholder complying with subdivision (b) and entitled to vote at any election of directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit.
(b) No shareholder shall be entitled to cumulate votes (i.e., cast for anyone or more candidates a number of votes greater than the number of votes to which the shareholder's shares are entitled pursuant to Section 10.11) unless such candidate or candidates' names have been placed in nomination prior to the voting and the shareholder has given written notice to the chairman of the meeting at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes.  If anyone shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination.
(c) In any election of directors, the candidates receiving the highest number of votes of the shares entitled, to be voted for them up to the number of directors, to be elected by such shares are elected.
(d) Elections for directors need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins or unless the By-Laws so require.

Section 10.14        Proxies.   (a) Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares.  Any proxy purporting to be executed in accordance with the provisions of the General Corporation Law of the State of California shall be presumptively valid.

 
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(b) No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy.  Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in this section.  Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy.  The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed.
(c) A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the corporation.

Section 10.15       Inspectors of Election.   (a) In advance of any meeting of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof.  If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any meeting of shareholders may and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting.  The number of inspectors shall be either one or three.  If appointed at a meeting on the request of one or more shareholders or proxies, the holders of shares entitled to cast a majority of the votes entitled to be cast by the shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed.
(b) The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders.
(c) The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical.  If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all.  Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

Section 10.16        Voting Powers on Default in Dividends.   Reference is hereby made to paragraph (1) of Section 5.1 of Article V of the Articles for provisions concerning changes in voting powers of preferred shares and common shares of the corporation and procedure for election of directors in case of certain defaults in payment of dividends on preferred shares.

ARTICLE XI
 
MEETINGS OF DIRECTORS

Section 11.1         Place of Meetings.   Unless otherwise specified in the notice thereof, meetings (whether regular, special or adjourned) of the Board of Directors of this corporation shall be held at the principal office of the corporation for the transaction of business, as specified in accordance with Section 1.1 hereof, which is hereby designated as an office for such purpose in accordance with the laws of the State of California, or at any other place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board.

 
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Section 11.2          Regular Meetings.   Regular meetings of the Board of Directors, of which no notice need be given except as required by the laws of the State of California, shall be held after the adjournment of each annual meeting of the shareholders (which meeting shall be designated the Regular Annual Meeting) and at the hour of 11:00 o'clock in the forenoon on the fourth Tuesday in January and on the third Tuesday in April, July and October, if not a legal holiday, and if a legal holiday, then on the next succeeding business day not a legal holiday.

Section 11.3          Special Meetings.   Special meetings of the Board of Directors may be called at any time by the Chairman of the Board or the President or by any Vice President or the Secretary or by any two or more of the directors.

Section 11.4          Notice of Meetings.   Except in the case of regular meetings, notice of which has been dispensed with, the meetings of the Board of Directors shall be held upon four (4) days' notice by mail or forty-eight (48) hours' notice delivered personally or by telephone, telegraph or other electronic or wireless means.  If the address of a director is not shown on the records and is not readily ascertainable, notice shall be addressed to him at the city or place in which the meetings of the directors are regularly held.  Except as set forth in Section 11.6, notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned.

Section 11.5          Quorum.   A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business.  Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors except as otherwise provided by law.  A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.

Section 11.6         Adjourned Meetings.   A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place.  If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment.

Section 11.7          Waiver of Notice and Consent.   (a) Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director.
(b) The transactions of any meeting of the Board, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof.  All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

 
13
 
 
Section 11.8          Action Without a Meeting.   Any action required or permitted, to be taken by the Board may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to such action.  Such written consent or consents shall be filed with the minutes of the proceedings of the Board.  Such action by written consent shall have the same force and effect as a unanimous vote of such directors.

Section 11.9          Conference Telephone Meetings.   Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another.  Participation in a meeting pursuant to this section constitutes presence in person at such meeting.

Section 11.10       Meetings of Committees.   The provisions of this Article apply also to committees of the Board and action by such committees.

ARTICLE XII
 
SUNDRY PROVISIONS

Section 12.1          Instruments in Writing.   All checks, drafts, demands for money and notes of the corporation, and all written contracts of the corporation, shall be signed by such officer or officers, agent or agents, as the Board of Directors may from time to time by resolution designate.  No officer, agent, or employee of the corporation shall have power to bind the corporation by contract or otherwise unless authorized to do so by these By-Laws or by the Board of Directors.

Section 12.2          Fiscal Year.   The fiscal year of this corporation shall be the calendar year.

Section 12.3          Shares Held by the Corporation.   Shares in other corporations standing in the name of this corporation may be voted or represented and all rights incident thereto may be exercised on behalf of this corporation by the President or by any other officer of this corporation authorized so to do by resolution of the Board of Directors.

Section 12.4          Certificates of Stock.   There shall be issued to each holder of fully paid shares of the capital stock of the corporation a certificate or certificates for such shares.  Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer and Treasurer or the Secretary, certifying the number of shares and the class or series of shares owned by the shareholder.  Any or all of the signatures on the certificate may be facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.


Section 12.5          Lost Certificate.   The Board of Directors may by resolution provide that in the event any certificates for shares of the capital stock of the corporation shall be alleged to have been lost or destroyed, no new certificate or certificates shall be issued in lieu thereof until an indemnity bond in such form and in such amount as shall be approved by the President or a Vice President of the corporation shall have been furnished.  The Board of Directors may adopt such other provisions and restrictions with reference to lost certificates as it shall in its discretion deem appropriate.

 
14
 
 
Section 12.6          Certification and Inspection of By-Laws.   The corporation shall keep at its principal executive office in this state, or if its principal executive office is not in this state at its principal business office in this state, the original or a copy of these By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours.  If the principal executive office of the corporation is outside this state and the corporation has no principal business office in this state, it shall upon the written request of any shareholder furnish to such shareholder a copy of the By-Laws as amended to date.

Section 12.7          Notices.   Any reference in these By-Laws to the time a notice is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notices communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.

Section 12.8          Reports to Shareholders.   The Board of Directors shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year or within such shorter time period as may be required by applicable law, and such annual report shall contain such information and be accompanied by such other documents as may be required by applicable law.

Section 12.9          No Closing of Stock Transfer Books.   The Board of Directors shall set a record date to determine shareholders eligible to receive dividends, rights, distributions and the like, and to vote at meetings of shareholders, and the transfer books shall not be closed in connection therewith.

Section 12.10       [Section 12.10 was deleted in its entirety by amendment dated January 24, 1989]
 

ARTICLE XIII

CONSTRUCTION OF BY-LAWS WITH REFERENCE TO PROVISIONS OF LAW

Section 13.1          Definitions.   Unless defined otherwise in these By-Laws or unless the context otherwise requires, terms used herein shall have the same meaning, if any, ascribed thereto in the California General Corporation Law, as amended from time to time.

 
15
 
 
Section 13.2          By-Law Provisions Additional and Supplemental to Provisions of Law.   All restrictions, limitations, requirements and other provisions of these By-Laws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal.

Section 13.3           By-Law Provisions Contrary to or Inconsistent with Provisions of Law.   Any article, section, subsection, subdivision, sentence, clause or phrase of these By-Laws which upon being construed in the manner provided in Section 13.2 hereof, shall be contrary to or inconsistent with any applicable provision of law, shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these By-Laws, it being hereby declared that these By-Laws would have been adopted and each article, section, subsection, subdivision, sentence, clause or phrase thereof, irrespective of the fact that anyone or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal.
 

ARTICLE XIV
 
ADOPTION, AMENDMENT OR REPEAL OF BY-LAWS
 

Section 14.1          By Shareholders.   By-Laws may be adopted, amended or repealed by the affirmative vote of a majority of the votes entitled to be cast by the outstanding voting shares of the corporation.

Section 14.2           By the Board of Directors.   Subject to the right of shareholders to adopt, amend or repeal By-Laws, By-Laws other than a By-Law or amendment thereof changing the authorized number of directors may be adopted, amended or repealed by the Board of Directors.  A By-Law adopted by the shareholders may restrict or eliminate the power of the Board of Directors to adopt, amend or repeal any or all By-Laws.
 
 
  16
EXHIBIT 10.7
SAN JOSE WATER COMPANY
 
 
EXECUTIVE SUPPLEMENTAL
 
RETIREMENT PLAN
 
 
(As Amended and Restated Effective January 1, 2008)
 
 
i
 
 
TABLE OF CONTENTS
 
Page
     
I.
 
DEFINITIONS
 
2
       
 
II.
 
PARTICIPATION
 
5
         
III.
 
RETIREMENT BENEFIT
 
5
         
IV.
 
VESTING
 
11
         
V.
 
FUNDING NATURE OF THE PLAN
 
11
         
VI.
 
ADMINISTRATION OF THE PLAN
 
11
         
VII.
 
AMENDMENTS AND TERMINATION
 
12
         
VIII.
 
MISCELLANEOUS
 
12

 
ii
 
 
THE SAN JOSE WATER COMPANY
 
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
 
On July 22, 1992 the Board of Directors of the San Jose Water Company (the “Company”) adopted the San Jose Water Company Executive Supplemental Retirement Plan (the “Plan”).  The Plan is designed to supplement the retirement income of a designated select group of management and/or highly compensated executives of the Company.  The Plan has been amended on a number of occasions since its adoption and is hereby further amended and restated, effective January 1, 2008, to conform the provisions of the plan document to the applicable requirements of Section 409A of the Internal Revenue Code and the Treasury Regulations issued thereunder. The Plan as so amended and restated shall continue to function solely as a so-called “top hat” plan of deferred compensation subject to the provisions of the Employee Retirement Income Security Act of 1974 (as amended from time to time) applicable to such a plan.

I.
DEFINITIONS
 
Wherever used herein the following terms have the meanings indicated:
 
1.1           “ Accrued Benefi t ” means, at any time, the benefit computed in accordance with Section 3.1 (as adjusted, if applicable, pursuant to Section 3.11).
 
1.2           “ Actuarial Equivalent ” has the meaning set forth in the San Jose Water Company Retirement Plan.
 
1.3            “ Affiliated Company ” means (i) the Company and (ii) each of the other members of the controlled group that includes the Company, as determined in accordance with Sections 414(b) and (c) of the Code.
 
1.4           “ Beneficiary ” means the person or persons entitled, pursuant to Section 3.6, to receive the Participant’s retirement benefit following his or her death.
 
1.5           “ Benefit Commencement Date ” means the date on which the payment of a Participant's retirement benefit is to commence pursuant to Section 3.2; provided, however , that a Participant who wishes to have his or her retirement benefit commence on a Deferred Benefit Commencement Date following his or her Separation from Service must comply with the applicable election procedures set forth in Section 3.3.
 
1.6           “ Board of Directors ” means the Board of Directors of San Jose Water Company.
 
1.7           “ Change in Control ”   means a transaction involving a change in ownership or control of SJW Corp. which constitutes a Change in Control, as such term is defined at the relevant time in the Executive Severance Plan (or any successor plan) or, if the Executive Severance Plan ceases to exist and is not succeeded by another similar plan, as it was last defined in the Executive Severance Plan.
 
 
1
 
 
1.8           “ Code ” means the Internal Revenue Code of 1986, as amended from time to time.
 
1.9            “ Committee ” means the Executive Compensation Committee of the SJW Corp. Board of Directors which shall administer the Plan in accordance with the provisions of Article V hereof.
 
1.10         “ Company ” means San Jose Water Company and any successor to all or a major portion of the assets or business of the San Jose Water Company.
 
1.11         “ Compensation ” means, for any calendar month, a Participant's salary for such month plus any annual cash performance bonus paid to such Participant in that month.  No other bonus or special compensation will be included, except to the extent expressly provided otherwise, in accordance with the applicable provisions of Code Section 409A, by the Committee administering this Plan.
 
1.12         “ Credited Service ” has the meaning set forth in the San Jose Water Company Retirement Plan.
 
1.13         “ Death Benefi t ” has the meaning set forth in Section 3.10 of the Plan.
 
1.14         “ Deferred Benefit Commencement Date ” means a date, later than the normal Benefit Commencement Date determined under Section 3.2, on which the Participant’s retirement benefit under Article III is to commence pursuant to a timely deferral election made by such Participant pursuant to Section 3.3 of the Plan.
 
1.15         “ Early Retirement Date ” means the first day of the month coinciding with or next following the date when a Participant has both attained the age of fifty-five (55) years and completed at least ten (10) years of Credited Service with the Company.
 
1.16         “ Eligible Employee ” means any officer of the Company or any other Employee who is part of a select group of management or an otherwise highly compensated employee, as determined by the Committee in accordance with applicable ERISA standards.
 
1.17         “ Employee ” means an individual for so long as he or she is in the employ of at least one member of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
 
1.18         “ Employer Group ” means (i) the Company and (ii) each of the other members of the controlled group that includes the Company, as determined in accordance with Sections 414(b) and (c) of the Code, except that in applying Sections 1563(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section  1.4.14(c)-2 of the Treasury Regulations.
 
2
 
1.19         “ Executive Severance Plan ” means SJW. Corp Executive Severance Plan, as amended from time to time.
 
1.20         “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
 
1.21         “ Final Average Compensation ” means, on any date, a Participant’s average monthly Compensation for that consecutive thirty-six (36) calendar month period within the last one hundred twenty (120) consecutive calendar months ending on or immediately prior to such measurement date during which such average Compensation is the highest.
 
1.22         “ Normal Retirement Date ” means the first day of the calendar month coinciding with or next following the date when a Participant attains sixty-five (65) years of age.
 
1.23         “ Participant ” means an Eligible Employee selected by the Committee to participate in the Plan; provided, however, that such individual shall not commence actual participation in the Plan until the date determined under Article II.
 
1.2           “ Plan ” means the San Jose Water Company Executive Supplemental Retirement Plan, as set forth in this document and in any amendments from time to time made hereto.
 
1.25         “ Qualified Joint and Survivor Annuity ” has the meaning set forth in the San Jose Water Company Retirement Plan.
 
1.26         “ Retirement Benefit ” means the monthly retirement benefit payable under this Plan, calculated in accordance with Article III.
 
1.27         “ San Jose Water Company Retirement Plan ” means the San Jose Water Company Retirement Plan, a tax-qualified defined benefit pension plan under Code Section 401(a) which was adopted November 1, 1950, as such plan may be amended and restated from time to time.
 
1.28         “ Single Life Annuity ” has the meaning set forth in the San Jose Water Company Retirement Plan.
 
1.29         “ Separation from Service ” means the Participant’s cessation of Employee status by reason of his or her death, retirement or termination of employment.  The Participant shall be deemed to have terminated employment for such purpose at such time as the level of his or her bona fide services to be performed as an Employee (or non-employee consultant) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he or she rendered as an Employee during the immediately preceding thirty-six (36) months (or such shorter period for which he or she may have rendered such service). Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Code Section 409A. In addition to the foregoing, a Separation from Service will not be deemed to have occurred while an Employee is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or any longer period for which such Employee’s right to reemployment with one or more members of the Employer Group is provided either by statute or contract; provided, however, that in the event of an Employee’s leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and that causes such individual to be unable to perform his or her duties as an Employee, no Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave.  If the period of leave exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and the Employee’s right to reemployment is not provided either by statute or contract, then such Employee will be deemed to have a Separation from Service on the first day immediately following the expiration of such six (6)-month or twenty-nine (29)-month period.
 
 
3
 
 
1.30          “ SJW Corp . ” means SJW Corp., a California corporation which is the corporate parent of the Company, or any successor to all or a major portion of the assets or business of the SJW Corp.
 
1.31         “ Specified Employee ” means a “key employee” (within the meaning of that term under Code Section 416(i)), as determined by the Executive Compensation Committee of SJW Corp. in accordance with the applicable standards of Code Section 409A and the Treasury Regulations thereunder and applied on a consistent basis to all non-qualified deferred compensation plans of the Employer Group subject to Code Section 409A.  The Specified Employees shall be identified on December 31 of each calendar year and shall have that status or the twelve (12)-month period beginning on April 1 of the following calendar year.
 
1.32         “ Ten Year Certain and Life Option ” has the meaning set forth in Section 3.5.
 
1.33         “ Year of Service ” has the meaning set forth in the San Jose Water Company Retirement Plan.
 
II.
PARTICIPATION
 
Each Eligible Employee selected by the Committee for participation in the Plan shall be promptly notified by the Company in writing of such selection and shall become a Participant in the Plan on the first day of the first calendar month next following the date of his or her selection for participation by the Committee or such later date as the Committee shall specify, as set forth in the notification from the Company.
 
III.
RETIREMENT BENEFIT
 
3.1            Retirement Benefit Formula . The actual Retirement Benefit to be paid under this Plan to a vested Participant beginning on his or her Benefit Commencement Date determined in accordance with Section 3.2 shall be calculated on the basis of the following formula for determining a Participant’s normal retirement benefit and shall be adjusted so that it is the Actuarial Equivalent of such normal retirement benefit after taking into account any Benefit Commencement Date prior to the Participant’s Normal Retirement Date and/or any form of payment other than a Single Life Annuity for the Participant:
 
 
4
 
 
-           The normal retirement benefit is a Single Life Annuity for the Participant commencing on his or her Normal Retirement Date in a monthly  dollar amount equal to two and two tenths percent (2.2%) of the Final Average Compensation of such Participant multiplied by his or her Years of Service (not to exceed twenty (20) years) plus one and one-tenth percent (1.1%) of the Final Average Compensation of such Participant multiplied by his or her Years of Service in excess of 20 years (not to exceed an additional ten (10) years), up to a total not to exceed fifty-five percent (55%) of such Participant’s Final Average Compensation; less the monthly retirement benefit payable to such Participant from the San Jose Water Company Retirement Plan. The one and one-tenth percent (1.1%) and fifty-five percent (55%) of Final Average Compensation percentages stated above shall be increased to one and six tenths percent (1.6%) and sixty percent (60%) respectively for Participants who are credited with an Hour of Service, as defined in the San Jose Water Company Retirement Plan, on or after November 1, 1999.  The amount of the offset for the monthly retirement benefit paid from the San Jose Water Company Retirement Plan shall be calculated on the basis of the single life monthly annuity under such Plan commencing on the Participant’s Normal Retirement Date which is the Actuarial Equivalent of his or her normal retirement benefit under such plan.
 
3.2            Benefit Commencement Date .  The following provisions shall govern the date on which a vested Participant’s Retirement Benefit as calculated under Section 3.1 shall commence, subject to the elective deferral provisions of Section 3.3 and the mandatory deferral provisions of Section 3.12.  In the absence of any deferral effected pursuant to Section 3.3 or 3.12, such date shall constitute the Participant’s Benefit Commencement Date under the Plan.
 
(a)           The Benefit Commencement Date for a vested Participant whose Separation from Service occurs on or after satisfying the requirements for a Normal Retirement Date   shall be the first day of the first calendar month following such Separation of Service. The monthly retirement benefit which shall commence at that time shall be in the amount calculated under Section 3.1 and payable in the form of a Single Life Annuity. There shall be no actuarial increase to the dollar amount of the Participant’s monthly retirement benefit should the Benefit Commencement Date occur after his or her Normal Retirement Date.
 
(b)           The Benefit Commencement Date for a vested Participant whose Separation from Service occurs on or after satisfying the requirements for an Early Retirement Date but before his or her Normal Retirement Date shall be the first day of the first calendar month following such Separation from Service. The monthly retirement benefit which shall commence at that time under Section 3.1 shall be payable in the form of a Single Life Annuity.  However, the dollar amount of that monthly retirement benefit as calculated pursuant to Section 3.1 shall be reduced for the commencement of such benefit before the Participant’s Normal Retirement Date in accordance with the early retirement reduction factors set forth in the San Jose Water Company Retirement Plan as in effect on the Benefit Commencement Date.
 
(c)           The Benefit Commencement Date for a vested Participant whose Separation from Service occurs before satisfying the requirements for an Early Retirement Date or a Normal Retirement Date   shall be the first date of the first calendar month on which he or she satisfies the requirements for an Early Retirement Date or (if earlier) a Normal Retirement Date. The monthly retirement benefit which shall commence at that time under Section 3.1 shall be payable in the form of a Single Life Annuity. However, the dollar amount of that monthly retirement benefit as calculated pursuant to Section 3.1 shall be reduced, in accordance with the early retirement reduction factors set forth in the San Jose Water Company Retirement Plan as in effect on the Benefit Commencement Date, should such retirement benefit commence before the Participant’s Normal Retirement Date.
 
 
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3.3            Election of Deferred Benefit Commencement Date . The following provisions shall govern any election by a Participant to receive his or her Retirement Benefit on a Deferred Benefit Commencement Date that is later than the date on which his or her Retirement Benefit would otherwise commence in accordance with Section 3.2:
 
(i)             An Eligible Employee participating in the Plan during the 2007 calendar year may elect a Deferred Benefit Commencement Date at any time on or before December 31, 2007 by filing the appropriate deferral election form with the Committee.

(ii)            An Eligible Employee who is first selected for participation in the Plan after December 31, 2007 may elect a Deferred Benefit Commencement Date by filing the appropriate election form with the Committee at any time prior to the date his or her  participation in the Plan becomes effective.

(iii)           Should a Participant wish at any time after December 31, 2008  to change the Benefit Commencement Date in effect for him or her pursuant to Section 3.2 (or any  Deferred Benefit Commencement Date in effect for him or her at that time under this Section 3.3) to a later Deferred Benefit Commencement Date, then such Participant must file the appropriate deferral election form with the Committee at least twelve (12) months prior to the Benefit Commencement Date or Deferred Benefit Commencement Date in effect at the time for the Participant, and the deferral election shall in no event become effective or otherwise have any force or applicability until the expiration of the twelve (12)-month period measured from the date such election is filed with the Committee. Accordingly, the new deferral election shall become null and void should the Participant’s pre-existing Benefit Commencement Date or Deferred Commencement Date occur within that twelve (12)-month period. The new Deferred Benefit Commencement Date elected by the Participant must be a date that is at least five (5) years later than the date on which the Participant’s Retirement Benefit would have otherwise commenced in the absence of the new deferral election.

3.4            Alternative Form of Benefit Payment .  In lieu of the Single Life Annuity in which a Participant is to receive as his or her Retirement Benefit, the Participant may elect an alternative form of benefit payment in accordance with the following requirements:
 
(i)             A Participant who is married on his or her Benefit Commencement Date (or any Deferred Benefit Commencement Date in effect for him or her in accordance with the provisions of Section 3.3) may elect to receive his or her Retirement Benefit in the form of the Qualified Joint and Survivor Annuity, provided such election is made in accordance with the applicable requirements of subparagraph (iii) below.
 
 
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(ii)           A Participant, whether or not married on his or her Benefit Commencement Date (or any Deferred Benefit Commencement Date in effect for him or her in accordance with the provisions of Section 3.3), may elect to receive his or her Retirement Benefit in the form of the Ten Year Certain and Life Option, provided such election is made in accordance with the applicable requirements of subparagraph (iii) below.
 
(iii)          Provided the Qualified Joint and Survivor Annuity and the Ten Year Certain and Life Option are each the Actuarial Equivalent of the Single Life Annuity payable to the Participant hereunder, the Participant may elect either alternative form of payment by filing the appropriate election form with the Committee at any time prior to the Benefit Commencement Date or Deferred Benefit Commencement Date in effect for such Participant. In the event that either the Qualified Joint and Survivor Annuity or the Ten Year Certain and Life Option is not the Actuarial Equivalent of the Single Life Annuity payable to the Participant hereunder, then the Participant’s election of the form of payment which is not such an Actuarial Equivalent shall be subject to the following limitations:
 
 -            Participant must elect the alternative form of benefit by filing the appropriate benefit election form with the Committee at least twelve (12) months prior to the Benefit Commencement Date or Deferred Benefit Commencement Date in effect at the time for the Participant, and the benefit election shall in no event become effective or otherwise have any force or applicability until the expiration of the twelve (12)-month period measured from the date such election is filed with the Committee. Accordingly, the benefit election shall become null and void should the Participant’s Benefit Commencement Date or Deferred Commencement Date occur within that twelve (12)-month period.  As part of the benefit election process, the Participant must designate a new Benefit Commencement Date that is at least five (5) years later than the date on which the Participant’s Retirement Benefit would have otherwise commenced in accordance with the Benefit Commencement Date or Deferred Benefit Commencement Date in effect for the Participant immediately prior to the filing of his or her benefit election.

(iv)         For purposes of determining whether the Qualified Joint and Survivor Annuity is the Actuarial Equivalent of the Single Life Annuity payable to the Participant, any subsidy provided with respect to the Qualified Joint and Survivor Annuity shall not be taken into account, provided the annual lifetime benefit payable thereunder to the Participant is not greater than his or her annual lifetime benefit under the Single Life Annuity, and the annual lifetime benefit payable to the survivor is not greater than the annual lifetime benefit payable to the Participant under such Qualified Joint and Survivor Annuity.  In no event will the Qualified Joint and Survivor Annuity or the Ten Year Certain and Life Option be deemed for purposes of subparagraph (iii) above to be the Actuarial Equivalent of the Single Life Annuity payable to the Participant hereunder, if the scheduled date for the first annuity payment under such alternative form of payment is other than the Benefit Commencement Date or Deferred Benefit Commencement Date in effect at the time for the Participant.
 
(v)           A benefit election made under this Paragraph 3.4 by a Participant who is married on such date is not subject to spousal consent.
 
 
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3.5            Ten Year Certain and Life Option .  A Participant who elects the Ten Year Certain and Life Option shall receive his or her Retirement Benefit in the form of a monthly annuity over his or her lifetime.  If the Participant dies before one hundred and twenty (120) monthly payments (hereinafter referred to as the “period certain”) have been made, the Participant’s designated Beneficiary or Beneficiaries shall be entitled to share equally in the Participant’s monthly retirement benefit for the remainder of such period certain.  A Participant electing to receive his or her Retirement Benefit in such form must designate, as described in Section 3.6, one or more Beneficiaries to receive any remaining payments under the Plan after his or her death.  If the Participant and the designated Beneficiary or Beneficiaries die within the period certain, the remaining payments shall be made to the estate of the designated Beneficiary who last received a payment under this Section 3.5.
 
3.6            Beneficiary Designation .  The Beneficiary designation of a Participant who elects to receive his or her Retirement Benefit in the form of a Ten Year Certain and Life Option shall be made on a form prepared by, and delivered to, the Committee prior to the Benefit Commencement Date or Deferred Benefit Commencement Date in effect for that benefit. The Participant may revoke or change the designation at any time prior to the applicable Benefit Commencement Date by delivering a subsequent form to the Committee.
 
3.7            Calculation of Alternative Forms of Benefits .  The amount of all benefit payment forms specified in Section 3.4 shall be determined in accordance with the provisions of the San Jose Water Company Retirement Plan.
 
3.8            Retiree Increases .
 
(a)           1998 Retiree Benefit Increase. Subject to a ten percent (10%) maximum benefit increase, the monthly pension of each Participant (or Beneficiary in the case of a deceased Participant) shall be increased 0.138889% for each month or partial month which has elapsed from the date of the initial payment of retirement benefits to each Participant (or Beneficiary), up to and including February 28, 1998.
 
(b)           2002 Retiree Benefit Increase.  Subject to a ten percent (10%) maximum benefit increase, the monthly pension of each Participant (or Beneficiary in the case of a deceased Participant) shall be increased 0.212766% for each month or partial month which has elapsed from (i) the later of the date of the initial payment of benefits or   March 1, 1998 to (ii) January 31, 2002.
 
3.9            Qualified Preretirement Survivor Annuity .  If a married Participant dies after his or her Retirement Benefit has vested but before the Benefit Commencement Date or Deferred Benefit Commencement Date in effect for such benefit, then the Participant's surviving spouse will be entitled to a Qualified Preretirement Survivor Annuity in accordance with this Section 3.9.
 
(a)           The Qualified Preretirement Survivor Annuity will become payable on the later of (1) the first day of the month coinciding with or next following the Participant's death or (2) the earliest date on which the Participant would have been eligible to receive a Qualified Joint and Survivor Annuity under the Plan (disregarding any Deferred Benefit Commencement Date election the Participant may have outstanding under Section 3.3 at the time of his or her death).
 
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(b)           The Qualified Preretirement Survivor Annuity will be in a dollar amount equal to fifty percent (50%) of the amount the Participant would have received had his or her Separation from Service occurred on the day before his or her death and he or she had elected the Qualified Joint and Survivor Annuity as his or her form of benefit payment. In the case of a vested Participant who dies on or before the earliest date on which he or she would have been eligible to receive a Qualified Joint and Survivor Annuity, the amount of the Qualified Preretirement Survivor Annuity will be computed as though the Participant had survived until he or she was first eligible to receive a Qualified Joint and Survivor Annuity, retired at that time with an immediate Qualified Joint and Survivor Annuity, and died the next day.
 
3.10            Death Benefit .  If a Participant who is unmarried at the time dies after his or her Retirement Benefit has vested but before the Benefit Commencement Date or Deferred Benefit Commencement Date in effect for such benefit, then such Participant's Beneficiary shall be entitled to a Death Benefit in accordance with this Section 3.10.
 
(a)           The Death Benefit will become payable on the later of (1) the first day of the month coinciding with or next following the Participant's death or (2) the earliest date on which the Participant would have been eligible to receive his or her Retirement Benefit (disregarding any Deferred Benefit Commencement Date election the Participant may have outstanding under Section 3.4 at the time of his or her death).
 
(b)           The Death Benefit will be in a monthly dollar amount equal to the monthly retirement benefit the Participant would have received under the Plan had his or her Separation from Service occurred on the day before the Participant's death and he or she had elected to receive the optional form of benefit described in Section 3.5 of the Plan. In the case of a vested Participant who dies on or before the earliest date that such Participant would have been eligible to receive his or her Retirement Benefit, the amount of the Death Benefit will be computed as though the Participant had survived until he or she was first eligible to receive a retirement benefit, retired at that time and elected to receive the optional form of benefit described in Section 3.5 of the Plan, and died the next day.
 
3.11           Adjustments to Benefits . The benefit calculated in accordance with the provisions of this Article III shall, with respect to each Participant referenced in Exhibit A, be subject to the specific adjustments set forth in Exhibit A with respect to that Participant.
 
3.12         Mandatory Deferral of Payments .   N otwithstanding any provision to the contrary in this Article III or any other article in the Plan, a vested Participant’s Retirement Benefit shall not commence under this Plan prior to the earlier of (i) the first day of the seventh (7th) month following the date of his or her Separation from Service or (ii) the date of his or her death, if  the Participant is deemed at the time of such Separation from Service to be a Specified Employee and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable deferral period, all monthly retirement payments deferred pursuant to this Section 3.12 shall be paid in a lump sum to the Participant, and the remaining monthly retirement payments due under the Plan shall be paid in accordance with the normal payment dates specified for them herein.
 
 
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IV.
VESTING
 
4.1            Normal Vesting .  A Participant shall vest in his or her Accrued Benefit upon completion of Years of Service as follows:
 

Years of Service
Vested Percentage
   
Less than 10
None
   
10 or More
100%

 
4.2            Change in Control Severance Vesting .  Notwithstanding Section 4.1, a Participant’s Accrued Benefit shall immediately become 100% vested if such Participant becomes entitled to a severance benefit under the Executive Severance Plan by reason of a qualifying termination of his or her Employee status thereunder.
 
V.
FUNDING NATURE OF THE PLAN
 
The funds used for payment of benefits under this Plan and of the expenses incurred in the administration thereof shall, until such actual payment, continue to be a part of the general funds of the Company, and no person other than the Company shall, by virtue of this Plan, have any interest in any such funds.  Nothing contained herein shall be deemed to create a trust of any kind or create any fiduciary relationship.  To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company.  The foregoing notwithstanding, the Company may fund the Plan with Board approval at any time, and the Company shall in the event of a Change in Control arrange for the funding, immediately before the effective date of that Change in Control, of all the Accrued Benefits under the Plan through a trust which satisfies the requirements of Revenue Procedure 92-64 and/or such other statutory or regulatory requirements as are necessary to assure that Participants are not subject to Federal income taxation on either their Accrued Benefits or amounts contributed to such trust before their receipt of such benefits or assets.
 
VI.
ADMINISTRATION OF THE PLAN
 
6.1           The Plan shall be administered by the Committee.  The Committee shall have the exclusive authority and responsibility for all matters in connection with the operation and administration of the Plan.  The Committee’s powers and duties shall include, but shall not be limited to, the following:  (a) selecting the Eligible Employees who are to participate in the Plan, (b) responsibility for the compilation and maintenance of all records necessary in connection with the Plan; (c) determining the amount (if any) of the benefits payable under the Plan to a Participant or his or her spouse or Beneficiary and authorizing the payment of all benefits under the Plan as they become due and payable under the Plan; (d) reducing or otherwise adjusting amounts payable under the Plan if payments are made in error; and (e) authority to engage such legal accounting and other professional services as it may deem proper.  Decisions by the Committee shall be final and binding upon all parties.
 
 
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6.2           The Committee, from time to time, may allocate to one or more of its members (or to any other person or persons or organizations) any of its rights, powers, and duties with respect to the operation and administration of the Plan.  Any such allocation shall be reviewed from time to time by the Committee and shall be terminable upon such notice as the Committee, in its sole discretion, deems reasonable and prudent under the circumstances.
 
6.3           The members of the Committee shall serve without compensation, but all benefits payable under the Plan and all expenses properly incurred in the administration of the Plan, including all expenses properly incurred by the Committee in exercising its duties under the Plan, shall be borne by the Company.
 
VII.
AMENDMENTS AND TERMINATION
 
7.1           The Board of Directors reserves the power at any time to terminate this Plan and to otherwise amend any portion of the Plan other than this Article VII; provided, however, that no such action shall (i) reduce any Accrued Benefit (or any benefit hereunder based thereon) as of the date of such action or (ii) adversely affect a Participant's right to continue to vest in such Accrued Benefit in accordance with the terms of the Plan in effect immediately prior to such action.
 
7.2           Notice of termination or amendment of the Plan, pursuant to Section 7.1, shall be given in writing to each Participant and beneficiary of a deceased Participant.
 
7.3           No amendment or termination of the Plan shall affect or modify the benefit commencement date provisions or form of payment provisions in effect under Article III immediately prior to such amendment or termination, and such amendment or termination shall not result in any accelerated payment of  the retirement benefits accrued under the Plan.
 
VIII.
MISCELLANEOUS
 
8.1           The headings and subheadings of this instrument are inserted for convenience of reference only and are not to be considered in the construction of this Plan.  Wherever appropriate, words used in the singular may include the plural, plural may be read as the singular and the masculine may include the feminine.
 
8.2           The instrument creating the Plan shall be construed, administered, and governed in all respects in accordance with the laws of the State of California to the extent not preempted by ERISA.  If any provision of this Plan shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue to be fully effective.
 
 
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8.3           Participation in this Plan shall not give to any employee the right to be retained in the employ of the Company nor any right or interest in this Plan other than is herein specifically provided.
 
8.4           Any payment to a Participant or beneficiary or the legal representative of either, in accordance with the terms of this Plan shall to the extent thereof be in full satisfaction of all claims such person may have against the Company hereunder, which may require such payee, as a condition to such payment, to execute a receipt and release therefor in such form as shall be determined by the Company.
 
8.5           This Plan is intended to qualify for exemption from Articles II, III, and IV of ERISA, as amended, as an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(1) of such Act, and shall be so interpreted.
 
8.6           Benefits under this Plan shall not be alienated, hypothecated or otherwise encumbered, and to the maximum extent permitted by law such benefits shall not in any way be subject to claim of creditors or liable to attachment, execution or other process of law.
 
8.7           If an individual entitled to receive retirement benefits is determined by the Committee or is adjudged to be legally incapable of giving valid receipt and discharge for such benefits, they shall be paid to the duly appointed and acting guardian, if any, and if no such guardian is appointed and acting, to such person as the Committee may designate.  Such payment shall, to the extent made, be deemed a complete discharge for such payments under this Plan.
 
8.8           If the Committee is unable due to unforeseen circumstances to make the determinations required under this Plan in sufficient time for payments to be made when due, the Committee shall make the payments immediately upon the completion of such determinations, with interest at a reasonable rate from the due date, and may, at its option, make provisional payments, subject to adjustment, pending such determination.
 
8.9           For purposes of this Plan, actuarial equivalents shall be determined on the basis of mortality tables and interest factors most recently employed for the purpose of the San Jose Water Company Retirement Plan.
 
IN WITNESS WHEREOF, San Jose Water Company has caused its authorized officers to execute this instrument in its name and on its behalf.
 
   
SAN JOSE WATER COMPANY
       
 
, 2007
By:
 
       
   
Title:
 
 
 
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EXHIBIT A
 
TO
 
THE EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
 
(a)           In computing John Weinhardt's benefit under Section 3.1 of the Plan, he shall receive an additional eight and one quarter tenths of one percent (0.825%) of Final Average Compensation for each year of service as President and Chief Executive Officer of the Company. In addition, Mr. Weinhardt shall be entitled to a supplemental benefit of payment of $225,000, which shall be fully vested upon his retirement and payable in equal monthly installments over the thirty-six (36) month period beginning August 1, 2002 and ending July 31, 2005.
 
(b)           If Barbara Y. Nilsen retires on March 1, 1998, then the benefit to which she is entitled under Sections 3.1 and 3.2 of the Plan shall be increased by $40,000 in the first year, $30,000 in the second year, and $20,000 in the third year of retirement.
 
(c)           In computing Frederick Meyer's benefit under Sections 3.1 and 3.2 of the Plan, he shall receive an additional two and one-half (2 1/2) Years of Service credit and shall be deemed to be 2 1/2 years of age older at the time he retires.
 
(d)           In computing the benefits under Article III for any Participant who becomes entitled to a severance benefit under the Executive Severance Plan by reason of a qualifying termination of Employee status after a Change in Control, such Participant shall be credited with an additional number of Years of Service and years of age equal to the number of years of cash severance benefits to which such Participant is entitled under the Severance Plan (or if the severance benefit is paid in a lump sum, the number of years of salary or compensation on which such lump sum severance payment is based).  In no event, however, shall any benefit be payable hereunder earlier than it otherwise would have been paid in the absence of such additional Years of Service and age credits.
 
(e)           If W. Richard Roth terminates Employee status before his Normal Retirement Date, the benefit to which he is entitled under Section 3.2 of the Plan shall be the full annual amount computed in accordance with Section 3.1 of the Plan, without any reduction for early commencement of benefits In addition, in computing Mr. Roth’s Final Average Compensation for purposes of computing his benefit under Article III, his actual annual bonus for each year on and after 2003 shall be deemed to be the greater of such actual bonus or his target bonus for such year.  If Mr. Roth becomes entitled to a severance benefit under the Executive Severance Plan by reason of a qualifying termination of Employee status after a Change in Control, he shall be credited with such additional service and years of age, if any, as is necessary, after application of paragraph (d) above, to qualify him for benefits that would be payable had he terminated Employee status after qualifying for an Early Retirement Date, provided that no benefit shall be payable before his actual 55 th birthday.
 
(f)           If Jim Johansson retires March 12, 2004 then the benefit to which he is entitled under Sections 3.1 and 3.2 of the Plan shall be calculated with an additional one and one half years of service credit and one and one half years of age credit.
 
 
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(g)           If Robert Loehr retires on December 07, 2004, then the benefit to which he is entitled under Sections 3.1 and 3.2 of the Plan shall be calculated with an additional 2 years of age credit.
 
(h)           When George Belhumeur retires, the benefit to which he is entitled under Sections 3.1 and 3.2 of the Plan shall be determined by increasing his Final Average Compensation (as defined in Section 1.11) by the dollar amount obtained by dividing the accrued vacation and termination payments made to him in connection with his retirement by 36; provided, however that in determining his normal retirement benefit under Section 3.1 or his early retirement benefit under Section 3.2, his Accrued Benefit shall in no event be less than his Accrued Benefit as of February 28, 2004.
 
(i)           If Richard Balocco retires before February 28, 2007, then the benefit to which he is entitled under Sections 3.1 and 3.2 of the Plan shall be calculated with an additional two and one half years of age credit.
 
(j)           If Richard Pardini retires June 15, 2007, then the benefit to which he is entitled under Sections 3.1 and 3.2 of the Plan shall be calculated with an additional three years of service credit.
 
 
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EXHIBIT 10.8
SJW CORP.

EXECUTIVE SEVERANCE PLAN

AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2008
* * *
 
The SJW Corp. Executive Severance Plan (the “Plan”), originally adopted as of January 28, 1999 by SJW Corp. (“Company”) for the benefit of the Officers (as defined below) of the Company and/or other members of the Employer Group (as defined below) and as previously amended as of September 21, 1999 and May 1, 2003, is hereby further amended and restated effective as of January 1, 2008. The purpose of such restatement is to conform the provisions of the plan document to the applicable requirements of Section 409A of the Internal Revenue Code and the Treasury Regulations issued thereunder.
 
W I T N E S S E T H :
 
WHEREAS , the Officers are currently employed by the Company and/or one or more other members of the Employer Group (collectively referred to as the “Employer”); and
 
WHEREAS , the Employer wishes to retain the services of the Officers and to encourage the Officers to remain with the Employer; and
 
WHEREAS , the Company desires to maintain this Plan to provide security for the Officers in the event their employment with the Employer is affected under certain circumstances in connection with a Change in Control (as defined below) affecting Employer; and
 
WHEREAS, the benefits provided under the Plan may be deemed to constitute a deferred compensation arrangement subject to Section 409A of the Internal Revenue Code and the applicable Treasury Regulations thereunder; and
 
  WHEREAS, the Company deems it advisable to amend and restate the provisions of the Plan so that those provisions comply with the applicable requirements of Section 409A of the Internal Revenue Code and the Treasury Regulations thereunder.
 
NOW, THEREFORE , the Plan is hereby amended and restated as set forth below.
 
1.
DEFINITIONS.  For purposes of this Plan:
 
(a)           “Beneficiary” shall mean the person or persons whom the Officer shall designate in writing (on the form attached hereto as Exhibit B) to receive any benefits to which such Officer becomes entitled hereunder but which have not been paid or provided prior to the time of  his or her death. Such designation shall be valid only if it is made on such form, and the Employer receives that form prior to the Officer's death.
 
 
 
 

(b)           “Change in Control” shall be deemed to take place upon the occurrence of any of the following events:
 
(i)           The acquisition, directly or indirectly, by any person or related group of persons (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Company or a person that directly or indirectly controls, is controlled by, or is under, control with the Company or an employee benefit plan maintained by the Company or such person, of beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of securities of the Company that results in such person or related group of persons beneficially owning securities representing 30% or more of the combined voting power of the Company’s then-outstanding securities;

(ii)           A merger, recapitalization, consolidation, or other similar transaction to which the Company is a party, unless securities representing at least 50% of the combined voting power of the then-outstanding securities of the surviving entity or a parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company’s outstanding voting securities immediately before the transaction;

(iii)           A sale, transfer or disposition of all or substantially all of the Company’s assets, unless securities representing at least 50% of the combined voting power of the then-outstanding securities of the entity acquiring the Company’s assets or parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company’s outstanding voting securities immediately before the transaction;

(iv)           A merger, recapitalization, consolidation, or other transaction to which the Company is a party or the sale, transfer, or other disposition of all or substantially all of the Company’s assets if, in either case, the members of the Company’s Board of Directors immediately prior to consummation of the transaction do not, upon consummation of the transaction, constitute at least a majority of the board of directors of the surviving entity or the entity acquiring the Company’s assets, as the case may be, or a parent thereof (for this purpose, any change in the composition of the Company’s Board of Directors that is anticipated or pursuant to an understanding or agreement in connection with a transaction will be deemed to have occurred at the time of the transaction); or

(v)           A change in the composition of the Company’s  Board of Directors over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members who were described in clause (a) or who were previously so elected or approved and who were still in office at the time the Board approved such election or nomination;


 
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provided, however, that no Change in Control shall be deemed to occur for purposes of this Plan if the result of the transaction is to give more ownership or control of the Company to any person or related group of persons who held securities representing more than thirty percent (30%) of the combined voting power of the Company's outstanding securities as of March 3, 2003.

(c)           “Code” shall mean the Internal Revenue Code of 1986, as amended.
 
(d)           “Employee” means an individual for so long as he or she is in the employ of at least one member of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
 
(e)            “Employer Group” means the Company and each member of the group of commonly controlled corporations or other businesses that include the Company, as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section  1.4.14(c)-2 of the Treasury Regulations.
 
(f)           “Employer” shall mean collectively the Company and each of the other members of the Employer Group.
 
(g)           “Good Cause” shall be deemed to exist with respect to an Officer if, and only if:
 
 
(1)
The Officer engages in acts or omissions that result in substantial harm to the business or property of Employer and that constitute dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing;
 
 
3
 
 
 
(2)
The Officer is convicted of a criminal violation involving fraud or dishonesty; or
 
 
(3)
The Officer intentionally and knowingly participates in the preparation or release of false or materially misleading financial statements relating to the Company’s operations and financial condition or the Officer intentionally and knowingly submits any false or erroneous certification required of him or her under the Sarbanes-Oxley Act of 2002 or any securities exchange on which shares of the Company’s common stock are at the time listed for trading.
 
(h)           “Good Reason” shall exist with respect to an Officer if and only if, without the Officer's express written consent:
 
 
(1)
there is a significant change in the nature or the scope of the Officer's authority or in his or her overall working environment;
 
 
(2)
the Officer is assigned duties materially inconsistent with his or her present duties, responsibilities and status;
 
 
(3)
there is a reduction in the sum of the Officer's rate of base salary and target bonus; or
 
 
(4)
the Employer changes by fifty-five (55) miles or more the principal location in which the Officer is required to perform services;
 
provided, however , that, before the Officer may resign for any Good Reason event, the Officer must first provide written notice to the Employer identifying such Good Reason event and the Employer shall have failed to cure such event within thirty (30) days after receipt of such written notice.
 
(i)           “Officer” shall mean any officer of the Employer who has been elected as such by the Board of Directors of such Employer and is serving as such upon a Change in Control, unless expressly excluded from coverage under this Plan by the Board of Directors at the time of such election.  The persons who are Officers as of January 1, 2008 are set forth on Exhibit A.
 
(j)           “Plan Administrator” shall mean the Executive Compensation Committee of the Company’s Board of Directors.
 
(k)           “Salary” shall mean the rate of annual base salary in effect for the Officer on (l) the date of the Change in Control or, if greater, (2) the date the Officer's employment with the Employer terminates.
 
(l)           “Separation from Service” shall mean the Officer’s cessation of Employee status and shall be deemed to occur for purposes of the Plan at such time as the level of his or her bona fide services to be performed as an Employee (or non-employee consultant) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he or she rendered as an Employee during the immediately preceding thirty-six (36) months (or such shorter period for which he or she may have rendered such service). Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Code Section 409A.  In addition to the foregoing, a Separation from Service will not be deemed to have occurred while an Employee is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or any longer period for which such Employee’s right to reemployment with one or more members of the Employer Group is provided either by statute or contract; provided, however, that in the event of an Employee’s leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and that causes such individual to be unable to perform his or her duties as an Employee, no Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave.  If the period of leave exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and the Employee’s right to reemployment is not provided either by statute or contract, then such Employee will be deemed to have a Separation from Service on the first day immediately following the expiration of such six (6)-month or twenty-nine (29)-month period.
 
 
4
 
 
(m)           “Specified Employee” shall mean an Officer who is, pursuant to procedures established by the Plan Administrator in accordance with the applicable standards of Code Section 409A and the Treasury Regulations thereunder and applied on a consistent basis for all non-qualified deferred compensation plans of the Employer Group subject to Code Section 409A, deemed at the time of his or her Separation from Service to be a “key employee” within the meaning of that term under Code Section 416(i). The Specified Employees shall be identified on December 31 of each calendar year and shall have that status for the twelve (12)-month period beginning on April 1 of the following calendar year.
 
2.
BENEFITS UPON TERMINATION OF EMPLOYMENT.
 
(a)           If (i) at any time during the period beginning with the execution of a definitive agreement to effect a Change in Control and ending with the earlier of (x) the termination of that agreement without a Change in Control or (y) the expiration of the twenty-four (24)-month period measured from the effective date of the Change in Control contemplated by that agreement, an Officer incurs a Separation from Service because his or her Employee status is involuntarily terminated by his or her Employer for any reason other than Good Cause, or (ii) at any time within the twenty-four (24)-months period measured from the effective date of a Change in Control, the Officer incurs a Separation from Service as a result of his or her resignation from Employee status for Good Reason, then the Employer shall provide that Officer with the following benefits (collectively the “Change in Control Benefit”), provided and only if such Officer timely delivers the requisite release under Section 2(b) and such release become effective in accordance with applicable law:
 
 
(1)
Cash payments equal to that number of years of Salary and target bonus (at the level in effect in the year of such cessation of Employee status or, if higher, immediately before the Change in Control) specified in Exhibit A for such Officer (the “Applicable Multiple”), payable (less any customary taxes and withholdings) in successive equal annual installments over the period of years equal to the Applicable Multiple. The first such installment to be paid on the first day of the first month, within the sixty (60) day period measured from the date of the Officer’s Separation from Service, on which the release required of the Officer under Section 2(b) below is effective following the expiration of any applicable revocation period. In no event, however, shall such initial payment be made later than the later of (A) the close of the calendar year in which such Separation from Service occurs or (B) the fifteenth (15th) day of the third calendar month following the date of such Separation from Service. Each subsequent installment shall be paid on each successive one-year anniversary of that initial payment date.
 
 
(2)
If an Officer elects to continue medical care coverage under the Company’s group health care plans pursuant to COBRA, Employer will provide such coverage, without charge, to the Officer and his or her spouse and eligible dependents until the earlier of (x) the last annual installment payable under Section 2(a)(1) above or (y) the first date on which Officer is covered under another employer’s health benefit program without exclusion for any pre-existing medical condition. For the period of such coverage hereunder which is coincidental with the Officer’s COBRA continuation period, such coverage shall be provided under the Company’s group health plans, and to the extent the Officer incurs any taxable income with respect to such coverage, the resulting tax liability shall be the Officer’s sole responsibility.  Following the completion of the period of  COBRA continuation coverage, the same arrangement shall continue in effect, to the extent such coverage is to be provided by one more insured group health plans maintained by the Company for its current and former employees. In the absence of such insured plans, the Officer shall, following the expiration of the COBRA coverage period, obtain medical care insurance for himself or herself and his or her eligible family members The Officer shall submit appropriate evidence of each periodic premium paid for such insurance within sixty (60) days after the required premium payment date, and to the extent such premium payment represents the cost of medical care coverage at a level not greater than the level of coverage in effect for the Officer and his or her eligible family members at the end of the COBRA coverage period, the Company shall within thirty (30) days after such submission reimburse the Officer for that premium payment (or applicable portion thereof). The Officer shall submit appropriate evidence of any other reimbursable medical expense he or she incurs hereunder within sixty (60) days after incurrence, and the Company shall reimburse the Officer for such expense within thirty (30) days thereafter. During the post-COBRA period for which such medical care coverage remains in effect hereunder, the following provisions shall govern the arrangement: (a) the amount of medical care expenses or premium payments eligible for reimbursement in any one calendar year of such coverage (or any in-kind medical care coverage provided in any one calendar year) shall not affect the amount of expenses or premium payments eligible for reimbursement (or the in-kind benefits to be provided) in any subsequent calendar year for which medical care coverage is to be provided hereunder; (ii) any reimbursement of medical care expenses or premium payments covered hereunder shall be made by the Company as soon as administratively practicable following the incurrence of those expenses or premium payments, but in no event later than the close of the calendar year following the calendar year in which those expenses or premium payments were made or incurred; and (iii) the right to such continued medical care coverage cannot be liquidated or exchanged for any other benefit.
 
 
5
 
 
 
(3)
The Company will make provisions in its Supplemental Executive Retirement Plan (SERP) so that each Officer will, upon a Separation from Service under the circumstances set forth in Section 2(a), be credited for purposes of computing such Officer's benefits under the SERP with an additional number of Years of Service and years of age equal to the number of years of continued Salary to which such Officer is, upon his or her Separation from Service, entitled by reason of the Applicable Multiple in effect for him or her pursuant to Section 2(a)(1) above. In no event, however, shall any benefit be payable under the SERP earlier than it otherwise would have been paid in the absence of such additional Years of Service and age credits.
 
 
6
 
 
 
(4)
All outstanding stock options held by each Officer will immediately vest and become exercisable in full and may be exercised for any or all of the underlying shares until the expiration or sooner termination of the option term.  All restricted stock unit and other stock awards will also immediately vest, and the underlying shares will become issuable in accordance with the terms of the applicable award agreements.  All outstanding Dividend Equivalent Rights held by the Officer at such time will immediately vest, and any shares or cash amounts attributable to those rights will be paid to the Officer at the same time those shares and amounts would have otherwise been payable in the absence of such vesting acceleration.
 
 
(5)
The Officer shall, to the extent applicable, also be entitled to the special Tax Gross-Up under Section 14 of this Plan as part of his or her Change in Control Benefit.
 
(b)           The Officer shall be entitled to only one Change in Control Benefit under this Plan. The Change in Control Benefit will be provided only if Officer delivers to the Employer an executed Release Agreement (in substantially the form attached hereto as Exhibit C) within twenty-one (21) days following his or her Separation from Service under the circumstances set forth in Section 2(a), and no portion of the Change in Control Benefit will be provided or paid prior to the expiration of any applicable revocation period for such Release. No payments will be made under the Plan to the Officer if such Officer revokes the delivered Release. In the event that the Officer dies before receiving the full Change in Control Benefit to which he or she becomes entitled hereunder, his or her Beneficiary shall be paid the remaining payments as they become due.
 
(c)           No portion of the Change in Control Benefit to which the Officer becomes entitled under this Plan (other than COBRA continuation coverage) shall actually be paid or provided to the Officer prior to the earlier of (i) the first day of the seventh month following the month in his or her Separation from Service occurs or (ii) the date of his or her death, if  the Officer is a Specified Employee at the time of such Separation from Service and such delay is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2).  Upon the expiration of the applicable deferral period, all payments or benefits deferred pursuant to this Paragraph 2(c) shall be paid, reimbursed or provided in a lump sum to the Officer.
 
(d)           If an Officer ceases Employee status under circumstances other than those set forth in Section 2(a), then the Employer shall have no further obligation with respect to the Officer under this Plan, and that Officer shall accordingly not be entitled to any Change in Control Benefit hereunder.
 
 
7
 
 
(e)           A cessation of Employee status in connection with a Change in Control will not qualify an Officer for benefits hereunder if the Officer is offered continuing employment with a successor or controlling entity involved in the Change in Control, provided that (i) such successor or controlling entity has assumed the Company's obligations hereunder with respect to such Officer and (ii) the terms of such continuing employment would not constitute a Good Reason event if offered by the Company.
 
3.
NO SOLICITATION OF REPRESENTATIVES AND OFFICERS.
 
No Officer shall, directly or indirectly, in his or her individual capacity or otherwise, induce, cause, persuade, or attempt to induce, cause or, persuade, any representative, agent or employee of the Company or any of its affiliates to terminate such person's employment relationship with the Company or any other member of the Employer Group, or to violate the terms of any agreement between such representative, agent or employee and the Company or any other member of the Employer Group.
 
4.
CONFIDENTIALITY.
 
Preservation of a continuing business relationship between the Company or other members of the Employer Group and their respective customers, representatives, and employees is of critical importance to the continued business success of the Company and the other members of the Employer Group, and it is the active policy of the Company and the other members of the Employer Group to guard as confidential certain information not available to the public relating to the business affairs of the Company and the other members of the Employer Group. In view of the foregoing, no Officer shall, without the prior written consent of the Company, disclose to any person or entity any such confidential information that was obtained by the Officer in the course of his or her employment with the Company or any other member of the Employer Group. This Section 4 shall not be applicable if and to the extent the Officer is required to testify in a legislative, judicial or regulatory proceeding pursuant to an order of Congress, any state or local legislature, a judge or an administrative law judge or is otherwise required by law to disclose such information.
 
5.
FORFEITURE.
 
If an Officer shall at any time violate any obligation under Section 3 or 4 in a manner that results in material damage to the Company or any other member of the Employer Group or its business, such Officer shall immediately forfeit his or her right to any benefits under this Plan, and the Employer shall thereafter have no further obligation hereunder to the Officer or his or her Beneficiary or any other person.
 
6.
OFFICER ASSIGNMENT.
 
Neither the Officer nor his or her Beneficiary shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of the benefits payable hereunder, nor shall any of such benefits be subject to seizure for thepayment of any debts, judgments, alimony, or separate maintenance owed by the Officer or his or her Beneficiary, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise.
 
 
8
 
 
7.
BENEFITS UNFUNDED.
 
The Plan is intended to be unfunded for purposes of Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code. The Employer's obligation under this Plan shall be that of an unfunded and unsecured promise by the Employer to pay money in the future. All distributions under this Plan shall be paid from the general assets of the Employer. The right of the Officer or any Beneficiary to receive a distribution under this Plan shall be an unsecured claim against the general assets of the Employer, and neither the Officer nor any Beneficiary shall have any priority rights in or against any assets of the Employer or Company and its Affiliates and Associates.
 
8.
APPLICABLE LAW.
 
Except to the extent preempted by ERISA or other federal laws, the Plan and all matters arising under it shall be governed by the laws of the State of California.
 
9.
NO EMPLOYMENT CONTRACT.
 
This Plan shall not be deemed to constitute a contract of employment between an Officer and his or her Employer, nor shall any provision hereof restrict the right of the Employer to discharge the Officer, or restrict the right of the Officer to terminate his or her employment.
 
10.
SEVERABILITY.
 
In the event any provision of this Plan is held illegal or invalid, the remaining provisions of this Plan shall not be affected thereby.
 
11.
SUCCESSORS.
 
The Plan shall be binding upon and inure to the benefit of the Company and the other members of the Employer Group participating in the Plan, the Officers and their respective heirs, representatives and successors. As a condition to any Change in Control, the new controlling organization or any other person described in Section 1(b) must agree to assume and to discharge the obligations of the Employer under this Plan. Upon the occurrence of such event, the term “Employer” as used in the Plan shall be deemed to refer to such new controlling organization or other person.
 
12.
CLAIMS PROCEDURE.
 
(a)           The Plan shall be administered by the Plan Administrator. The Plan Administrator shall have the power, in its discretion, to interpret and make all determinations as to the eligibility if an Officer to participate in this Plan, any right of an Officer to benefits under this Plan and the amount of benefits (if any) to which an Officer may become entitled under this Plan, and its interpretation or determination thereof in good faith shall be final and conclusive on the Officer and his or her Beneficiary and shall be subject to review only to the extent a court concludes that such interpretation or determination is arbitrary and capricious.  The Plan Administrator may, from time to time, allocate to one or more of its members (or to any other person or persons or organizations) any of its power with respect to the interpretation and determination as to rights to benefits under the Plan.
 
 
9
 
 
(b)           If a claim for benefits under the Plan is denied in whole or in part, the claimant will be notified by the Plan Administrator or its delegate within 90 days after the date the claim is delivered to the Employer, or 180 days if the claimant is told that additional time is needed. The notification will be written in understandable language and will state (i) specific reasons for denial of the claim, (ii) specific references to Plan provisions on which the denial is based, (iii) a description (if appropriate) of any additional material or information necessary for the claimant to perfect the claim and why such material or information is necessary, and (iv) an explanation of the procedure for reviewing the denied claim. A claim that is not acted upon within 90 days (or 180 days in the case of an extension) may be deemed by the claimant to have been denied.
 
(c)           Within 60 days after a claim has been denied, or deemed denied, the claimant or his or her authorized representative may make a request for a review by submitting to the Plan Administrator a written statement (a) requesting a review of the denial of the claim; (b) setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and (c) setting forth any issues or comments which the claimant deems relevant to the claim. The claimant may review pertinent documents relating to the denial.
 
(d)           The Plan Administrator shall make a decision on review within 60 days after the receipt of the claimant's request for review or receipt of all additional materials reasonably requested by the Plan Administrator from the claimant, unless an extension of time for processing a review is required, in which case the claimant will be notified, and a decision will be made within 120 days after receipt of the request for review. The decision will be in writing, and in understandable language. It will give specific references to the Plan provisions on which the decision is based. The decision of the Plan Administrator on review shall be final and conclusive upon all persons except to the extent it is found by a court to be arbitrary or capricious.
 
13.
AMENDMENT AND TERMINATION.
 
(a)           The Company shall have the right to amend this Plan from time to time and may terminate this Plan at any time; provided that (i) within twenty-four (24) months following a Change in Control, no amendment may be made that diminishes any Officer's right to benefits under this Plan in the event of a Separation from Service under the circumstances set forth in  Section 2(a) and (ii) no amendment or termination may adversely affect an Officer's rights to benefits that he or she would have received under this Plan with respect to a Change in Control (as defined herein immediately before such amendment or termination) that occurs (or with respect to which a definitive agreement is executed) within twenty-four (24) months after the date of such amendment or termination.
 

 
10
 

(b)           This Section 13 may not be amended in any manner that would adversely affect any Officer's rights hereunder without his or her consent. In addition, no amendment or termination of this Plan shall modify the distribution and payment provisions (including the form and timing of such distribution or payment) in effect for the Change in Control Benefit or any other amount to be provided hereunder.
 
14.
TAXES; SPECIAL TAX GROSS-UP.
 
(a)           It is intended that this Plan shall be a non-qualified deferred compensation plan and that any right to payments hereunder shall not be treated as taxable income to the Officer or any Beneficiary prior to distribution thereof. Any payments made under this Plan shall be subject to the Employer’s collection of all applicable withholding taxes, and the Officer shall only receive the net amount remaining after such withholding taxes have been collected.
 
(b)           If an Officer qualifies for a Change in Control Benefit hereunder, he or she shall receive as part of such benefit a special cash payment (the “Tax Gross-Up”) sufficient to reimburse him or her on an after-tax basis for any excise tax imposed, pursuant to Code Section 4999 or any successor provision or similar tax (“Excise Tax”), on such Officer with respect to the entire Change in Control Benefit and any other compensation from his or her Employer deemed to constitute a parachute payment under Code Section 280G, so that such Officer does not incur any out-of-pocket cost with respect to such Excise Tax.  The amount of any such Tax Gross-Up will be determined pursuant to the following formula and will be subject to the Employer’s collection of all applicable federal, state and local income and employment with withholding taxes and any Excise Tax:
 
X  =  Y  / (1 - ( A  +  B  + C )), where
 
X is the total dollar amount of the Tax Gross-Up payable to the Officer.
 
Y is the total Excise Tax imposed on the Officer.
 
A is the Excise Tax rate in effect at the time.
 
B is the highest combined marginal federal income and applicable state income tax rate in effect for the Officer, after taking into account the deductibility of state income taxes against federal income taxes to the extent allowable, for the calendar year in which the Tax Gross-Up is paid.
 
C is the applicable Hospital Insurance (Medicare) Tax Rate in effect for the Officer for the calendar year in which the Tax Gross-Up is paid.
 
(c)           Within thirty (30) days after any Change in Control transaction in which one or more of the Change in Control Benefits paid or provided to the Officer constitute, in the opinion of the Officer’s tax advisor, parachute payments under Code Section 280G for which the Officer is liable for an Excise Tax, the Officer shall identify the nature of those parachute payments to the Company and submit to the Company the calculation of the Excise Tax attributable to those  payments and the Tax Gross-Up to which the Officer is entitled with respect to such tax liability.  Within thirty (30) days after the date of the  Officer’s Separation from Service under the circumstances set forth in Section 2(a), the Officer shall identify to the Company the nature of any additional parachute payments which such Officer is to receive pursuant to this Plan in connection with such Separation from Service and submit to the Company the calculation of the Excise Tax attributable to those payments and the Tax Gross-Up to which the Officer is entitled with respect to such tax liability.  In each such instance, the Company will pay the applicable Tax Gross-Up to the Officer (net of all applicable withholding taxes, including any taxes required to be withheld under Code Section 4999) within ten (10) business days after the Officer’s submission of the calculation of such Excise Tax and the resulting Tax Gross-Up or (if later) at the time such Excise Tax is remitted to the appropriate tax authorities, provided that (i) such calculations represent a reasonable interpretation of the applicable law and regulations and (ii) to the extent the Tax Gross-Up is attributable to any Change in Control Benefit triggered by the Officer’s Separation from Service, that portion of the Tax Gross-Up shall be subject to the delayed payment provisions of Section 2(c).

 
11
 
 
(d)           In the event that the Officer’s actual Excise Tax liability is determined by a Final Determination to be greater than the Excise Tax liability taken into account for purposes of the Tax Gross-Up paid to the Officer pursuant to the preceding provisions of this Section 14, then within ninety (90) days following the Final Determination, the Officer shall submit to the Company a new Excise Tax calculation based upon that Final Determination.  The Company shall pay the Officer the additional Tax Gross-Up attributable to that excess Excise Tax liability within ten (10) business days thereafter or (if later) at the time the additional Excise Tax is remitted to the appropriate tax authorities, provided that (i) such calculations represent a reasonable interpretation of the applicable law and regulations and (ii) to the extent the Tax Gross-Up is attributable to any Change in Control Benefit triggered by the Officer’s Separation from Service, that portion of the Tax Gross-Up shall be subject to the delayed payment provisions of Section 2(c).
 
(e)           In the event that the Officer’s actual Excise Tax liability is determined by a Final Determination to be less than the Excise Tax liability taken into account for purposes of the Tax Gross-Up paid to the Officer pursuant to the preceding provisions of this Section 14, then the Officer shall refund to the Company, promptly upon receipt, any federal or state tax refund attributable to the Excise Tax overpayment.
 
(f)           For purposes of this Section 14, a “Final Determination” means an audit adjustment by the Internal Revenue Service that is either (i) agreed to by both the Officer (or his estate) and the Company (such agreement by the Company to be not unreasonably withheld) or (ii) sustained by a court of competent jurisdiction in a decision with which the Officer and the Company concur (such concurrence by the Company to be not unreasonably withheld) or with respect to which the period within which an appeal may be filed has lapsed without a notice of appeal being filed.
 
 
12
 

(g)           In order to assure that the Tax Gross-Up provisions of this Section 14 comply with the applicable requirements of Code Section 409A, the following limitations shall be controlling, notwithstanding anything to the contrary in the preceding provisions of this Section 14:
 
(i)            In no event shall any Tax Gross-Up to which the Officer becomes entitled pursuant to this Section 14 be made later than the close of the calendar year following the calendar year in which the Excise Tax triggering the right to such payment is remitted to the appropriate tax authorities.
 
(ii)           To the extent the Officer may become entitled to any reimbursement of expenses incurred by him or her at the direction of the Company in connection with any tax audit or litigation addressing the existence or amount of the Excise Tax, such reimbursement shall be paid to the Officer no later than the close of the calendar year following the calendar year in which the Excise Tax that is the subject of such audit or litigation is remitted to the appropriate tax authorities or, if no Excise Tax is found to be due as a result of such audit or litigation, no later than the close of the calendar year following the calendar year in which the audit is completed or there is a final and nonappealable settlement or other resolution of the litigation.
 
IN WITNESS WHEREOF, the Company has caused this Amended and Restated Executive Severance Plan to be executed in its name by its duly authorized officer, all as of this ____ day of ____________, 2008.
 
 
 
SJW CORP .
       
       
 
By :
   
       
       
 
TITLE :
   

 
13
 

EXHIBIT A
 
OFFICERS
 
Officer
Years of Salary Continuation
G.J. Belheumeur, Senior Vice President - Operations, San Jose Water Company
Three (3) years
A. Yip, Chief Financial Officer and Treasurer, SJW Corp. and San Jose Water Company
Three (3) years
P.L. Jensen, Vice President -  Regulatory Affairs, San Jose Water Company
Three (3) years
S. Papazian, Corporate Secretary/Attorney, SJW Corp. and San Jose Water Company
Three (3) years
R.S. Yoo, Chief Operating Officer, San Jose Water Company
Three (3) years
D.R. Drysdale, Vice President – Information Systems, San Jose Water Company
Three (3) years
A.J. Elliott, Controller, San Jose Water Company
Three (3) years
W. Richard Roth, President and Chief Executive Officer, SJW Corp. and San Jose Water Company
Three (3) years

 
14
 

EXHIBIT B
 
DESIGNATION OF BENEFICIARIES
 
I, hereby designate the following person(s) as my Beneficiary(ies) under the SJW Corp. Executive Severance Plan (the “Plan”) to receive any amounts that might be payable as of the date of my death:
 
Name:
   
Percentage:
 
%
     
 
   
Address:
     
           
           
Name:
   
Percentage:
 
%
           
Address:
     
 
This designation supersedes all prior Beneficiary designations I have made under the Plan.
 
DATED:
  , 20        

 
15
 

EXHIBIT C
 
RELEASE AGREEMENT
 
This Release Agreement (“Release”) was given to me, _____________________ (“Officer”), this ____ day of ____________, 20___, by ________________________ (the “Employer”). At such time as this Release becomes effective and enforceable (i.e., the revocation period discussed below has expired), and assuming Officer is otherwise eligible for payments under the terms of the SJW Corp. Executive Severance Plan (the “Plan”), Employer agrees to pay Officer pursuant to the terms of the Plan an amount equal to $________ payable in ________ (___) equal annual installments (minus customary payroll taxes and withholdings).
 
In consideration of the receipt of the promise to pay such amount, Officer hereby agrees, for himself or herself, his or her heirs, executors, administrators, successors and assigns (hereinafter referred to as the “Releasors”), to fully release and discharge the Employer and its officers, directors, employees, agents, insurers, underwriters, subsidiaries, parents, affiliates, associates, successors and assigns (hereinafter referred to as the “Releasees”) from any and all actions, causes of action, claims, obligations, costs, losses, liabilities, damages and demands under any federal, state or local law or laws, or common law, whether or not known, suspected or claimed, which the Releasors have, or hereafter may have, against the Releasees arising out of or in any way related to Officer's employment with the Employer or the termination of that employment, including (without limitation) claims of wrongful discharge, emotional distress, defamation, fraud, breach of contract, breach of the covenant of good faith and fair dealing, discrimination claims based on sex, age, race, national origin, disability or any other basis under Title VII of the Civil Rights Act of 1964, as amended, the California Fair Employment and Housing Act, the Federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”),  the Americans with Disability Act, contract claims, tort claims, and wage or benefit claims, including (without limitation) claims for salary, bonuses, commissions, stock grants, stock options, vacation pay, fringe benefits, severance pay or any other form of compensation (other than the payments and benefits to which Officer is entitled under the Plan, his or her vested rights under the San Jose Water Company Section 401(k) Plan, the San Jose Water Company Retirement Plan, the San Jose Water Company Supplemental Executive Retirement Plan and any worker’s compensation benefits under any workers’ compensation insurance policy or fund).
 
In releasing claims unknown to Officer at present, Officer is waiving all rights and benefits under Section 1542 of the California Civil Code, and any law or legal principle of similar effect in any jurisdiction:   “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”
 
This Release and Waiver does not pertain to any claims which may subsequently arise in connection with the Employer’s default in any of its payment obligations under the Plan.
 
 
16
 

Officer acknowledges that, among other rights subject to his or her Release and Waiver, Officer is hereby waiving and releasing any rights he or she may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which Officer was already entitled from the Employer.  Officer further acknowledges that he or she has been advised, as required by the Older Workers Benefit Protection Act, that:  (a) the Release and Waiver granted herein does not relate to claims which may arise after this Release and Waiver is executed; (b) he or she has the right to consult with an attorney prior to executing this Release and Waiver (although Officer may choose voluntarily not to do so); and if Officer is over 40 years old upon execution of this; (c) Officer has  twenty-one (21) days from the date of termination of his or her employment with the Employer in which to consider this Release and Waiver (although Officer may choose voluntarily to execute this Release and Waiver earlier); (d) Officer has seven (7) days following the execution of this Release and Waiver to revoke his or her consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7)-day revocation period has expired.
 
In case any part of this Release is later deemed to be invalid, illegal or otherwise unenforceable, Officer agrees that the legality and enforceability of the remaining provisions of this Release will not be affected in any way.

 
Dated:______________, ______
   
   
(“Officer”)

 
17
EXHIBIT 10.15
 
SJW CORP.

STOCK OPTION
DIVIDEND EQUIVALENT RIGHTS AGREEMENT
AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 2005
AS SUBSEQUENTLY AMENDED AS OF JANUARY 1, 2008


RECITALS
 
A.           Participant has been granted one or more stock options to purchase shares of the Corporation’s Common Stock under the Plan (the “Options”). The Options also provide Participant with dividend equivalent rights with respect to the shares of Common Stock subject to those Options.  Each such option is evidenced by a Notice of Grant and Stock Option Agreement (collectively, the “Option Agreement”).
 
B.           The Options with such dividend equivalent rights are more particularly identified in attached Schedule A.
 
C.           The terms and conditions governing those dividend rights were originally set forth in a Dividend Equivalent Rights Agreement for each such Option (or other written document evidencing those dividend equivalent rights with respect to one or more of the Options).  Each such agreement or other written document shall hereinafter be referred to collectively as the “Rights Agreements.”
 
D.           Each of those separate Rights Agreements was amended and restated on February 28, 2006 through one consolidated agreement effective as of January  1, 2005 in order to bring the provisions of those Rights Agreements, to the extent they pertained to Options that were not vested and exercisable as of December 31, 2004, into compliance with the requirements of the proposed Treasury Regulations under Section 409A of the Internal Revenue Code (the “Code”) applicable to the payment of dividend equivalent rights.
 
E.           The purpose of this amendment is to bring each of the Rights Agreements, as previously amended and restated retroactive to January 1, 2005, into compliance with the applicable distribution requirements of Code Section 409A and the final Treasury Regulations thereunder, effective as of January 1, 2008.
 
F.           All capitalized terms in this Agreement shall have the meaning assigned to them in the Plan and the applicable Option Agreements.
 
NOW, THEREFORE , it is hereby agreed as follows:
 
1.     Each of the Rights Agreements pertaining to the Options, to the extent those agreements pertain to Options (or portions thereof) which were not vested and exercisable as of December 31, 2004  is hereby amended and restated as follows, retroactive to January 1, 2008, with respect to each covered Option (or portion thereof):
 
 
(i)            An Option Deferred Stock Account with respect to the Option shall continue to be maintained for the Participant on the books and records of the Corporation.
 
(ii)           Each time a dividend is paid on the Corporation’s outstanding shares of Common Stock after the Grant Date, the Option Deferred Stock Account will be credited with a dollar amount equal to the amount of that dividend paid per share multiplied by the number of shares of Common Stock at the time subject to the Option (plus the number of shares previously credited to the Option Deferred Stock Account pursuant to the dividend equivalent rights hereunder) as of the record date for the dividend; provided, however, that no further amounts shall be credited with respect to such option shares after the earlier of the fourth anniversary of the Grant Date of that Option or the exercise of that Option with respect to those shares.

(iii)           As of the first business day in January each year, the cash dividend amounts credited to the Option Deferred Stock Account during the immediately preceding calendar year shall  be converted into a book entry of an additional number of shares of Common Stock determined by dividing (i) those cash dividend equivalent amounts by (ii) the average of the Fair Market Value per share of Common Stock on each of the dates in the immediately preceding calendar year on which those dividend amounts were credited to the Option Deferred Stock Account.

(iv)           The shares credited to the Option Deferred Stock Account will vest at the same time and in the same manner as the Option Shares to which they are attributable vest. The shares which so vest shall be distributed to the Participant in the form of actual shares of Common Stock issued under the Plan on the earlier of the following dates (the “Distribution Date”): (i) the fourth anniversary of the Grant Date of the Option or (ii) the date of the Participant’s Separation from Service or as soon after such Distribution Date as administratively practicable, but in no event later than the end of the calendar year in which the Distribution Date occurs or (if later) the fifteenth (15th) day of the third calendar month following such date.  Such payment shall be subject to the Corporation’s collection of all applicable withholding taxes.  In no event shall any shares of Common Stock credited to the Option Deferred Stock Account be distributed to the Participant if and to the extent those shares do not vest in accordance with the foregoing provisions.

(v)           Notwithstanding any provision to the contrary in the Plan, the Option Agreement or this Agreement, no distribution which becomes due and payable hereunder by reason of the Participant’s Separation from Service shall be made to the Participant prior to the earlier of (i) the first day of the seventh (7th) month following the date of such  Separation from Service or (ii) the date of his or her death, if the Participant is a Specified Employee at the time of such Separation from Service and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable deferral period, all distributions deferred pursuant to this subparagraph shall be paid in a lump sum to the Participant.

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2.   For purposes of this Agreement, the following definitions shall be in   effect:
 
(i)           Participant shall be deemed to be an Employee for so long as he or she is in the employ of at least one member of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
 
(ii)            Employer Group means (i) the Corporation and (ii) each of the other members of the controlled group that includes the Corporation, as determined in accordance with Sections 414(b) and (c) of the Code, except that in applying Sections 1563(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section  1.4.14(c)-2 of the Treasury Regulations.
 
(iii)            Separation from Service means the Participant’s cessation of Employee status by reason of his or her death, retirement or termination of employment.  The Participant shall be deemed to have terminated employment for such purpose at such time as the level of his or her bona fide services to be performed as an Employee (or non-employee consultant) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he or she rendered as an Employee during the immediately preceding thirty-six (36) months (or such shorter period for which he or she may have rendered such service). Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Code Section 409A. In addition to the foregoing, a Separation from Service will not be deemed to have occurred while an Employee is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or any longer period for which such Employee’s right to reemployment with one or more members of the Employer Group is provided either by statute or contract; provided, however, that in the event of an Employee’s leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and that causes such individual to be unable to perform his or her duties as an Employee, no Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave.  If the period of leave exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and the Employee’s right to reemployment is not provided either by statute or contract, then such Employee will be deemed to have a Separation from Service on the first day immediately following the expiration of such six (6)-month or twenty-nine (29)-month period.
 
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(iv)            Specified Employee means a “key employee” (within the meaning of that term under Code Section 416(i)), as determined by the Executive Compensation Committee of the Board in accordance with the applicable standards of Code Section 409A and the Treasury Regulations thereunder and applied on a consistent basis to all non-qualified deferred compensation plans of the Employer Group subject to Code Section 409A.  The Specified Employees shall be identified on December 31 of each calendar year and shall have that status or the twelve (12)-month period beginning on April 1 of the following calendar year.
 
3.           This Amended and Restated Dividend Equivalent Rights Agreement shall, with respect to each Option identified in attached Schedule A, replace the Rights Agreement in effect for that Option immediately prior hereto, but only to the extent that Option was not vested and exercisable as of December 31, 2004. Except for the modifications effected by this Agreement, all the terms and provisions of each Option shall continue in full force and effect and shall continue to be governed by the terms of the Plan and the applicable Option Agreement and (to the extent that Option was vested and exercisable as of December 31, 2004) the Dividend Equivalent Rights Agreement in effect for that Option on December 31, 2004.
 
IN WITNESS WHEREOF, the parties have executed this Agreement as of the _______ day of _______________, 2008 to be effective as of January 1, 2008.
 
 
 
SJW CORP.
     
 
By:
 
     
 
Title:
 
     
     
 
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SCHEDULE A
 
LIST OF COVERED OPTIONS*
 


Grant
Date
 
Exercise Price
Per Share ($)
 
Option Shares (#)
Award
 
Option Shares Unexercised
As Of 12/31/2007
 
Expiration
Date

 
 

 
________
*  The listed options are subject to this Amended and Restated Dividend Equivalent Rights Agreement only to the extent those options were not vested and exercisable as of December 31, 2004.
 
 
EXHIBIT 10.16
SJW CORP.
STOCK OPTION
DIVIDEND EQUIVALENT RIGHTS AGREEMENT

RECITALS
 
A.           The Board has adopted the Plan for the purpose of retaining the services of selected Employees and non-employee members of the Board (or the board of directors of any Parent or Subsidiary).
 
B.           Participant has this day been granted an Option under the Plan which provides for dividend equivalent rights with respect to the shares of Common Stock subject to that Option.
 
C.           The purpose of this Agreement is to set forth the terms and conditions governing those dividend equivalent rights.
 
D.           All capitalized terms in this Agreement shall have the meaning assigned to them in the Plan and the Notice of Grant and Stock Option Agreement evidencing the granted Option (collectively, the "Option Agreement").
 
NOW, THEREFORE , it is hereby agreed as follows:
 
1.           An Option Deferred Stock Account with respect to the Option will be established for the Participant on the books and records of the Corporation.

2.           Each time a dividend is paid on the Corporation’s outstanding shares of Common Stock after the Grant Date, the Option Deferred Stock Account will be credited with a dollar amount equal to the amount of that dividend paid per share multiplied by the number of shares of Common Stock at the time subject to the Option (plus the number of shares previously credited to the Option Deferred Stock Account pursuant to the dividend equivalent rights hereunder) as of the record date for the dividend; provided, however, that no further amounts shall be credited after the earlier of the fourth anniversary of the Grant Date or the first exercise of the Option.

3.           As of the first business day in January each year, the cash dividend amounts credited to the Option Deferred Stock Account during the immediately preceding calendar year shall  be converted into a book entry of an additional number of shares of Common Stock determined by dividing (i) those cash dividend equivalent amounts by (ii) the average of the Fair Market Value per share of Common Stock on each of the dates in the immediately preceding calendar year on which those dividend amounts were credited to the Option Deferred Stock Account.

4.           The shares credited to the Option Deferred Stock Account will vest at the same time and in the same manner as the Option Shares to which they are attributable vest. The shares which so vest shall be distributed to the Participant in the form of actual shares of Common Stock issued under the Plan on the earlier of the following dates (the “Distribution Date”): (i) the fourth anniversary of the Grant Date of the Option or (ii) the date of the Participant’s Separation from Service or as soon after such Distribution Date as administratively practicable, but in no event later than the end of the calendar year in which the Distribution Date occurs or (if later) the fifteenth day of the third calendar month following such date. Such payment shall be subject to the Corporation’s collection of all applicable withholding taxes. In no event shall any shares of Common Stock credited to the Option Deferred Stock Account be distributed to the Participant if and to the extent those shares do not vest in accordance with the foregoing provisions.

 
 

5.           Notwithstanding any provision to the contrary in the Plan, the Option Agreement or this Agreement, no distribution which becomes due and payable hereunder by reason of the Participant’s Separation from Service shall be made to the Participant prior to the earlier of (i) the first day of the seventh (7th) month following the date of such  Separation from Service or (ii) the date of his or her death, if  the Participant is a Specified Employee at the time of such Separation from Service and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Section 409A(a)(2) of the Internal Revenue Code (the “Code”).  Upon the expiration of the applicable deferral period, all distributions deferred pursuant to this subparagraph shall be paid in a lump sum to the Participant.

6.           For purposes of this Agreement, the following definitions shall be in  effect:
 
(i)           Participant shall be deemed to be an Employee for so long as he or she is in the employ of at least one member of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
 
(ii)            Employer Group means (i) the Corporation and (ii) each of the other members of the controlled group that includes the Corporation, as determined in accordance with Sections 414(b) and (c) of the Code, except that in applying Sections 1563(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section  1.4.14(c)-2 of the Treasury Regulations.
 
(iii)            Separation from Service means the Participant’s cessation of Employee status by reason of his or her death, retirement or termination of employment. The Participant shall be deemed to have terminated employment for such purpose at such time as the level of his or her bona fide services to be performed as an Employee (or non-employee consultant) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he or she rendered as an Employee during the immediately preceding thirty-six (36) months (or such shorter period for which he or she may have rendered such service). Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Code Section 409A. In addition to the foregoing, a Separation from Service will not be deemed to have occurred while an Employee is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or any longer period for which such Employee’s right to reemployment with one or more members of the Employer Group is provided either by statute or contract; provided, however, that in the event of an Employee’s leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and that causes such individual to be unable to perform his or her duties as an Employee, no Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave.  If the period of leave exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and the Employee’s right to reemployment is not provided either by statute or contract, then such Employee will be deemed to have a Separation from Service on the first day immediately following the expiration of such six (6)-month or twenty-nine (29)-month period.

 
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(iv)            Specified Employee means a “key employee” (within the meaning of that term under Code Section 416(i)), as determined by the Executive Compensation Committee of the Board in accordance with the applicable standards of Code Section 409A and the Treasury Regulations thereunder and applied on a consistent basis to all non-qualified deferred compensation plans of the Employer Group subject to Code Section 409A.  The Specified Employees shall be identified on December 31 of each calendar year and shall have that status or the twelve (12)-month period beginning on April 1 of the following calendar year.
 
7.           This Agreement and the Dividend Equivalent Rights evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan and the Option Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the _______ day of _______________, 2008.

 
 
SJW CORP.
 
By:
 
 
Title:
 
     
   
 
PARTICIPANT

 
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EXHIBIT 10.20
SJW CORP.

RESTRICTED STOCK UNIT ISSUANCE AGREEMENT

RECITALS

A.           The Board has adopted the Plan for the purpose of retaining the services of selected Employees and consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).
 
B.           Participant is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s issuance of an equity incentive award under the Plan designed to retain Participant's continued service.
 
C.           All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A.
 
NOW, THEREFORE , it is hereby agreed as follows:
 
1.            Grant of Restricted Stock Units .  The Corporation hereby awards to Participant, as of the Award Date, Restricted Stock Units under the Plan.  Each Restricted Stock Unit which vests during Participant’s period of Service shall entitle Participant to receive one share of Common Stock on the applicable vesting date.  The number of shares of Common Stock subject to the awarded Restricted Stock Units, the applicable vesting schedule for those shares, the applicable date or dates on which those vested shares shall become issuable to Participant and the remaining terms and conditions governing the award (the “Award”) shall be as set forth in this Agreement.
 
   
Award Date :
 
____________________
     
Number of Shares
Subject to Award :
 
______ shares of Common Stock (the “Shares”)
     
Vesting Schedule :
 
The Shares shall vest in a series of _____ (_) successive equal annual installments upon Participant’s completion of each year of Service over the _____ (_)-year period measured from the Award Date (the “Normal Vesting Schedule”).  However, the Shares may be subject to accelerated vesting in accordance with the provisions of Paragraphs 4 and 6 below.

 
 
 

Issuance Schedule :
 
Each Share in which Participant vests in accordance with the Normal Vesting Schedule shall be issued, subject to the Corporation’s collection of all applicable Withholding Taxes, on the date that particular Share vests (the “Issuance Date”) or as soon after that scheduled Issuance Date as administratively practicable, but in no event later than the close of the calendar year in which such Issuance Date occurs.  The Shares which vest pursuant to Paragraph 4 or Paragraph 6 of this Agreement shall be issued in accordance with the provisions of the applicable Paragraph. The applicable Withholding Taxes are to be collected pursuant to the procedure set forth in Paragraph 8 of this Agreement.
 
   
2.            Limited Transferability .  Prior to actual receipt of the Shares which vest and become issuable hereunder, Participant may not transfer any interest in the Award or the underlying Shares. Any Shares which vest hereunder but which otherwise remain unissued at the time of Participant’s death may be transferred pursuant to the provisions of Participant’s will or the laws of inheritance or to Participant’s designated beneficiary or beneficiaries of this Award.  Participant may also direct the Corporation to re-issue the stock certificates for any Shares which in fact vest and become issuable under the Award during his or her lifetime to one or more designated family members or a trust established for Participant and/or his or her family members.  Participant may make such a beneficiary designation or certificate directive at any time by filing the appropriate form with the Plan Administrator or its designee.
 
3.            Cessation of Service .  Except as otherwise provided in Paragraph 4 or Paragraph 6 below, should Participant cease Service for any reason prior to vesting in one or more Shares subject to this Award, then the Award shall be immediately cancelled with respect to those unvested Shares, and the number of Restricted Stock Units will be reduced accordingly.  Participant shall thereupon cease to have any right or entitlement to receive any Shares under those cancelled units.
 
4.            Accelerated Vesting .
 
A.           Upon (i) the Participant’s cessation of Employee status by reason of death or Permanent Disability, (ii) the Participant’s resignation from Employee status for Good Reason or (iii) the Corporation’s termination of the Participant’s Employee status other than for Good Cause, all the Restricted Stock Units at the time subject to this Award, together with the underlying Shares, shall immediately vest.
 
B.           The Shares to which the Participant becomes entitled pursuant to the vesting provisions of Paragraph 4.A shall be issued on the date of his Separation from Service or as soon as administratively practicable thereafter, subject to the Corporation’s collection of the applicable Withholding Taxes, but in no event later than the close of the calendar year in which such Separation from Service occurs or (if later) the fifteenth (15th) day of the third (3rd) calendar month following the date of such Separation from Service.
 
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C.           The accelerated vesting provisions of this Paragraph 4 shall apply and be effective whether such cessation or termination of Employee status occurs before or after the consummation of a Change in Control transaction.
 
D.           Each Share in which Participant may be deemed, by reason of the vesting acceleration provisions of this Paragraph 4, to vest prior to the actual termination or cessation of his Employee status shall in no event be issued prior to the earlier of (i) the Issuance Date applicable to that Share in accordance with the Normal Vesting Schedule or (ii) the date of his Separation from Service.
 
5.            Stockholder Rights .  The holder of this Award shall not have any stockholder rights, including voting or dividend rights, with respect to the Shares subject to the Award until the Participant becomes the record holder of those Shares following their actual issuance upon the Corporation’s collection of the applicable Withholding Taxes.
 
6.            Change in Control .
 
A.           Any Restricted Stock Units subject to this Award at the time of a Change in Control may be assumed by the successor entity or otherwise continued in full force and effect or may be replaced with a cash retention program of the successor entity which preserves the Fair Market Value of the underlying Shares at the time of the Change in Control and provides for the subsequent vesting and payout of that value in accordance with the same vesting and payout provisions that would be applicable to those Shares in the absence of such Change in Control. In the event of such assumption or continuation of the Award or such replacement of the Award with a cash retention program, no accelerated vesting of the Restricted Stock Units or the underlying Shares shall occur at the time of the Change in Control.
 
B.           In the event the Award is assumed or otherwise continued in effect, the Restricted Stock Units subject to the Award will be adjusted immediately after the consummation of the Change in Control so as to apply to the number and class of securities into which the Shares subject to those units immediately prior to the Change in Control would have been converted in consummation of that Change in Control had those Shares actually been issued and outstanding at that time.  To the extent the actual holders of the outstanding Common Stock receive cash consideration for the Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of the Restricted Stock Units subject to the Award at that time, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in the Change in Control transaction, provided such shares are registered under the federal securities laws and readily tradable on an established securities exchange.
 
C.           If the Restricted Stock Units subject to this Award at the time of the Change in Control are not assumed or otherwise continued in effect or replaced with a cash retention program in accordance with Paragraph 6.A above, then those units shall vest immediately prior to the closing of the Change in Control. The Shares subject to those vested units shall be converted into the right to receive the same consideration per share of Common Stock payable to the other stockholders of the Corporation in consummation of that Change in Control, and such consideration per Share shall be distributed to Participant upon the tenth (10th) business day following the earliest to occur of (i) the Issuance Date determined for that Share in accordance with the Normal Vesting Schedule, (ii) the date of Participant’s Separation from Service or (iii) the first date following the Change in Control on which the distribution can be made without contravention of any applicable provisions of Code Section 409A. Such distribution shall be subject to the Corporation’s collection of the applicable Withholding Taxes pursuant to the provisions of Paragraph 8.

 
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D.           This Agreement shall not in any way affect the right of the Corporation to adjust, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
 
7.            Adjustment in Shares .   Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, or should the value of outstanding shares of Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the Plan Administrator to the total number and/or class of securities issuable pursuant to this Award in order to reflect such change and thereby prevent a dilution or enlargement of benefits hereunder. The determination of the Plan Administrator shall be final, binding and conclusive.  In the event of a Change in Control, the adjustments (if any) shall be made in accordance with the provisions of Paragraph 6.
 
8.            Issuance of Shares/Collection of Withholding Taxes .
 
A.           On each applicable Issuance Date (or any earlier date on which the Shares are to be issued in accordance with the terms of this Agreement), the Corporation shall issue to or on behalf of the Participant a certificate (which may be in electronic form) for the applicable number of shares of Common Stock, subject, however, to the Corporation’s collection of the applicable Withholding Taxes.
 
B.           The Corporation shall collect the applicable Withholding Taxes with respect to the Shares which vest and become issuable hereunder through an automatic share withholding procedure pursuant to which the Corporation will withhold, at the time of such vesting, a portion of the Shares with a Fair Market Value (measured as of the applicable vesting date) equal to the amount of those taxes; provided, however, that the amount of any Shares so withheld shall not exceed the amount necessary to satisfy the Corporation’s required withholding obligations using the minimum statutory withholding rates for federal and state purposes that are applicable to supplemental taxable income.  In the event payment is to be made in a form other than the Shares, the Corporation shall collect from the Participant the applicable Withholding Taxes pursuant to such procedures as the Corporation deems appropriate under the circumstances.

 
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C.           Notwithstanding the foregoing provisions of Paragraph 8(b), the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the vesting of the Shares or any other amounts hereunder (the “Employment Taxes”) shall in all events be collected from the Participant no later than the last business day of the calendar year in which the Shares or other amounts vest hereunder.  Accordingly, to the extent the Issuance Date for one or more vested Shares or the distribution date for such other amounts is to occur in a year subsequent to the calendar year in which those Shares or other amounts vest, the Participant shall, on or before the last business day of the calendar year in which the Shares or other amounts vest, deliver to the Corporation a check payable to its order in the dollar amount equal to the Employment Taxes required to be withheld with respect to those Shares or other amounts.  The provisions of this Paragraph 8(c) shall be applicable only to the extent necessary to comply with the applicable tax withholding requirements of Code Section 3121(v).
 
D.           Except as otherwise provided in Paragraph 6 and Paragraph 8.A, the settlement of all Restricted Stock Units which vest under the Award shall be made solely in shares of Common Stock.  In no event, however, shall any fractional shares be issued.  Accordingly, the total number of shares of Common Stock to be issued pursuant to that Award shall, to the extent necessary, be rounded down to the next whole share in order to avoid the issuance of a fractional share.
 
9.            Deferred Issue Date . Notwithstanding any provision to the contrary in this Agreement, no Shares or other amounts which become issuable or distributable by reason of Participant’s Separation from Service shall actually be issued or distributed to Participant prior to the earlier of (i) the first day of the seventh (7th) month following the date of such Separation from Service or (ii) the date of Participant’s death, if Participant is deemed at the time of such Separation from Service to be a specified employee under Section 1.409A-1(i) of the Treasury Regulations issued under Code Section 409A, as determined by the Plan Administrator in accordance with consistent and uniform standards applied to all other Code Section 409A arrangements of the Corporation, and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2).  The deferred Shares or other distributable amount shall be issued or distributed in a lump sum on the first day of the seventh (7th) month following the date of Participant’s Separation from Service or, if earlier, the first day of the month immediately following the date the Corporation receives proof of Participant’s death.
 
10.            Compliance with Laws and Regulations .  The issuance of shares of Common Stock pursuant to the Award shall be subject to compliance by the Corporation and Participant with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange on which the Common Stock may be listed for trading at the time of such issuance.

 
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11.            Notices .  Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices.  Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated below Participant’s signature line on this Agreement.  All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.
 
12.            Successors and Assigns .  Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Participant, Participant’s assigns, the legal representatives, heirs and legatees of Participant’s estate and any beneficiaries of the Award designated by Participant.
 
13.            Construction .  This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan.  All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award.
 
14.            Governing Law .  The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State’s conflict-of-laws rules.
 
15.            Employment at Will .  Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Participant) or of Participant, which rights are hereby expressly reserved by each, to terminate Participant’s Service at any time for any reason, with or without cause.

 
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IN WITNESS WHEREOF , the parties have executed this Agreement on the day and year first indicated above.

 
SJW CORP.
     
 
By:
 
 
Title:
 
     
     
 
PARTICIPANT
     
 
Signature:
 
 
Address:
 
     
 
 
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APPENDIX A
 
DEFINITIONS
 
The following definitions shall be in effect under the Agreement:
 
A.            Agreement   shall mean this Restricted Stock Unit Issuance Agreement.
 
B.            Award shall mean the award of Restricted Stock Units made to Participant pursuant to the terms of the Agreement.
 
C.            Award Date shall mean the date the Restricted Stock Units are awarded to Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of the Agreement.
 
D.            Board shall mean the Corporation’s Board of Directors.
 
E.            Change in Control shall mean any change in control or ownership of the Corporation which occurs by reason of one or more of the following events:
 
(i)           the acquisition, directly or indirectly by any person or related group of persons (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under control with, the Corporation or an employee benefit plan maintained by any such entity, of beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of securities of the Corporation which, when added to other acquisitions effected by such person or related group during the twelve (12)-month period ending with the most recent acquisition, represent thirty-five percent (35%) or more of the total combined voting power of the Corporation’s then-outstanding securities;
 
(ii)           a merger, recapitalization, consolidation, or other similar transaction to which the Corporation is a party, unless securities representing more than fifty percent (50%) of the combined voting power of the then-outstanding securities of the surviving entity or a parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately before the transaction;
 
(iii)           a sale, transfer or disposition of all or substantially all of the Corporation’s assets, unless securities representing at least fifty percent (50%) of the combined voting power of the then-outstanding securities of the entity acquiring the Corporation’s assets or parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately before the transaction;
 

 
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(iv)           a merger, recapitalization, consolidation, or other transaction to which the Corporation is a party or the sale, transfer, or other disposition of all or substantially all of the Corporation’s assets if, in either case, the members of the Board immediately prior to consummation of the transaction do not, upon consummation of the transaction, constitute at least a majority of the board of directors of the surviving entity or the entity acquiring the Corporation’s assets, as the case may be, or a parent thereof (for this purpose, any change in the composition of the board of directors that is anticipated or pursuant to an understanding or agreement in connection with a transaction will be deemed to have occurred at the time of the transaction, provided such change occurs within twelve (12) months after the effective date of the transaction); or
 
(v)           a change in the composition of the Board over a period of twelve (12) consecutive months or less such that a majority of the Board members ceases by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members who were described in clause (a) or who were previously so elected or approved and who were still in office at the time the Board approved such election or nomination;
 
provided that no Change in Control shall occur if the result of the transaction is to give more ownership or control of the Corporation to any person or related group of persons who hold securities representing more than thirty percent (30%) of the combined voting power of the Corporation's outstanding securities as of March 3, 2003.

F.            Code   shall mean the Internal Revenue Code of 1986, as amended.
 
G.            Common Stock shall mean the shares of the Corporation’s common stock.
 
H.            Corporation shall mean SJW Corp., a California corporation, and any successor corporation to all or substantially all of the assets or voting stock of SJW Corp. which shall by appropriate action adopt the Plan and/or assume the Award.
 
I.            Disability shall mean the Participant’s permanent and total disability as determined pursuant to Section 22(e)(3) of the Code.
 
J.            Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
 
K.            Fair Market Value per share of Common Stock on any relevant date shall be the closing selling price per share on the date in question on the Stock Exchange on which the Common Stock is at that time primarily traded, as such price is officially quoted in the composite tape of transactions on such exchange.  If there is no reported sale of Common Stock on such Stock Exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.

 
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L.            Good Cause shall be deemed to exist if, and only if: (i) Participant engages in acts or omissions that result in substantial harm to the business or property of the Corporation or any Parent or Subsidiary and that constitute dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing, or (ii) Participant is convicted of a criminal violation involving fraud or dishonesty.
 
M.            Good Reason shall mean the occurrence of any of the following events without Participant’s express written consent:
 
N.            1934 Act shall mean the Securities Exchange Act of 1934, as amended.
 
O.            Participant shall mean the person to whom the Award is made pursuant to the Agreement.
 
P.            Parent   shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
 
Q.            Plan   shall mean the Corporation’s Long Term Incentive Plan.
 
R.            Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.
 
S.            Restricted Stock Unit   shall mean each unit subject to the Award which shall entitle Participant to receive one (1) share of Common Stock upon the vesting of that unit.
 
T.            Separation from Service   shall mean the Participant’s cessation of Employee status by reason of his or her death, retirement or termination of employment.  The Participant shall be deemed to have terminated employment for such purpose at such time as the level of his or her bona fide services to be performed as an Employee (or as a consultant or independent contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he or she rendered as an Employee during the immediately preceding thirty-six (36) months (or such shorter period for which he or she may have rendered such services).  Solely for purposes of determining when a Separation from Service occurs, Participant will be deemed to continue in “Employee” status for so long as he or she remains in the employ of one or more members of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. “Employer Group” means the Corporation and any Parent or Subsidiary and any other corporation or business controlled by, controlling or under common control with, the Corporation, as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least fifty percent (50%)” shall be used instead of “at least eighty percent (80%)” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section  1.4.14(c)-2 of the Treasury Regulations.  Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Section 409A of the Code.

 
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U.            Service shall mean Participant’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the Board or a consultant or independent advisor.  Participant shall be deemed to cease Service immediately upon the occurrence of either of the following events:  (i) Participant no longer performs services in any of the foregoing capacities for the Corporation (or any Parent or Subsidiary) or (ii) the entity for which Participant performs such services ceases to remain a Parent or Subsidiary of the Corporation, even though Participant may subsequently continue to perform services for that entity.  Service as an Employee shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however , that the following special provisions shall be in effect for any such leave:
 
(i)           Should the period of such leave (other than a disability leave) exceed six (6) months, then Participant shall be deemed to cease Service and to incur a Separation from Service upon the expiration of the initial six (6)- month period of that leave, unless Participant retains a right to re-employment under applicable law or by contract with the Corporation (or any Parent or Subsidiary).
 
(ii)           Should the period of a disability leave exceed twenty-nine (29) months, then Participant shall be deemed to cease Service and to incur a Separation from Service upon the expiration of the initial twenty-nine (29)-month period of that leave, unless Participant retains a right to re-employment under applicable law or by contract with the Corporation (or any Parent or Subsidiary).   For such purpose, a disability leave shall be a leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and causes Participant to be unable to perform the duties of his or her position of employment with the Corporation (or any Parent or Subsidiary) or any substantially similar position of employment.
 
(iii)           Except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves of absence, no Service credit shall be given for vesting purposes for any period Participant is on a leave of absence.

 
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V.            Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York Stock Exchange.
 
W.            Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
 
X.            Withholding Taxes   shall mean the federal, state and local income and employment taxes required to be withheld by the Corporation in connection with the vesting and concurrent issuance of the shares of Common Stock under the Award.
 

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EXHIBIT 10.21
SJW CORP.
 
AMENDED AND RESTATED
 
DEFERRED RESTRICTED STOCK PROGRAM
 
(As Amended and Restated effective December 6, 2007)
 
I.
PURPOSE.
 
A.           The objective of the Deferred Restricted Stock Program (the “Program”) is to promote the long-term success of  SJW Corp. (the “Corporation”) and its subsidiaries by linking incentive opportunities for non-employee members of the Board of Directors of the Corporation (the “Board”) to the performance of the Corporation and its subsidiaries.
 
B.           The Program functions as a special formula-grant subprogram under the Corporation’s Long-Term Incentive Plan (the “Plan”) which is to provide equity compensation to the non-employee Board members for their services as members of the Board and as members of the boards of directors of certain of the Corporation’s subsidiaries.  The Program shall be subject to the express terms and provisions of the Plan, as amended from time to time.
 
C.           The provisions of this December 6, 2007 restatement shall be effective as of January 1, 2008 and shall at that time supersede the provisions of the June 1, 2006 restatement.  Effective January 1, 2008, no new awards of deferred restricted stock shall be made under the Program with respect to Board service after December 31, 2007.
 
II.
ELIGIBILITY.
 
Prior to January 1, 2008, the following individuals were eligible to participate in the Program over their period of continued service as Board members (the “Participants”):
 
(i)           any individual who was first elected or appointed to the Board as a non-employee Board member on or after the date of the 2003 annual meeting of the Corporation’s shareholders (“New Director”), and
 
(ii)           any non-employee Board member who was first elected or appointed to the Board as a non-employee Board member prior to such date and elected, by written notice to the Corporation no later than August 31, 2003, to convert from the Director’s Pension Plan to the Program (an “Existing Director”).

 
 
 

III.
AWARDS OF DEFERRED RESTRICTED STOCK.
 
A.           Prior to January 1, 2008, annual grants of deferred restricted stock (“Deferred Restricted Stock”) were made under the Program in accordance with the following provisions:
 
(i)            Annual Awards to New Directors .  Each New Director received his or her initial annual award of Deferred Restricted Stock on the first business day of January next following his or her completion of at least six (6) months of service as a Board member measured from the date of his or her initial election or appointment to the Board and was eligible to receive subsequent annual awards  of Deferred Restricted Stock on the first business day of January in each of the next (9) succeeding calendar years, provided he or she remained a non-employee member of the Board through such date. 1   The number of shares of Common Stock underlying each annual Deferred Restricted Stock award was equal to that number of shares (rounded to the nearest whole share) determined by dividing (a) the Aggregate Annual Retainer Fee for the calendar year in which the award was made by (b) the Fair Market Value per share of the Corporation’s Common Stock on the date of the award.  For purposes of such calculation and the calculation under III.A(ii) below, the Aggregate Annual Retainer Fee was the sum of the annual retainer fees, at the levels in effect as of the date of the award, for service on the Board and for service on the board of directors of each of the following subsidiaries of the Corporation:  San Jose Water Company and SJW Land Company.
 
(ii)            Annual Awards to Existing Directors .   Each Existing Director received his or her annual award of Deferred Restricted Stock on the first business day of January each calendar year during his or her period of continued service as a non-employee Board member, 2 with the number of shares of Common Stock underlying each such award to be determined in the same manner as under Section A(i) of this Article III; 3 provided, however, that the total number of such annual awards which an Existing Director was entitled to receive pursuant to this Section III.A(ii) was limited to ten (10) less the number of full years of service credit that such Existing Director had under the Director Pension Plan immediately prior to the 2003 Annual Meeting.
 
(iii)            Conversion Grant to Existing Directors .  For an Existing Director who elected to participate in the Program, the benefits that such Existing Director had accrued under the Director's Pension Plan (based on full years of service) were converted into an additional grant of Deferred Restricted Stock on September 1, 2003.  The number of shares subject to such grant was determined first by multiplying (a) $27,000 (the Annual Retainer Fee as of date of the 2003 Annual Stockholders Meeting) by (b) the whole number of years of service credit under the Director’s Pension Plan as of the date of the 2003 Annual Meeting and then by dividing the dollar amount so obtained by the Fair Market Value per share of the Corporation’s Common Stock on September 1, 2003.  An Existing Director who elected to participate in the Program shall have no further rights under the Director Pension Plan.  If a portion of the benefit accrued by an Existing Director under the Director Pension Plan as of the 2003 Annual Stockholders Meeting was owed to another person under a domestic relations order, the Existing Director’s conversion election did not apply to such portion, in which case the calculation of the number of shares under the conversion grant was proportionately reduced.

1 Prior to June 1, 2006, the annual awards of Deferred Restricted Stock were made on the third business day following the date of each Annual Shareholders Meeting.  
2 Prior to June 1, 2006, the annual awards of Deferred Restricted Stock were made on the third business day following the date of each Annual Shareholders Meeting.  
3 The initial awards under the Program were made at the 2004 Annual Meeting. However, if the Existing Director had a partial year of credit under the Director Pension Plan that equaled or exceeded 6 months of service credit, then the initial annual award to that Participant was made under the Program on September 1, 2003.

 
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(iv)            Deferred Restricted Stock Account .  A “Deferred Restricted Stock Account” has been established for each New Director and each Existing Director, and all awards of Deferred Restricted Stock made to such director have been credited to such account.  The right of a New or Existing Director to receive shares credited to such account shall be an unfunded and unsecured right of a general creditor.
 
B.            No New Awards.   Effective January 1, 2008, no new awards of Deferred Restricted Stock shall be made to any New Director or Existing Director with respect to service rendered after December 31, 2007 as a member of the Board or as a member of the board of directors of any of the Corporation’s subsidiaries.
 
IV.
DIVIDEND RIGHTS.
 
A.           Effective through December 31, 2017 or such earlier date as the Deferred Restricted Stock may be distributed, each Participant shall have the following dividend equivalent rights with respect to the Deferred Restricted Stock credited to his account under the Program:
 
(i)           Each time a dividend is paid on the outstanding Common Stock while one or more shares of Deferred Restricted Stock remain credited to the Participant’s Deferred Restricted Stock Account, that Account will be credited with a dollar amount equal to the dividend paid per share multiplied by the number of shares at the time credited to such Account and not otherwise distributed prior the record date for the dividend. As of the first business day in January of each year, the cash dividend equivalents so credited to the Deferred Restricted Stock Account for the immediately preceding calendar year will be converted into additional shares of deferred restricted stock by dividing (a) those cash dividend equivalent amounts by (b) the average of the Fair Market Value per share of Common Stock on each of the dates in the immediately preceding year on which dividends were paid.
 
(ii)           The Participant’s dividend equivalent rights with respect to the Deferred Restricted Stock credited to his Deferred Restricted Stock Account shall remain in effect only through December 31, 2017 or any earlier date the shares credited to the Participant’s Deferred Restricted Stock Account may be distributed to him pursuant to the special distribution election set forth in Section IV.B below. Accordingly, the Participant’s existing dividend equivalent rights shall in no event continue beyond the conversion of the cash equivalent dividends credited to his Deferred Restricted Stock Account for the 2017 calendar year, which will occur on the first trading day in January 2018.  All amounts attributable to the Participant’s continuing dividend equivalent rights hereunder shall be credited to his Deferred Restricted Stock Account in accordance with the provisions of subparagraph (i) above.

 
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B.           In conjunction with the phase-out of the dividend equivalent rights on the Deferred Restricted Stock Accounts, each Participant shall have until December 31, 2007 in which to make an election to receive a distribution from his Deferred Restricted Stock Account in either (i) a lump sum distribution in any calendar year within the ten (10)-year period from the 2009 calendar year to the 2018 calendar year or (ii) an installment distribution effected over a five (5) or ten (10) year period within that  ten (10)-year period. The amount distributable from such Deferred Restricted Account would be equal to the number of shares of Deferred Restricted Stock credited to that account as of December 31, 2007 plus the number of additional shares of Deferred Restricted Stock subsequently credited to that account by reason of the dividend equivalent rights existing on those deferred shares during the period prior to their distribution. The actual distribution shall be made in January of each applicable year and will be in the form of shares of Common Stock issued under the Plan. If an installment distribution is elected, then the number of shares to be distributed each January will be determined by dividing the total number of shares of Deferred Restricted Stock credited to the Participant’s Deferred Restricted Stock Account at that time by the remaining number of installments, including the current installment. Alternatively, the Participant may defer the distribution of his Deferred Restricted Stock Account until his cessation of service as a Board member and receive such distribution in accordance with Section V below. The appropriate form for making a distribution election pursuant to this Section IV.B shall be provided to each Participant prior to the December 31, 2007 deadline for making such election. Such election shall be treated as an initial payment election under Section 409A of the Code in accordance with the transitional relief provided by Internal Revenue Service Notice 2006-79 and shall only have force and effect if the Participant continues in Board service through the completion of the 2007 calendar year.
 
V.
VESTING AND DISTRIBUTION OF SHARES.
 
A.           The shares of Deferred Restricted Stock credited to the Deferred Restricted Stock Account as an annual award to a New Director pursuant to Section III.A(i) or as an annual award to an Existing Director pursuant to Section III.A(ii) are fully vested at all times.
 
B.           The shares of Deferred Restricted Stock credited to the Deferred Restricted Stock Account as a conversion grant to an Existing Director pursuant to Section III.A(iii) have  fully vested and are no longer subject to forfeiture.

 
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C.           The shares of Deferred Restricted Stock currently credited to the Deferred Restricted Stock Accounts as a result of the dividend equivalent rights under Section IV above are fully vested, and any new shares of Deferred Restricted Stock subsequently credited to the Participant’s Deferred Restricted Stock Account as a result of such dividend equivalent rights will also be fully vested.  All such shares resulting from the Participant’s dividend equivalent rights shall be distributed as part of the Participant’s Deferred Restricted Account in accordance with either Section  IV.B above or Section V.G below.
 
D.           Unless the Participant has made a special distribution election pursuant to Section IV.B, the distribution of the deferred shares of Common Stock credited to his  Deferred Restricted Stock Account (whether attributable to the annual awards made pursuant to Section III or the dividend equivalent rights provided under Section IV) shall be made or commence on the thirtieth (30th) day following the Participant’s cessation of service as a member of the Corporation’s Board of Directors or as soon as administratively practicable after such scheduled distribution date, but in no event later than the end of the calendar year in which such cessation of Board service occurs or (if later) the fifteenth (15th) day of the third (3rd) calendar month following the date of such cessation of Board service.  The distribution shall be in the form of shares of Common Stock and shall be made either in a single lump sum or in up to ten (10) annual installments, as the Participant may elect either at the time of his or her initial award of Deferred Restricted Stock hereunder or pursuant to the special distribution election described in Section V.G below.
 
E.           All shares of Common Stock distributed under the Program shall be drawn from the Common Stock reserved for issuance under the Plan. Accordingly, the share reserve under the Plan shall be reduced by any and all shares of Common Stock distributed under the Program.
 
F.           In the event any amount attributable to the Participant’s dividend equivalent rights is to be distributed before the date that amount is to be converted into shares of Deferred Restricted Stock in accordance with Section IV, that amount shall be distributed in cash.
 
G.           Each Participant who does not make a special distribution election under Section IV.B with respect to his Deferred Restricted Account and who will accordingly be subject to the distribution commencement date provisions of Section V.A may make a new election as to the method of distribution of his Deferred Restricted Stock Account (lump sum or up to ten (10) annual installments) in accordance with the transitional relief under Section 409A of the Code provided by Internal Revenue Service Notice 2006-79.  Such election must be made no later than December 31, 2007 and shall be treated as an initial payment election under Section 409A of the Code.  However, such election shall not change the payment date of any distribution that would otherwise be made to the Participant during the 2007 calendar year or cause a payment to be made to him under the Program during the 2007 calendar year that would otherwise be made in a later calendar year.

 
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VI.
DEFINED TERMS.
 
All capitalized terms in this document, to the extent not expressly defined herein, shall have the meaning assigned to them in the Plan.
 
VII.
MISCELLANEOUS.
 
This Program and the Deferred Restricted Stock awards made hereunder are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan, this Program and the Conversion Form, if applicable.
 
 
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EXHIBIT 10.22
SJW CORP.
DEFERRAL ELECTION PROGRAM  FOR NON-EMPLOYEE BOARD MEMBERS

AS AMENDED AND RESTATED JANUARY   30, 2006
AND AS FURTHER AMENDED JUNE _1_, 2006 AND  DECEMBER 6, 2007

 
I.
PURPOSE OF RESTATEMENT.
 
A.           The Amended and Restated Annual Retainer Fee Deferral Program (the “Program”) became effective upon adoption by the Executive Compensation Committee of the Board of Directors of SJW Corp.  (the “Corporation”) at the January 30, 2006 meeting.  The June 1, 2006 amendment to the Program was intended to bring the Program into compliance with the applicable requirements of Section 409A of the Internal Revenue Code, effective as of January 1, 2005. The December 6, 2007 amendment to the Program is intended to (i) phase-out the existing dividend equivalent rights under the Program, (ii) effect certain changes to the investment return on the compensation deferred under the Program after December 31, 2007 and (iii) bring the Program into documentary compliance with the applicable requirements of Section 409A of the Internal Revenue Code and the final Treasury Regulations thereunder, effective as of January 1, 2008.
 
B.           The objectives of the Program as so restated are to (i) continue to promote the long-term success of the Corporation by linking incentive opportunities for non-employee members of the Board to the performance of the Corporation and (ii) expand the elements of compensation which such Board members may elect to defer under the Program to include retainer fees for service on any Board committee and fees for attendance at Board and Board committee meetings.
 
C.           In connection with such restated objectives, the Program was renamed the SJW Corp. Deferral Election Program for Non-Employee Board Members, effective June 1, 2006.
 
II.
ELIGIBILITY.
 
Each  non-employee member of the Corporation’s Board of Directors is eligible to participate in the Program.
 
III.
DEFERRAL AWARDS.
 
A.             Term of Program .  The following fees payable to an eligible Board member for each calendar year, beginning with the 2007 calendar year, may be deferred under the Program as restated June 1, 2006: (i) the annual retainer fee for his service as a non-employee member of the board of directors of the Corporation or any affiliated entity (with each such board to be separately referred to herein as the “Board”), (ii) the annual retainer fee for his service as a non-employee member of any committee of each such Board, (iii) the attendance fee for each meeting of each such Board which is scheduled for such calendar year prior to the start of that calendar year and (iv) the attendance fee for each meeting of each  committee of each such Board on which such individual  serves which is scheduled for such calendar year prior to the start of that calendar year. Such retainer and scheduled meeting fees for each calendar year for which the restated Program continues in effect shall hereinafter be collectively referred to as the “Annual Service Fees.”  Fees for Board or Board committee meetings which occur during a particular calendar year but which were not scheduled prior to the start of that calendar year cannot be deferred under the Program.

 
 
 

B.             Deferral Procedure .  Each non-employee member of the Corporation’s Board of Directors (“Participant”) may elect to defer the following percentages of the Annual Services Fees for any calendar year by completing and filing with the Corporation a Deferral Election Form for that calendar year:
 
-           either fifty percent (50%) or one hundred percent (100%) of the portion of the Annual Service Fees attributable to the retainer fees for service on each  Board and each committee of such Board on which the Participant serves, and
 
-           one hundred percent (100%) of the portion of the Annual Service Fees attributable to the meeting fees of each Board and each committee of such Board on which the Participant serves.
 
C.              Filing of Election .  Such election must be filed on or before December 31 of the calendar year preceding the particular calendar year for which the Annual Service Fees subject to that election are to be earned.  Each such election shall become irrevocable on that December 31 filing deadline and cannot be modified for any reason thereafter.
 
D.              Separate Account .  For each calendar year for which the Participant defers all or part of his Annual Service Fees, a separate Deferral Election Account shall be established and credited with the amount of the Annual Service Fees deferred for that year.  The Participant’s right to receive the balance credited to such Account, whether denominated as a dollar amount or in deferred shares of the Corporation’s Common Stock, shall be an unfunded and unsecured right of a general creditor.
 
E.             Form of Deferral for Pre-2008 Annual Service Fees .  The Annual Service Fees for any pre-2008 calendar year that were deferred under the Program and credited to the Participant’s Deferral Election Account for that year were converted into deferred shares of Common Stock subject to the terms of this Program.  Such conversion was effected on the first business day of each such pre-2008 calendar year by dividing (i) the dollar amount of the Annual Service Fees deferred for that year by (ii) the Fair Market Value per share of the Corporation’s Common Stock on the business day immediately prior to such conversion date.

 
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F.               Form of Deferral for Post-2007 Annual Service Fees .  The Annual Service Fees for any post-2007 calendar year that are deferred under the Program will be credited as a dollar amount to the Deferral Election Account established for the Participant for that particular year.  The account will subsequently be credited with a fixed rate of interest, compounded semi-annually and periodically reset in accordance with the following procedures:
 
-           For each calendar year, beginning with the 2008 calendar year, in which there is a balance credited to such Deferral Election Account, the fixed rate of interest shall be equal to the lower of (i) the then current 30-year long-term borrowing cost of funds to San Jose Water Company (or the equivalent thereof), as measured as of the start of such calendar year, or (ii) 120% of the long-term Applicable Federal Rate determined as of the start of such calendar year and based on semi-annual compounding.
 
G.              Vesting .  The Deferral Election Account established for the Annual Service Fees for a particular calendar year that are deferred in whole or in part under the Program shall  vest in accordance the following provisions:
 
-           the portion of such account attributable to the annual retainer fee for service as a non-employee member of each  Board on which the Participant serves will vest in twelve (12) equal monthly installments upon the Participant’s completion of each month of such Board service during the calendar year to which that award relates;
 
-           the portion of the account attributable to the annual retainer fee for service as a non-employee member of any Board committee will vest in twelve (12) equal monthly installments upon the Participant’s completion of each month of such committee service during the calendar year to which that award relates; and
 
           -           the portion of the account attributable to meeting fees for  each Board or each committee of such Board on which  the Participant serves  will vest in twelve (12) equal monthly installments upon the Participant’s completion of each month of service on that Board during the calendar year to which those meeting fees relate.
 
IV.
DIVIDEND RIGHTS.
 
A.           Effective through December 31, 2017 or such earlier date as the deferred shares of Common Stock credited to one or more of the Participant’s Deferral Election Accounts may be distributed, the Participant shall have the following dividend equivalent rights with respect to those deferred shares:
 
(i)           Each time a dividend is paid on the outstanding Common Stock while one or more deferred shares of Common Stock remain credited to the Participant’s Deferral Election Accounts, each of those Accounts will be credited with a dollar amount equal to the dividend paid per share multiplied by the number of shares of deferred Common Stock at the time credited to such Account and not otherwise distributed prior to the record date for the dividend. As of the first business day in January of each year, the cash dividend equivalents so credited to each Deferral Election Account for the immediately preceding calendar year will be converted into additional deferred shares of Common Stock by dividing (i) those cash dividend equivalent amounts by (ii) the average of the Fair Market Value per share of Common Stock on each of the dates in the immediately preceding year on which dividends were paid.

 
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(ii)           All of the deferred shares of Common Stock credited to the Participant’s Deferral Election Accounts as of December 31, 2007 (including the deferred shares of Common Stock resulting from the conversion of the 2007 calendar year cash dividends) shall be consolidated into a special Earmarked Account. The Participant’s dividend equivalent rights with respect to the deferred shares of Common Stock credited to that Earmarked Account shall remain in effect only through December 31, 2017 or any earlier date the deferred shares of Common Stock credited to that Earmarked Account may be distributed to the Participant pursuant to the special distribution election set forth in Section IV.B below. Accordingly, the Participant’s existing dividend equivalent rights shall in no event continue beyond the conversion of the cash equivalent dividends credited to his Earmarked Account for the 2017 calendar year, which will occur on the first trading day in January 2018. All amounts attributable to the Participant’s continuing dividend equivalent rights hereunder shall be credited to his Earmarked Account in accordance with the procedure set forth in subparagraph (i) above.
 
B.           In conjunction with the phase-out of the dividend equivalent rights on the Earmarked Account, each Participant shall have until December 31, 2007 in which to make an election to receive a distribution from his Earmarked Account in either (i) a lump sum distribution in any calendar year within the ten (10)-year period from the 2009 calendar year to the 2018 calendar year or (ii) an installment distribution effected over a five (5) or ten (10) year period within that ten (10)-year period. The amount distributable from such Earmarked Account would be equal to the number of deferred shares of Common Stock credited to that account as of December 31, 2007 plus the number of additional deferred shares of Common Stock subsequently credited to that account by reason of the dividend equivalent rights existing on those deferred shares during the period prior to their distribution. The actual distribution shall be made in January of each applicable year and will be in the form of shares of Common Stock issued under the Corporation’s Long-Term Incentive Plan (the “Plan”). If an installment distribution is elected, then the number of shares to be distributed each January will be determined by dividing the total number of deferred shares of Common Stock credited to the Participant’s Earmarked Account at that time by the remaining number of installments, including the current installment. Alternatively, the Participant may defer the distribution of his Earmarked Account until his cessation of service as a Board member and receive such distribution in accordance with Section V below.  The appropriate form for making a distribution election pursuant to this Section IV.B shall be provided to each Participant prior to the December 31, 2007 deadline for making such election.Such election shall be treated as an initial payment election under Section 409A of the Code in accordance with the transitional relief provided by Internal Revenue Service Notice 2006-79 and shall only have force and effect if the Participant continues in Board service through the completion of the 2007 calendar year.

 
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C.           The deferred shares of Common Stock credited to the Participant’s Earmarked Account as of December 31, 2007 are fully vested. Any additional deferred shares of Common Stock subsequently credited to such Earmarked Account as a result of the dividend equivalent rights provided to the Participant under this Section IV will also be fully vested.  All the deferred shares of Common Stock credited to the Participant’s Earmarked Account shall be distributed in accordance with either Section  IV.B above or Section V below.
 
V.
DISTRIBUTION OF DEFERRAL ELECTION ACCOUNTS.
 
A.           Distribution of each of the Participant’s Deferral Election Accounts relating to deferred post-2007 Annual Service Fees and (in the event the Participant does not make a special distribution election under Section IV.B above) his Earmarked Account shall, to the extent vested, be made or commence on the thirtieth (30th) day following the Participant’s cessation of service as a member of the Corporation’s Board of Directors or as soon as administratively practicable after such scheduled distribution date, but in no event later than the end of the calendar year in which such cessation of Board service occurs or (if later) the fifteenth (15th) day of the third (3rd) calendar month following the date of such cessation of Board service.  Each of the Participant’s separate post-2007 Deferral Election Accounts shall be distributed in cash either in the form of a single lump sum or in up to ten (10) annual installments, as the Participant may elect in his or her Deferral Election Form for the calendar year to which that account pertains. The portion of any Deferral Election Account in which the Participant is not vested at the time of his cessation of service as a member of the Corporation’s Board of Directors will be forfeited.
 
B.           Each Participant who does not make a special distribution election under Section IV.B with respect to his Earmarked Account and who will accordingly be subject to the distribution commencement date provisions of Section V.A may make a new election as to the method of distribution of that account (lump sum or up to ten (10) annual installments) in accordance with the transitional relief under Section 409A of the Code provided by Internal Revenue Service Notice 2006-79.  Such election must be made no later than December 31, 2007 and shall be treated as an initial payment election under Section 409A of the Code.  However, such election shall not change the payment date of any distribution that would otherwise be made to the Participant during the 2007 calendar year or cause a payment to be made to him under the Program during the 2007 calendar year that would otherwise be made in a later calendar year.  The distribution from such Earmarked Account shall be made in shares of Common Stock issued under the Plan.  In the absence of a new distribution election under either Section IV.B or this Section V.B, each Deferral Election Account consolidated into the Earmarked Account shall be distributed in accordance with the method of distribution originally elected on the Deferral Election Form applicable to that Deferral Election Account.
 
C.           All shares of Common Stock distributed under the Program shall be drawn from the Common Stock reserved for issuance under the Plan. Accordingly, the share reserve under the Plan shall be reduced by any and all shares of Common Stock distributed under the Program.

 
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D.           In the event any amount attributable to the Participant’s dividend equivalent rights is to be distributed before the date that amount is to be converted into deferred shares of Common Stock in accordance with Section IV, that amount shall be distributed in cash.
 
VI.
DEFINED TERMS.
 
All capitalized terms in this Agreement, to the extent not expressly defined herein, shall have the meaning assigned to them in the Plan, this document or the Deferral Election Form.
 
VII.
MISCELLANEOUS.
 
Any deferred shares of Common Stock credited to a Participant’s Deferral Election Accounts or to his consolidated Earmarked Account are awarded pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan.  All of the Participant’s Deferral Election Accounts and his Earmarked Account are in all respects limited by and subject to the terms of this Program, the applicable Deferral Election Forms and any distribution elections made by the Participant pursuant to Sections IV.B, V.A and V.B of the Program.
 
 
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EXHIBIT 10.23

SJW CORP.

AMENDED AND RESTATED DIRECTOR COMPENSATION AND
EXPENSE REIMBURSEMENT POLICIES

Approved by the Board on October 25, 2007
To be Effective as of January 1, 2008

I.               DIRECTOR COMPENSATION.

A.             ROLE OF THE EXECUTIVE COMPENSATION COMMITTEE.

The Board, through the Executive Compensation Committee, will review, or request management or outside consultants to review, appropriate compensation policies for the directors serving on the Board and its committees.  This review may consider board compensation practices of other similar public companies, contributions to Board functions, service as committee chairs, and other appropriate factors.

B.            COMPENSATION POLICIES.
 
           1.            Annual Retainer .
 
SJW Corp., San Jose Water Company, SJW Land Company, and SJWTX Water, Inc. shall pay the Chairman of their Board who is not employed by SJW Corp. or any of its subsidiaries annual retainers of $30,000, $60,000, $20,000 and $5,000, respectively.
 
SJW Corp., San Jose Water Company, SJW Land Company, and SJWTX Water, Inc. shall pay each of their other directors who are not employed by SJW Corp. or any of its subsidiaries annual retainers of $15,000, $40,000, $5,000 and $5,000, respectively.
 
2.            Board and Committee Meetings Held In Person .
 
The meeting fees set forth in this section shall be paid to the directors who are not employed by SJW Corp. or any of its subsidiaries (“Non-Employee directors”) in connection with Board and Committee meetings held in person.
 
The meeting fees for the Chairman of the Board of SJWTX Water, Inc. shall be $2,500 for each Board meeting attended in person.
 
The meeting fees for the Chairman of SJW Corp.’s Audit Committee and the Chairman of the other SJW Corp. Board Committees shall be $3,000 and $2,000, respectively, for each Committee meeting attended in person.
 
All other Non-Employee directors of SJW Corp. and San Jose Water Company shall be paid $1,000 for each Board or Committee meeting attended in person and all other Non-Employee directors of SJW Land Company and SJWTX Water, Inc. shall be paid $500 for each Board meeting attended in person.

 
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In the event a Non-Employee director attends an in-person Board or Committee meeting by telephone, he or she shall be entitled to receive the meeting fees set forth above in this section for the first meeting attended by telephone in a calendar year and half of such meeting fees for subsequent meetings attended by telephone in the same calendar year.
 
            3.            Board and Committee Meetings Held Telephonically .
 
The meeting fees set forth in this section shall be paid to Non-Employee directors in connection with Board and Committee meetings held telephonically.
 
The meeting fees for the Chairman of the Board of SJWTX Water, Inc. shall be $2,500 for each Board meeting attended.
 
The meeting fees for the Chairman of SJW Corp.’s Audit Committee and the Chairman of the other SJW Corp. Board Committees shall be $3,000 and $2,000, respectively, for each Committee meeting attended.
 
All other Non-Employee directors of SJW Corp. and San Jose Water Company shall be paid $1,000 for each Board or Committee meeting attended and all other Non-Employee directors of SJW Land Company and SJWTX Water, Inc. shall be paid $500 for each Board meeting attended.
 
 4.            Other Meetings .
 
Non-Employee directors may also receive fees which shall be determined on a case-by-case basis by SJW Corp.’s Executive Compensation Committee and ratified by the Board, for attending additional meetings, which are not Board or Committee meetings, such as Board retreats, strategic planning meetings, or other programs organized by SJW Corp., San Jose Water Company, SJW Land Company or SJWTX Water, Inc. (“Other Meetings”).
 
            5.            Long-Term Incentive Plan .
 
Non-Employee directors may be eligible to participate in SJW Corp.’s Long-Term Incentive Plan, as amended (“LTIP”), and may also be eligible to participate in programs now or hereafter established thereunder, as more fully set forth in the LTIP and the programs established therunder.
 
            6.            Director Pension Plan.
 
As more fully set forth in a resolution adopted by SJW Corp.’s Board of Directors on October 25, 2007 which amends the September 22, 1999 resolution, when a director ceases to be a director of SJW Corp., he or she shall receive a benefit equal to one half of the aggregate annual retainer for service on the Board of Directors of SJW Corp. and the Boards of Directors of San Jose Water Company and SJW Land Company as in effect at the time such director ceases to be a director (the “Director Pension Plan”).  This benefit will be paid to the director, his beneficiary or his estate, for the number of years the director served on the Board until December 31, 2007 up to a maximum of 10 years. These payments will be made with the same frequency as the ongoing Directors retainers.  Only Non-Employee directors who did not elect, in 2003, to have their existing Director Pension Plan benefits converted into deferred restricted stock pursuant to the Deferred Restricted Stock Program continue to participate in the Director Pension Plan.  Directors who elected to convert their existing Director Pension Plan benefits into deferred restricted stock in 2003 and each Non-Employee director who commences Board service on or after April 29, 2003 shall not be eligible to participate in the Director Pension Plan.

 
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II.             EXPENSE REIMBURSEMENT.

All reasonable expenses incurred by a Non-Employee director in connection with his or her attendance at a SJW Corp., San Jose Water Company, SJW Land Company or SJWTX Water, Inc. Board Meeting, Committee Meeting or Other Meeting, which shall include the expense of traveling by non-commercial aircraft if within 1,000 miles of company headquarters and approved by the Chairman of the Board, and the expense of traveling first class for any travel within the United States, shall be reimbursed.

Adopted By the Board: October 25, 2007
 
 
Suzy Papazian, Corporate Secretary

 
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EXHIBIT 10.24
 
SAN JOSE WATER COMPANY
SPECIAL DEFERRAL ELECTION   PLAN
 
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2008
 
 
ARTICLE I
 
NAME AND PURPOSE
 
1.01             Purpose .  San Jose Water Company, a corporation duly organized and existing under the laws of State of California (the “Corporation”), established the Special Deferral Election Plan (the “Plan”), effective as of January 1, 2005,  in order to provide a select group of the management personnel and other highly compensated employees of one or more participating employers with an opportunity to defer a portion of their earnings each year and to realize an investment return on those funds during the deferral period. The Plan is hereby amended and restated, effective January 1, 2008, to conform the provisions of the plan document to the applicable requirements of Section 409A of the Internal Revenue Code and the Treasury Regulations issued thereunder. The Plan as so amended and restated shall continue to function solely as a so-called “top hat” plan of deferred compensation subject to the provisions of the Employee Retirement Income Security Act of 1974 (as amended from time to time) applicable to such a plan. The provisions of the Plan and its various amendments in effect prior to this amendment and restatement were intended to comply with the proposed Treasury Regulations under Internal Revenue Code Section 409A and the regulatory guidance provided by the U.S. Treasury and the Internal Revenue Service with respect to Section 409A compliance and transitional relief.
 
1.02             General .  The benefits provided under the Plan shall be paid, as they become due, either directly from the Participating Employer’s general assets or through a grantor trust arrangement established in accordance with the provisions of Article VIII.  The interest of each participant (and his or her beneficiary) in any benefits that become payable under the Plan shall be no greater than that of an unsecured creditor of the Participating Employer.
 
 
ARTICLE II
 
ADMINISTRATION OF THE PLAN
 
2.01             Plan Administrator .   The Plan shall be administered by the Executive Compensation Committee of the Board of Directors of SJW Corp.  The Executive Compensation Committee acting in such administrative capacity shall be referred to in this document as the Plan Administrator and shall have full and complete authority to administer the Plan and shall select the eligible employees who are to participate in the Plan.
 
 
 
 
 
2.02             Authority .   The interpretation and construction of any provision of the Plan and the adoption of rules and regulations for plan administration shall be made by the Plan Administrator.   Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan, including (without limitation) all decisions relating to an individual’s eligibility for participation in the Plan, his or her entitlement to benefits hereunder and the amount of any such benefit entitlement.
 
 
ARTICLE III
 
DEFINITIONS
 
3.01            “ Account ” shall mean the account maintained for each Participant on the books and records of the Participating Employer to which there shall be credited the Eligible Earnings deferred by such Participant pursuant to his or her Deferral Elections under the Plan.
 
The Participant’s Account will be divided into a series of subaccounts, and there will accordingly be a separate Deferral Election Subaccount for each year the Participant defers a portion of his or her Eligible Earnings.  There shall also be established a separate Deferral Election Subaccount with respect to the March 2005 bonus payment which the Participant may have elected in whole or in part to defer under the Plan in accordance with the provisions of the Plan as in effect at that time.

3.02            “ Affiliated Company ” shall mean (i) the Corporation and (ii) any other member of the group of commonly controlled corporations or other businesses that include the Corporation, as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder.
 
3.03             “ Board ” shall mean the Corporation’s Board of Directors.
 
3.04            “ Change in Control ” shall mean a change in ownership or control of the Corporation  or a change in ownership or control of SJW Corp., a California corporation (“SJW Corp.) which occurs while SJW  Corp. is the beneficial owner (as determined pursuant to Rule 13d-3 of the 1934 Act) of securities that possess more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding voting securities.
 
A. Change in Control of the Corporation shall be deemed to occur if:
 
(i)           any one person or more than one person acting as a group (other than the Corporation or any entity that directly or indirectly controls, is controlled by or is under common control with, the Corporation) acquires beneficial ownership (as determined pursuant to Rule 13d-3 of the 1934 Act) of securities that, together with any other securities  beneficially owned by such person or group, possess more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding voting securities;
 
 
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(ii)           a merger, reorganization, consolidation or other similar transaction to which the Corporation in a party, unless (A) securities possessing more than fifty percent (50%) of the total combined voting power of the surviving entity or the parent thereof are, immediately after such transaction, owned beneficially, directly or indirectly and in substantially the same proportion, by the person or persons who beneficially owned the Corporation’s outstanding voting securities immediately before such transaction or (B) the other party to the merger, reorganization or other transaction is an entity that directly or indirectly controls, is controlled by or is under common control with, the Corporation;
 
(iii)          a majority of the Board members is replaced over a twelve (12)- month period by Board members whose appointment or election is not endorsed by a majority of those individuals serving as Board members immediately prior to the date of such appointment or election; or
 
(iv)          the Corporation sells all or substantially all of its assets in connection with the liquidation or dissolution of the Corporation (other than to an entity that directly or indirectly controls, is controlled by or is under common control with, the Corporation), unless securities possessing more than fifty percent (50%) of the total combined voting power of the entity acquiring such assets or the parent thereof are, immediately after such sale, owned beneficially, directly or indirectly and in substantially the same proportion, by the person or persons who beneficially owned the Corporation’s outstanding voting securities immediately before such sale.

A Change in Control of SJW Corp. shall be deemed to occur upon the closing of any of the following transactions:

(i)           The acquisition, directly or indirectly by any person or related group of persons (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than SJW Corp. or a person that directly or indirectly controls, is controlled by, or is under, control with SJW Corp. or an employee benefit plan maintained by any such entity, of beneficial ownership (as defined in Rule 13d-3 of the 1934 Act) of securities of SJW Corp. which, when aggregated with any other acquisition of such securities by such person or group within the twelve (12)-month period ending with the date of the latest such acquisition,  results in such person or related group of persons beneficially owning securities representing thirty percent (30%) or more of the combined voting power of the then-outstanding securities of SJW Corp.;

(ii)           A merger, recapitalization, consolidation, or other similar transaction to which SJW Corp. is a party, unless securities representing more than fifty percent (50%) of the combined voting power of the then-outstanding securities of the surviving entity or a parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the outstanding voting securities  of SJW Corp. immediately before the transaction;


 
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(iii)           A sale, transfer or disposition of all or substantially all of the assets of SJW Corp., unless securities representing more than fifty percent (50%) of the combined voting power of the then-outstanding securities of the entity acquiring the SJW Corp. assets or the parent of such acquiring entity are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the outstanding voting securities of SJW Corp. immediately before the transaction;


(iv)           A change in the composition of the Board of Directors of SJW Corp. over a twelve (12)-month period such that a majority of those Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members who were described in clause (a) or who were previously so elected or approved and who were still in office at the time the Board approved such election or nomination;

provided, however, that no Change in Control of SJW Corp. shall be deemed to occur if the result of the transaction is to give more ownership or control of SJW Corp. to any person or related group of persons who hold securities representing more than thirty percent (30%) of the combined voting power of the outstanding securities of SJW Corp. as of March 3, 2003.

3.05             “ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time.
 
3.06            “ Corporation ” shall mean San Jose Water Company and any successor or assignee corporation, whether by way of merger, acquisition or other reorganization.
 
3.07            “ Deferral Election ” shall mean the irrevocable election filed by the Participant under Article V of this Plan pursuant to which a portion of his or her Eligible Earnings for the Plan Year is to be deferred in accordance with the provisions of the Plan.
 
3.08             “ Eligible Earnings ” shall mean any direct and current cash compensation, including salary, bonuses and other incentive-type compensation, earned by the Participant for service as an Employee during the Plan Year.  Eligible Earnings shall also include any bonus earned by the Participant for service as an Employee during the period commencing
 
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January 1, 2004 and continuing through March 31, 2005 and otherwise payable to such Participant in March 2005 in the absence of a Deferral Election under the Plan (the “March 2005 Bonus Payment”). In no event, however, shall a Participant’s Eligible Earnings include, for purposes of the Plan:
 
(i)           any item of compensation (other than the March 2005 Bonus Payment) earned for a period of service rendered prior to the effective date of the Deferral Election which the Participant filed with respect to that item, or
 
(ii)           any item of compensation paid or distributed to the Participant after a period of deferral, whether under this Plan or any other program of deferred compensation maintained by the Corporation or any Affiliated Company.
 
3.09            “ Eligible Employee ” shall mean any Employee who is either a highly compensated employee of his or her Participating Employer or part of its management personnel, as determined pursuant to guidelines established from time to time by the Plan Administrator.  In no event shall any of the following individuals be deemed to be Eligible Employees:
 
(i)           an Employee who is not resident in the United States,

(ii)          any individual classified as an independent contractor or consultant or as a temporary employee, or

(iii)         any individual who has ceased Employee status, whether by reason of Retirement or otherwise.

3.10            “ Employee ” shall mean an individual for so long as he or she is in the employ of at least one member of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
 
3.11            “ Employer Group ” means the (i) Corporation and (ii) any other member of the group of commonly controlled corporations or other businesses that include the Corporation, as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section  1.4.14(c)-2 of the Treasury Regulations.
 
3.12            “ Extended Deferral Election ” shall mean a Participant’s election, made in accordance with the terms and conditions of Section 7.02 of this Plan, to defer the distribution of his or her Deferral Election Subaccount for an additional period of at least five (5) years measured from the January 31 date (or the date of any other specified event) on which that particular subaccount was scheduled to first become due and payable under the Plan.
 
 
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3.13            “ 1934 Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.
 
3.14             “ Participant ” shall mean each Eligible Employee who participates in the Plan through one or more Deferral Elections under Article V.
 
3.15            “ Participating Employer ” shall mean, with respect to each Participant, the Affiliated Company employing that individual which has, with the consent of the Plan Administrator, adopted this Plan as a deferred compensation program for one or more of its Eligible Employees. The Participating Employers for the 2007 Plan Year are set forth in attached Schedule I. Any additional Affiliated Companies which may from time to time become Participating Employers shall be listed in revised Schedule I.
 
3.16             “ Plan Year ” shall mean each calendar year the Plan continues in effect, beginning with the 2005 calendar year.
 
3.17            “ Separation from Service ” shall mean the Participant’s cessation of Employee status by reason of his or her death, retirement or termination of employment.  The Participant shall be deemed to have terminated employment for such purpose at such time as the level of his or her bona fide services to be performed as an Employee (or non-employee consultant) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he or she rendered as an Employee during the immediately preceding thirty-six (36) months (or such shorter period for which he or she may have rendered such Employee service).  Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Code Section 409A.  In addition to the foregoing, a Separation from Service will not be deemed to have occurred while the Participant is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or any longer period for which such Participant’s right to reemployment with one or more members of the Employer Group is provided either by statute or contract; provided, however, that in the event of a Participant’s leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and that causes such individual to be unable to perform his or her duties as an Employee, no Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave.  If the period of leave exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and the Participant’s right to reemployment is not provided either by statute or contract, then such Employee will be deemed to have a Separation from Service on the first day immediately following the expiration of such six (6)-month or twenty-nine (29)-month period.
 
 
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3.18             “ Specified Employee ” shall mean a “key employee” (within the meaning of that term under Code Section 416(i)), as determined by the Plan Administrator in accordance with the applicable standards of Code Section 409A and the Treasury Regulations thereunder and applied on a consistent basis for all non-qualified deferred compensation plans of the Employer Group subject to Code Section 409A.  The Specified Employees shall be identified on December 31 of each calendar year and shall have that status for the twelve (12)-month period beginning on April 1 of the following calendar year.
 
3.19             “ Valuation Date ” shall mean any date as of which the balance credited to each of the Participant’s Deferral Election Subaccounts under the Plan is to be determined. If the date in question is coincident with a date on which the U.S. financial markets are open for business, then the Valuation Date shall be that same date; otherwise, the Valuation Date shall be first date immediately preceding the date in question on which the U.S. financial markets are open for business.
 
 
ARTICLE IV
 
PARTICIPATION
 
4.01             Eligibility Rules .  The Plan Administrator shall have absolute discretion in selecting the Eligible Employees who are to participate in the Plan for each Plan Year.  An Eligible Employee selected for participation for any Plan Year must, in order to participate in the Plan for that year, file his or her Deferral Election on or before the last day of the immediately preceding Plan Year. However, an Eligible Employee who is first selected for participation in the Plan after the start of a Plan Year and who has not otherwise been eligible for participation in any other non-qualified elective account balance plan subject to Code Section 409A and maintained by one or more Affiliated Companies will have until the thirtieth (30th) day following the date he or she is so selected in which to file his or her Deferral Election for that Plan Year.
 
4.02             Cessation of Participation .  Every Eligible Employee who becomes a Participant may continue to file Deferral Elections under the Plan for one or more subsequent Plan Years until the earliest of (i) his or her exclusion from the Plan upon written notice from the Plan Administrator, (ii) his or her cessation of Employee status or (iii) the termination of the Plan.  The Plan Administrator shall have complete discretion to exclude one or more individuals from Participant status for one or more Plan Years as the Plan Administrator deems appropriate, including the entire period the Participant continues in Employee status following such exclusion.  However, no such exclusion authorized by the Plan Administrator shall become effective until the first day of the first Plan Year coincident with or next following the date of the Plan Administrator resolution authorizing such exclusion.  If any individual is excluded from Participant status for one or more Plan Years, then such individual shall not be entitled to defer any part of his or her Eligible Earnings for those Plan Years.
 
 
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ARTICLE V
 
DEFERRAL ELECTION
 
5.01             Annual Election .  Each Participant shall have the right to file a Deferral Election to defer a portion of his or her Eligible Earnings for each Plan Year for which he or she is to be or remain a Participant.
 
5.02             Election Procedure .  Each Deferral Election shall be made in compliance with all of the following requirements and shall not be effective unless such requirements are met:
 
A.                      The Deferral Election must be exercised by means of a written notice filed with the Plan Administrator or its designate. The notice shall be substantially in the form of the Deferral Election attached as Exhibit A and must be filed on or before the last day of the calendar year immediately preceding the start of the Plan Year for which the Eligible Earnings subject to that election are to be earned.  However, an Eligible Employee who is first selected for participation in the Plan after the start of a Plan Year and who has not otherwise been eligible for participation in any other non-qualified elective account balance plan subject to Code Section 409A and maintained by one or more Affiliated Companies must file his or her initial Deferral Election no later than thirty (30) days after the date he or she is so selected.  Such Deferral Election shall only be effective for Eligible Earnings attributable to Employee service for the period commencing with the first day of the first calendar month coincident with or next following the filing of such Deferral Election and ending with the close of such Plan Year.
 
B.           The percentage of Eligible Earnings which a Participant may elect to defer each Plan Year pursuant to his or her Deferral Election must comply with the following guidelines:
 
(i)           To the extent the Participant’s base salary is the subject of the Deferral Election, the amount to be deferred pursuant to such election must not be less than five percent (5%), nor more than fifty percent (50%), of the portion of such base salary included within his or her Eligible Earnings for such Plan Year.

(ii)           To the extent the Participant’s bonus or other incentive compensation is the subject of the Deferral Election, the amount to be deferred pursuant to such election must be a multiple of five percent (5%), up to one hundred percent (100%) of the portion of such bonus or other incentive compensation included in his or her Eligible Earnings for such Plan Year.

C.           The Participant must also specify in the Deferral Election the event or date which shall serve as the commencement date for the distribution of the Deferral Election Subaccount attributable to that election. The following commencement dates shall be permissible:
 
 
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-            January 31 of any calendar year which is at least five (5) calendar years after the calendar year in which the Eligible Earnings credited to such subaccount were earned,
 
-            January 31 of the calendar year following the calendar year in which occurs the Participant’s Separation from Service,
 
-            the earlier of (i) January 31 of any calendar year which is at least five (5) calendar years after the calendar year in which the Eligible Earnings credited to such subaccount were earned or (ii) January 31 of the calendar year following the calendar year in which occurs the Participant’s Separation from Service, or
 
-            the closing of a Change in Control transaction.
 
-            the earliest of (i) January 31 of any calendar year which is at least five (5) calendar years after the calendar year in which the Eligible Earnings credited to such subaccount were earned, (ii) January 31 of the calendar year following the calendar year in which occurs the Participant’s Separation from Service or (iii) the closing of a Change in Control transaction, or
 
-            any other combination of the foregoing.
 
D.           The Participant shall also specify in the Deferral Election the manner in which the Deferral Election Subaccount attributable to that election shall be distributed.  The following methods of distribution shall be permissible:
 
-           lump sum payment,
 
-           annual installments over five (5)-year term, or
 
-           annual installments over ten (10)-year term
 
For purposes of Sections 7.02 and 7.08, an installment distribution shall be treated as a single aggregate payment, and not as a series of individual installment payments.
 
E.           The Deferral Election for a particular Plan Year shall become irrevocable as of the first day of that Plan Year (or any later day the Deferral Election for such Plan Year may be filed under Section 5.02 by a newly-eligible Participant), and no subsequent changes may be made to that Deferral Election once it becomes irrevocable.
 
5.03             Deferral Election Subaccounts .  A separate Deferral Election Subaccount shall be established for each Plan Year for which the Participant defers a portion of his or her Eligible Earnings under the Plan.  Such subaccount shall be credited with the Eligible Earnings subject to the Deferral Election in effect for that Plan Year, as and when those Eligible Earnings would have otherwise become due and payable to the Participant in the absence of such Deferral Election. A separate Deferral Election Subaccount shall also be maintained for any portion of the March 2005 Bonus Payment which the Participant may have elected to defer under the Plan.  The Participant shall at all times be fully vested in the balance credited to each of his or her Deferral Election Subaccounts.
 
 
9
 
 
5.04             Withholding Taxes .  The Participant shall be responsible for the satisfaction of all federal, state and local employment and other payroll taxes (including FICA taxes) which are required to be withheld on the Eligible Earnings deferred under the Plan and shall accordingly pay such taxes as and when they become due under applicable law, either by separate check payable to the Participating Employer or through the Participating Employer’s withholding of those taxes from other wages and earnings payable to the Participant.  Accordingly, the  Participant’s  Deferral Election shall be deemed to authorize such tax withholding by the Participating Employer in the absence of any other arrangement made by the Participant to satisfy his or her withholding tax liability.
 
5.05             Subsequent Distribution .  The Deferral Election Subaccounts shall be distributed in accordance with the provisions of Article VII of the Plan.
 
 
ARTICLE VI
 
INVESTMENT RETURN

6.01             Investment Return for 2005 Calendar Year . For the period from January 1, 2005 to December 31, 2005 (the “2005 Investment Year”), each of the Participant’s outstanding Deferral Election Subaccounts was adjusted periodically to reflect the earnings, gains and losses equal to the actual investment experience realized for the period by one or more of the investment funds selected by the Participant from the investment alternatives available under the Plan for the 2005 Investment Year. At the close of the 2005 Investment Year, each of the Participant’s outstanding Deferral Election Subaccounts was valued in accordance with the valuation procedures set forth in Section 6.05, and the balance shall thereafter be credited with a fixed rate of interest in accordance with the applicable provisions of Sections 6.02 and 6.03.
 
6.02             Investment Return for 2006 Calendar Year . For the period from January 1, 2006 to December 31, 2006 (the “2006 Investment Year”), each of the Participant’s outstanding Deferral Election Subaccounts was credited with a fixed rate of interest, compounded semi-annually, equal to the 30-year long-term borrowing cost of funds to the Corporation (or the equivalent thereof), as measured as of the start of the 2006 Investment Year. Following the close of the 2006 Investment Year, the Deferral Election Subaccounts shall be credited with a fixed rate of interest in accordance with the applicable provisions of Section 6.03
 
6.03             Investment Return for Subsequent Calendar Years .   Commencing January 1, 2007 and continuing throughout the period there remains an outstanding balance credited to such subaccount, each of the Participant’s Deferral Election Subaccounts shall be credited with a fixed rate of interest, compounded semi-annually and periodically reset in accordance with the following procedures:
 
 
10
 
 
-           For each Plan Year, beginning with the 2007 Plan Year, the fixed rate of interest shall be equal to the lower of (i) the then current 30-year long-term borrowing cost of funds to the Corporation (or the equivalent thereof), as measured as of the start of such Plan Year, or (ii) 120% of the long-term Applicable Federal Rate determined as of the start of such Plan Year and based on semi-annual compounding.

6.04             Charges to Account .    Each of the Participant’s Deferral Election Subaccounts shall be charged with its allocable share of the costs and expenses incurred in connection with the administration of the investment return provisions of this Article VI, except to the extent one or more Participating Employers elect in their sole discretion to pay all or a portion of those costs and expenses.
 
6.05             Account Value .   The value of each of the Participant’s Deferral Election Subaccounts on any Valuation Date in question shall be equal to the balance credited to that subaccount as of the close of business on that date, including the appropriate adjustments for (i) any deferred Eligible Earnings or investment gains or earnings or interest return credited to such subaccount as of such date and (ii) any distributions, hardship withdrawals or investment losses charged against the subaccount as of such date.
 
6.06             Account Statements .  Following the close of each calendar quarter, each Participant shall receive a written statement of the value of each of his or her Deferral Election Subaccounts as of the last Valuation Date in that quarter.
 
 
ARTICLE VII
 
DISTRIBUTION OF BENEFITS
 
7.01             Normal Distribution .  The Participant’s Deferral Election Subaccount for a particular Plan Year shall become due and payable in accordance with the commencement date and method of distribution designated by the Participant in his or her Deferral Election for that Plan Year, and such distribution shall begin as soon as administratively practicable on or after the designated commencement date or event, but in no event later than the later of (i) the close of the calendar year in which the designated commencement date or event occurs or (ii) the fifteenth (15th) day of the third (3rd) calendar month following the occurrence of such commencement date or event.
 
7.02             Extended Deferral Election .   A Participant may make an Extended Deferral Election with respect to any Deferral Election Subaccount maintained for him or her under the Plan, provided the Participant remains at the time of such election a highly compensated Employee or member of the management group of an Affiliated Company (as determined pursuant to guidelines established by the Plan Administrator).  However, only one Extended Deferral Election may be made per Deferral Election Subaccount. The Extended Deferral Election must be made by filing an appropriate election form with the Plan Administrator at least twelve (12) months prior to the date the Deferral Election Subaccount subject to such election is scheduled to become payable pursuant to Section 7.01, and the Extended Deferral Election for that subaccount shall in no event become effective or otherwise have any force or applicability until the expiration of the twelve (12)-month period measured from the date such election is filed with the Plan Administrator. Accordingly, the Extended Deferral Election shall become null and void should the Participant’s pre-existing specified commencement date or event occur within that twelve (12)-month period. The Extended Deferral Election must also specify a January 31 commencement date in a Plan Year which is at least five (5) Plan Years later than the Plan Year in which the distribution of that subaccount would have otherwise been made or commenced in the absence of the Extended Deferral Election.  As part of the Extended Deferral Election, the Participant may also elect a different method of distribution, provided the selected method complies with one of the forms of distribution specified in Section 5.02E. Once the Extended Deferral Election becomes effective in accordance with the foregoing provisions of this Paragraph 7.02, such election shall remain in effect, whether or not the Participant continues in Employee status; provided, however, that in the event of the Participant’s death, the provisions of Paragraph 7.05 shall apply.
 
 
11
 
 
7.03             Special Distribution Election in 2007 .   Notwithstanding the limitations and restrictions of Section 7.02, Participants may make a special election to change the time and form of the distribution of one or more of their Deferral Election Subaccounts, provided that the distribution election is made at least twelve months in advance of the newly elected distribution date, and the election is made no later than December 31, 2007.  An election made pursuant to this Section 7.03 shall be treated as an initial distribution election and shall be subject to any special administrative rules imposed by the Plan Administrator, including rules intended to comply with Section 409A of the Code. No election under this Section 7.03 shall (i) change the payment date of any distribution otherwise scheduled to be paid in 2007 or cause a payment to be made in 2007 that was otherwise scheduled for payment in a later year or (ii) be permitted after December 31, 2007
 
7.04             Hardship Withdrawal .  If a Participant (A) incurs a severe financial hardship as a result of (i) a sudden and unexpected illness or accident involving the Participant or his or her spouse or any dependent (as determined pursuant to Section 152(a) of the Code),  (ii) a casualty loss involving the Participant’s property or (iii) other similar extraordinary and unforeseeable event beyond the Participant’s control and (B) does not have any other resources available, whether through reimbursement or compensation (by insurance or otherwise), liquidation of existing assets (to the extent such liquidation would not itself result in financial hardship) or cancellation of his or her existing Deferral Election under the Plan, to satisfy such financial emergency, then the Participant may apply to the Plan Administrator for an immediate distribution from his or her Account in an amount necessary to satisfy such financial hardship and the tax liability attributable to such distribution.  The Plan Administrator shall have complete discretion to accept or reject the request and shall in no event authorize a distribution in an amount in excess of that reasonably required to meet such financial hardship and the tax liability attributable to that distribution.
 
7.05             Death Before Full Distribution . If the Participant dies before the entire balance of his or her Account is distributed, then the unpaid  balance shall be paid in a lump sum to his or her designated beneficiary(ies) under the Plan.  Such payment shall be made as soon as administratively practical following the Participant’s death, but in no event later than the later of (i) the end of the calendar year in which the Participant’s death occurs or (ii) the fifteenth (15th) day of the third (3rd) calendar month following the date of the Participant’s death. The Participant may designate one or more such beneficiaries, or may revoke his or her existing beneficiary designation and make a new designation, by filing a properly completed Beneficiary Designation, in substantially the form of attached Exhibit B, with the Plan Administrator or its designate.  Should the Participant die without a valid beneficiary designation in effect or after the death of his or her designated beneficiary(ies), then any amounts due him or her under the Plan shall be paid to the personal representative of his or her estate.
 
 
12
 
 
7.06             Valuation .    The amount to be distributed from any Deferral Election Subaccount pursuant to this Article VII shall be determined on the basis  of the balance credited to that subaccount as of the most recent practicable Valuation Date (as determined by the Committee or its designate) preceding the date of the actual distribution. For a Participant who has elected an installment distribution for any Deferral Election Subaccount, such distribution shall be effected through a series of substantially equal payments (as adjusted for investment gains or losses), and the amount of each such annual installment shall accordingly be determined by dividing the balance credited to that subaccount as of the most recent practicable Valuation Date (as determined by the Plan Administrator) preceding the date of the actual distribution of that installment by the number of installments (including the current installment) remaining in the selected five (5) or ten (10)-year distribution period.
 
7.07             Withholding .  All payments made under the Plan shall be subject to the Participating Employer’s withholding of all required federal, state and local income and employment/payroll taxes, and all such payments shall be net of such tax withholding.
 
7.08             Small Account Balances.
 
A.           If the aggregate balance of the Participant’s Account is not greater than the applicable dollar amount in effect under Code Section 401(g)(1)(B) at the time of the Participant’s Separation from Service and the Participant is not otherwise at that time participating in any other non-qualified elective account balance plan subject to Code Section 409A and maintained by one or more members of the Affiliated Group, then that balance shall be distributed to the Participant in a lump sum distribution as soon as administratively practical following such Separation from Service, whether or not the Participant elected that form of distribution or distribution event, but in no event later than the later of (i) the end of the calendar year in which such Separation from Service occurs or (ii) the fifteenth (15th) day of the third (3rd) calendar month following the date of such Separation from Service.
 
B.           Should the aggregate present value of all of the remaining unpaid installments due to a Participant who is receiving one or more installment distributions under the Plan fall below Twenty-Five Thousand Dollars ($25,000), then those unpaid installments shall be paid to the Participant in a single lump sum within thirty (30) days thereafter.
 
 
13
 
 
7.09             Mandatory Deferral of Distribution .   N otwithstanding any provision to the contrary in this Article VII or any other article in the Plan, no distribution which becomes due and payable by reason of a Participant’s Separation from Service shall be made to such  Participant prior to the earlier of (i) the first day of the seventh (7th) month following the date of the Participant’s Separation from Service or (ii) the date of his or her death, if  the Participant is deemed at the time of such Separation from Service to be a Specified Employee and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable deferral period, all payments deferred pursuant to this Section 7.09 (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid in a lump sum to the Participant, and any remaining payments due under the Plan shall be paid in accordance with the normal payment dates specified for them herein.  During such deferral period, the Participant’s Account shall continue to be subject to the investment return provisions of Article VI.
 
 
ARTICLE VIII
 
MISCELLANEOUS

8.01             Benefits Not Funded .  The obligation to pay the vested balance of each Participant’s Deferral Election Subaccounts hereunder shall at all times be an unfunded and unsecured obligation of the Participating Employer. Except to the extent the Corporation or any Participating Employer may in its sole discretion elect to implement a grantor trust to hold funds for the payment of any benefits which become due and payable hereunder, neither the Corporation nor any Participating Employer shall have any obligation to establish any trust, escrow arrangement or other fiduciary relationship for the purpose of segregating funds for the payment of the balances credited to such subaccounts, nor shall the Corporation or any Participating Employer be under any obligation to invest any portion of its general assets in mutual funds, stocks, bonds, securities or other similar investments in order to accumulate funds for the satisfaction of its obligations under the Plan.
 
8.02             General Creditor Status . The Participant (or his or her beneficiary) shall look solely and exclusively to the general assets of the Participating Employer for the payment of the Deferral Election Subaccounts maintained on the Participant’s behalf under the Plan.  Payments from any grantor trust established by the Corporation or any Participating Employer under the Plan shall be made as and when benefits become payable to Participants in accordance with the distribution provisions of Article VII of the Plan, with any remaining balance due the Participants to be paid out of the general assets of the Participating Employer.
 
8.03             No Employment Right .  Neither the action of the Corporation or the Participating Employer in establishing or maintaining the Plan, nor any action taken under the Plan by the Committee, nor any provision of the Plan itself shall be construed so as to grant any person the right to remain in the employ of the Participating Employer or any other Affiliated Company for any period of specific duration, and the Participant may be discharged at any time, with or without cause.
 
 
14
 
 
8.04             Amendment/Termination .  The Plan Administrator may at any time amend the provisions of the Plan to any extent and in any manner the Plan Administrator shall deem advisable, and such amendment shall become effective at the time of such Plan Administrator action. Without limiting the generality of the foregoing, the Plan Administrator may amend the Plan to impose such restrictions upon (i) the timing, filing and effectiveness of Deferral Elections or Extended Deferral Elections and (ii) the distribution provisions of Article VII which the Plan Administrator deems appropriate or advisable in order to avoid the current income taxation of amounts deferred under the Plan which might otherwise occur as a result of changes to the tax laws and regulations governing deferred compensation arrangements such as the Plan. The Plan Administrator may also at any time terminate the Plan in whole or in part.  Except for such modifications, limitations or restrictions as may otherwise be required to avoid current income taxation or other adverse tax consequences to Participants as a result of changes to the tax laws and regulations applicable to the Plan, no such plan amendment or plan termination authorized by the Plan Administrator shall adversely affect the benefits of Participants accrued to date under the Plan or otherwise reduce the then outstanding balances credited to their Deferral Election Subaccounts or otherwise adversely affect the distribution provisions in effect for those subaccounts, and all amounts deferred prior to the date of any such plan amendment or termination shall, subject to the foregoing exception, continue to become due and payable in accordance with the distribution provisions of Article VII as in effect immediately prior to such amendment or termination.
 
8.05             Applicable Law .  The Plan is intended to constitute an unfunded deferred compensation arrangement for a select group of management and other highly compensated persons, and all rights hereunder shall be construed, administered and governed in all respects in accordance with the provisions of the Employee Retirement Income Security Act of 1974 (as amended from time to time) applicable to such an arrangement and, to the extent not pre-empted thereby, by the laws of the State of California without resort to its conflict-of-laws provisions.  If any provision of this Plan shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions of the Plan shall continue in full force and effect.
 
8.06             Satisfaction of Claims .  Any payment made to a Participant or his or her legal representative or beneficiary in accordance with the terms of this Plan shall to the extent thereof be in full satisfaction of all claims with respect to that payment which such person may have against the Plan, the Plan Administrator (or its designate), the Corporation, the Participating Employer and all other Affiliated Companies, any of whom may require the Participant or his or her legal representative or beneficiary, as a condition precedent to such payment, to execute a receipt and release in such form as shall be determined by the Plan Administrator.
 
8.07             Alienation of Benefits .  No person entitled to any benefits under the Plan shall have the right to alienate, pledge, hypothecate or otherwise encumber his or her interest in such benefits, and those benefits shall not, to the maximum extent permissible by law, be subject to claim of his or her creditors or liable to attachment, execution or other process of law. Notwithstanding the foregoing, any benefits in which the Participant has a vested right under the Plan may instead be distributed to one or more third parties (including, without limitation, the Participant’s former spouse) to the extent such distribution is required by a domestic relations order or other order or directive of a court with jurisdiction over the Participant and his or her benefits hereunder, and the Participant shall cease to have any right, interest or entitlement to any benefits to be distributed pursuant to such order or directive.
 
 
15
 
 
8.08             Expenses.   In addition to the expenses and costs set forth in Section 6.03, each  Participant’s Account shall also be charged with its allocable share of all other costs and expenses incurred in the operation and administration of the Plan, except to the extent one or more Participating Employers elect in their sole discretion to pay all or a portion of those costs and expenses.
 
8.09             Successors and Assigns .  The obligation of each Participating Employer  to make the payments required hereunder shall be binding upon the successors and assigns of that Participating Employer, whether by merger, consolidation, acquisition or other reorganization. Except for such modifications, limitations or restrictions as may otherwise be required to avoid current income taxation or other adverse tax consequences to Participants as a result of changes to the tax laws and regulations applicable to the Plan, no amendment or termination of the Plan by any such successor or assign shall adversely affect or otherwise impair the rights of Participants to receive benefit payments hereunder, to the extent attributable to amounts deferred prior to the date of such amendment or termination, in accordance with the applicable distribution provisions of Article VII hereof as in effect immediately prior to such amendment or termination.
 
 
ARTICLE IX
 
BENEFIT CLAIMS
 
9.01             Claims Procedure .  No application is required for the payment of benefits under the Plan.  However, if any Participant (or beneficiary) believes he or she is entitled to a benefit from the Plan which differs from the benefit determined by the Plan Administrator,  then such individual may file a written claim for benefits with the Plan Administrator.  Each claim shall be acted upon and approved or disapproved within ninety (90) days following receipt by the Plan Administrator.
 
9.02             Denial of Benefits .  In the event any claim for benefits is denied, in whole or in part, the Plan Administrator shall notify the claimant in writing of such denial and of his or her right to a review by the Plan Administrator and shall set forth, in a manner calculated to be understood by the claimant, specific reasons for such denial, specific references to pertinent provisions of the Plan on which the denial is based, a description of any additional material or information necessary to perfect the claim, an explanation of why such material or information is necessary, and an explanation of the review procedure.
 
 
16
 
 
9.03             Review .
 
A.           Any person whose claim for benefits is denied in whole or in part may appeal to the Plan Administrator for a full and fair review of the decision by submitting to the Plan Administrator, within ninety (90) days after receiving written notice from the Plan Administrator of such denial, a written statement:
 
(i)           requesting a review by the Plan Administrator of his or her claim for benefits;
 
(ii)          setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and
 
(iii)         setting forth any issues or comments which the claimant deems pertinent to his or her claim.
 
B.           The Plan Administrator shall act upon each such appeal within sixty (60) days after receipt of the claimant’s request for review by the Plan Administrator, unless special circumstances require an extension of time for processing.  If such an extension is required, written notice of the extension shall be furnished to the claimant within the initial sixty (60)-day period, and a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the initial request for review.  The Plan Administrator shall make a full and fair review of each such appeal and any written materials submitted by the claimant or the Participating Employer in connection therewith and may require the Participating Employer or the claimant to submit such additional facts, documents or other evidence as the Plan Administrator may, in its sole discretion, deem necessary or advisable in making such a review.  On the basis of its review, the Plan Administrator shall make an independent determination of the claimant’s eligibility for benefits under the Plan.  The decision of the Plan Administrator  on any benefit claim shall be final and conclusive upon all persons.
 
C.           Should the Plan Administrator deny an appeal in whole or in part, the Plan Administrator shall give written notice of such decision to the claimant, setting forth in a manner calculated to be understood by the claimant the specific reasons for such denial and specific reference to the pertinent Plan provisions on which the decision was based.  The notice shall also  include a statement that the claimant has a right to bring a right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974 (as amended from time to time).
 

 
17
 

SCHEDULE A

LIST OF PARTICIPATING EMPLOYERS

 
18
 

EXHIBIT A
 
SPECIAL DEFERRAL ELECTION PLAN
 
DEFERRAL ELECTION FORM
200 __ PLAN YEAR

 
 
 

DEFERRAL ELECTION FORM
200 __ PLAN YEAR
 
Please check the applicable boxes and complete form as appropriate.
 
£
A.
I hereby elect to participate in the Special Deferral Election Plan (the “Plan”) for the 200__ plan year
 
I hereby elect to defer payment of a portion of my eligible earnings for services rendered in the 200__ plan year, in the dollar amount determined in accordance with the following elections:
 
Base Salary:    ____% (in increments of one percent, with a minimum of 5% and a maximum of 50%)  of my base salary earned for service rendered during the 200__ plan year.
 
Bonus/Incentive Compensation:   ____% (in increments of 5%, up to a maximum of 100%) of any cash bonus or other cash incentive compensation earned for service rendered during the 200__ plan year.
 
£
B.
I hereby elect the following commencement date for the distribution of  my deferral election subaccount for the 200__ plan year:
 
____          January 31 of calendar year _______________  (must be at least five (5) calendar years after the 200__ calendar year).
 
____          January 31 of the calendar year following the calendar year in which my separation from service occurs.
 
____          the closing of a Change in Control (as such term is defined in the Plan)
 
____          the earlier of (i) January 31 of  calendar year _________ (a calendar year which is at least five (5) calendar years after the 200__ calendar year) or (ii) January 31 of the calendar year following the calendar year in which my separation from service occurs.
 
____          the earlier of (i) January 31 of the calendar year following the calendar year in which my separation from service occurs or (ii) the closing of a Change in Control.
 
____          the earlier of (i) January 31 of  calendar year ___________ (a calendar year which is at least five (5) calendar years after the 200__ calendar year) or (ii) the closing of a Change in Control.
 
 
2
 

_____                      the earliest of (i) January 31 of  calendar year ___________ (a calendar year which is at least five (5) calendar years after the 200__ calendar year), (ii) January 31 of the calendar year following the calendar year in which my separation from service occurs or (iii) the closing of a Change in Control.
 
£
C.
I hereby elect the following method of distribution for my deferral election subaccount for the 200__ plan year:
 
___           lump sum payment
 
___           annual installments over five (5)-year term, or
 
___           annual installments over ten (10)-year term
 
I understand that no distribution shall be made or commence, in connection with my separation from service, prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of such separation from service or (ii) the date of my death, if I am deemed at the time of such separation from service to be a “specified employee” within the meaning of that term under Code Section 409A and the applicable regulations thereunder.

As required by the Federal tax laws, my deferral election shall become  irrevocable on the first day of the 200___  plan year and cannot be changed or modified under any circumstances after that day.
 
To the extent my rights under law to the earnings deferred pursuant to this election are greater than the rights of a general unsecured creditor of my Participating Employer, I hereby waive those rights and agree that I shall have only the rights of a general unsecured creditor with respect to the payment of my deferred earnings.
 
I understand I am responsible for the satisfaction of all federal, state and local employment and other payroll taxes (including FICA taxes) which are required to be withheld on the compensation I defer under the Plan, and I shall pay such taxes as and when they become due under applicable law, either by separate check payable to my Participating Employer or through my Participating Employer’s withholding of those taxes from other wages and earnings payable to me.  Accordingly, this deferral election shall be deemed to authorize such tax withholding by my Participating Employer in the absence of any other arrangement made by me to satisfy such withholding tax liability.
 
£
D.
I hereby elect not to defer any portion of my base salary for the 200__ Plan Year under the  Plan.
 
3
 
£
E.
I hereby elect not to defer any portion of my bonus or other incentive compensation for the 200__ Plan Year under the Plan.
 
£
F.
I hereby elect to have the deferral elections specified in Sections A through C above continue for each subsequent plan year, until I change my deferral elections in accordance with the provisions of the Plan.  Any such change shall become effective for a particular plan year only if the new deferral election is filed not later than the December 31 immediately prior to the start of that plan year.
 
 
Printed Name:
 
 
 
   
 
Signature:
 
       
 
Dated:
 
, 200__
 
 
 
 

EXHIBIT B

SPECIAL  DEFERRAL ELECTION  PLAN
 
DESIGNATION OF BENEFICIARY
 
I hereby designate the following individual or individuals as the beneficiary or beneficiaries of all my right, title and interest in and to the unpaid vested balance credited to my account under the Special Deferral Election Plan at the time of my death, hereby revoking any prior designation of beneficiaries made by me under such Plan:
 
   
Name
 
Relationship
 
Percent of Total
             
(1)
           
             
(2)
           
             
(3)
           
             
(4)
           

The beneficiary must survive me; otherwise, his or her designated share is to be divided equally among the beneficiaries who do survive me.


 
Signature:
 
       
 
Name:
 
       
 
Date:
 
, 20___
 
 
Exhibit 10.25

SJW CORP. LETTERHEAD

OCTOBER 23, 2007
 
_____________________

_____________________
 
_____________________
 
Re:   Director Pension Plan

 
Dear __________________:

You are currently a participant in the SJW Corp. Director Pension Plan under which you could accrue an annual pension payment for a period of years following your cessation of Board service in a dollar amount determined by multiplying (i) your years of service as a non-employee member of the SJW Corp. Board of Directors, up to a maximum of ten (l0) years, by (ii) the annual retainer fee in effect for such non-employee Board members at the time you resign from the Board. For purposes of such calculation, the annual retainer fee would also include the annual retainer fees payable for service as a non-employee member of the board of directors of San Jose Water Company and SJW Land Company.
 
As part of the process of revising the compensation structure to be in effect for the non-employee Board members as of January 1, 2008, the Executive Compensation Committee has deemed it appropriate to modify the Director Pension Plan so that only years of service as a non-employee member of the SJW Corp. Board of Directors through December 31, 2007 and only one half of the annual retainer fee in effect at the time you cease Board service will be taken into account for purposes of the foregoing pension benefit formula. In addition, the maximum number of years for which the annual payment as so calculated will be made will be limited to the number of your pre-2008 years of Board service. In no event, however, will the dollar amount of your annual pension benefit be less than the annual pension to which you would be entitled under the current pension benefit formula if you ceased Board service on December 31, 2007.
 
SJW Corp. has expressly reserved the right to modify or amend the Director Pension Plan at any time, provided such action does not reduce the benefit you or other participants have accrued to date under the plan. Accordingly, the change to the Director Pension Plan formula will not result in any reduction to the annual pension benefit you have already accrued under the Plan. All of your years of service as a non-employee Board member through December 31, 2007 will be taken into account, and those years of pre-2008 service will be applied to one half of the annual retainer fee in effect at the time of your cessation of Board service to determine your annual pension payment under the Director Pension Plan. The annual payment so calculated will be made for the number of years equal to your pre-2008 years of Board service. Under the revised Plan, you will not accrue any additional years of service credit under the Director Pension Plan formula for your Board service after December 31, 2007 and only half of the amount of the retainer fee in effect at the time of your cessation of Board service will be taken into account under the plan formula. However, the annual pension benefit you have accrued under the Plan as of December 31, 2007 will not be reduced as a result of the revised formula.
 
 
As mentioned, this change has been made in conjunction with the overall revision to non­employee director compensation that will take effect as of January 1, 2008. Please return the signed letter to Suzy Papazian by November 30, 2007.
 
Very truly yours,
       
   
Chairman of the Executive Compensation Committee
 
       
       
AGREED TO AND ACCEPTED BY:
       
   
   
DATED:
 
  , 2007
 

 
EXHIBIT 23


Consent of Independent Registered Public Accounting Firm

The Shareholders and  Board of Directors
SJW Corp.:
 
We consent to the incorporation by reference in the registration statements (Nos. 333-105010 and 333-127383) on Form S-8 of SJW Corp. of our reports dated March 10, 2008, with respect to the consolidated balance sheets of SJW Corp. and its subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007, and related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2007, which reports appear in the December 31, 2007 annual report on Form 10-K of SJW Corp.
 
Our report on the consolidated financial statements refers to SJW Corp.’s adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes , effective January 1, 2007.  Our report also refers to SJW Corp.’s adoption of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment , effective January 1, 2006, and the initial funding status and disclosure provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. Also, our report refers to the Company's change in its method of quantifying financial statement errors in 2006.
 
(signed) KPMG LLP
 
 
Mountain View, California
March 10, 2008
 
 
Exhibit 31.1
CERTIFICATIONS
I, W. Richard Roth, certify that:

1.      I have reviewed this Annual Report on Form 10-K of SJW Corp. (the ‘‘registrant’’);

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)      designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)      designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)      evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)      disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)      all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)      any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  
March 10, 2008
 
/s/ W. Richard Roth
 
     
W. RICHARD ROTH
 
     
President and Chief Executive Officer
 
     
(Principal executive officer)
 
 
 
Exhibit 31.2
CERTIFICATIONS

I, Angela Yip, certify that:

1.      I have reviewed this Annual Report on Form 10-K of SJW Corp. (the ‘‘registrant’’);

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)      designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)      designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)      evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)      disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)      all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)      any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  
March 10, 2008
 
/s/ Angela Yip
 
     
ANGELA YIP
 
     
Chief Financial Officer and Treasurer
 
     
(Principal financial officer)
 

 
 
Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of SJW Corp. (the “Company”) on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, W. Richard Roth, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge on the date hereof:

(1)           the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ W. Richard Roth
 
W. RICHARD ROTH
 
President and Chief Executive Officer
 
(Principal executive officer)
 
March 10, 2008
 
 
 
Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of SJW Corp. (the “Company”) on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Angela Yip, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge on the date hereof:

 (1)           the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Angela Yip
 
ANGELA YIP
 
Chief Financial Officer and Treasurer
 
(Principal financial officer)
 
March 10, 2008