**Exhibit 10.4.1**

 

**Loan No. ML0936T1**

** **

**PROMISSORY NOTE****AND****SUPPLEMENT**

 

**THIS PROMISSORY NOTE AND SUPPLEMENT**to the Master Loan Agreement dated as of May 1,2002 (as amended or restated from time to time, the “MLA”) is entered into asof May 1, 2002, between **TECON WATERCOMPANY, L.P.**(the “Company”) and **CoBANK,ACB**(“CoBank”).

 

**SECTION 1. The Term Loan Commitment.**On the terms and conditions set forth in theMLA and this Promissory Note and Supplement, CoBank agrees to make a loan (the “Loan”)to the Company in the principal amount of $15,400,000 (the “Commitment”).Under the Commitment, amounts borrowed and later repaid may not be reborrowed.

 

**SECTION 2. Purpose.**The purpose of the Commitment is to: (A) refinancethe Company’s indebtedness to: (A) Bank One, NA; (B) W.C. Hankins; (C) GaryW. Hanning, Robin Hanning and the Gary W. Hanning Trust; (D) AssociatesUtility Company; (E) William E. Dark and Wanda M. Dark; (F) Ronald L.Payne; and (G) Highsaw Water Corporation (collectively, the “ExistingLenders”; and (B) finance general needs of the Company, and theCompany agrees to use the proceeds of the Loan for those purposes.

 

**SECTION 3. Term.**The term of the Commitment shall be from thedate hereof up to and including May 1, 2002, or such later date as CoBankmay, in its sole discretion, authorize in writing.

 

**SECTION 4. Availability.**Notwithstanding Section 2.02 of the MLAand provided that all conditions precedent set forth herein and in the MLAshall have been satisfied, the Loan shall: (1) be made upon the receipt byCoBank of a written request therefor in the form attached hereto as Exhibit Asigned by an authorized officer of the Company; and (2) be made directlyto the “Title Company” (as hereinafter defined) pursuant to the “ClosingAgreement” (as hereinafter defined).

 

**SECTION ****5**. **Interest.**The Company agrees to payinterest on the unpaid principal balance of the Loan at 7.37% per annum.Interest shall be calculated on the actual number of days the Loan isoutstanding on the basis of a year consisting of 360 days and shall be payablemonthly in arrears by the 20th day of the following month.

 

**SECTION 6. Fees.**In consideration of the Commitment, theCompany agrees to pay to CoBank on the date hereof, a loan origination fee inthe amount of $77,000 less the amount paid to CoBank on account of theCommitment pursuant to that certain letter agreement dated as of December 21,2001, between the Company and CoBank.

 

**SECTION 7. Promissory Note.**The Company promises to repay the Loan in 240consecutive, monthly installments in the amount of 64,166.66, payable on the 20thday of each month, with the first such installment due on May 20, 2002;provided, however, that in the case of the last payment, such payment shall bein an amount equal to the then outstanding principal balance of the Loan. Inaddition to the above, the Company promises to pay interest on the unpaidprincipal balance of the Loans at the times and in accordance with theprovisions set forth above and to pay any interest breakage surcharges asprovided herein. Notwithstanding the foregoing, if any date on which principaland interest are due is not a “BusinessDay” (as defined

 

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inthe MLA), then such payment shall be due and payable on the next Business Day and,during such period, interest shall continue to accrue on the principal amountthereof.

 

**SECTION ****8**. **Security.**The Company’s obligationshereunder and, to the extent related hereto, the MLA shall be secured asprovided in Section 2.04 of the MLA.

 

**SECTION 9. Prepayment.**The Company may, on one CoBank Business Day’sprior written notice, prepay the Loan in whole or in part together with accruedinterest on the amount prepaid to the date of payment and a surcharge equal tothe present value of the sum of: (1) the difference, if (a) is largerthan (b), between: (a) the rate estimated by CoBank in accordance with itsstandard methodology to be its all-in cost to fund the Loan; minus (b) therate estimated by CoBank on the date of the prepayment (in accordance with itsthen standard methodology) to be its all-in cost to fund a new loan having aweighted average life equal to the weighted average life of the balance of theLoan being prepaid; plus (2) an amount equal to a yield of 1.5% on theamount being prepaid, calculated on a per annum basis through the finalmaturity of the Loan. In calculating the surcharge, the discount rate shall bethe rate determined in accordance with (l)(b) above. All partialprepayments shall be applied to principal installments in the inverse order oftheir maturity.

 

**SECTION 10. Conditions Precedent.**In addition to the conditions precedent setforth in the MLA, CoBank’s obligation to make the initial loan hereunder issubject to the condition precedent that CoBank, the Company and Republic Titleof Texas, Inc. (the “Title Company”) shall have entered into a closing orescrow agreement (the “Closing Agreement”) in form and content acceptable toCoBank prescribing conditions under which the proceeds of the Loan will bereleased or returned to CoBank. At a minimum, such conditions shall be designedto ensure CoBank that upon disbursement of the funds by the Title Company: (1) allassets of the Company will be free and clear of all Liens (other than Liens infavor of CoBank); and (2) all claims held by the Existing Lenders will bedischarged.

 

**IN WITNESS****WHEREOF,**theparties have caused this Promissory Note and Supplement to the MLA to beexecuted by their duly authorized officers as of the date shown above.

 

 
| **CoBANK, ACB** | ** **      | **TECON WATER COMPANY, L.P.**         |
|-----------------|-----------------|---------------------------------------|
|            |            | By:  Texas Water Services Group, LLC, |
|            |            | Its  General Partner                  |
|            |            |                                  |
| By:             | /s/ [ILLEGIBLE] |                                  |   | By: | /s/  J. G. Boyles |
|            |            |                                  |   | J.  G. Boyles |
| Title:          | Vice President  |                                  |   | Title: | President |

 

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