Exhibit 10.24.1

 

 

 

 

SOUTHWEST WATER COMPANY

 

INVESTORS’ RIGHTS AGREEMENT

 

February 25, 2000

 

 

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TABLE OF CONTENTS

 

 

 

 

Page

1.

Registration Rights

 

1

 

1.1

Definitions

 

1

 

1.2

Company Registration

 

2

 

1.3

Obligations of the Company

 

2

 

1.4

Furnish Information

 

4

 

1.5

Expenses of Registration

 

4

 

1 6

Underwriting Requirements

 

4

 

1.7

Delay of Registration

 

5

 

1.8

Indemnification

 

5

 

1.9

Reports Under Securities Exchange Act of 1934

 

7

 

1.10

Assignment of Registration Rights

 

7

 

1.11

Limitations on Subsequent Registration Rights

 

8

 

1.12

Market-Standoff Agreement

 

8

 

1.13

Termination of Registration Rights

 

9

2.

Covenants of the Company

 

9

 

2.1

Delivery of Financial Statements

 

9

 

2.2

Inspection

 

9

 

2.3

Termination of Covenants

 

9

3.

Representations and Warranties of the Company

 

9

 

3.1

Organization, Good Standing and Qualification

 

9

 

3.2

Authorization

 

9

 

3.3

Valid Issuance of Securities

 

10

4.

Representations and Warranties of the Investors

 

10

 

4.1

Authorization

 

10

 

4.2

Purchase Entirely for Own Account

 

10

 

4.3

Disclosure of Information

 

10

 

4.4

Restricted Securities

 

11

 

4.5

Legends

 

11

 

4.6

Accredited Investor

 

11

5.

Miscellaneous

 

11

 

5.1

Successors and Assigns

 

11

 

5.2

Amendments and Waivers

 

12

 

5.3

Notices

 

12

 

5.4

Severability

 

12

 

5.5

Governing Law

 

12

 

5.6

Counterparts

 

12

 

5.7

Titles and Subtitles

 

12

 

5.8

Aggregation of Stock

 

12

 

 

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5.9

Investor Representations

 

12

 

5.10

Finder’s Fee

 

13

 

5.11

Attorney’s Fees

 

13

 

5.12

Entire Agreement

 

13

 

 

ii

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SOUTHWEST WATER COMPANY

 

INVESTORS’ RIGHTS AGREEMENT

 

 

                                                This Investors’ Rights Agreement
(the “Agreement”) is made as of the 25th day of February, 2000, by and among
SOUTHWEST WATER COMPANY, a Delaware corporation (the “Company”) and the persons
listed on Exhibit A hereto, each of which is herein referred to as an
“Investor,” with respect to the following:

 

RECITALS

 

                                               
A.                                   Concurrently with the execution and
delivery of this Agreement, the Company is issuing to each Investor a warrant
(each, a “Warrant” herein) to purchase certain common stock, $0.01 par value of
the Company (the “Common Stock”).

 

                                               
B.                                     As a part of the agreement pursuant to
which the Warrants are being issued to the Investors, the Company and the
Investors enter into this Agreement in order to provide the Investors with (i)
certain rights to register shares of the Common Stock issuable upon exercise of
the warrants and (ii) certain rights to receive or inspect information
pertaining to the Company.  The Company and Investors also desire to set forth
certain representations and warranties of Investors applicable with respect to
all Common Stock issued to each Investor upon exercise of a Warrant.

 

AGREEMENT

 

                                                The parties hereby agree as
follows:

 

                                               
1.                                      Registration Rights.  The Company and
the Investors covenant and agree as follows:

 

                                                                                               
1.1                               Definitions. For purposes of this Section 1:

 

                                                                                                                                               
(a)                                  The terms “register,” “registered,” and
“registration” refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the “Securities Act”), and the declaration or ordering of
effectiveness of such registration statement or document;

 

 

                                                                                                                                               
(b)                                 The term “Registrable Securities” means (i)
the share of Common Stock issuable or issued upon exercise of the Warrants and
(ii) any other shares of Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, the shares listed in (i); provided, however, that the
foregoing definition shall exclude in all cases any Registrable Securities sold
by a person in a transaction in which his or her rights under this Agreement are
not assigned.  Notwithstanding the foregoing, Common Stock or other securities
shall only be treated as Registrable Securities if and so long as they have not
been (A) sold to or through a broker or dealer or underwriter in a public

 

 

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distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale;

 

                                                                                                                                               
(c)                                  The number of shares of “Registrable
Securities then outstanding” shall be determined by the number of shares of
Common Stock outstanding which are, and the number of shares of Common Stock
issuable pursuant to then exercisable Warrants which are, Registrable
Securities;

 

                                                                                                                                               
(d)                                 The term “Holder” means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.10 of this Agreement;

 

                                                                                                                                               
(e)                                  The term “Form S-3” means such form under
the Securities Act as in effect on the date hereof or any successor form under
the Securities Act; and

 

                                                                                                                                               
(f)                                    The term “SEC” means the Securities and
Exchange Commission.

 

                                                                                               
1.2                               Company Registration.  If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its Common Stock under the Securities Act in connection with the
public offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan, stock purchase plan or dividend reinvestment plan or a transaction covered
by Rule 145 under the Securities Act, a registration in which the only stock
being registered is Common Stock issuable upon conversion of debt securities
which are also being registered, or any registration on any form which does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities),
the Company shall, at such time, promptly give each Holder written notice of
such registration.  Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with Section
5.3, the Company shall, subject to the provisions of Section 1.6, cause to be
registered under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered.  The so-called “piggyback”
registration rights granted to the Holders pursuant to this Section are the only
registration rights granted by the Company to the Holders, and the Holders shall
have no so-called “demand” registration rights as to the Registrable Securities.

 

                                                                                               
1.3                               Obligations of the Company.  Whenever required
under this Section 1 to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible:

 

                                                                                                                                               
(a)                                  Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to one
hundred twenty

 

 

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(120) days.  The Company shall not be required to file, cause to become
effective or maintain the effectiveness of any registration statement that
contemplates a distribution of securities on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act.

 

                                                                                                                                               
(b)                                 Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement for up to one hundred
twenty (120) days.

 

                                                                                                                                               
(c)                                  Furnish to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

 

                                                                                                                                               
(d)                                 Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as condition thereto to qualify to do business or to
file general consent to service of process in any such states or jurisdictions.

 

                                                                                                                                               
(e)                                  In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering.  Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.

 

                                                                                                                                               
(f)                                    Notify each Holder of Registrable
Securities covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, such obligation to continue for one hundred twenty
(120) days.

 

                                                                                                                                               
(g)                                 Cause all such Registrable Securities
registered pursuant to this Section 1 to be listed on each securities exchange
on which similar securities issued by the Company are then listed.

 

                                                                                                                                               
(h)                                 Provide a transfer agent and registrar for
all Registrable Securities registered pursuant to this Section 1 and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration.

 

                                                                                                                                               
(i)                                     Use its best efforts to furnish, at the
request of any Holder requesting registration of Registrable Securities pursuant
to this Section 1, on the date that such Registrable Securities are delivered to
the underwriters for sale in connection with a registration pursuant to this
Section 1, if such securities are being sold through underwriters, or, if such

 

 

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securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.

 

                                                                                               
1.4                               Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding himself or
itself, the Registrable Securities held by him or it, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Holder’s Registrable Securities.

 

                                                                                               
1.5                               Expenses of Registration. All expenses
including underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications of Registrable Securities pursuant to
this Section 1 for each Holder (which right may be assigned as provided in
Section1.10), including (without limitation) all registration, filing, and
qualification fees, printers’ and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of one counsel
for the selling Holder or Holders selected by them with the approval of the
Company, which approval shall not be unreasonably withheld, shall be borne by
the Company. Provided, however, that each Holder with Registrable Securities
included in any registration statement pursuant to this Section 1 shall
reimburse the Company for his or its pro rata share of (a) all costs and
expenses of such registration described in this Section 1.5 and (b) all
underwriting discounts and commissions incurred in connection with such
registration, but in an amount not to exceed One Dollar ($1.00) per share of
Registrable Securities sold by such Holder. As used herein, and subject to the
limitation set forth in the immediately preceding sentence, the pro rata share
of any Holder shall be equal to that portion of the total amount determined
pursuant to clauses (a) and (b) which bears the same relation to the total as
the number of shares of Registrable Securities sold by such Holder bears to the
number of shares covered by such registration statement.

 

                                                                                               
1.6                               Underwriting Requirements. In connection with
any offering involving an underwriting of shares of the Company’s capital stock,
the Company shall not be required under this Section 1 to include any of the
Holders’ securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters), and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters

 

 

4

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determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
selling shareholders according to the total amount of securities entitled to be
included therein owned by each selling shareholder or in such other proportions
as shall mutually be agreed to by such selling shareholders). For purposes of
the preceding parenthetical concerning apportionment, for any selling
shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single “selling shareholder,” and any pro-rata reduction with
respect to such “selling shareholder” shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such “selling shareholder,” as defined in this sentence.

 

                                                                                               
1.7                               Delay of Registration. No Holder shall have
any right to obtain or seek an injunction restraining or otherwise delaying any
such registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 1.

 

                                                                                               
1.8                               Indemnification. In the event any Registrable
Securities are included in a registration statement under this Section 1:

 

                                                                                                                                               
(a)                                  To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a “Violation”): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Company will pay to
each such Holder, underwriter or controlling person, as incurred, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.8(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable to
any Holder, underwriter or controlling person for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.

 

 

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(b)                                 To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, the Exchange Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 1.8(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that in no event shall any indemnity
under this subsection 1.8(b) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder.

 

                                                                                                                                               
(c)                                  Promptly after receipt by an indemnified
party under this Section 1.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
1.8, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the reasonable fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.8, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.8.

 

                                                                                                                                               
(d)                                 If the indemnification provided for in this
Section 1.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that

 

 

6

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resulted in such loss, liability, claim, damage or expense as well as any other
relevant equitable considerations; provided, that in no event shall any
contribution by a Holder under this Subsection 1.8(d) exceed the net proceeds
from the offering received by such Holder, except in the case of willful fraud
by such Holder. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties’ relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.

 

                                                                                                                                               
(e)                                  Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.

 

                                                                                                                                               
(f)                                    The obligations of the Company and
Holders under this Section 1.8 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1.

 

                                                                                               
1.9                               Reports Under Securities Exchange Act of
1934.  With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time permit a Holder to sell securities of the Company to the
public without registration, the Company agrees to:

 

                                                                                                                                               
(a)                                  make and keep public information available,
as those terms are understood and defined in SEC Rule 144, at all times so long
as the Company remains subject to the periodic reporting requirements under
Section 13 or 15(d) of the Exchange Act;

 

                                                                                                                                               
(b)                                 file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and

 

                                                                                                                                               
(c)                                  furnish to any Holder, so long as the
Holder owns any Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
SEC Rule 144, the Securities Act and the Exchange Act, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3, (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.

 

                                                                                               
1.10                        Assignment of Registration Rights.  The rights to
cause the Company to register Registrable Securities pursuant to this Section 1
may be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of at least 12,000 shares of such securities, provided
the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
and provided, further, that such

 

 

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assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. For the purpose of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Section 1.

 

                                                                                               
1.11                        Limitations on Subsequent Registration Rights.  From
and after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under this
Section, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective within one hundred twenty (120) days after the effective date of any
registration effected pursuant to this Section 1.

 

                                                                                               
1.12                        Market-Standoff Agreement.

 

                                                                                                                                               
(a)                                  Market-Standoff Period; Agreement.  In
connection with any offering of the Company’s securities and upon request of the
Company or the underwriters managing such offering of the Company’s securities,
each Holder agrees not to sell, make any short sale of, loan, grant any option
for the purchase of, or otherwise dispose of any securities of the Company
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed 90 days) from the effective date of such registration as
may be requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of such public offering.

 

                                                                                                                                               
(b)                               Limitations.  The obligations described in
Section 1.12(a) shall apply only if all officers and directors of the Company
enter into similar agreements, and shall not apply to a registration relating
solely to employee benefit or stock purchase or dividend reinvestment plans, or
to a registration relating solely to a transaction pursuant to Rule 145 under
the Securities Act.

 

                                                                                                                                               
(c)                                  Stop-Transfer Instructions.  In order to
enforce the foregoing covenants, the Company may impose stop-transfer
instructions with respect to the securities of each Holder (and the securities
of every other person subject to restrictions in Section 1.12(a)).

 

 

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(d)                                 Transferees Bound.  Each Holder agrees that
it will not transfer securities of the Company unless each transferee agrees in
writing to be bound by all of the provisions of this Section 1.12.

 

                                                                                               
1.13                        Termination of Registration Rights.  No Holder shall
be entitled to exercise any right provided for this Section 1 after February 24,
2015.

 

                                               
2.                                      Covenants of the Company.

 

                                                                                               
2.1                               Delivery of Financial Statements.  The Company
shall deliver to each Holder of at least 12,000 shares of Registrable
Securities, within twenty (20) days after receipt of written request by such
Holder, copies of the Company’s most recent annual report to shareholders, most
recent Form 10-Q Report and most recent Form 10-K Report.

 

                                                                                               
2.2                               Inspection.  To and until a Holder exercises a
Warrant, in whole or in part, and becomes a shareholder of the Company, such
Holder shall not have any rights of inspection granted to shareholders of the
Company. From and after such exercise, such Holder shall have the same rights as
any other shareholder of the Company, at such Holder’s expense, to visit and
inspect the Company’s properties and to examine its books of account and
records. Provided, however, that the Company shall not be obligated pursuant to
this Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.

 

                                                                                               
2.3                               Termination of Covenants.  The covenants set
forth in Section 2.1 and 2.2 shall terminate as to each Investor and be of no
further force or effect when the Company shall sell, convey, or otherwise
dispose of or encumber all or substantially all of its property or business or
merge into or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) or effect any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, provided that this subsection shall not apply to a
merger effected exclusively for the purpose of changing the domicile of the
Corporation.

 

                                               
3.                                      Representations and Warranties of the
Company.  The Company hereby represents and warrants to each Investor that:

 

                                                                                               
3.1                               Organization, Good Standing and
Qualification.  The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to carry on its business. The Company is
duly qualified to transact business and is in good standing in the State of
California and in each other jurisdiction in which the failure so to qualify
would have a material adverse effect on its business or properties.

 

                                                                                               
3.2                               Authorization.  All corporate action on the
part of the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Warrants, the
performance of all obligations of the Company hereunder and thereunder and the
authorization, issuance and delivery of Common Stock issuable upon exercise

 

 

9

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of the Warrants has been taken, and this Agreement and the Warrants, when
executed and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors’ rights generally, and as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in this Agreement may be limited by applicable federal or
state securities laws.

 

                                                                                               
3.3                               Valid Issuance of Securities.  The Common
Stock to be issued to the Investors upon exercise of the Warrants, when issued,
sold and delivered in accordance with the terms thereof for the consideration
expressed therein, will be duly and validly issued, fully paid and nonassessable
and free of restrictions on transfer other than restrictions on transfer under
this Agreement, the Warrants and applicable state and federal securities laws.
Based in part upon the representations of the Investors in this Agreement, the
Common Stock will be issued in compliance with all applicable federal and state
securities laws. The Common Stock issuable upon exercise of the Warrants has
been duly and validly reserved for issuance.

 

                                               
4.                                      Representations and Warranties of the
Investors.  Each Investor hereby represents and warrants to the Company that:

 

                                                                                               
4.1                               Authorization.  Such Investor has full power
and authority to enter into this Agreement. This Agreement, when executed and
delivered by the Investor, will constitute valid and legally binding obligations
of the Investor, enforceable in accordance with its terms, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors’ rights generally, and as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies, or (b)
to the extent the indemnification provisions contained in this Agreement may be
limited by applicable federal or state securities laws.

 

 

                                                                                               
4.2                               Purchase Entirely for Own Account.  This
Agreement is made with the Investor in reliance upon the Investor’s
representation to the Company, which by the Investor’s execution of this
Agreement, the Investor hereby confirms, that the Common Stock to be acquired by
the Investor upon exercise of his or its Warrant will be acquired for investment
for the Investor’s own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and that the Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, the Investor further
represents that the Investor does not presently have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
such Common Stock. The Investor has not been formed for the specific purpose of
acquiring such Common Stock.

 

                                                                                               
4.3                               Disclosure of Information.  The Investor has
had an opportunity to discuss the Company’s business, management, financial
affairs and the terms and conditions of the Warrants with the Company’s
management and has had an opportunity to review the

 

 

10

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Company’s facilities. The Investor understands that such discussions, as well as
any written information delivered by the Company to the Investor, were intended
to describe the aspects of the Company’s business which it believes to be
material.

 

                                                                                               
4.4                               Restricted Securities.  The Investor
understands that the Common Stock issued upon exercise of the Warrant has not
been, and will not be, registered under the Securities Act, by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Investor’s representations as expressed herein. The
Investor understands that the Common Stock will be “restricted securities” under
applicable U.S. federal and state securities laws and that, pursuant to these
laws, the Investor must hold such securities indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. The Investor acknowledges that the Company has no
obligation to register or qualify such securities for resale except as set forth
in this Agreement. The Investor further acknowledges that if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for such securities, and on requirements relating to the Company
which are outside of the Investor’s control, and which the Company is under no
obligation and may not be able to satisfy.

 

                                                                                               
4.5                               Legends.  The Investor understands that the
Common Stock issued upon exercise of the Warrant may bear one or all of the
following legends:

 

                                                                                                                                               
(a)                                  “THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933.”

 

                                                                                                                                               
(b)                                 Any legend set forth in the Warrant.

 

                                                                                                                                               
(c)                                  Any legend required by the Blue Sky laws of
any state to the extent such laws are applicable to the shares represented by
the certificate so legended.

 

                                                                                               
4.6                               Accredited Investor.  The Investor is an
accredited investor as defined in Rule 501(a) of Regulation D promulgated under
the Securities Act.

 

                                               
5.                                      Miscellaneous.

 

                                                                                               
5.1                               Successors and Assigns.  Except as otherwise
provided in this Agreement, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective permitted successors
and assigns of the parties (including transferees of any of the Common Stock
issued upon exercise of the Warrants). Nothing in this Agreement,

 

 

11

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express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

 

                                                                                               
5.2                               Amendments and Waivers.  Any term of this
Agreement may be amended or waived only with the written consent of the Company
and the holders of a majority of the Registrable Securities then outstanding.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Registrable Securities then outstanding, each
future holder of all such Registrable Securities, and the Company.

 

                                                                                               
5.3                               Notices.  Unless otherwise provided, any
notice required or permitted by this Agreement shall be in writing and shall be
deemed sufficient upon delivery, when delivered personally or by overnight
courier or sent by telegram or fax, or on the date of receipt or refusal
indicated on the return receipt if deposited in the U.S. mail, as certified or
registered mail, with postage prepaid and return receipt requested, and
addressed to the party to be notified at such party’s address or fax number as
set forth below or on Exhibit A hereto or as subsequently modified by written
notice.

 

                                                                                               
5.4                               Severability.  If one or more provisions of
this Agreement are held to be unenforceable under applicable law, the parties
agree to renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (a) such provision shall be excluded from this Agreement, (b)
the balance of this Agreement shall be interpreted as if such provision were so
excluded and (c) the balance of this Agreement shall be enforceable in
accordance with its terms.

 

                                                                                               
5.5                               Governing Law.  This Agreement and all acts
and transactions pursuant hereto shall be governed, construed and interpreted in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws.

 

                                                                                               
5.6                               Counterparts.  This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.

 

                                                                                               
5.7                               Titles and Subtitles.  The titles and
subtitles used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.

 

                                                                                               
5.8                               Aggregation of Stock.  All shares of the
Common Stock held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.

 

                                                                                               
5.9                               Investor Representations.  All representations
and warranties of the Investors contained in Article 4 of this Agreement shall
be deemed continuing representations and warranties made again at the date of
each exercise of a Warrant.

 

 

12

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5.10                        Finder’s Fee.  Each party represents that it neither
is nor will be obligated for any finder’s fee or commission in connection with
this transaction.  Each Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder’s fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Investor or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Investor from any liability for any commission or compensation in
the nature of a finder’s fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.

 

                                                                                               
5.11                        Attorney’s Fees.  If any action at law or in equity
(including arbitration) is necessary to enforce or interpret the terms of any of
this Agreement or the Warrants, the prevailing party shall be entitled to
reasonable attorney’s fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.

 

                                                                                               
5.12                        Entire Agreement.  This Agreement and the Warrants
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof, and any and all other written or oral agreements relating
to the subject matter hereof existing between the parties hereto are expressly
superseded.

 

                                                The parties have executed this
Investors’ Rights Agreement as of the date first above written.

 

COMPANY:

 

INVESTORS:

 

 

 

SOUTHWEST WATER COMPANY,

 

 

A Delaware corporation

 

/s/ William L. McIntyre

 

 

(Investor)

 

 

 

By

/s/ Anton C. Garnier

 

By

 

 

 

 

Title:

President

 

Name:

William L. McIntyre

 

 

(print)

 

 

 

By

Thomas C. Tekulve

 

Title:

 

 

 

 

Title:

Vice Pres. Finance

 

 

 

 

 

Address:

 

(Investor)

 

 

 

Southwest Water Company

 

By

 

225 Barranca Avenue, Suite 200

 

 

West Covina, CA 91791-1605

 

Name:

 

Attn: President

 

(print)

Fax: (626) 915-1558

 

 

 

 

Title:

 

 

 

 

 

 

13

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EXHIBIT A

 

INVESTORS

 

Name/Address/Fax No.

 

No. of Shares

 

 

 

Steven N. Reenders

 

44,297*

128 Avenida Del Mar

 

 

Suite 2C

 

 

San Clemente, CA 92672

 

 

Fax: (949) 498-7284

 

 

 

 

 

William L. McIntyre

 

44,297*

370 East Rowland Avenue

 

 

Covina, CA 91723

 

 

Fax: (626) 966-1274

 

 

 

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* Assumes complete exercise of Warrants.

 

 

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