<PAGE>

                                                                    EXHIBIT 10.7

                        TOLLING AND STANDSTILL AGREEMENT

                  This Tolling and Standstill  Agreement  ("Agreement")  is made
and  entered  as of  June  20,  2000,  by and  between  Suburban  Water  Systems
("Suburban"),  and Aerojet-General Corporation ("Aerojet"),  who may be referred
to collectively as the "Parties".

I.       RECITALS
         --------

         WHEREAS, as the result of the discovery of contaminated groundwater in
the Main San Gabriel Valley Groundwater Basin (the "Basin"), a critical source
of drinking water for San Gabriel Valley residents, the United States
Environmental Protection Agency (EPA) placed four areas of the Basin on the
National Priorities List; and

         WHEREAS, Suburban owns and operates drinking water extraction wells in
the Basin; and

         WHEREAS, Suburban asserts that it has incurred costs and suffered
damages as a result of the groundwater contamination in the Basin; and

         WHEREAS, Suburban has identified Aerojet and others as parties who may
have caused or contributed to the groundwater contamination in the Basin; and

         WHEREAS, Suburban and Aerojet wish to enter into a tolling and
standstill agreement with respect to any claims the Parties may have arising
from the groundwater contamination existing in the Basin;

         THEREFORE, the Parties, for good and sufficient consideration hereto
acknowledged, agree as follows:

II.      TOLLING AGREEMENT
         -----------------

         In accordance with this agreement Aerojet hereby agrees to toll the
running of any statutes of limitation and any other statute, law, rule of
principle of equity with
<PAGE>

similar effect (collectively "Statutes of Limitation") with respect to any and
all rights, claims, causes of action, counterclaims, third party claims, cross
claims and defenses Suburban may have or wish to assert against Aerojet which
are alleged to have occurred as the result of a release or releases of
substances, including the perchlorate ion and NDMA, which originated in any part
from property in the Basin which Aerojet has currently or formerly used or owned
that have impacted or threaten to impact Suburban's right and ability to extract
groundwater from the Basin (the "Claims"). With respect to contaminants other
than the perchlorate ion or NDMA, Aerojet is tolling the running of the Statute
of Limitations only with respect to its several share of alleged claims or
damage in proportion of its percentage contribution to said claims or damage, as
shown by the evidence. This Agreement shall commence on June 20, 2000, and
continue until such time as this Agreement is terminated pursuant to paragraph
VI of this Agreement (the "Tolling Period"). Aerojet agrees that the Tolling
Period shall be excluded from all computations of any limitations period
applicable to the Claims. Aerojet agrees that it shall waive and shall not
plead, assert, or otherwise raise any Statute of Limitation or any other time
related defense otherwise applicable to the Claims, to the extent such
limitations period or other time related defense is tolled by this Agreement, as
a bar to or other limitation on any Claim.

III.     NO WAIVER
         ---------

         The Parties, and each of them, do not waive and expressly reserve any
and all rights, claims, causes of action, counterclaims, cross claims, third-
party claims, and/or defenses, including but not limited to, any statute of
limitation, except as to the Tolling Period. This Agreement has no effect on any
and all rights, claims, causes of action, counterclaims, cross claims, third
party claims, or defenses already barred, tolled, or otherwise extinguished as
of June 20, 2000.

                                       2
<PAGE>

IV.      STANDSTILL AGREEMENT
         --------------------

         Suburban agrees to refrain from filing a lawsuit against Aerojet based
on or arising out of the Claims until such time as this Agreement is terminated.

V.       PARTIES COVERED
         ---------------

         In addition to Suburban and Aerojet, this Agreement shall inure to the
benefit of, and be binding upon, any and all parent companies, subsidiary
companies, holding companies, affiliates, corporate predecessors or corporate
successors, officers, directors, agents or representatives of each of the
Parties.

VI.      TERMINATION
         -----------

         Either Aerojet or Suburban may withdraw from the Agreement by giving at
least 30 days advanced written notice. The 30 days advanced written notice will
begin to run upon receipt of notice by certified mail, return receipt requested,
to the following:

         NOTICES TO SUBURBAN:
         Daniel N. Evans
         Vice President, CFO
         Suburban Water Systems
         1211 E Center Court Drive
         Covina, CA 91724-3603

         WITH A COPY TO:
         Mary Hulett
         Ragsdale Liggett
         2840 Plaza Place, Suite 400
         Raleigh, NC 27612

         NOTICES TO AEROJET:
         Robert Anderson
         Vice President, Deputy General Counsel
         Aerojet-General Corporation
         P.O. Box 13222
         Sacramento, CA  95813-6000

         WITH A COPY TO:
         Peter R. Taft
         Munger, Tolles & Olson
         355 S. Grand St. 35/th/ Floor
         Los Angeles, CA 90071

                                       3
<PAGE>

VII.     EXCLUSIVE AGREEMENT
         -------------------

         No other agreement, expressed or implied, oral or written, has been
made by and among Suburban, on the one hand, and Aerojet, on the other hand,
concerning tolling any applicable statute of limitations or suspending any
litigation based on or arising out of the claims. This Agreement is executed
without reliance and promise, warranty, or representation by any party or any
representative of any party other than those expressly contained in this
Agreement. This Agreement may be amended only by a written instrument signed by
the Parties.

VIII.    NO ADMISSION
         ------------

         The Parties agree that the sole purpose of the Agreement is to toll any
applicable statutes of limitation or other time related defense and to forestall
imminent litigation with regard to the Claims. The execution of this Agreement
shall in no way operate as an admission of liability or responsibility by the
Parties. Additionally, nothing contained in this Agreement shall be admissible
as evidence in any court, administrative, or alternative dispute resolution
proceeding, except as to the issue of the tolling of any statute of limitation
or any other time related defense.

IX.      CONSTRUCTION
         ------------

         This Agreement shall be construed and interpreted according to the laws
of the State of California.

X.       COUNTERPARTS
         ------------

         This Agreement may be executed in counterparts, and the counterparts,
when fully executed by each of the Parties, shall constitute one and the same
Agreement. Signatures sent by fax shall be deemed originals and treated in all
respects as originals.

                                       4
<PAGE>

XI.      AUTHORITY
         ---------

         The persons executing this Agreement represent and warrant that they
each have the express authority, right and power to execute this Agreement and
to bind the party on whose behalf they sign.

                                       5
<PAGE>

                                   SIGNATURES
                                   ----------

Dated: June 20, 2000                              /s/ DANIEL N. EVANS
       -------------                              ----------------------------
                                                  Suburban Water Systems

Dated: June 20, 2000                              /s/ PETER R. TAFT
       -------------                              ----------------------------
                                                  Aerojet-General Counsel

                                       6