Exhibit 10.16

 

GOLDEN STATE WATER COMPANY

 

$40,000,000

 

6.70% Senior Note due March 10, 2019

 

NOTE PURCHASE AGREEMENT

 

Dated as of March 10, 2009

 

 

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TABLE OF CONTENTS

 

Section

 

Page

 

 

 

 

1.

AUTHORIZATION, SALE AND PURCHASE OF NOTE

 

1

2.

CLOSING

 

1

3.

CONDITIONS TO CLOSING

 

2

 

3.1.

Representations and Warranties

 

2

 

3.2.

Performance; No Default

 

2

 

3.3.

Compliance Certificates

 

2

 

3.4.

Opinion of Counsel

 

2

 

3.5.

Purchase Permitted by Applicable Law, etc

 

2

 

3.6.

Payment of Special Counsel Fees

 

3

 

3.7.

Changes in Corporate Structure

 

3

 

3.8.

Proceedings and Documents

 

3

4.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

3

 

4.1.

Organization; Power and Authority

 

3

 

4.2.

Authorization, etc

 

4

 

4.3.

No Governmental Approvals Required

 

4

 

4.4.

Subsidiary

 

4

 

4.5.

Financial Statements

 

5

 

4.6.

No Other Liabilities, No Material Adverse Changes

 

5

 

4.7.

Intangible Assets

 

5

 

4.8.

Binding Obligations

 

5

 

4.9.

No Default.

 

5

 

4.10.

Regulation U; Investment Company Act

 

5

 

4.11.

Tax Liability

 

6

 

4.12.

Employee Matters

 

6

 

4.13.

Fiscal Year

 

6

 

4.14.

Solvency

 

6

5.

REPRESENTATIONS OF THE PURCHASER

 

6

 

5.1.

Purchase for Investment

 

6

 

5.2.

Source of Funds

 

7

 

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6.

INFORMATION AS TO COMPANY

 

7

 

6.1.

Financial and Business Information

 

7

 

6.2.

Inspection

 

9

7.

PREPAYMENT OF THE NOTE

 

9

 

7.1.

Optional Prepayments with Redemption Premium

 

9

 

7.2.

Maturity; Surrender, etc

 

9

 

7.3.

Redemption Premium

 

10

8.

AFFIRMATIVE COVENANTS

 

10

 

8.1.

Insurance

 

11

 

8.2.

Payment of Taxes

 

11

 

8.3.

Corporate Existence, etc

 

11

 

8.4.

Acquire Non-voting Participation Certificates in Purchaser

 

11

9.

NEGATIVE COVENANTS

 

11

 

9.1.

Disposition of Property

 

12

 

9.2.

Liens on Property; Permitted Encumbrances

 

12

 

9.3.

Merger, Consolidation, etc

 

12

 

9.4.

Change in Business

 

13

 

9.5.

Transactions with Affiliates

 

13

 

9.5.

Restrictions on Sale and Leaseback Transactions

 

13

10.

FINANCIAL COVENANTS

 

14

 

10.1.

Indebtedness

 

14

 

10.2.

Distributions

 

14

 

10.3.

Rounding

 

15

 

10.4.

Accounting Terms; Covenant Calculations

 

15

 

10.5.

Fiscal Year

 

15

11.

EVENTS OF DEFAULT

 

15

12.

REMEDIES ON DEFAULT, ETC

 

16

 

12.1.

Acceleration

 

16

 

12.2.

Other Remedies

 

17

 

12.3.

Rescission

 

17

 

12.4.

No Waivers or Election of Remedies, Expenses, etc

 

18

13.

PAYMENTS ON NOTE

 

18

14.

EXPENSES, ETC

 

18

 

14.1.

Transaction Expenses

 

18

 

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14.2.

Survival

 

18

15.

ENTIRE AGREEMENT

 

19

16.

AMENDMENT AND WAIVER

 

19

 

16.1.

Requirements

 

19

 

16.2.

Binding Effect, etc

 

19

17.

NOTICES

 

19

18.

REPRODUCTION OF DOCUMENTS

 

19

19.

CONFIDENTIAL INFORMATION

 

20

20.

MISCELLANEOUS

 

21

 

20.1.

Successors and Assigns

 

21

 

20.2.

Payments Due on Non-Business Days

 

21

 

20.3.

Severability

 

21

 

20.4.

Construction

 

21

 

20.5.

Counterparts

 

21

 

20.6.

Governing Law

 

22

 

SCHEDULE A

—

DEFINED TERMS

SCHEDULE 4.7

—

Patents, etc.

SCHEDULE 9.2

—

Liens

EXHIBIT 1

—

Form of 6.70% Senior Note due March 10, 2019

 

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GOLDEN STATE WATER COMPANY

630 East Foothill Blvd.

San Dimas, California 91773

 

March 10, 2009

 

6.70% Senior Note due March 10, 2019

 

COBANK, ACB

5500 South Quebec Street

Greenwood Village, Colorado 80111

 

Attention:  Communications and Energy Banking Group

 

Ladies and Gentlemen:

 

Golden State Water Company, a California corporation (the “Company”), agrees
with CoBank, ACB (the “Purchaser”) as follows:

 

1.                                      AUTHORIZATION, SALE AND PURCHASE OF
NOTE.

 

Subject to the terms and conditions of this Agreement, the Company will
authorize, will issue and sell to the Purchaser, and the Purchaser will purchase
from the Company, at the Closing provided for in Section 2, $40,000,000
aggregate principal amount of its 6.70% Senior Note due March 10, 2019 (the
“Note”).  The Note shall be substantially in the form set out in Exhibit 1, with
such changes, if any, as may be approved by the Purchaser and the Company. 
Certain capitalized terms used in this Agreement are defined in Schedule A;
references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a
Schedule or an Exhibit attached to this Agreement.

 

2.                                      CLOSING.

 

The sale and purchase of the Note to be purchased by the Purchaser shall occur
at the offices of Sherman & Howard, LLC, 633 17th Street, Denver, Colorado
80302, at 11:00 A.M., (Mountain time), at a closing (the “Closing”) on March 10,
2009 or on such other Business Day thereafter on or prior to March 10, 2009 as
may be agreed upon by the Company and the Purchaser (the “Closing Date”).  At
the Closing the Company will deliver to the Purchaser the Note in a form of a
Note dated the date of the Closing in the Purchaser’s name (or in the name of
the Purchaser’s nominee), against delivery by the Purchaser to the Company or
its order of immediately available funds in the amount of the purchase price
therefor by wire transfer of immediately available funds for the account of the
Company to Wells Fargo Bank, ABA No. 121-000248, Account #4584-706535, Account
Name:  Golden State Water Company, Ref:  Note Purchase Agreement Proceeds. If at
the Closing the Company shall fail to tender the Note to the Purchaser as
provided above in this Section 2, or any of the conditions specified in

 

 

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Section 3 shall not have been fulfilled to the Purchaser’s satisfaction, the
Purchaser shall, at the Purchaser’s election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights the
Purchaser may have by reason of such failure or such nonfulfillment.

 

3.                                      CONDITIONS TO CLOSING.

 

The Purchaser’s obligation to purchase and pay for the Note to be sold to the
Purchaser at the Closing is subject to the fulfillment to the Purchaser’s
satisfaction, prior to or at the Closing, of the following conditions:

 

3.1.                            Representations and Warranties.

 

The representations and warranties of the Company in this Agreement shall be
correct in all material respects as of the date hereof and the Closing Date.

 

3.2.                            Performance; No Default.

 

The Company shall have performed and complied with all agreements and conditions
contained in this Agreement required to be performed or complied with by it
prior to or at the Closing in all material respects and after giving effect to
the issue and sale of the Note, no Default or Event of Default shall have
occurred and be continuing.

 

3.3.                            Compliance Certificates.

 

(a)                                  Officer’s Certificate.  The Company shall
have delivered to the Purchaser an Officer’s Certificate, dated the date of the
Closing, certifying that the conditions specified in Sections 3.1, 3.2 and 3.7
have been fulfilled.

 

(b)                                 Secretary’s Certificate.  The Company shall
have delivered to the Purchaser a certificate attaching and certifying as to
the: (1) organizational documents of the Company; (2) resolutions and other
corporate proceedings relating to the authorization, execution and delivery of
the Note and the Agreement; (3) names and true ink signatures of the officers of
the Company authorized to execute this Agreement, the Note, and the related
documents; and (4) due incorporation and good standing of the Company in the
State of California.

 

3.4.                            Opinion of Counsel.

 

The Purchaser shall have received an opinion, dated the date of the Closing from
O’Melveny & Myers LLP, counsel for the Company, in form and substance
satisfactory to counsel for Purchaser (and the Company hereby instructs its
counsel to deliver such opinion to the Purchaser).

 

3.5.                            Purchase Permitted by Applicable Law, etc.

 

On the date of the Closing the Purchaser’s purchase of the Note shall (i) be
permitted by the laws and regulations of each jurisdiction to which the
Purchaser is subject, and (ii) not subject the Purchaser to any tax, penalty or
liability under or pursuant to any applicable

 

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law or regulation, which law or regulation was not in effect on the date hereof.
If requested by the Purchaser, the Purchaser shall have received an Officer’s
Certificate certifying as to such matters of fact as the Purchaser may
reasonably specify to enable the Purchaser to determine whether such purchase is
so permitted.

 

3.6.                            Payment of Special Counsel Fees.

 

Without limiting the provisions of Section 14.1, the Company shall have paid on
or before the Closing the reasonable fees, charges and disbursements of the
Purchaser’s special counsel up to a maximum amount of $25,000 to the extent
reflected in a statement of such counsel rendered to the Company at least one
Business Day prior to the Closing.

 

3.7.                            Changes in Corporate Structure.

 

The Company shall not have changed its jurisdiction of incorporation or been a
party to any merger or consolidation and shall not have succeeded to all or any
substantial part of the liabilities of any other entity, at any time following
the date of the most recent financial statements referred to in Section 4.5.

 

3.8.                            Proceedings and Documents.

 

All corporate proceedings taken in connection with the transactions contemplated
by this Agreement and all documents and instruments necessary to the
consummation thereof shall be reasonably satisfactory in form and substance to
the Purchaser and the Purchaser’s special counsel, and the Purchaser and the
Purchaser’s special counsel shall have received all such counterpart originals
or certified or other copies of such documents as the Purchaser or they may
reasonably request.

 

4.                                      REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.

 

The Company represents and warrants to the Purchaser that:

 

4.1.                            Organization; Power and Authority.

 

The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, and is duly qualified as a
foreign corporation and is in good standing in each jurisdiction in which the
conduct of its business or the ownership or leasing of its Properties makes such
qualification or registration necessary, other than those jurisdictions as to
which the failure to be so qualified or in good standing could not reasonably be
expected to have a Material Adverse Effect. The Company has all requisite
corporate power and corporate authority to conduct its business, to own and
lease its Properties and to execute and deliver this Agreement and the Note and
to perform the provisions hereof and thereof.  The chief executive offices of
the Company are located in San Dimas, California.  All outstanding capital stock
of Company is duly authorized, validly issued, fully paid and non-assessable,
and no holder thereof has any enforceable right of rescission under any
applicable state or federal securities or other Laws.  The Company is in
compliance with all Laws and other legal requirements applicable to its
business, has obtained all authorizations, consents, approvals, orders, licenses
and permits from, and has accomplished all filings, registrations and

 

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qualifications with, or obtained exemptions from any of the foregoing from, any
Governmental Agency that are necessary for the transaction of its business,
except as disclosed in the Company’s filings with the Securities and Exchange
Commission after January 1, 2008 until the date hereof or where the failure so
to comply with Laws and other legal requirements applicable to its business,
obtain authorizations, etc., file, register, qualify or obtain exemptions could
not reasonably be expected to have a Material Adverse Effect.

 

4.2.                            Authorization, etc.

 

The execution and delivery by Company of this Agreement and the Note and payment
of the Obligations have been duly authorized by all necessary corporate action
and do not and will not:

 

(a)                                  Require any consent or approval not
heretofore obtained of any shareholder, security holder or creditor of the
Company;

 

(b)                                 Violate or conflict with any provision of
the Company’s articles of incorporation or bylaws;

 

(c)                                  Result in or require the creation or
imposition of any Lien (other than pursuant to the Loan Documents) or Right of
Others upon or with respect to any Property now owned or leased or hereafter
acquired by the Company;

 

(d)                                 Violate any Requirement of Law applicable to
the Company;

 

(e)                                  Result in a breach of or constitute a
default under, or cause or permit the acceleration of any obligation owed under,
any indenture or loan or credit agreement or any other Contractual Obligation to
which the Company is a party or by which the Company or any of its Property is
bound or affected;

 

and the Company is not in violation of, or default under, any Requirement of Law
or Contractual Obligation, or any indenture, loan or credit agreement described
in Section 4.2(e), in any respect that could reasonably be expected to have a
Material Adverse Effect.

 

4.3.                            No Governmental Approvals Required.

 

Except as previously obtained or made, no authorization, consent, approval,
order, license or permit from, or filing, registration or qualification with,
any Governmental Agency is or will be required to authorize or permit under
applicable Laws the execution and delivery by the Company of the Agreement and
the Note and payment of the Obligations.

 

4.4.                            Subsidiary.

 

The only Subsidiary of the Company is a wholly owned Subsidiary of the Company,
California Cities Water Company, Inc., a California corporation.

 

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4.5.                            Financial Statements.

 

The Company has delivered to the Purchaser (a) the audited consolidated
financial statements of the Company and its Subsidiary for the Fiscal Year ended
December 31, 2007 and (b) the consolidated financial statements of the Company
and its Subsidiary for the Fiscal Quarters ended June 30, 2008 and September 30,
2008.  Such financial statements fairly present in all material respects the
financial condition, results of operations and changes in financial position as
of such dates and for such periods in conformity with GAAP consistently applied.

 

4.6.                            No Other Liabilities, No Material Adverse
Changes.

 

As of the Closing Date, the Company does not have any material liability or
material contingent liability required under GAAP to be reflected or disclosed,
and not reflected or disclosed, in the financial statements described in
Section 4.5, other than liabilities and contingent liabilities arising in the
ordinary course of business since the date of such financial statements, or that
could not be reasonably expected to have a Material Adverse Effect.  As of the
Closing Date, no circumstance or event has occurred that could reasonably be
expected to have a Material Adverse Effect since December 31, 2007.

 

4.7.                            Intangible Assets.

 

The Company owns, or possesses the right to use to the extent necessary in its 
business, all material trademarks, trade names, copyrights, patents, patent
rights, computer software, licenses and other Intangible Assets that are used in
the conduct of its business as now operated, and no such Intangible Asset, to
the best knowledge of Company, conflicts with the valid trademark, trade name,
copyright, patent, patent right or Intangible Asset of any other Person, except,
in any such case, to the extent that could not reasonably be expected to have a
Material Adverse Effect. Schedule 4.7 sets forth all patents, patent
applications, trademarks, trade names and trade styles used by Company at any
time within the five (5) year period ending on the Closing Date.

 

4.8.                            Binding Obligations.

 

Each of this Agreement and the Note will, when executed and delivered by
Company, constitute the legal, valid and binding obligation of the Company,
enforceable against Company in accordance with its terms, except as enforcement
may be limited by Debtor Relief Laws or equitable principles relating to the
granting of specific performance and other equitable remedies as a matter of
judicial discretion.

 

4.9.                            No Default.

 

No event has occurred and is continuing that is a Default or Event of Default.

 

4.10.                     Regulation U; Investment Company Act.

 

No part of the proceeds of the Note hereunder will be used to purchase or carry,
or to extend credit to others for the purpose of purchasing or carrying, any
Margin Stock in

 

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violation of Regulation U.  The Company is not or is not required to be
registered as an “investment company” under the Investment Company Act of 1940.

 

4.11.                     Tax Liability.

 

The Company has filed all tax returns which are required to be filed, and has
paid, or made provision for the payment of, all taxes with respect to the
periods, Property or transactions covered by said returns, or pursuant to any
assessment received by the Company, except (a) such taxes, if any, as are being
contested in good faith by appropriate proceedings and as to which adequate
reserves have been established and maintained and (b) immaterial taxes so long
as no material Property of Company is at impending risk of being seized, levied
upon or forfeited.

 

4.12.                     Employee Matters.

 

There is no strike, work stoppage or labor dispute with any union or group of
employees pending or, to the best knowledge of the Company overtly threatened
involving Company that individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect.

 

4.13.                     Fiscal Year.

 

The Company operates on a fiscal year ending on December 31.

 

4.14.                     Solvency.

 

After giving effect to this Agreement (including after giving effect to delivery
of the Note under this Agreement as of the Closing Date), the Company shall be
Solvent.

 

4.15.                     Use Of Proceeds.

 

The Company’s capital expenditure budgets for 2008-2011 include at least $40
million of capital expenditures for projects that will serve rural communities
(populations of 20,000 or less).

 

5.                                      REPRESENTATIONS OF THE PURCHASER.

 

5.1.                            Purchase for Investment.

 

The Purchaser represents that the Note represents a loan by the Purchaser. The
Purchaser further represents and warrants to the Company that: (A) it is
authorized under the laws applicable to it to make the loan and accept the Note
as evidence thereof; and (B) it is making the Loan and acquiring the Note for
its own account, with no intention of dividing its participation with others or
reselling or otherwise distributing the same in violation of the Securities Act
of 1933 or applicable state securities laws. The Purchaser understands that the
Note has not been registered under the Securities Act and may be resold only if
registered

 

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pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Note or to permit the resale of the Note. The
Company may place an appropriate legend on the Note concerning the restrictions
set forth in this Article 5.

 

5.2.                            Source of Funds.

 

The Purchaser represents, as to each source of funds (a “Source”) to be used by
the Purchaser to pay the purchase price of the Note to be purchased by the
Purchaser hereunder, that the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.  As used in
this Section 5.2, the term “employee benefit plan” shall have the meaning
assigned to such term in Section 3 of ERISA.

 

6.                                      INFORMATION AS TO COMPANY.

 

6.1.                            Financial and Business Information.

 

The Company shall deliver to the Purchaser:

 

(a)                                  Quarterly Statements — within 60 days after
the end of each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal year),
duplicate copies of,

 

(i)                                     a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such quarter, and

 

(ii)                                  consolidated statements of income, changes
in shareholders’ equity and cash flows of the Company and its Subsidiaries, for
such quarter and (in the case of the second and third quarters) for the portion
of the fiscal year ending with such quarter, setting forth in each case in
comparative form the figures for the corresponding periods in the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and certified by a
Senior Financial Officer as fairly presenting, in all material respects, the
financial position of the Company and its Subsidiaries and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified above of
copies of the Company’s Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this Section 6.1(a);

 

(b)                                 Annual Statements — within 100 days after
the end of each fiscal year of the Company, duplicate copies of,

 

(i)                                     a consolidated balance sheet of the
Company and its Subsidiaries, as at the end of such year, and

 

(ii)                                  consolidated statements of income, changes
in shareholders’ equity and cash flows of the Company and its Subsidiaries, for
such year,

 

7

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setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the Company and its Subsidiaries and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances, provided that
the delivery within the time period specified above of the Company’s Annual
Report on Form 10-K for such fiscal year prepared in accordance with the
requirements therefor and filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this Section 6.1(b);

 

(c)                                  Notice of Default or Event of Default —
promptly, and in any event within five days after a Responsible Officer becomes
aware of the existence of any Default or Event of Default, a written notice
specifying the nature and period of existence thereof and what action the
Company is taking or proposes to take with respect thereto;

 

(d)                                 ERISA Matters — promptly, and in any event
within five days after a Responsible Officer becomes aware of any of the
following, a written notice setting forth the nature thereof and the action, if
any, that the Company or an ERISA Affiliate proposes to take with respect
thereto:

 

(i)                                     with respect to any Plan, any reportable
event, as defined in section 4043(b) of ERISA and the regulations thereunder,
for which notice thereof has not been waived pursuant to such regulations as in
effect on the date hereof; or

 

(ii)                                  the taking by the PBGC of steps to
institute, or the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has been taken
by the PBGC with respect to such Multiemployer Plan; or

 

(iii)                               any event, transaction or condition that
could result in the  imposition of any Lien on any of the rights, properties or
assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA,
if such liability or Lien, taken together with any other such Liens then
existing, would reasonably be expected to have a Material Adverse Effect; and

 

(e)                                  Requested Information — with reasonable
promptness, such other data and information relating to the business,
operations, affairs, financial condition, annual budget, assets or properties of
the Company or relating to the ability of the Company to perform its obligations
hereunder and under the Note as from time to time may be reasonably requested by
the Purchaser.

 

Information required to be delivered pursuant to this Section 6.1 (to the extent
any such documents are included in materials otherwise filed with the Securities
and Exchange

 

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Commission) shall be deemed to have been delivered on the date on which the
Company provides notice to Purchaser that such information has been posted on
the Company’s website at the website address listed on the signature page hereof
or another website identified in such notice and accessible to the Purchaser
without charge; provided that the Company shall provide the Purchaser with paper
copies if requested to do so by Purchaser.

 

6.2.                            Inspection.

 

The Company shall permit the representatives of the Purchaser:

 

(a)                                  No Default — if no Default or Event of
Default then exists, at the expense of the Purchaser and upon reasonable prior
notice to the Company, to visit the principal executive office of the Company,
to discuss the affairs, finances and accounts of the Company with the Company’s
officers, and, with the consent of the Company (which consent will not be
unreasonably withheld) to visit the other offices and properties of the Company,
all at such reasonable times and as often as may be reasonably requested in
writing; provided, however, that unless the Company otherwise agrees, the
Purchaser may only conduct an on-site inspection of the Company following the
Closing twice in any fiscal year; and

 

(b)                                 Default — if a Default or Event of Default
then exists, at the reasonable expense of the Company and upon reasonable prior
notice to the Company, to visit and inspect any of the offices or properties of
the Company, and, to the extent permitted by applicable Law, to examine all its
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss its affairs, finances and accounts with its officers
and independent public accountants (and by this provision the Company authorizes
said accountants to discuss the affairs, finances and accounts of the Company),
all at such times and as often as may be reasonably requested; provided that the
Company may, if it so chooses, be present at or participate in any such
discussion.

 

7.                                      PREPAYMENT OF THE NOTE.

 

7.1.                            Optional Prepayments with Redemption Premium.

 

The Company may, at its option, upon notice as provided below, prepay at any
time all, or from time to time any part of, the Note, in an amount not less than
$1,000,000 in the case of a partial prepayment, at 100% of the principal amount
so prepaid, plus the Redemption Premium determined for the prepayment date with
respect to such principal amount as provided in Section 7.3.  The Company will
give the Purchaser written notice of each optional prepayment under this
Section 7.1 not less than 3 days and not more than 60 days prior to the date
fixed for such prepayment.  Each such notice shall specify such date, the
aggregate principal amount of the Note to be prepaid on such date, and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid. By noon (Mountain Time) on the date for such prepayment, the
Purchaser shall notify the Company of its calculation of the amount of the
Redemption Premium due on such date.

 

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7.2.         Maturity; Surrender, etc.

 

In the case of each prepayment of the Note pursuant to this Section 7, the
principal amount of the Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Redemption Premium. 
From and after such date, unless the Company shall fail to pay such principal
amount when so due and payable, together with the interest and Redemption
Premium as aforesaid, interest on such principal amount shall cease to accrue.

 

7.3.         Redemption Premium.

 

The term “Redemption Premium” means, with respect to the Note, an amount
calculated by Purchaser in good faith and in a commercially reasonable manner as
follows:

 

                (A)          Purchaser will determine the difference between: 
(1) the rate allocated by Purchaser on the date the rate on the Note is fixed as
its cost to fund the loan represented by the Note in the manner set forth in
Purchaser’s standard  methodology; minus (2) the rate estimated by Purchaser on
the date of calculation to be its cost, less dealer concessions and other
issuance costs, to fund a new fixed rate loan in accordance with the methodology
used by the Purchaser for loans to other borrowers on the date the Note is
repaid having the same fixed rate period and repayment characteristics as the
balance of the Note being repaid.  If such difference is negative, then for
purposes of the remaining calculations, such difference shall be deemed to be
zero.

 

                (B)           Add ½ of 1% to such difference (such that the
minimum result shall at all times be ½ of 1%).

 

                (C)           Divide the result determined in (B) above by the
number of times interest is payable during the year.

 

                (D)          For each interest period (or portion thereof)
during which interest was scheduled to accrue at the fixed rate of the Note,
multiply the amount determined in (C) above by the principal balance scheduled
to have been outstanding during such period (such that there is a calculation
for each interest period during which the amount repaid was scheduled to have
been outstanding at the fixed rate).

 

                (E)           Determine the present value of each calculation
made under (D) above based upon the scheduled time that interest on the amount
repaid would have been payable and a discount rate equal to the rate set forth
in (A)(2) above.

 

(F)           Add all of the calculations made under (E) above.  The result is
the Redemption Premium.

 

(G)           Purchaser’s determination of the Redemption Premium shall be
presumed to be correct in the absence of manifest error.

 

Nothing contained herein shall prevent Purchaser from funding its loans in any
manner as Purchaser may, in its sole discretion, elect, and the surcharges
provided for herein shall not be

 

10

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increased or decreased based on the actual methods chosen by Purchaser to fund
or hedge the loan being repaid.

 

8.                                      AFFIRMATIVE COVENANTS.

 

The Company covenants that so long as any portion of the Note is outstanding:

 

8.1.         Insurance.

 

The Company will maintain liability, casualty and other insurance (subject to
customary deductibles and retentions and which may include self-insurance) with
responsible insurance companies in such amounts and against such risks as is
carried by responsible companies engaged in similar businesses and owning
similar assets.

 

8.2.         Payment of Taxes.

 

The Company will pay and discharge promptly all taxes, assessments and
governmental charges or levies imposed upon it, upon its Property or any part
thereof and upon its respective income or profits or any part thereof, except
that Company shall not be required to pay or cause to be paid (a) any tax,
assessment, charge or levy that is not yet past due, or is being contested in
good faith by appropriate proceedings so long as the relevant entity has
established and maintains adequate reserves for the payment of the same or
(b) any immaterial tax, assessment, governmental charge or levy so long as no
material Property of Company is at impending risk of being seized, levied upon
or forfeited.

 

8.3.         Corporate Existence, etc.

 

(a)           The Company will at all times preserve and maintain its existence
in its jurisdiction of organization.

 

(b)           The Company will also at all times preserve and maintain all
material authorizations, rights, franchises, privileges, consents, approvals,
orders, licenses, permits or registrations from any Governmental Agency that are
necessary for the transaction of its business and qualify to transact business
in each jurisdiction in which such qualification is necessary in view of the
business or the ownership or leasing of its Properties, except where the failure
to so preserve, maintain or qualify could not reasonably be expected to have a
Material Adverse Effect.

 

8.4.         Acquire Non-voting Participation Certificates in Purchaser.

 

Acquire non-voting participation certificates in Purchaser in such amounts and
at such times as the Purchaser may require in accordance with its bylaws and
capital plan (as each may be amended from time to time), except that the maximum
amount of such certificates that the Company may be required to purchase in
connection with the loan made by Purchaser hereunder may not exceed the maximum
amount permitted by the bylaws of the Purchaser at the time the Note is entered
into or is renewed or refinanced by Purchaser.  The rights and obligations of
the parties with respect to such certificates and any patronage or other
distributions made by the Purchaser shall be governed by the Purchaser’s bylaws
and capital plan (as each

 

11

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may be amended from time to time). As security for the Company’s obligations to
Purchaser, Purchaser shall have a statutory first priority lien on all equity
which the Company may now own or hereafter acquire in Purchaser and all proceeds
thereof.

 

8.5.         Use of Proceeds.

 

                                The proceeds of the Note will be used to finance
capital expenditures under the Company’s capital expenditure budgets for
2008-2011.

 

9.                                      NEGATIVE COVENANTS.

 

The Company covenants that so long as any portion of the Note is outstanding, or
any other Obligation remains unpaid, that the Company shall not, unless the
Purchaser otherwise consents:

 

9.1.         Disposition of Property.

 

In any fiscal year make one or more Dispositions of Property with a book value
of more than a Substantial Portion, whether such Property is now owned or
hereafter acquired, including Dispositions pursuant to any order of any
Governmental Agency in an eminent domain proceeding and any settlement of any
such proceeding unless, within one year of the occurrence of such Disposition,
the Company applies the Net Proceeds of such Disposition to one or more of the
following:

 

                (1)           the optional redemption of all or a portion of the
Note as provided in Section 7; or

 

                (2)           the payment or other retirement of a portion of
Indebtedness incurred or assumed by the Company which ranks pari passu with the
Note); or

 

                (3)           the purchase of Public Utility Property (other
than Property of the Company involved in such Disposition), as determined by the
Board of Directors of the Company whose determination shall be conclusive and
evidenced in a resolution of the Board of Directors.

 

9.2.         Liens on Property; Permitted Encumbrances.

 

Create, issue, assume, guarantee or suffer to exist any Indebtedness secured by
any Lien of any nature upon any of its Properties, whether now owned or
hereafter acquired, except:

 

(a)           Liens existing on the Closing Date and disclosed in Schedule 9.2
and any renewals/extensions, refinancings or amendments thereof, provided that
the obligations secured or benefited thereby are not increased (other than for
premiums or other payments required to be paid in connection therewith and the
expenses incurred in connection therewith);

 

(b)           Liens under the Loan Documents; and

 

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(c)           Permitted Encumbrances,

 

without, in each case, effectively providing that the Note (together with, if
the Company shall so determine, any other Indebtedness of the Company ranking
pari passu with the Note) shall be secured equally and ratably with such
Indebtedness.

 

9.3.         Merger, Consolidation, etc.

 

The Company shall not consolidate with or merge with any other corporation,
except mergers and consolidations of a Subsidiary into the Company (with the
Company as the surviving entity), or convey, transfer or lease substantially all
of its assets in a single transaction or series of transactions to any Person
unless:

 

(a)           the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Company as an entirety, as the case may
be, shall be a Solvent corporation organized and existing under the laws of the
United States or any State thereof (including the District of Columbia), and, if
the Company is not such corporation, such corporation shall have executed and
delivered to the Purchaser its assumption of the due and punctual performance
and observance of each covenant and condition of this Agreement and the Note;
and

 

(b)           immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and

 

(c)           the Total Indebtedness to Capitalization Ratio of the Company, its
Subsidiaries and of such other corporation, on a consolidated basis, is not more
than .6667 to 1 at the end of the fiscal quarter immediately preceding the
merger after giving effect to the merger, consolidation or sale and any changes
in Total Indebtedness since the end of such quarter (exclusive of any
adjustments to Total Capitalization relating to transaction costs and accounting
adjustments resulting from such transaction); and

 

(d)           the Total Indebtedness to EBITDA Ratio of the Company, its
Subsidiaries and of such other corporation, on a consolidated basis, is not
greater than 8:1 for the 12 month period preceding the end of the quarter
preceding such merger, after giving effect to the merger, consolidation or sale
and any changes in Total Indebtedness since the end of such quarter; and

 

(e)           the successor or survivor entity has agreed to conduct the
principal business of the successor or survivor entity as a regulated
water/wastewater public utility under the laws of one or more states of the
United States.

 

9.4.         Change in Business.

 

Cease to conduct its principal business as a regulated water/wastewater public
utility under the laws of one or more states of the United States of America.

 

13

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9.5.         Transactions with Affiliates.

 

The Company will not enter into or be a party to, any transaction or arrangement
with any Affiliate (including without limitation, the purchase from, sale to or
exchange of Property with, or the rendering of any service by or for, any
Affiliate), except upon fair and reasonable terms no less favorable in any
material respect to the Company than would be obtained in a comparable arm’s
length transaction with a Person other than an Affiliate or as otherwise may be
permitted by applicable Law.

 

9.6          Restrictions on Sale and Leaseback Transactions.

 

                                Enter into any arrangement with any Person
providing for a Sale and Leaseback, unless the Net Proceeds of such sale are at
least equal to the value of such Property, as determined by the Board of
Directors of the Company, whose determination shall be conclusive and evidenced
in a resolution of the Board of Directors, and the Company would be entitled,
pursuant to Section 9.2 to incur Indebtedness secured by a Lien on the Property
to be leased without equally and ratably securing the Note. In no event may the
value of Property subject to a Sale and Leaseback, as determined by the Board of
Directors of the Company as provided herein, together with the amount of
Permitted Capital Indebtedness outstanding on the date of any such Sale and
Leaseback exceed a Substantial Portion of the Property of the Company and its
Subsidiaries on a consolidated basis.

 

10.                               FINANCIAL COVENANTS.

 

10.1.       Indebtedness.

 

The Company covenants and agrees that it will not create, incur or assume any
Indebtedness, if an Event of Default has occurred and is continuing or if, after
giving effect thereto, any of the following conditions is not satisfied:

 

(a)           the Total Indebtedness to Capitalization Ratio of the Company and
its Subsidiaries, on a consolidated basis, would be more than .6667 to 1 at the
end of the fiscal quarter immediately preceding such creation, occurrence or
assumption; or

 

(b)           the Total Indebtedness to EBITDA Ratio of the Company and its
Subsidiaries, on a consolidated basis, would be greater than 8:1 for the 12
month period preceding the end of the quarter preceding such creation,
incurrence or assumption; or

 

(c)           an Event of Default would otherwise occur.

 

Notwithstanding the foregoing, the Company may incur Indebtedness solely for the
purpose of repaying or refinancing existing Indebtedness so long as (i) the
principal amount of such new Indebtedness does not exceed the principal amount
of the existing Indebtedness refinanced or repaid (plus the premiums or other
payments required to be paid in connection with such refinancing or repayment
and the expenses incurred in connection therewith), (ii) the maturity of such
new Indebtedness is not earlier than that of the existing Indebtedness to be
refinanced or repaid, (iii) such new Indebtedness, determined as of the date of
incurrence, has an Average Life at least equal to the remaining Average Life of
the Indebtedness to be refinanced or repaid, and

 

14

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(iv) the new Indebtedness is pari passu with or subordinate to the Indebtedness
being refinanced or repaid.

 

10.2.       Distributions.

 

The Company covenants and agrees that it will not declare or pay or make any
form of Distribution, whether from capital, income or otherwise, and whether in
Cash or in Property, if, at the time of the declaration or payment of such
Distribution,

 

                (a)           an Event of Default has occurred and is continuing
or,

 

                (b)           if after giving effect thereto the Total
Indebtedness to Capitalization Ratio of the Company and its Subsidiaries, on a
consolidated basis, would be more than .6667 to 1 or an Event of Default would
otherwise occur.

 

10.3.       Rounding.

 

Any financial ratios required to be maintained by Company pursuant to this
Agreement shall be calculated by dividing the appropriate component by the other
component, carrying the result to one place more than the number of places by
which such ratio is expressed in this Agreement and rounding the result up or
down to the nearest number (with a round-up if there is no nearest number) to
the number of places by which such ratio is expressed in this Agreement.

 

10.4.       Accounting Terms; Covenant Calculations.

 

All accounting terms not specifically defined in this Agreement shall be
construed in conformity with GAAP applied on a consistent basis, except as
otherwise specifically prescribed herein. In the event that GAAP changes during
the term of this Agreement such that the covenants contained in Sections 9.3,
9.6, 10.1 or 10.2 would then be calculated in a different manner with different
components, (i) Company and Purchaser agree to amend this Agreement in such
respects as are necessary to conform these covenants to substantially the same
criteria as were effective prior to such change in GAAP, and (ii) Company shall
be deemed to be in compliance with the covenants contained in the aforesaid
Sections if and to the extent that Company would have been in compliance
therewith under GAAP as in effect immediately prior to such change.

 

10.5.       Fiscal Year.

 

The Company covenants and agrees that it will maintain a calendar year fiscal
year.

 

11.                               EVENTS OF DEFAULT.

 

An “Event of Default” shall exist if any of the following conditions or events
shall occur and be continuing:

 

15

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(a)           the Company defaults in the payment of any principal or Redemption
Premium, if any, on the Note when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise; or

 

(b)           the Company defaults in the payment of any interest on the Note
for more than five Business Days after the same becomes due and payable; or

 

(c)           the Company defaults in the performance of or compliance with any
term contained in Sections 8.3(a), 9.1, 9.2, 9.3, 9.6 or 10; or

 

(d)           the Company defaults in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b) and
(c) of this Section 11) and such default is not remedied within 60 days after
the earlier of (i) a Responsible Officer obtaining actual knowledge of such
default and (ii) the Company receiving written notice of such default from the
Purchaser (any such written notice to be identified as a “notice of default” and
to refer specifically to this paragraph (d) of Section 11); or

 

(e)           any representation or warranty made in writing by or on behalf of
the Company or by any officer of the Company in this Agreement or in any writing
furnished in connection with the transactions contemplated hereby proves to have
been false or incorrect in any material respect on the date as of which made; or

 

(f)            the Company is in default (as principal or as guarantor or other
surety) in the payment of any principal of or premium or interest on any
Indebtedness that is outstanding in an aggregate principal amount of more than
$2,500,000 beyond any period of grace provided with respect thereto for more
than sixty (60) days; or (ii) the Company is in default in the performance of or
compliance with any term of any Indebtedness in an aggregate outstanding
principal amount of at least $2,500,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a consequence
of such default or condition such Indebtedness has been declared due and payable
before its stated maturity or before its regularly scheduled dates of payment;
or

 

(g)           the Company (i) is generally not paying, or admits in writing its
inability to pay, its debts as they become due, (ii) files, or consents by
answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an assignment
for the benefit of its creditors, (iv) consents to the appointment of a
custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any Substantial Portion of its Property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing;

 

(h)           a court or governmental authority of competent jurisdiction enters
an order appointing, without consent by the Company, a custodian, receiver,
trustee or other officer with similar powers with respect to it or with respect
to any Substantial Portion of its Property, or constituting an order for relief
or approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency

 

16

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law of any jurisdiction, or ordering the dissolution, winding-up or liquidation
of the Company, or any such petition shall be filed against the Company and such
petition shall not be dismissed within 60 days; or

 

(i)            a final judgment or judgments for the payment of money
aggregating in excess of $2,500,000 are rendered against one or more of the
Company and its Subsidiaries, which judgments are not, within 60 days after
entry thereof, bonded, discharged, or stayed pending appeal, or are not
discharged within 60 days after the expiration of such stay, or an agreement has
not been entered into for, or an order of a Governmental Agency has not been
entered permitting, the payment of such judgment over a period of more than 60
days.

 

12.                               REMEDIES ON DEFAULT, ETC.

 

12.1.       Acceleration.

 

(a)           If an Event of Default with respect to the Company described in
paragraph (g) or (h) of Section 11 (other than an Event of Default described in
clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by
virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has
occurred, the Note shall automatically become immediately due and payable.

 

(b)           If any other Event of Default has occurred and is continuing, the
Purchaser may at any time at its option, by notice to the Company, declare the
Note to be immediately due and payable.

 

Upon the Note becoming due and payable under this Section 12.1, whether
automatically or by declaration, the Note will forthwith mature and the entire
unpaid principal amount of the Note, plus (x) all accrued and unpaid interest
thereon and (y) the Redemption Premium determined in respect of such principal
amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, without presentment, demand, protest or further
notice, all of which are hereby waived.  The Company acknowledges, and the
parties hereto agree, that the Purchaser has the right to maintain its
investment in the Note free from repayment by the Company (except as herein
specifically provided for) and that the provision for payment of a Redemption
Premium by the Company in the event that the Note is prepaid or is accelerated
as a result of an Event of Default, is intended to provide compensation for the
deprivation of such right under such circumstances.

 

12.2.       Other Remedies.

 

If any Default or Event of Default has occurred and is continuing, and
irrespective of whether the Note has become or has been declared immediately due
and payable under Section 12.1, the Purchaser may proceed to protect and enforce
its rights by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in the
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.

 

17

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12.3.       Rescission.

 

At any time after the Note has been declared due and payable pursuant to clause
(b) of Section 12.1, the Purchaser by written notice to the Company, may rescind
and annul any such declaration and its consequences if (a) the Company has paid
all overdue interest on the Note, all principal of and Redemption Premium, if
any, on the Note that is due and payable and is unpaid other than by reason of
such declaration, and all interest on such overdue principal and Redemption
Premium, if any, and (to the extent permitted by applicable law) any overdue
interest in respect of the Note, at the Default Rate, (b) all Events of Default
and Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 16, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Note.  No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.

 

12.4.       No Waivers or Election of Remedies, Expenses, etc.

 

No course of dealing and no delay on the part of the Purchaser in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
the Purchaser’s rights, powers or remedies.  No right, power or remedy conferred
by this Agreement or by the Note upon the Purchaser shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise.  Without limiting the
obligations of the Company under Section 16, the Company will pay to the
Purchaser on demand such further amount as shall be sufficient to cover all
reasonable costs and expenses of the Purchaser incurred in any enforcement or
collection under this Section 12, including, without limitation, reasonable
attorneys’ fees, expenses and disbursements.

 

13.                               PAYMENTS ON NOTE.

 

Payments of principal, Redemption Premium, if any, and interest becoming due and
payable on the Note shall be by wire transfer of immediately available funds for
the account of the Purchaser at CoBank, ACB, ABA No. 3070-8875-4, Account
No. 00036798, Golden State Water Company (or such other account or in such other
manner as Purchaser may at any time, by notice to the Company, direct).

 

14.                               EXPENSES, ETC.

 

14.1.       Transaction Expenses.

 

At the Closing, the Company shall pay an origination fee of $100,000 to the
Purchaser, plus the reasonable legal expenses of Purchaser’s counsel as provided
in Section 3.5. Whether or not the transaction contemplated hereby is
consummated, the Company will pay all reasonable costs and expenses (including
reasonable attorneys’ fees of a special counsel and, if reasonably required,
local or other counsel) incurred by the Purchaser in connection with such
transaction and in connection with any amendments, waivers or consents under or
in respect of this Agreement or the Note (whether or not such amendment, waiver
or consent becomes effective), including, without limitation:  (a) the
reasonable costs and expenses incurred in enforcing or defending (or determining
whether or how to enforce or defend) any rights under

 

18

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this Agreement or the Note or in responding to any subpoena or other legal
process or informal investigative demand issued in connection with this
Agreement or the Note, or by reason of being a holder of the Note, and (b) the
reasonable costs and expenses, including financial advisors’ fees, incurred in
connection with the insolvency or bankruptcy of the Company or in connection
with any work-out or restructuring of the transaction contemplated hereby and by
the Note.

 

14.2.       Survival.

 

The obligations of the Company under this Section 14 will survive the payment of
the Note, the enforcement, amendment or waiver of any provision of this
Agreement or the Note, and the termination of this Agreement.

 

15.                               ENTIRE AGREEMENT.

 

 All statements contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant to this Agreement shall be deemed
representations and warranties of the Company under this Agreement.  Subject to
the preceding sentence, this Agreement and the Note embody the entire agreement
and understanding between the Purchaser and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.

 

16.                               AMENDMENT AND WAIVER.

 

16.1.       Requirements.

 

This Agreement and the Note may be amended, and the observance of any term
hereof or of the Note may be waived (either retroactively or prospectively),
with (and only with) the written consent of the Company and the Purchaser.

 

16.2.       Binding Effect, etc.

 

 No amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or impair
any right consequent thereon.  No course of dealing between the Company and the
Purchaser nor any delay in exercising any rights hereunder or under the Note
shall operate as a waiver of any rights of the Purchaser.  As used herein, the
term “this Agreement” and references thereto shall mean this Agreement as it may
from time to time be amended or supplemented.

 

17.                               NOTICES.

 

All notices and communications provided for hereunder shall be in writing and
sent (a) by telecopy if the sender on the same day sends a confirming copy of
such notice by a recognized overnight delivery service (charges prepaid), or
(b) by registered or certified mail with return receipt requested (postage
prepaid), or (c) by a recognized overnight delivery service (with charges
prepaid).  Any such notice must be sent:

 

19

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(i)            if to the Purchaser or the Purchaser’s nominee, to the Purchaser
or at the address set forth at the beginning hereof or such other address as the
Purchaser shall have specified to the Company in writing, or

 

(ii)           if to the Company, to the Company at its address set forth at the
beginning hereof to the attention of the Chief Financial Officer, or at such
other address as the Company shall have specified to the Purchaser in writing.

 

Notices under this Section 17 will be deemed given only when actually received.

 

18.                               REPRODUCTION OF DOCUMENTS.

 

This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the Purchaser at the Closing (except the
Note itself), and (c) financial statements, certificates and other information
previously or hereafter furnished to the Purchaser, may be reproduced by the
Purchaser by any photographic, photostatic, micro-film, microcard, miniature
photographic or other similar process and the Purchaser may destroy any original
document so reproduced.  The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by the Purchaser in the regular course of business) and
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.  This Section 18 shall not prohibit the
Company from contesting any such reproduction to the same extent that it could
contest the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.

 

19.                               CONFIDENTIAL INFORMATION.

 

For the purposes of this Section 19, “Confidential Information” means
information delivered to the Purchaser by or on behalf of the Company in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when received by the Purchaser as being
confidential information of the Company and its Subsidiaries, provided that such
term does not include information that (a) was publicly known or otherwise known
to the Purchaser prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by the Purchaser or any person acting
on the Purchaser’s behalf, (c) otherwise becomes known to the Purchaser other
than through disclosure by the Company or any Subsidiary, or (d) constitutes
financial statements delivered to the Purchaser under Section 5.1 that are
otherwise publicly available.  The Purchaser will maintain the confidentiality
of such Confidential Information in accordance with procedures adopted by the
Purchaser in good faith to protect confidential information of third parties
delivered to the Purchaser, provided that the Purchaser may deliver or disclose
Confidential Information to (i) the Purchaser’s directors, officers, employees,
agents, attorneys and affiliates, (to the extent such disclosure reasonably
relates to the administration of the investment represented by the Purchaser’s
Note), (ii) the Purchaser’s financial advisors and other professional advisors
who agree to hold confidential the Confidential Information substantially in
accordance with the terms of this Section 18, (iii) any

 

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federal or state regulatory authority having jurisdiction over the Purchaser or
any nationally recognized rating agency that requires access to information
about the Purchaser’s loans, or (iv) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to the Purchaser, (x) in response to
any subpoena or other legal process, (y) in connection with any litigation to
which the Purchaser is a party, or (z) if an Event of Default has occurred and
is continuing, to the extent the Purchaser may reasonably determine such
delivery and disclosure to be necessary or appropriate in the enforcement or for
the protection of the rights and remedies under the Note and this Agreement.

 

20.                               MISCELLANEOUS.

 

20.1.       Successors and Assigns.

 

All covenants and other agreements contained in this Agreement by or on behalf
of the Company bind and inure to the benefit of its successors and assigns,
whether so expressed or not. Purchaser may not assign the Note or its rights and
obligations to any other Person, other than an assignment of the Note to a
nominee of Purchaser. It is understood and agreed that Purchaser’s agreement not
to assign the Note and the Agreement as provided herein is a material inducement
to Company in entering into this Agreement and executing and delivering the
Note. Notwithstanding the foregoing, Purchaser may transfer or assign the Note
in whole, but not in part, to another investor reasonably acceptable to the
Company if the interest rate on the Note is reduced in an amount sufficient to
compensate the Company for the loss of patronage refunds from Purchaser.

 

20.2.       Payments Due on Non-Business Days.

 

Anything in this Agreement or the Note to the contrary notwithstanding, any
payment of principal of or Redemption Premium or interest on the Note that is
due on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day.

 

20.3.       Severability.

 

Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.

 

20.4.       Construction.

 

Each covenant contained herein shall be construed (absent express provision to
the contrary) as being independent of each other covenant contained herein, so
that compliance with any one covenant shall not (absent such an express contrary
provision) be deemed to excuse compliance with any other covenant.  Where any
provision herein refers to action to be taken by

 

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any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person.

 

20.5.       Counterparts.

 

This Agreement may be executed in one or more of counterparts, each of which
shall be an original but all of which together shall constitute one instrument. 
Each counterpart may consist of a number of copies hereof, each signed by less
than all, but together signed by each of the parties hereto.

 

20.6.       Governing Law.

 

Except to the extent governed by applicable federal law, this Agreement shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of the State of California excluding choice-of-law
principles of the law of such State that would require the application of the
laws of a jurisdiction other than such State.

 

*     *     *     *     *

 

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The execution hereof by you shall constitute a contract between us for the uses
and purposes hereinabove set forth, and this Agreement may be executed in one or
more counterparts, each executed counterpart constituting an original but all
together only one agreement.

 

 

GOLDEN STATE WATER COMPANY

 

 

 

 

 

 

 

 

 

 

By

/s/ Robert J. Sprowls

 

 

Robert J. Sprowls

 

 

Its President and Chief Executive Officer

 

Accepted and agreed to as of the date first above written.

 

 

COBANK, ACB

 

 

 

 

 

 

 

 

 

 

By

/s/ Dave Dornbirer

 

 

Dave Dornbirer

 

 

Its Vice President

 

 

Energy & Water Division

 

S-1

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SCHEDULE A

 

DEFINED TERMS

 

As used herein, the following terms have the respective meanings set forth below
or set forth in the Section hereof following such term:

 

“Advances for Construction” means funds advanced by any Person in connection
with the addition of utility plant which funds are subject to refund and, in
accordance with GAAP as in effect on the date hereof, are reflected as “Other
Credits” in the financial statements of the Company and its Subsidiaries, until
refunded.

 

“Affiliate” means, at any time, and with respect to any Person, any other Person
that at such time directly or indirectly through one or more intermediaries
Controls, or is Controlled by, or is under common Control with, such first
Person.  As used in this definition, “Control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.  Unless the context otherwise clearly requires, any
reference to an “Affiliate” is a reference to an Affiliate of the Company.

 

“Aggregate Effective Amount” means, as of any date of determination and with
respect to all letters of credit for the benefit of the Company then
outstanding, the sum of (a) the aggregate effective face amounts of all such
letters of credit not then paid by issuing bank plus (b) the aggregate amounts
paid by issuing bank under such letters of credit not then reimbursed to the
issuing bank by the Company.

 

“Average Life” means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment (assuming the exercise by the obligor of
such Indebtedness of all unconditional (other than as to the giving of notice)
extension options of each such scheduled payment date) of such Indebtedness
multiplied by the amount of such principal payment by (ii) the sum of all
principal payments.

 

“Business Day” means any day other than a Saturday, a Sunday or a day on which
the Purchaser or Federal Reserve Banks are required or authorized to be closed.

 

“Capital Lease” means, as to any Person, a lease of any Property by that Person
as lessee that is, or should be in accordance with GAAP (including Financial
Accounting Standards Board Statement No. 13, as amended or superseded from time
to time), recorded as a “capital lease” on the balance sheet of that Person
prepared in accordance with GAAP.

 

“Capital Lease Obligations” means all monetary obligations of a Person under any
Capital Lease.

 

“Cash” means, when used in connection with any Person, all monetary and
non-monetary items owned by that Person that are treated as cash in accordance
with GAAP.

 

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“Cash Equivalents” means, when used in connection with any Person, that Person’s
Investments in:

 

(a)      Government Securities due within one year after the date of the making
of the Investment;

 

(b)      readily marketable direct obligations of any State of the United States
of America or any political subdivision of any such State or any public agency
or instrumentality thereof given on the date of such Investment a credit rating
of at least Aa by Moody’s Investor Services (“Moody’s”) or AA by Standard &
Poor’s Ratings Service (“S&P”), in each case due within one year from the making
of the Investment;

 

(c)      certificates of deposit issued by, bank deposits in, eurodollar
deposits through, bankers’ acceptances of, and repurchase agreements covering
Government Securities executed by the Purchaser or any bank incorporated under
the Laws of the United States of America, any State thereof or the District of
Columbia and having on the date of such Investment combined capital, surplus and
undivided profits of at least $250,000,000, or total assets of at least
$5,000,000,000, in each case due within one year after the date of the making of
the Investment;

 

(d)      certificates of deposit issued by, bank deposits in, eurodollar
deposits through, bankers’ acceptances of, and repurchase agreements covering
Government Securities executed by Purchaser or any branch or office located in
the United States of America of a bank incorporated under the Laws of any
jurisdiction outside the United States of America having on the date of such
Investment combined capital, surplus and undivided profits of at least
$500,000,000, or total assets of at least $15,000,000,000, in each case due
within one year after the date of the making of the Investment;

 

(e)      repurchase agreements covering Government Securities executed by a
broker or dealer registered under Section 15(b) of the Securities Exchange Act
of 1934, as amended, having on the date of the Investment capital of at least
$50,000,000, due within 90 days after the date of the making of the Investment;
provided that the maker of the Investment receives written confirmation of the
transfer to it of record ownership of the Government Securities on the books of
a “primary dealer” in such Government Securities or on the books of such
registered broker or dealer, as soon as practicable after the making of the
Investment;

 

(f)       readily marketable commercial paper or other debt Securities issued by
corporations doing business in and incorporated under the Laws of the United
States of America or any State thereof or of any corporation that is the holding
company for a bank described in clause (c) or (d) above given on the date of
such Investment a credit rating of at least P-1 by Moody’s or A-1 by S&P, in
each case due within one year after the date of the making of the Investment;

 

(g)      “money market preferred stock” issued by a corporation incorporated
under the Laws of the United States of America or any State thereof (i) given on
the date of such Investment a credit rating of at least Aa by Moody’s and AA by
S&P, in each case having an investment period not exceeding 50 days or (ii) to
the extent that investors therein

 

2

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have the benefit of a standby letter of credit issued by Purchaser or a bank
described in clauses (c) or (d) above; provided that (y) the amount of all such
Investments issued by the same issuer does not exceed $5,000,000 and (z) the
aggregate amount of all such Investments does not exceed $10,000,000;

 

(h)      a readily redeemable “money market mutual fund” sponsored by a bank
described in clause (c) or (d) hereof, or a registered broker or dealer
described in clause (e) hereof, that has and maintains an investment policy
limiting its investments primarily to instruments of the types described in
clauses (a) through (g) hereof and given on the date of such Investment a credit
rating of at least Aa by Moody’s and AA by S&P; and

 

(i)       corporate notes or bonds having an original term to maturity of not
more than one year issued by a corporation incorporated under the Laws of the
United States of America or any state thereof, or a participation interest
therein; provided that (i) commercial paper issued by such corporation is given
on the date of such Investment a credit rating of at least Aa by Moody’s and AA
by S&P, (ii) the amount of all such Investments issued by the same issuer does
not exceed $5,000,000 and (iii) the aggregate amount of all such Investments
does not exceed $10,000,000.

 

“Code” means the Internal Revenue Code of 1986, as amended from time to time,
and the rules and regulations promulgated thereunder from time to time.

 

Closing” is defined in Section 2.

 

“Closing Date” is defined in Section 2.

 

“Company” means Golden State Water Company, a California corporation.

 

“Confidential Information” is defined in Section 19.

 

“Contractual Obligation” means, as to any Person, any provision of any
outstanding Security issued by that Person or of any material agreement,
instrument or undertaking to which that Person is a party or by which it or any
of its Property is bound.

 

“Debtor Relief Laws” means the Bankruptcy Code of the United States of America,
as amended from time to time, and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization, or similar debtor relief Laws from time to time in
effect affecting the rights of creditors generally.

 

“Default” means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.

 

“Default Rate” means that rate of interest that is 2% per annum above the rate
of interest stated in clause (a) of the first paragraph of the Note.

 

“Disposition” means the sale, transfer or other disposition (each, a “Transfer”)
in any single transaction or series of related transactions of any asset, or
group of related assets, of the Company or any Subsidiary other than (a) a
Transfer of Cash, Cash Equivalents, Investments

 

3

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(other than Investments in a Subsidiary), inventory or other assets sold or
otherwise disposed of in the ordinary course of business of the Company or any
Subsidiary, (b) a Transfer of equipment sold or otherwise disposed of where
substantially similar equipment in replacement thereof has theretofore been
acquired, or thereafter within 90 days is acquired, by the Company or any
Subsidiary and (c) a Transfer of obsolete assets no longer useful in the
business of the Company or any Subsidiary and (d) a Transfer to the Company or a
wholly-owned Subsidiary of the Company.

 

“Distribution” means, with respect to any equity Security issued by a Person, or
any warrant or right to acquire any equity Security of a Person, (a) the
retirement, redemption, purchase, or other acquisition for value by such Person
of any such equity Security, (b) declaration or (without duplication) payment by
such Person or any dividend in Cash or in Property (other than in common stock
or other equity Security of such Person) on or with respect to any such equity
Security, (c) any Investment by such Person in the holder of any such equity 
Security, and (d) any other payment by such Person constituting a distribution
under applicable Laws with respect to such equity Security.

 

“EBITDA” means, with respect to any fiscal period, the sum of (a) Net Income for
that period, plus (b) any extraordinary loss reflected in such Net Income, minus
(c) any extraordinary gain reflected in such Net Income, plus (d) Interest
Expense of the Company and its Subsidiaries for that period, plus (e) the
aggregate amount of federal and state taxes on or measured by income of the
Company and its Subsidiaries for that period (whether or not payable during that
period), plus (f) depreciation and amortization expense of the Company and its
Subsidiaries for that period, plus (g) all other non-cash, non-recurring
significant expenses of the Company and its Subsidiaries for that period
acceptable to the Purchaser, in each case as determined in accordance with GAAP,
consistently applied and, in the case of items (d), (e), (f), and (g) only to
the extent reflected in the determination of Net Income for that period. An
expense is significant for this purpose if it equals or exceeds $1,000,000.

 

 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time in effect.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated) that
is treated as a single employer together with the Company under section 414 of
the Code.

 

 “Event of Default” is defined in Section 11.

 

 “GAAP” means, as of any date of determination, accounting principles (a) set
forth as generally accepted in then currently effective Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, (b) set forth as generally accepted in then currently effective
Statements of the Financial Accounting Standards Board or (c) that are then
approved by such other entity as may be approved by a significant segment of the
accounting profession in the United States of America.  The term “consistently
applied,” as used in connection therewith, means that the accounting principles
applied are consistent in all material respects with those applied at prior
dates or for prior periods.

 

4

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“Governmental Agency” means the government of

 

(i)            the United States of America or any State or other political
subdivision thereof, or

 

(ii)           any jurisdiction in which the Company or any Subsidiary conducts
all or any part of its business, or which asserts jurisdiction over any
properties of the Company or any Subsidiary, or

 

(iii)          any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.

 

“Government Securities” means readily marketable (a) direct full faith and
credit obligations of the United States of America or obligations guaranteed by
the full faith and credit of the United States of America and (b) obligations of
an agency or instrumentality of, or corporation owned, controlled or sponsored
by, the United States of America that are generally considered in the securities
industry to be implicit obligations of the United States of America.

 

“Guaranty Obligation” means, as to any Person, any (a) guarantee by that Person
of Indebtedness of, or other obligation performable by, any other Person or
(b) assurance given by that Person to an obligee of any other Person with
respect to the performance of any obligation by, or the financial condition of,
such other Person, whether direct, indirect or contingent, including any
purchase or repurchase agreement covering such obligation or any collateral
security therefor, any agreement to provide funds (by means of loans, capital
contributions or otherwise) to such other Person, any agreement to support the
solvency or level of any balance sheet item of such other Person or any “keep
well” or other arrangement of whatever nature given for the purpose of assuring
or holding harmless such obligee against loss with respect to any obligation of
such other Person; provided, however, that the term Guaranty Obligation shall
not include endorsements of instruments for deposit or collection or similar
arrangements in the ordinary course of business.  The amount of any Guaranty
Obligation in respect of Indebtedness shall be deemed to be an amount equal to
the stated or determinable amount of the related Indebtedness (unless the
Guaranty Obligation is limited by its terms to a lesser amount, in which case to
the extent of such amount) or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by the Person
in good faith.  The amount of any other Guaranty Obligation shall be deemed to
be zero unless and until the amount thereof has been (or in accordance with
Financial Accounting Standards Board Statement No. 5 should be) quantified and
reflected or disclosed in the consolidated financial statements (or note
thereof) of Company and its Subsidiaries.

 

“Indebtedness” means, as to any Person (without duplication), (a) indebtedness
of such Person for borrowed money or for the deferred purchase price of Property
(excluding trade and other accounts payable in the ordinary course of business
in accordance with ordinary trade terms), (b) indebtedness of such Person of the
nature described in clause (a) that is non-recourse to the credit of such Person
but is secured by assets of such Person, to the extent of the fair market value
of such assets as determined in good faith by such Person, (c) Capital Lease
Obligations of such Person, (d) indebtedness of such Person arising under
bankers’ acceptance facilities or under facilities for the discount of accounts
receivable of such Person, (e) any direct

 

5

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or contingent obligations of such Person under letters of credit issued for the
account of such Person and (f) any net obligations of such Person under Interest
Rate Protection Agreements.  For the avoidance of doubt, Advances for
Construction of the Company in the ordinary course of business, to the extent
that such obligation is recorded as a liability offset by a receivable in the
same amount on the financial statements of Company, will not constitute
Indebtedness hereunder.  All indebtedness guaranteed as to payment of principal
in any manner by such Person or in effect guaranteed by such Person through a
contingent agreement to purchase such indebtedness, and all indebtedness secured
by a Lien upon property owned by such Person, even though such Person has not
assumed or become liable for the payment of such indebtedness, shall for all
purposes hereof be deemed to be “Indebtedness” of such Person.

 

“Interest Expense” means, with respect to any Person and as of the last day of
any fiscal period, the sum of (a) all interest, fees, charges and related
expenses (in each case as such expenses are calculated according to GAAP) paid
or payable (without duplication) for that fiscal period by that Person to a
lender in connection with borrowed money (including any obligations for fees,
charges and related expenses payable to the issuer of any letter of credit) or
the deferred purchase price of assets that are considered “interest expense”
under GAAP plus (b) the portion of rent paid or payable (without duplication)
for that fiscal period by that Person under Capital Lease Obligations that
should be treated as interest in accordance with Financial Accounting Standards
Board Statement No. 13.

 

“Interest Rate Protection Agreement” means a written agreement between the
Company and one or more financial institutions providing for “swap”, “cap”,
“collar” or other interest rate protection with respect to any Indebtedness.

 

“Investment” means, when used in connection with any Person, any investment by
or of that Person, whether by means of purchase or other acquisition of stock or
other Securities of any other Person or by means of a loan, advance creating a
debt, capital contribution, guaranty or other debt or equity participation or
interest in any other Person, including any partnership, limited liability
company and joint venture interests of such Person.  The amount of any
Investment shall be the amount actually invested (minus any return of capital
with respect to such Investment which has actually been received in Cash or has
been converted into Cash), without adjustment for subsequent increases or
decreases in the value of such Investment.

 

“Laws” means, collectively, all international, foreign, federal, state and local
statutes, treaties, rules, regulations, ordinances, codes, and administrative or
judicial precedents.

 

“Lien” any mortgage, deed of trust, pledge, hypothecation, assignment for
security, security interest, encumbrance, lien or charge of any kind, affecting
any Property, including any lease in the nature of a security interest.

 

“Loan Documents” means, collectively, this Agreement, the Note, and any other
agreements of any type or nature hereafter executed and delivered by the Company
in any way relating to or in furtherance of this Agreement, in each case either
as originally executed or as the same may from time to time be supplemented,
modified, amended, restated, extended or supplanted.

 

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“Margin Stock” means “margin stock” as such term is defined in Regulation U.

 

“Material Adverse Effect” means any set of circumstances or events which (a) has
had or would reasonably be expected to have any material adverse effect
whatsoever upon the validity or enforceability of any Loan Document, (b) has
been or would reasonably be expected to be material and adverse to the business,
condition (financial or otherwise), prospects or operations of the Company and
its Subsidiaries, taken as a whole, or (c) has materially impaired or would
reasonably be expected to materially impair the ability of the Company to
perform its Obligations under the Loan Documents.

 

“Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such term
is defined in section 4001(a)(3) of ERISA).

 

“Net Income” means, with respect to any fiscal period, the consolidated net
income of the Company and its Subsidiaries for that period, determined in
accordance with GAAP, consistently applied.

 

“Net Proceeds” means, with respect to any Disposition, the cash consideration
received by the Company for such Disposition after (i) provision for all income
and other taxes resulting from such Disposition, (ii) payment of all brokerage
commissions, underwriting, legal, accounting, appraisal and other fees and
expenses related to such Disposition, (iii) deduction of appropriate amounts to
be provided by the Company as a reserve, in accordance with GAAP, against any
liabilities associated with the assets sold or disposed of in such Disposition
and retained by the Company after such Disposition, including, without
limitation, any indemnification obligations associated with the Disposition.

 

“Note” is defined in Section 1.

 

“Obligations” means all present and future obligations of every kind or nature
of the Company at any time and from time to time owed to the Purchaser, under
any one or more of the Loan Documents, whether due or to become due, matured or
unmatured, liquidated or unliquidated, or contingent or noncontingent, including
obligations of performance as well as obligations of payment, and including
interest that accrues after the commencement of any proceeding under any
Indebtedness or Debtor Relief Law by or against the Company.

 

“Officer’s Certificate” means a certificate of a Senior Financial Officer or of
any other officer of the Company whose responsibilities extend to the subject
matter of such certificate.

 

 “PBGC” means the Pension Benefit Guaranty Corporation referred to and defined
in ERISA or any successor thereto

 

“Permitted Capital Asset Indebtedness” means Indebtedness of Company and its
Subsidiaries consisting of Capital Lease Obligations, or otherwise incurred to
finance the purchase or construction of capital assets (which shall be deemed to
exist if the Indebtedness is incurred at or within 90 days before or after the
purchase or construction of the capital assets), or to refinance any such
Indebtedness.

 

7

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“Permitted Encumbrances” means:

 

(a)      Inchoate Liens incident to construction on or maintenance of Property;
or Liens incident to construction on or maintenance of Property now or hereafter
filed of record for which adequate reserves have been set aside (or deposits
made pursuant to applicable Law) and which are being contested in good faith by
appropriate proceedings and have not proceeded to judgment, provided that, by
reason of nonpayment of the obligations secured by such Liens, no such Property
is subject to an impending risk of loss or forfeiture;

 

(b)      Liens for taxes and assessments on Property which are not yet past due;
or Liens for taxes and assessments on Property for which adequate reserves have
been set aside and are being contested in good faith by appropriate proceedings
and have not proceeded to judgment, provided that, by reason of nonpayment of
the obligations secured by such Liens, no such Property is subject to an
impending risk of loss or forfeiture;

 

(c)      statutory Liens, other than those described in clauses (a) or
(b) above, arising in the ordinary course of business with respect to
obligations which are not delinquent or are being contested in good faith,
provided that, if delinquent, adequate reserves have been set aside with respect
thereto and, by reason of nonpayment, no Property is subject to an impending
risk of loss or forfeiture;

 

(d)      Liens consisting of pledges or deposits to secure obligations under
workers’ compensation laws or similar legislation, including Liens of judgments
thereunder which are not currently dischargeable;

 

(e)      Liens consisting of pledges or deposits of Property to secure
performance in connection with operating leases made in the ordinary course of
business, provided the aggregate value of all such pledges and deposits
(excluding the property subject to such lease) in connection with any such lease
does not at any time exceed 10% of the annual fixed rentals payable under such
lease;

 

(f)       Liens consisting of deposits of Property to secure bids made with
respect to, or performance of, contracts (other than contracts creating or
evidencing an extension of credit to the depositor);

 

(g)      Liens consisting of deposits of Property to secure statutory
obligations of the Company;

 

(h)      Liens consisting of deposits of Property to secure (or in lieu of)
surety, appeal or customs bonds;

 

(i)       Liens which secure indebtedness which was in existence at the time of
any transaction permitted by Section 9.3 and were not created in contemplation
of such transaction;

 

(j)       Liens securing Permitted Capital Asset Indebtedness on and limited to
the capital assets acquired, constructed or financed with the proceeds of such
Permitted Capital Asset Indebtedness or with the proceeds of any Indebtedness
directly or

 

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indirectly financed by such Indebtedness; provided that the aggregate principal
amount of such Indebtedness secured by such Liens and incurred by the Company
and/or its Subsidiaries after the Closing Date and the value of the Property
subject to a Sale and Leaseback shall not exceed a Substantial Portion of the
Property of the Company and its Subsidiaries, on a consolidated basis, at any
time outstanding (as determined in accordance with GAAP consistently applied);

 

(k)      Liens consisting of deposits of Cash and/or Cash Equivalents to secure
the obligation of the Company to reimburse a lender under a letter of credit
incurred in the ordinary course of business which will terminate after the
maturity of the credit or reimbursement agreement related to such letter of
credit; and

 

(l)       Liens on Property of the Company and its Subsidiaries that are
immaterial in amount or type or on Property that is immaterial in value or to
the conduct of the business of the Company and its Subsidiaries taken as a
whole.

 

“Person” means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.

 

“Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA)
that is or, within the preceding five years, has been established or maintained,
or to which contributions are or, within the preceding five years, have been
made or required to be made, by the Company or any ERISA Affiliate or with
respect to which the Company or any ERISA Affiliate may have any liability.

 

“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.

 

 “Public Utility Property” means Property which is used in the provision,
treatment or distribution of water or wastewater or in the generation,
transmission and distribution of electric energy and which is included in the
rate base of a regulated public utility.

 

“Requirement of Law” means, as to any Person, the articles or certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any Law, or judgment, award, decree, writ or determination of a
Governmental Agency, in each case applicable to or binding upon such Person or
any of its Property or to which such Person or any of its Property is subject.

 

“Responsible Officer” means any Senior Financial Officer and any other officer
of the Company with responsibility for the administration of the relevant
portion of this Agreement.

 

“Right of Others” means, as to any Property in which a Person has an interest,
any legal or equitable right, title or other interest (other than a Lien) held
by any other Person in that Property, and any option or right held by any other
Person to acquire any such right, title or other interest in that Property,
including any option or right to acquire a Lien; provided, however, that (a) no
covenant restricting the use or disposition of Property of such Person contained
in any Contractual Obligation of such Person and (b) no provision contained in a
contract creating a

 

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right of payment or performance in favor of a Person that conditions, limits,
restricts, diminishes, transfers or terminates such right shall be deemed to
constitute a Right of Others.

 

“Sale and Leaseback” means, with respect to any Person, the sale of Property
owned by that Person (the “Seller”) to another Person (the “Buyer”), together
with the substantially concurrent leasing of such Property by the Buyer to the
Seller; provided that such term shall not include any sale under threat of
condemnation which involves a concurrent leasing of such Property or any sale
followed by a temporary lease for a term, including renewal thereof, of not more
than three years.

 

“Security” means any capital stock, share, voting trust certificate, bond,
debenture, note or other evidence of Indebtedness, limited partnership interest,
member interest, or any warrant, option or other right to purchase or acquire
any of the foregoing.

 

“Senior Financial Officer” means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.

 

“Solvent” means, as of any date of determination, and as to any Person, that on
such date:  (a) the fair valuation of the assets of such Person is greater than
the fair valuation of such Person’s probable liability in respect of existing
debts; (b) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person’s ability to pay as such debts mature; (c) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, which would leave such Person with assets
remaining which would constitute unreasonably small capital after giving effect
to the nature of the particular business or transaction (including, in the case
of the Company, the transactions occurring on the Closing Date); and (d) such
Person is generally paying its debts as they become due.  For purposes of the
foregoing (1) the “fair valuation” of any assets means the amount realizable
within a reasonable time, either through collection or sale, of such assets at
their regular market value, which is the amount obtainable by a capable and
diligent businessman from an interested buyer willing to purchase such assets
within a reasonable time under ordinary circumstances; and (2) the term “debts”
includes any legal liability whether matured or unmatured, liquidated or
unliquidated, absolute, fixed, or contingent.

 

 “Subsidiary” means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries owns
sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and any
partnership or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries (unless such partnership can and
does ordinarily take major business actions without the prior approval of such
Person or one or more of its Subsidiaries).  Unless the context otherwise
clearly requires, any reference to a “Subsidiary” is a reference to a Subsidiary
of the Company.

 

“Substantial Portion” means, as of any date of determination, the book value of
assets equal to or exceeding 15% of Total Capitalization as of the last day of
the preceding fiscal year.

 

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 “Total Capitalization” means, at any time the sum of Total Indebtedness plus
the difference between the total assets of the Company less total liabilities of
the Company (each determined in accordance with GAAP; provided that
contributions in aid of construction, Advances for Construction, customer
deposits and similar items reducing rate base calculation shall be excluded.

 

“Total Indebtedness” means, as of any date of determination, without
duplication, the sum of (a) all principal Indebtedness of the Company and its
Subsidiaries for borrowed money (including subordinated indebtedness, debt
Securities issued by the Company and any of its Subsidiaries, the aggregate
principal Indebtedness outstanding under the Note and the Aggregate Effective
Amount of all outstanding Letters of Credit in favor of the Company) on that
date plus (b) the aggregate amount of the principal portion of all Capital Lease
Obligations of the Company and its Subsidiaries plus (c) any Guaranty
Obligations of the Company and its Subsidiaries with respect to the Indebtedness
of others of the types referred to in (a) and (b) above.

 

“Total Indebtedness to Capitalization Ratio” means the ratio of Total
Indebtedness to Total Capitalization, determined as of the last day of each
quarter of the fiscal year.

 

“Total Indebtedness to EBIDTA Ratio” means the ratio of Total Indebtedness to
EBITDA, determined on the last day of each fiscal year.

 

“UCC” means the Uniform Commercial Code as the same may from time to time be
enacted and in effect in the State of California; provided that, in the event by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of the Purchaser’s Lien on any collateral is governed by the Uniform
Commercial Code as enacted and in effect in a jurisdiction other than the State
of California, the term “UCC” shall mean the Uniform Commercial Code as enacted
and in effect in such other jurisdiction solely for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.

 

11

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EXHIBIT 1

 

[FORM OF NOTE]

 

GOLDEN STATE WATER COMPANY

 

6.70% SENIOR NOTE DUE MARCH 10, 2019

 

March 10, 2009

 

$40,000,000

 

FOR VALUE RECEIVED, the undersigned, GOLDEN STATE WATER COMPANY (the “Company”),
a corporation organized and existing under the laws of the State of California,
hereby promises to pay to COBANK, ACB (the “Purchaser”), the principal sum of
FORTY MILLION DOLLARS on March 10, 2019 with interest (computed on the basis of
a 365/6-day year) (a) on the unpaid balance thereof at the rate of 6.70% per
annum from the date hereof, payable semiannually, on the first day of March and
September in each year, commencing with September 1, 2009, until the principal
hereof shall have become due and payable, and (b) to the extent permitted by law
on any overdue payment (including any overdue prepayment) of principal, any
overdue payment of interest and any overdue payment of any Redemption Premium
(as defined in the Note Purchase Agreement referred to below), payable
semiannually as aforesaid a rate per annum from time to time equal to the
Default Rate (as defined in the Note Purchase Agreement).

 

Payments of principal of, interest on and any Redemption Premium with respect to
this Note are to be made in lawful money of the United States of America at
CoBank ACB, ABA No. 3070-8875-4, Account No. 00036798, Golden State Water
Company or to such other account or in such other manner as CoBank shall have
designated by written notice to the Company as provided in the Note Purchase
Agreement referred to below.

 

This Note is issued pursuant to the Note Purchase Agreement, dated as of
March 10, 2009 (as from time to time amended, the “Note Purchase Agreement”),
between the Company and the Purchaser and is entitled to the benefits thereof.

 

This Note may not be assigned by Purchaser to any other Person, other than a
nominee of Purchaser.

 

This Note is subject to optional prepayment, in whole or from time to time in
part, at the times and on the terms specified in the Note Purchase Agreement,
but not otherwise.  If an Event of Default, as defined in the Note Purchase
Agreement, occurs and is continuing, the

 

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principal of this Note may be declared or otherwise become due and payable in
the manner, at the price and with the effect provided in the Note Purchase
Agreement.

 

Except to the extent governed by applicable federal law, this Note shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of the State of California excluding choice-of-law
principles of the law of such State that would require the application of the
laws of a jurisdiction other than such State.

 

 

GOLDEN STATE WATER COMPANY

 

 

 

 

By

 

 

 

Robert J. Sprowls

 

 

Its President and Chief Executive Officer

 

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