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


 


 

















 


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

  



 


i

















 


	
  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

  



 


ii

















 


	
   

  	
  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

  



 


iii

















 


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 


 


 

















 


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 


 


2

















 


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 


 


3

















 


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.


 


4

















 


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 


 


5

















 


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 


 


6

















 


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

















 


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 


 


8

















 


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.


 


9
















 


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 1⁄2 of 1% to such difference (such
that the minimum result shall at all times be 1⁄2 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

















 


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

















 


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


 


12

















 


(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

















 


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

















 


(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

















 


(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

















 


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

















 


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

















 


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

















 


(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



 


20

















 


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 


 


21

















 


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.


 


*    
*     *     *    
*


 


22
















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

















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.


 


1

















“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

















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

















(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

















“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

















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.


 


6

















“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

















“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 


 


8

















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 


 


9

















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.


 


10

















 “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

















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 


 

















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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