Document:

Exhibit 10.17.2

 

AMENDMENT
NO. 2

TO
AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS AMENDMENT NO. 2 TO
AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is entered into as of May 28,
2009, between SouthWest Water Company, a Delaware corporation (“Borrower”), and
Bank of America, N.A., as Administrative Agent, with reference to the Amended
and Restated Credit Agreement dated as of February 15, 2008 (as amended,
the “Credit Agreement”), among Borrower, the Lenders described therein, and the
Administrative Agent.  Capitalized terms
not otherwise defined herein are used with the meanings set forth for those
terms in the Credit Agreement.

 

The parties hereto enter
into this Amendment with reference to the following facts:

 

A.            The Borrower has informed the Administrative Agent and
the Lenders that it will not be able to deliver (i) the required financial
statements with respect to the fiscal year ended December 31, 2008, on or
prior to the May 31, 2009 deadline set forth in the Waiver Agreement dated
as of March 30, 2009 (the “Waiver Agreement”), between the Borrower and
the Administrative Agent (with the consent of the Required Lenders), or (ii) the
required financial statements with respect to the fiscal quarter ended March 31,
2009, on or prior to the June 30, 2009, deadline set forth in the Waiver
Agreement.

 

B.            The Borrower has further informed the Administrative
Agent and the Lenders as follows: (i) based on the financial data
currently available to Borrower and to the best knowledge of Borrower, the
Total Capitalization Ratio as of December 31, 2008, was not in excess of
65.5% and the Total Capitalization Ratio as of March 31, 2009, was not in
excess of 67.5%, which in each case would constitute a breach of the covenant
set forth in Section 6.12(a) of the Credit Agreement, and (ii) certain
defaults under the Credit Agreement have resulted and arisen from and may
result and arise from the late delivery and restatement of the Subject
Financial Statements (as defined in Amendment No. 1 to Amended and
Restated Credit Agreement dated as of November 19, 2008, by and among the
Borrower and the Administrative Agent (with the consent of the Required
Lenders)) and the financial statements required with respect to the fiscal
quarter ended September 30, 2008, including, without limitation, defaults
under the financial covenants set forth in Section 6.12 of the Credit
Agreement for the periods covered by the Subject Financial Statements and the
fiscal quarter ended September 30, 2008 (the defaults described in clauses
(i) and (ii) of this Recital B are collectively referred to herein as
the “Anticipated Defaults”).

 

C.            Borrower has requested that the Lenders (i) waive
the Anticipated Defaults, (ii) extend the time by which the required
financial statements with respect to the fiscal year ended December 31,
2008 must be delivered to June 10, 2009, and (iii) extend the time by
which the required financial statements with respect to the fiscal quarters
ended September 30, 2008 and March 31, 2009 must be delivered to July 13,
2009.  In consideration of such waiver
and extensions, the Borrower has agreed to (i) increase the Applicable
Rate payable under the Credit Agreement, (ii) reduce the Aggregate
Commitments available under the Credit Agreement, (iii) provide the
Lenders a security interest in all of its personal property assets, including
the Equity Interests it holds in its Subsidiaries (other than Suburban), (iv) cause
certain of its direct Subsidiaries to become Guarantors, (v) cause certain
of its Subsidiaries to provide the Lenders a security interest in their
respective personal property assets, including their respective Equity 

 

1

 

Interests in their
respective Subsidiaries, and (vi) otherwise amend the Credit Agreement and
the other Loan Documents on the terms set forth herein.

 

D.            The Administrative Agent, acting with the consent of the
Required Lenders pursuant to Section 10.01 of the Credit Agreement, has
agreed to waive the Anticipated Defaults and to otherwise amend the Credit
Agreement and the other Loan Documents on the terms set forth in this
Amendment.

 

NOW, THEREFORE, Borrower and
Administrative Agent, acting with the consent of the Required Lenders pursuant
to Section 10.01 of the Credit Agreement, agree as follows:

 

1.             Representations and Warranties.  Borrower represents and warrants to
Administrative Agent and the Lenders that:

 

(a)           based on the
financial data currently available to Borrower, to the best knowledge of
Borrower, Borrower’s Total Capitalization Ratio did not exceed 65.5% as of December 31,
2008;

 

(b)           based on the
financial data currently available to Borrower, to the best knowledge of
Borrower, Borrower’s Total Capitalization Ratio did not exceed 67.5% as of March 31,
2009;

 

(c)           after giving effect
to this Amendment, no Default or Event of Default has occurred and remains
continuing except for the Defaults or Events of Default which arise directly
from the correction and restatement of the Subject Financial Statements (as
defined in the Waiver Agreement);

 

(d)           after giving effect
to this Amendment, except for representations or warranties which are
inaccurate as a direct result of the correction and restatement of the Subject
Financial Statements, and except as set forth in the Schedules to the Credit Agreement,
each of the representations and warranties set forth in Article V of the
Credit Agreement are true and correct as of the date of this Agreement (other
than those representations which relate solely to a prior date, each of which
was true as of that date), provided that Schedules 5.06 and 5.09 are
updated in the manner attached to this Amendment;

 

(e)           neither Borrower nor
any of its Subsidiaries is in default of any indenture, loan or credit or
similar agreement governing Indebtedness in a principal amount which exceeds
$1,000,000 in any manner which entitles the holder of such Indebtedness, or
which would entitle the holder of such Indebtedness with the giving of any
notice, the passage of time (including any cure period), or both, to require the
payment of any such Indebtedness prior to the date upon which such Indebtedness
would otherwise be due and payable; and

 

(f)            as of the date of
this Amendment, (i) Borrower has no Subsidiaries other than those
specifically disclosed in Schedule B to this Amendment, (ii) Suburban
Water Systems, Water Suppliers Mobile Communication Service, North County Water
Reclamation, Inc., SouthWest Water Alabama Onsite System Services, LLC,
Monarch Utilities, Inc., Midway Water Utilities, Inc., Texas Water
Services Group, LLC, Monarch Utilities I, LP, and TWC Utility Company, LLC are
Regulated Subsidiaries, and (iii) SWWC Enterprises, Inc., SWWC
Utilities, Inc., CDC Maintenance, Inc., Operations Technologies, Inc.,
ECO Resources, Inc., SWWC Services, Inc., Metro-H2O, Ltd., Metro-H2O
Utilities, Inc., and New Mexico Utilities, Inc. are Unregulated
Subsidiaries.

 

2

 

2.             Waiver.  Subject to the final two sentences of this
Section, in reliance upon the agreements, representations and warranties set
forth in this Amendment, the Lenders hereby waive the Anticipated
Defaults.  The Lenders’ waiver of the
Anticipated Defaults constitutes a one-time waiver of the specific Anticipated
Defaults described in this Amendment and shall not constitute a waiver of any
other or future Defaults or Events of Default, whether or not similar to the
Anticipated Defaults.  The waivers set
forth in this Section 2 are subject to the conditions that the Borrower’s
Total Capitalization Ratio was not in excess of 65.5% as of December 31,
2008, and 67.5% as of March 31, 2009. 
To the extent the Borrower’s Total Capitalization Ratio was in excess of
65.5% as of December 31, 2008, or in excess of 67.5% as of March 31,
2009, this Section 2 and the waivers provided herein shall be voidable at
the Required Lenders request.

 

3.             Amendment to Definition of
Aggregate Commitments.  The Aggregate
Commitments under the Credit Agreement are hereby reduced to $110,000,000.  In furtherance of the foregoing, the
definition of “Aggregate Commitments” set forth in Section 1.01 of the
Credit Agreement is hereby amended to read in full as follows:

 

“Aggregate Commitments” means the Commitments of all
Lenders.  As of May 29, 2009, the
aggregate principal amount of the Aggregate Commitments is $110,000,000.

 

The reduction of the
Aggregate Commitments pursuant to this Section 3 shall be applied to the
Commitment of each Lender according to its Applicable Percentage.  If the Total Outstandings as of the effective
date of this Amendment exceed the Aggregate Commitments (as reduced by this
Amendment), Borrower shall immediately prepay Loans in an aggregate amount
equal to such excess.

 

4.             Amendment to Definition of
Applicable Rate.  The definition of “Applicable
Rate” set forth in Section 1.01 of the Credit Agreement is hereby amended
to read in full as set forth below.  The
Borrower and the Lenders acknowledge and agree that the percentages set forth
below opposite Pricing Level III shall apply until the Administrative Agent
receives a Compliance Certificate for the Fiscal Quarter ending March 31,
2009.

 

“Applicable
Rate” means, as of each date of determination, the following percentages
(expressed in basis points per annum), based upon the Total Capitalization
Ratio as set forth in the most recent Compliance Certificate received by
Administrative Agent pursuant to Section 6.02(a):

 

	
  Pricing 

  Level

  	
   

  	
  Total Capitalization

  Ratio

  	
   

  	
  Base Rate

  	
   

  	
  Non-Use 

  Fee Rate

  	
   

  	
  Eurodollar Rate

  + Letters of

  Credit

  	
   

  
	
  I

  	
   

  	
  <50.0%

  	
   

  	
  200.0

  	
   

  	
  37.5

  	
   

  	
  300.0

  	
   

  
	
  II

  	
   

  	
  >50.0% but
  < 55.0%

  	
   

  	
  250.0

  	
   

  	
  50.0

  	
   

  	
  350.0

  	
   

  
	
  III

  	
   

  	
  >55.0%

  	
   

  	
  300.0

  	
   

  	
  62.5

  	
   

  	
  400.0

  	
   

  

 

Any
increase or decrease in the Applicable Rate resulting from a change in the
Total Capitalization Ratio shall become effective on the first Business Day of
the first calendar month immediately following delivery of the related
Compliance Certificate pursuant to Section 6.02(a); provided, however,
that if a Compliance Certificate is not delivered  when due in accordance with such Section,
then, upon the request of the Required Lenders, Pricing Level III shall apply
from the first Business Day of the first calendar month following the date such
Compliance Certificate was required to have been delivered until the first
Business Day of the first calendar month following the date such Compliance Certificate
is delivered.  Notwithstanding anything
to the contrary contained 

 

3

 

in
this definition, the determination of the Applicable Rate for any period shall
be subject to the provisions of Section 2.11(b).

 

5.             Amendment to Definition of Base
Rate.  The definition of “Base Rate”
set forth in Section 1.01 of the Credit Agreement is hereby amended to
read in full as follows:

 

“Base
Rate” means, for any day, a fluctuating rate per annum equal to the higher of (a) the
Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for
such day as publicly announced from time to time by Bank of America as its “prime
rate” and (c) the Eurodollar Base Rate for a one month Interest Period on
such day (or if such day is not a Business Day, the immediately preceding
Business Day) plus 1%, provided that, for the avoidance of doubt, the
Eurodollar Base Rate for any day shall be based on the rate per annum equal to
the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by
Reuters (or other commercially available source providing quotations of BBA
LIBOR as designated by Administrative Agent from time to time) at approximately
11:00 a.m., London time on such day (rounded upwards, as necessary, to the
nearest 1/100 of 1%).  The “prime rate”
is a rate set by Bank of America based upon various factors including Bank of
America’s costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate. 
Any change in the Base Rate due to a change in the Federal Funds Rate,
the prime rate or the Eurodollar Base Rate shall be effective from and
including the effective date of such change in the Federal Funds Rate, the
prime rate or the Eurodollar Base Rate, respectively.

 

6.             Amendment to Definition of EBITDA. 
The definition of “EBITDA” set forth in Section 1.01 of the Credit
Agreement is hereby amended to read in full as follows:

 

“EBITDA”
means, for any period, Net Income for that period, plus (a) the
following to the extent deducted in determining Net Income for that period: (i) Interest
Expense, (ii) income tax expense, (iii) depreciation and
amortization, (iv) any non-recurring or extraordinary losses, and (v) any
non-cash losses and non-cash stock compensation expense; and minus (b) the
following to the extent included in determining Net Income for that period: (i) income
tax credits, and (ii) any non-recurring or extraordinary gains or any non-cash
gains.

 

For the avoidance of doubt, for the purpose of
calculating EBITDA for any period, the Borrower shall be permitted to add back
to Net Income the one-time charges described in Schedule A to this Amendment to
the extent the same were deducted in determining Net Income for such period.

 

7.             Amendment to Definition of
EBITDA Coverage Ratio.  The
definition of “EBITDA Coverage Ratio” set forth in Section 1.01 of the
Credit Agreement is hereby amended to read in full as follows (with the added
text in bold and italics for the convenience of the reader):

 

“EBITDA
Coverage Ratio” means, as of the last day of any Fiscal Quarter, the ratio
of :

 

(a) EBITDA for the twelve month period ended on
that date minus Maintenance Capital Expenditures made by Borrower and
its Subsidiaries during that period (but not less than (i) at
any time prior to March 31, 2010, $1,500,000, and (ii) on and after March 31, 2010,
$3,000,000) minus income taxes paid in Cash by Borrower
and its Subsidiaries with respect to that period; to

 

4

 

(b) the sum of (i) all Interest
Expense paid or payable in cash during that period, plus (ii) scheduled
principal payments in respect of Total Indebtedness during that period (other
than any such payments due upon the final maturity of any obligation which is
Total Indebtedness), plus (iii) dividends paid in Cash on Equity
Interests of Borrower and its Subsidiaries to third parties during that period,
plus (iv) mandatory principal prepayments in respect of
Subordinated Indebtedness made pursuant to Section 7.11(b) during
that period.

 

provided that in the case of any Material
Transaction, the calculation of the foregoing ratio shall be adjusted on a pro
forma basis to give effect to the results of operations of each person or
assets which are the subject of such Material Transaction.

 

8.             Amendment to Definition of
Guarantors.  The definition of “Guarantors”
set forth in Section 1.01 of the Credit Agreement is hereby amended to
read in full as follows:

 

“Guarantors”
means, collectively, (a) the Persons which are party to the Guaranty as of
the Closing Date, (b) the Persons which joined the Guaranty via an
instrument of joinder dated May 28, 2009, and (b) each Subsidiary
which is required to join the Guaranty or otherwise execute a guaranty of the
Obligations pursuant to Section 6.13 of this Agreement.

 

9.             Amendment to Definition of Loan
Documents.  The definition of “Loan
Documents” set forth in Section 1.01 of the Credit Agreement is hereby
amended to read in full as follows:

 

“Loan
Documents” means this Agreement, each Note, each Issuer Document, the Fee
Letter, the Guaranty and the Collateral Documents.

 

10.           Amendment to Definition of
Obligations.  The definition of “Obligations”
set forth in Section 1.01 of the Credit Agreement is hereby amended to
read in full as follows:

 

“Obligations”
means all advances to, and debts, liabilities, obligations, covenants and
duties of, any Loan Party arising under any Loan Document or otherwise with
respect to any Loan, any Letter of Credit, any Swap Contract entered into by
Borrower with any Lender or any Affiliate of a Lender, or any Cash Management
Agreement entered into by any Loan Party with any Lender or any Affiliate of a
Lender, in each case whether direct or indirect (including those acquired by
assumption), absolute or contingent, due or to become due, now existing or
hereafter arising and including interest and fees that accrue after the
commencement by or against any Loan Party or any Affiliate thereof of any
proceeding under any Debtor Relief Laws naming such Person as the debtor in
such proceeding, regardless of whether such interest and fees are allowed
claims in such proceeding.

 

11.           Additional Definitions.  Section 1.01
of the Credit Agreement is hereby amended to add the following new definitions:

 

“Cash
Management Agreement” means any agreement to provide cash management
services, including treasury, depository, overdraft, credit or debit card,
electronic funds transfer and other cash management arrangements.

 

5

 

“Collateral”
means all of the “Collateral” referred to in the Collateral Documents and all
of the other property that is or is intended under the terms of the Collateral
Documents to be subject to Liens in favor of the Administrative Agent for the
benefit of the Secured Parties.

 

“Collateral
Documents” means, collectively, the Security Agreement and each other
security agreement, pledge agreement or other similar agreements delivered to
the Administrative Agent pursuant to Section 6.13 of this Agreement, and
each of the other agreements, instruments or documents that creates or purports
to create a Lien in favor of the Administrative Agent for the benefit of the
Secured Parties.

 

“Direct
Domestic Unregulated Subsidiary” means any direct Unregulated Subsidiary of
the Borrower that is organized under the laws of any political subdivision of
the United States.

 

“Secured
Parties” means, collectively, the Administrative Agent, the Lenders, the
L/C Issuer, each Lender or Affiliate of a Lender party to a Swap Contract with
Borrower or party to a Cash Management Agreement with any Loan Party, each
co-agent or sub-agent appointed by the Administrative Agent from time to time
pursuant to Section 9.05, and the other Persons the Obligations owing to
which are or are purported to be secured by the Collateral under the terms of
the Collateral Documents.

 

“Security
Agreement” means the Security Agreement dated as of May 28, 2009,
executed by Borrower and the Guarantors in favor of the Administrative Agent
for the benefit of the Secured Parties, as the same may be amended, restated,
extended, supplemented or otherwise modified from time to time.

 

12.           Amendment to Section 5.03.  Section 5.03 of the Credit Agreement is
hereby amended to read in full as follows:

 

5.03.        Governmental Authorization; Other
Consents.  No approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person is necessary or required in
connection with (a) the execution, delivery or performance by, or
enforcement against, any Loan Party of this Agreement or any other Loan
Document, (b) the grant by any Loan Party of the Liens granted by it
pursuant to the Collateral Documents, (c) the perfection or maintenance of
the Liens created under the Collateral Documents (including the first priority
nature thereof) or (d) the exercise by the Administrative Agent or any
Lender of its rights under the Loan Documents or the remedies in respect of the
Collateral pursuant to the Collateral Documents.  All Significant Subsidiaries of the Borrower
and all Direct Domestic Unregulated Subsidiaries of the Borrower are party to
the Guaranty except to the extent that such Subsidiary is not permitted to be a
party to the Guaranty based upon (i) a Law applicable to such Subsidiary
by reason of its status as a regulated utility (provided that no such
Subsidiary shall be obligated to apply for any discretionary regulatory
approvals which would be required to permit its execution of the Guaranty), (ii) any
continuing Contractual Obligation of such Subsidiary existing on May 28,
2009, and disclosed to the Administrative Agent on Schedule 5.03, or (iii) with
respect to any such Subsidiary acquired after May 28, 2009, any continuing
Contractual Obligation of such Subsidiary existing on the date of the
Acquisition thereof (and not created in contemplation of such Acquisition).

 

6

 

13.           New Section 5.19 — Collateral
Documents.  The Credit Agreement is
hereby amended to add the following provision as Section 5.19 of the
Credit Agreement:

 

5.19         Collateral Documents.  The provisions of the Collateral Documents
are effective to create in favor of the Administrative Agent for the benefit of
the Secured Parties a legal, valid and enforceable first priority Lien (subject
to Liens permitted by Section 7.01) on all right, title and interest of
the respective Loan Parties in the Collateral described therein.

 

14.           Amendment to Section 6.13.  Section 6.13 of the Credit Agreement is
hereby amended to read in full as follows:

 

6.13         Additional Guarantors; Additional
Collateral.  (a)  Notify
Administrative Agent at the time that any Person becomes a Significant
Subsidiary or a Direct Domestic Unregulated Subsidiary of Borrower, and
promptly thereafter (and in any event within 20 days), cause such Person to, at
the Borrower’s expense:

 

(i)            become
a Guarantor by executing and delivering to Administrative Agent a counterpart
of the Guaranty or such other document as Administrative Agent shall deem
appropriate for such purpose, except to the extent that such Subsidiary is not
permitted to be a party to the Guaranty based upon a Law applicable to such
Subsidiary by reason of its status as a regulated utility (provided that no
such Subsidiary shall be obligated to apply for any discretionary regulatory
approvals which would be required to permit its execution of the Guaranty) or a
Contractual Obligation of such Subsidiary existing on the date of the
Acquisition thereof (and not created in contemplation of such Acquisition);

 

(ii)           deliver
to Administrative Agent documents of the types referred to in clauses (iii) and
(iv) of Section 4.01(a);

 

(iii)          duly
execute and deliver to the Administrative Agent Collateral Documents or
joinders to Collateral Documents, as specified by and in form and substance
satisfactory to the Administrative Agent (including the pledge and delivery of
all Equity Interests in and of such Subsidiary), securing payment of all the
Obligations of such Subsidiary or such parent, as the case may be, under the
Loan Documents and constituting Liens on all such properties, except to the
extent that such Subsidiary or such parent, as the case may be, is not
permitted to grant such Liens on its properties based upon a Law applicable to
such Subsidiary or parent, as the case may be, by reason of its status as a
regulated utility (provided that no such Subsidiary or parent, as the case may
be, shall be obligated to apply for any discretionary regulatory approvals
which would be required to permit its execution of any Collateral Documents) or
a Contractual Obligation of such Subsidiary or parent, as the case may be,
existing on the date of the Acquisition of such Subsidiary (and not created in
contemplation of such Acquisition); and

 

(iv)          to
the extent such Person is required to execute any Guaranty or Collateral
Document pursuant to the foregoing provisions, deliver favorable opinions of
counsel to such Person, in form, content and scope reasonably satisfactory to
Administrative Agent.

 

(b)           Upon the acquisition of any property
by any Loan Party, if such property, in the judgment of the Administrative
Agent, shall not already be subject to a perfected first

 

7

 

priority
security interest in favor of the Administrative Agent for the benefit of the
Secured Parties, then the Borrower shall, at the Borrower’s expense, cause the
applicable Loan Party to duly execute and deliver to the Administrative Agent
Collateral Documents or joinders to Collateral Documents, as specified by and
in form and substance satisfactory to the Administrative Agent, securing
payment of all the Obligations of such Loan Party under the Loan Documents and
constituting Liens on all such properties, except to the extent that such Loan
Party is not permitted to grant such Liens on such properties based upon a Law
applicable to such Loan Party by reason of its status as a regulated utility
(provided that no such Loan Party shall be obligated to apply for any
discretionary regulatory approvals which would be required to permit its
execution of any Collateral Document) or a Contractual Obligation of such Loan
Party existing as of the date such Loan Party became a Guarantor.

 

(c)           At any time upon request of the
Administrative Agent, promptly execute and deliver any and all further
instruments and documents and take all such other action as the Administrative
Agent may deem necessary or desirable in obtaining the full benefits of, or (as
applicable) in perfecting and preserving the Liens of, the Guaranty and the
Collateral Documents.

 

15.           New Section 6.14 — Further
Assurances.  The Credit Agreement is
hereby amended to add the following provision as Section 6.14 of the
Credit Agreement:

 

6.14         Further Assurances.  Promptly upon request by the Administrative
Agent, or any Lender through the Administrative Agent, do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and
re-register any and all such further acts, deeds, certificates, assurances and
other instruments as the Administrative Agent, or any Lender through the
Administrative Agent, may reasonably require from time to time in order to (i) to
the fullest extent permitted by applicable law, subject any Loan Party’s or any
of its Subsidiaries’ properties, assets, rights or interests to the Liens now
or hereafter intended to be covered by any of the Collateral Documents, (ii) perfect
and maintain the validity, effectiveness and priority of any of the Collateral
Documents and any of the Liens intended to be created thereunder and (iii) assure,
convey, grant, assign, transfer, preserve, protect and confirm more effectively
unto the Secured Parties the rights granted or now or hereafter intended to be
granted to the Secured Parties under any Collateral Document or under any other
instrument executed in connection with any Collateral Document to which any
Loan Party or any of its Subsidiaries is or is to be a party, and cause each of
its Subsidiaries to do so.

 

16.           Amendment to Section 7.03(h) —
Indebtedness.  Section 7.03(h) of
the Credit Agreement is hereby amended to read in full as follows:

 

(h)           Indebtedness of Borrower (including
obligations in respect of Capital Lease Obligations) incurred to directly
finance the acquisition of fixed or capital assets, and refinancings thereof
which do not increase the principal amount outstanding thereunder, in an
aggregate principal amount which does not exceed $12,500,000 at any time.

 

17.           Section 8.01(j) —
Invalidity of Loan Documents.  Section 8.01(j) of
the Credit Agreement is hereby amended to read in full as follows:

 

(j)            Invalidity of Loan Documents;
Liens of Collateral Documents.  Any
Loan Document or any provision thereof, at any time after its execution and
delivery and for

 

8

 

any
reason other than as expressly permitted hereunder or thereunder or
satisfaction in full of all the Obligations, ceases to be in full force and
effect; or any Loan Party or any other Person contests in any manner the
validity or enforceability of any Loan Document or any provision thereof; or
any Loan Party denies that it has any or further liability or obligation under
any Loan Document, or purports to revoke, terminate or rescind any Loan
Document or any provision thereof; or any Collateral Document after delivery
thereof shall for any reason (other than pursuant to the terms thereof) cease
to create a valid and perfected first priority Lien (subject to Liens permitted
by Section 7.01) on the Collateral purported to be covered thereby; or

 

18.           Amendment to Section 9.01.  Section 9.01 of the Credit Agreement is
hereby amended to add the following paragraph at the end of such section:

 

The
Administrative Agent shall also act as the “collateral agent” under the Loan
Documents, and each of the Lenders (including in its capacity as a counterparty
under a Swap Contract with Borrower or a Cash Management Agreement with any
Loan Party) and the L/C Issuer hereby irrevocably appoints and authorizes the
Administrative Agent to act as the agent of such Lender and the L/C Issuer for
purposes of acquiring, holding and enforcing any and all Liens on Collateral
granted by any of the Loan Parties to secure any of the Obligations, together
with such powers and discretion as are reasonably incidental thereto.  In this connection, the Administrative Agent,
as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact
appointed by the Administrative Agent pursuant to Section 9.05 for
purposes of holding or enforcing any Lien on the Collateral (or any portion
thereof) granted under the Collateral Documents, or for exercising any rights
and remedies thereunder at the direction of the Administrative Agent, shall be
entitled to the benefits of all provisions of this Article IX and Article X
(including Section 10.04(c), as though such co-agents, sub-agents and
attorneys-in-fact were the “collateral agent” under the Loan Documents) as if
set forth in full herein with respect thereto.

 

19.           Amendment to Section 9.03(d)(iv).
 Section 9.03(d)(iv) of the
Credit Agreement is hereby amended to read in full as follows:

 

(iv)          the validity, enforceability,
effectiveness or genuineness of this Agreement, any other Loan Document or any
other agreement, instrument or document, or the creation, perfection or
priority of any Lien purported to be created by the Collateral Documents, or
the value or the sufficiency of any Collateral, or

 

20.           Amendment to Section 9.10.  Section 9.10 of the Credit Agreement is
hereby amended to read in full as follows:

 

9.10.        Collateral and Guaranty Matters.  Each Lender (including in its capacity as a
counterparty under a Swap Contract with Borrower or a Cash Management Agreement
with any Loan Party) and the L/C Issuer hereby irrevocably authorizes
Administrative Agent, at its option and in its discretion:

 

(a)           to release any Guarantor from its
obligations under the Guaranty at any time (i) such Person ceases to be a
Subsidiary as a result of a transaction permitted hereunder; (ii) such
Person ceases to be a Significant Subsidiary or a Direct Domestic Unregulated
Subsidiary, as applicable, as a result of a transaction permitted hereunder; or
(iii) such Person is prohibited from being a party to the Guaranty based
upon any Law applicable

 

9

 

to
such Person by reason of its status as a regulated utility (provided that no
such Person shall be obligated to apply for any discretionary regulatory
approvals which would be required to permit its execution of the Guaranty);

 

(b)           to release any Lien on any property
granted to or held by the Administrative Agent under any Loan Document (i) upon
termination of the Aggregate Commitments, payment in full of all Obligations
(other than (i) Unmatured Surviving Obligations and (ii) Obligations
under Cash Management Agreements and Swap Contracts as to which arrangements
satisfactory to the applicable Lender or Affiliate of such Lender shall have
been made) and the expiration or termination of all Letters of Credit, (ii) that
is sold or to be sold as part of or in connection with any sale permitted
hereunder or under any other Loan Document, or (iii)  if approved,
authorized or ratified in writing in accordance with Section 10.01; and

 

(c)           to subordinate any Lien on any
property granted to or held by the Administrative Agent under any Loan Document
to the holder of any Lien on such property that is permitted by Section 7.01(p).

 

Upon
request by the Administrative Agent at any time, each Lender and the L/C Issuer
will confirm in writing the Administrative Agent’s authority to release or
subordinate its interest in particular types or items of property, or to
release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.10.

 

21.           New Section 9.11.  The Credit Agreement is hereby amended to add
the following provision as Section 9.11 of the Credit Agreement:

 

9.11         Cash Management Agreements and Swap
Contracts.  No Lender or Affiliate of
a Lender in its capacity as a counterparty to a Cash Management Agreement with
any Loan Party or a Swap Contract with the Borrower that obtains the benefits
of Section 8.03 of this Agreement, the Guaranty or any Collateral by
virtue of the provisions hereof or of the Guaranty or any Collateral Document
shall have any right to notice of any action or to consent to, direct or object
to any action hereunder or under any other Loan Document or otherwise in
respect of the Collateral (including the release or impairment of any
Collateral) other than in its capacity as a Lender and, in such case, only to
the extent expressly provided in the Loan Documents.  Notwithstanding any other provision of this Article IX
to the contrary, the Administrative Agent shall not be required to verify the
payment of, or that other satisfactory arrangements have been made with respect
to, Obligations arising under such Cash Management Agreements or Swap Contracts
unless the Administrative Agent has received written notice of such
Obligations, together with such supporting documentation as the Administrative
Agent may request, from the applicable Lender or Affiliate of a Lender, as the
case may be.

 

22.           New Section 10.01(g).  The Credit Agreement is hereby amended to add
the following provision as Section 10.01(g) of the Credit Agreement:

 

(g)           release all or substantially all of
the Collateral in any transaction or series of related transactions, without
the written consent of each Lender;

 

23.           Exhibit D — Compliance
Certificate.  Exhibit D
(Compliance Certificate) of the Credit Agreement is hereby replaced with the form
of Compliance Certificate attached hereto as Exhibit C.

 

10

 

24.           Schedule
5.03 — Restrictions on Guaranties. 
Schedule 5.03 of the Credit Agreement is hereby replaced with the
schedule attached hereto as Schedule 5.03.

 

25.           Waiver
Agreement Covenants; Covenant Regarding 9/30/08 Financial Statements.

 

(a)           Notwithstanding
any provision to the contrary in the Waiver Agreement or the Credit Agreement,
the Borrower shall have until June 10, 2009, to deliver the financial
statements and Compliance Certificate required under Sections 6.01(a) and
6.02(a) of the Credit Agreement, respectively, with respect to the fiscal
year ended December 31, 2008, and such financing statements shall not be
materially different than the drafts of such financial statements delivered
pursuant to Section 26(j) of this Amendment.

 

(b)           The
covenant set forth in Section 5 of the Waiver Agreement is hereby deleted.

 

(c)           Notwithstanding
any provisions to the contrary in the Waiver Agreement or the Credit Agreement,
Borrower shall have until July 13, 2009, to deliver the financial
statements and Compliance Certificates required under Sections 6.01(b) and
6.02(a) of the Credit Agreement, respectively, with respect to each of the
fiscal quarters ended September 30, 2008, and March 31, 2009.

 

The Borrower
acknowledges and agrees that (i) each failure by the Borrower to comply
with any covenant set forth in this Section 25, and (ii) each
delivery by the Borrower of financial statements or compliance certificates
pursuant to this Section 25 that contradict the representations and
warranties made by the Borrower in this Amendment, shall in each case
constitute an immediate Event of Default under the Credit Agreement with
respect to which the Administrative Agent and the Lenders shall have all rights
and remedies set forth therein and at law.

 

26.           Conditions to Effectiveness.  The effectiveness of this Amendment shall be
subject to the prior satisfaction of the following conditions precedent, in
each case in form and substance satisfactory to the Administrative Agent:

 

(a)           the Administrative Agent shall have received an amendment
to the Guaranty and the consent of the Guarantors in the form of Exhibit A
hereto executed by each of the parties thereto;

 

(b)           the Administrative Agent shall have received written
consent of the Required Lenders as required under Section 10.01 of the
Credit Agreement in the form of Exhibit B hereto;

 

(c)           the Administrative Agent shall have received a joinder to
the Guaranty, in the form of Exhibit D hereto, duly executed and delivered
by each Subsidiary of Borrower party thereto;

 

(d)           the Administrative Agent shall have received a security
agreement, in the form of Exhibit E hereto, duly executed and delivered by
the Borrower and the Guarantors;

 

(e)           the Administrative Agent shall have received proper
Financing Statements in form appropriate for filing under the Uniform
Commercial Code of all jurisdictions 

 

11

 

that the Administrative Agent may deem
necessary or desirable in order to perfect the Liens created under the
Collateral Documents, covering the Collateral described in the Collateral
Documents;

 

(f)            the Administrative Agent shall have received evidence
that all other action that the Administrative Agent may deem necessary or
desirable in order to perfect the Liens created under the Collateral Documents
has been taken (including receipt of duly executed payoff letters, UCC-3
termination statements and landlords’ and bailees’ waiver and consent
agreements);

 

(g)           [Reserved];

 

(h)           the Administrative Agent shall have received such certified
resolutions or other action, incumbency certificates and/or other certificates
of Responsible Officers of each Loan Party executing the joinder to the
Guaranty referred to above or any Collateral Document as Administrative Agent
may require evidencing the identity, authority and capacity of each Responsible
Officer thereof authorized to act as a Responsible Officer in connection with
the Credit Agreement and the other Loan Documents to which such Loan Party is a
party;

 

(i)            the Administrative Agent shall have received such
documents and certifications as Administrative Agent may reasonably require to
evidence that each Loan Party executing the joinder to the Guaranty referred to
above or any Collateral Document is duly organized or formed, and that each
such Loan Party is validly existing, in good standing and qualified to engage
in business in each jurisdiction where such Loan Party is qualified to do
business;

 

(j)            the Administrative Agent shall have received drafts of
the financial statements required under Section 6.01(a) of the Credit
Agreement with respect to the fiscal year ended December 31, 2008, and
such financial statements shall not contradict the representations and
warranties made by the Borrower in this Amendment;

 

(k)           the sale of NMUI shall have been consummated on the terms
set forth in Section 7 of the Waiver Agreement; and

 

(l)            the
Administrative Agent shall have received, for the account of each Lender which
has executed a consent hereto prior to 3:00 p.m. (Los Angeles time) on May 27,
2009 (or any extension of such deadline announced via the Intralinks system),
an amendment fee in an amount equal to 0.50% of such Lender’s Commitment
(giving effect to the reduction of such Commitment pursuant to this Amendment)
under the Credit Agreement.

 

27.           Effectiveness
of the Credit Agreement.  Except as
hereby expressly amended, the Credit Agreement remains in full force and
effect, and is hereby ratified and confirmed in all respects.

 

28.           Counterparts.  This Amendment may be executed in any number
of counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.

 

[Signature
Page Follows]

 

12

 

IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be duly executed and delivered as
of the date first written above.

 

	
   

  	
  SOUTHWEST WATER COMPANY, a
  Delaware corporation,

  
	
   

  	
  as Borrower

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Mark Swatek

  
	
   

  	
  Name:

  	
  Mark Swatek

  
	
   

  	
  Title: 

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A.,

  
	
   

  	
  as Administrative Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ken Puro

  
	
   

  	
  Name:

  	
  Ken Puro

  
	
   

  	
  Title:

  	
  Vice President

  

 

Signature Page

 

 

Exhibit A
to Amendment

 

AMENDMENT NO. 1 TO GUARANTY AND CONSENT OF GUARANTORS

 

This Amendment No. 1 to
Guaranty and Consent of Guarantors (this “Consent of Guarantors”) is delivered
with reference to (a) the Amended and Restated Credit Agreement dated as
of February 15, 2008 (as heretofore amended, restated, extended,
supplemented, or otherwise modified, the “Credit Agreement”), among SouthWest
Water Company, a Delaware corporation (“Borrower”), the lenders from time to
time party thereto (collectively, the “Lenders”), and Bank of America, N.A., as
Administrative Agent (“Administrative Agent”) and (b) the Amended and
Restated Continuing Guaranty dated as of February 15, 2008, made by each
of the undersigned Guarantors (as heretofore amended, restated, extended,
supplemented, or otherwise modified, the “Guaranty”).  Capitalized terms not otherwise defined
herein are used with the meanings set forth for those terms in the Credit
Agreement.

 

Each of the undersigned
Guarantors (i) consents to and approves Borrower’s execution and delivery
of the attached Amendment No. 2 to Amended and Restated Credit Agreement
(the “Amendment”), (ii) agrees that such Amendment does not and shall not
limit or diminish in any manner the obligations of such Guarantor under the
Guaranty and that such obligations would not be limited or diminished in any
manner even if such Guarantor had not executed this Consent of Guarantors, (iii) reaffirms
the Guaranty, and (iv) agrees that the Guaranty remains in full force and
effect and is hereby ratified and confirmed.

 

Additionally, each Guarantor
agrees that (i) the defined term “Guaranteed Obligations” in the Guaranty
is hereby amended to include the Obligations of the Borrower under Swap
Contracts entered into with any Lender or any Affiliate of any Lender and the
Obligations of the Loan Parties under Cash Management Agreements entered into
with any Lender or any Affiliate of any Lender, and (ii) the defined term “Beneficiary”
in the Guaranty is hereby amended to include any Lender or any Affiliate of any
Lender party to a Cash Management Agreement with any Loan Party.

 

Dated as of  May 28, 2009.

 

	
   

  	
  ECO RESOURCES, INC.,

  
	
   

  	
  a Texas corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  OPERATIONS TECHNOLOGIES,
  INC.,

  
	
   

  	
  a Georgia corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  SWWC SERVICES, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

Accepted and Agreed:

 

BANK OF AMERICA, N.A.,

as Administrative Agent

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

 

Exhibit B
to Amendment

 

CONSENT OF LENDER

 

Reference is hereby made to
the Amended and Restated Credit Agreement dated as of February 15, 2008
(as heretofore amended, restated, extended, supplemented, or otherwise
modified, the “Credit Agreement”), among SouthWest Water Company, a Delaware
corporation (“Borrower”), the lenders from time to time party thereto
(collectively, the “Lenders”), and Bank of America, N.A., as Administrative
Agent (“Administrative Agent”). 
Capitalized terms not otherwise defined herein are used with the
meanings set forth for those terms in the Credit Agreement.

 

The undersigned Lender
hereby consents to the execution and delivery of an Amendment No. 2 to
Amended and Restated Credit Agreement by Administrative Agent on its behalf,
substantially in the form of the most recent draft thereof presented to the
undersigned Lender.

 

Dated as of 
                      ,
2009.

 

 

	
   

  	
   

  	
   

  
	
   

  	
  [Name of Lender]

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

 

[Note to consenting Lender - Please fax or email this consent to:

 

William M. Scott IV

Sheppard, Mullin Richter & Hampton, LLP

333 South Hope Street, 48th Floor

Los Angeles, California, 90071

bscott@sheppardmullin.com

telecopier: (213) 443-2717

telephone (213) 617-4276

 

Email submissions will be confirmed by return email.

There is no need to submit original signatures.]

 

 

Exhibit C to
Amendment

 

FORM OF
COMPLIANCE CERTIFICATE

 

Financial Statement
Date: 
                        ,

 

To:          Bank
of America, N.A., as Administrative Agent

 

Ladies and Gentlemen:

 

Reference is made to the Amended and Restated Credit
Agreement, dated as of February 15, 2008 (as amended, restated, extended,
supplemented or otherwise modified in writing from time to time, the “Agreement;”
the terms defined therein being used herein as therein defined), among
SouthWest Water Company, a Delaware corporation (“Borrower”), the
Lenders from time to time party thereto, and Bank of America, N.A., as
Administrative Agent, L/C Issuer and Swing Line Lender.

 

The undersigned Responsible Officer hereby certifies
as of the date hereof that he/she is the                                                  
of Borrower, and that, as such, he/she is authorized to execute and deliver
this Certificate to Administrative Agent on the behalf of Borrower, and that:

 

[Use
following paragraph 1 for fiscal year-end financial statements]

 

1.             Attached
hereto as Schedule 1 are the year-end audited financial statements
required by Section 6.01(a) of the Agreement for the fiscal year of
Borrower ended as of the above date, together with the report and opinion of an
independent certified public accountant required by such section.

 

[Use
following paragraph 1 for fiscal quarter-end financial statements]

 

1.             Attached
hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of
the Agreement for the fiscal quarter of Borrower ended as of the above
date.  Such financial statements fairly
present the financial condition, results of operations and cash flows of
Borrower and its Subsidiaries in accordance with GAAP as at such date and for
such period, subject only to normal year-end audit adjustments and the absence
of footnotes.

 

2.             The
undersigned has reviewed and is familiar with the terms of the Agreement and
has made, or has caused to be made under his/her supervision, a detailed review
of the transactions and condition (financial or otherwise) of Borrower during
the accounting period covered by the attached financial statements.

 

3.             A
review of the activities of Borrower during such fiscal period has been made
under the supervision of the undersigned with a view to determining whether
during such fiscal period Borrower performed and observed all its Obligations
under the Loan Documents, and

 

[select
one:]

 

[to the best knowledge of
the undersigned during such fiscal period, Borrower performed and observed each
covenant and condition of the Loan Documents applicable to it, and no Default
has occurred and is continuing.]

 

—or—

 

[the following covenants
or conditions have not been performed or observed and the following is a list
of each such Default and its nature and status:]

 

4.             The
representations and warranties of Borrower contained in Article V of the
Agreement, and/or any representations and warranties of Borrower or any other
Loan Party that are contained in any document furnished at any time under or in
connection with the Loan Documents, are true and correct on and as of the date 

 

D-1

 

hereof, except to the extent that such representations
and warranties specifically refer to an earlier date, in which case they are
true and correct as of such earlier date, and except that for purposes of this
Compliance Certificate, the representations and warranties contained in
subsections (a) and (b) of Section 5.05 of the Agreement shall
be deemed to refer to the most recent statements furnished pursuant to clauses (a) and
(b), respectively, of Section 6.01 of the Agreement, including the
statements in connection with which this Compliance Certificate is delivered.

 

5.             The
following Persons have been formed or acquired as direct Subsidiaries of the
Borrower since the last Compliance Certificate was delivered and must, pursuant
to Section 6.13 of the Credit Agreement, execute the Loan Documents
described therein:
                                                                      .

 

6.             The
financial covenant analyses and information set forth on Schedule 2
attached hereto are true and accurate on and as of the date of this
Certificate.

 

IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of 
                            ,
                            .

 

	
   

  	
  SOUTHWEST WATER COMPANY

  
	
   

  
	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

D-2

 

For the Quarter/Year ended
                                      (“Statement
Date”)

 

SCHEDULE 2

to
Compliance Certificate ($ in 000’s)

 

	
  I.

  	
  Section 2.05(b) — Mandatory
  Prepayments  

  	
   

  	
   

  	
   

  

 

	
   

  	
  A.

  	
  Aggregate Net Sales Proceeds received from
  Dispositions during the fiscal period ended on the Statement Date (excluding
  individual Dispositions for which Borrower received less than $7,500,000 of
  Net Sales Proceeds):

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Aggregate prepayments of the Committed Loans made by
  Borrower during the fiscal period ended on the Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  II.

  	
  Section 6.12(a) — Total Capitalization
  Ratio

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Total Indebtedness as of the Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Stockholders Equity as of the Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Total
  Capitalization as of the Statement Date

  (Line II.A. + Line
  II.B.)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D.

  	
  Total Capitalization Ratio

  (Line II.A. ÷ Line
  II.C.)

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Maximum Permitted:

  	
   

  	
  60

  	
  %

  

 

	
  III.

  	
  Section 6.12(b) —EBITDA Coverage
  Ratio(1)  

  	
   

  	
   

  	
   

  

 

	
   

  	
  A.

  	
  EBITDA for the twelve-month period ending on the
  Statement Date

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.

  	
  Net Income for such period

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.

  	
  plus Interest Expense of Borrower and its Subsidiaries
  for such period(2):

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.

  	
  plus income tax expense of Borrower and its Subsidiaries
  for such period(3):

  	
   

  	
  $

  	
   

  

 

(1)                                  provided that in the case of any Material Transaction, the
calculation of the following ratio shall be adjusted on a pro forma basis to
give effect to the results of operations of each person or assets which are the
subject of such Material Transaction.

(2)                                  To the extent deducted in determining Net
Income.

(3)                                  To the extent deducted in determining Net
Income.

 

 

	
   

  	
   

  	
  4. 

  	
  plus depreciation and amortization of Borrower and its
  Subsidiaries for such period(4): 

  	
   

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  5. 

  	
  plus any non-recurring or extraordinary losses of
  Borrower and its Subsidiaries for such period(5): 

  	
   

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  6. 

  	
  plus any non-cash losses and non-cash stock compensation expense
  of Borrower and its Subsidiaries for such period(6): 

  	
   

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  7.

  	
  minus income tax credits of Borrower and its
  Subsidiaries(7):

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  8. 

  	
  minus any non-recurring or extraordinary gains or any non-cash
  gains of Borrower and its Subsidiaries for such period(8): 

  	
   

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  9.

  	
  Total EBITDA: (Line 1 + 2 + 3 + 4 + 5 + 6 – 7 – 8):

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  10. 

  	
  minus Maintenance Capital Expenditures of Borrower and
  its Subsidiaries for such period (but not less than 

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (i) at any time prior to March 31, 2010,
  $1,500,000, and

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (ii) on and after March 31, 2010,
  $3,000,000)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  11. 

  	
  minus income taxes paid in Cash by Borrower and its Subsidiaries
  during such period: 

  	
   

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  12.

  	
  Total: (Line 9 – 10 – 11):

  	
   

  	
  $

  	
   

  

 

	
   

  	
  B.

  	
  Fixed Charges:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1. 

  	
  Interest Expense of Borrower and its Subsidiaries
  paid or payable in cash for such period: 

  	
   

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2. 

  	
  plus scheduled payments of principal in respect of Total
  Indebtedness during such period other  than any such payments
  due upon the final maturity of any obligation which is Total Indebtedness, in
  each case for Borrower and its Subsidiaries for such period: 

  	
   

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3. 

  	
  plus dividends paid in Cash on Equity Interests of Borrower
  and its Subsidiaries to third parties during such period: 

  	
   

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4. 

  	
  plus mandatory principal prepayments in respect of 

  	
   

  	
   

  	
   

  

 

(4)           To the extent
deducted in determining Net Income.

(5)           To the extent
deducted in determining Net Income.

(6)           To the extent
deducted in determining Net Income.

(7)           To the extent
included in determining Net Income.

(8)           To the extent
included in determining Net Income.

(9)           Insert minimum
requirement from Section 6.12(b) of the Credit Agreement. 

 

 

	
   

  	
   

  	
   

  	
  Subordinated Indebtedness made pursuant to
  Section 7.11(b) of the Credit Agreement during such period: 

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  5.

  	
  Total: (Line 1 + 2 + 3 + 4):

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  EBITDA Coverage Ratio (Line A.12 ÷ Line B.5)

  	
   

  	
  : 1.0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Minimum Required:

  	
   

  	
  : 1.0

  	
  (9)

  

 

	
  IV.

  	
  Section 6.12(c) — Bondable Capacity
  Ratio

  	
   

  	
   

  	
   

  

 

	
   

  	
  A.

  	
  65% of the net book value of utility plant, property
  and equipment of the Regulated Subsidiaries, determined in accordance with
  GAAP:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  aggregate principal amount of Total Indebtedness of
  Borrower’s Subsidiaries as of the Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  net Bondable Capacity (Line A — Line B):

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D.

  	
  Total Indebtedness of Borrower (but not of its
  Subsidiaries) outstanding on the Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  E.

  	
  Subordinated Indebtedness outstanding on the
  Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  F.

  	
  net Indebtedness of Borrower (Line D — Line E):

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  G.

  	
  Bondable Capacity Ratio (Line C ÷ Line F):

  	
   

  	
  :1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Minimum Required:

  	
   

  	
  1.20:1.00

  	
   

  

 

	
  V.

  	
  Section 6.12(d) — Operating Income
  Ratio

  	
   

  	
   

  	
   

  

 

	
   

  	
  A.

  	
  aggregate segment operating income of the Regulated
  Subsidiaries for the twelve month period ended on the Statement Date(10):

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  consolidated total segment operating income
  (excluding corporate and other) for the twelve month period ended on the
  Statement Date(11):

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Operating Income Ratio (Line A ÷ Line B):

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Minimum Required:

  	
   

  	
  0.65:1.00

  	
   

  

 

(10)         Determined
consistently with GAAP and consistently with the past practices of Borrower.

(11)         Determined
consistently with GAAP and consistently with the past practices of Borrower.

 

 

	
  VI.

  	
  Section 7.02(h) — Other Investments

  	
   

  	
   

  	
   

  

 

	
   

  	
  A.

  	
  Aggregate outstanding “other Investments”(12) of
  Borrower and its Subsidiaries as of the Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Maximum Permitted:

  	
   

  	
  $

  	
  10,000

  	
   

  
							

 

	
  VII.

  	
  Section 7.03(e) — Indebtedness of
  Borrower and the Regulated Subsidiaries

  	
   

  	
   

  	
   

  

 

	
   

  	
  A.

  	
  Aggregate principal amount of Indebtedness of Borrower
  and the Regulated Subsidiaries permitted under Section 7.03(e)  of
  the Credit Agreement as of the Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Maximum Permitted:

  	
   

  	
  $

  	
  40,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Aggregate principal amount of Indebtedness of
  Borrower and the Regulated Subsidiaries permitted under
  Section 7.03(e) of the Credit Agreement which is governed by
  instruments, documents and agreements which do not comply with the provisions
  of Section 7.09 of the Credit agreement as of the Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Maximum Permitted:

  	
   

  	
  $

  	
  5,000

  	
   

  

 

	
  VIII.

  	
  Section 7.03(f) — Indebtedness of the
  Unregulated Subsidiaries

  	
   

  	
   

  	
   

  

 

	
   

  	
  A.

  	
  Aggregate principal amount of Indebtedness of the
  Unregulated Subsidiaries as of the Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Maximum Permitted:

  	
   

  	
  $

  	
  10,000

  	
   

  
							

 

	
  IX.

  	
  Section 7.03(h) — Indebtedness re:
  Asset Acquisition

  	
   

  	
   

  	
   

  

 

	
   

  	
  A.

  	
  Aggregate principal amount of Indebtedness of
  Borrower (including obligations in respect of Capital Lease Obligations)
  incurred to directly finance the acquisition of fixed or capital assets, and
  refinancings thereof which do not increase the principal amount outstanding
  thereunder, as of the Statement Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Maximum Permitted:

  	
   

  	
  $

  	
  12,500

  	
   

  
							

 

	
  X.

  	
  Section 7.05(h) — Dispositions

  	
   

  	
   

  	
   

  

 

	
   

  	
  A.

  	
  Aggregate Dispositions made by Borrower and its
  Subsidiaries for fair market value made when no Default or Event of Default
  has occurred and remains continuing or would result therefrom (including any
  Pro Forma Covenant Default) since the Closing Date:

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Maximum Permitted:

  	
   

  	
  $

  	
  25,000

  	
   

  
							

 

(12)        “other
Investments” includes all Investments made by Borrower and its Subsidiaries
other than Investments permitted under Sections 7.02(a) – 7.02(g) of the Credit
Agreement.

 

 

Exhibit D to Amendment

 

INSTRUMENT OF JOINDER

 

THIS INSTRUMENT OF JOINDER (“Joinder”) is executed
as of May 28, 2009, by the undersigned (each a “Joining Party” and
collectively, the “Joining Parties”), and delivered to Bank of America, N.A.,
as Administrative Agent (“Administrative Agent”), pursuant to the Amended and
Restated Continuing Guaranty dated as of February 15, 2008 made by certain
Subsidiaries (collectively, the “Guarantors”) of SouthWest Water Company, a
Delaware corporation (the “Borrower”), in favor of Administrative Agent for the
ratable benefit of the Beneficiary described therein (as amended by that
certain Amendment No. 1 to Guaranty and Consent of Guarantors of even date
herewith and as such agreement may from time to time be extended, modified,
renewed, restated, supplemented or amended, the “Guaranty”).  Terms used but not defined in this Joinder
shall have the meanings defined for those terms in the Guaranty.

 

RECITALS

 

A.            Each
Joining Party is a Subsidiary of Borrower and has agreed to enter into this
Joinder, pursuant to Section 6.13 of the Credit Agreement, to become a
Guarantor under the terms and conditions of the Guaranty.

 

B.            Each
Joining Party expects to realize direct and indirect benefits as a result of
the availability to Borrower of the credit facilities under the Credit
Agreement.

 

NOW THEREFORE, each
Joining Party agrees as follows:

 

AGREEMENT

 

1.             By
this Joinder, each Joining Party becomes a “Guarantor” under and pursuant to Section 20
of the Guaranty.  Each Joining Party
agrees that, upon its execution of this Joinder, it will become a Guarantor
under the Guaranty with respect to all Guaranteed Obligations heretofore or
hereafter incurred, and it will be bound by all terms, conditions, and duties
applicable to a Guarantor under the Guaranty.

 

2.             The effective date of this Joinder
is May 28, 2009.

 

[Signature Page Follows]

 

 

	
   

  	
  “Joining Parties”

  
	
   

  	
   

  
	
   

  	
  Metro-H2O, Ltd.,

  
	
   

  	
  a Texas limited
  partnership

  
	
   

  	
   

  
	
   

  	
   

  	
  By: Metro-H2O
  Utilities, Inc.

  
	
   

  	
   

  	
  Its: General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Metro-H2O
  Utilities, Inc.,

  
	
   

  	
  a Texas corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  SWWC
  Enterprises, Inc.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  SWWC
  Utilities, Inc.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  CDC
  Maintenance, Inc.,

  
	
   

  	
  a Texas corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  New Mexico
  Utilities, Inc.,

  
	
   

  	
  a New Mexico
  corporation,

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

ACKNOWLEDGED:

 

 

BANK OF AMERICA, N.A.,

 

as Administrative Agent

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

 

Exhibit E to Amendment

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT
(as amended, restated, extended, supplemented or otherwise modified from time
to time, this “Agreement”), dated as of May 28, 2009, is made by
each of the Persons listed on the signature pages hereto, together with
each other Person who may become a party hereto pursuant to Section 27
of this Agreement (each a “Grantor” and collectively the “Grantors”),
jointly and severally in favor of the Secured Party (as defined below), with
reference to the following facts:

 

RECITALS

 

A.            Pursuant to the Amended and Restated Credit Agreement (as
amended, restated, extended, supplemented or otherwise modified from time to
time, the “Credit Agreement”), dated as of February 15, 2008, by
and among SouthWest Water Company, a Delaware corporation (“Borrower”),
each lender from time to time party thereto (each a “Lender” and
collectively the “Lenders”), and Bank of America, N.A., as
Administrative Agent, the Lenders have agreed to extend certain credit
facilities to Borrower.

 

B.            Concurrently herewith, Borrower and Administrative Agent
(with the consent of the Required Lenders) are entering into that certain
Amendment No. 2 to Amended and Restated Credit Agreement (the “Amendment”),
which provides, as a condition to its effectiveness, that Grantors enter into
this Agreement and grant security interests to Secured Party as herein
provided.

 

C.            Each Grantor expects to realize direct and indirect
benefits as a result of the availability of the aforementioned credit
facilities.

 

AGREEMENT

 

NOW, THEREFORE, in order
to induce the Administrative Agent and the Lenders to enter into the Amendment,
and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, Grantors hereby jointly and severally represent,
warrant, covenant, agree, assign and grant as follows:

 

E.             Definitions.  This
Agreement is the Security Agreement referred to in the Credit Agreement (as
amended by the Amendment).  This
Agreement is one of the “Loan Documents” referred to in the Credit
Agreement.  Terms defined in the Credit Agreement and not otherwise
defined in this Agreement shall have the meanings defined for those terms in
the Credit Agreement.  Terms defined in the California Commercial
Code (the “CCC”) and not otherwise defined in this Agreement or in the
Credit Agreement shall have the meanings defined for those terms in the
CCC.  As used in this Agreement, the following terms shall have the
meanings respectively set forth after each:

 

“Certificates”
means all certificates, instruments or other documents now or hereafter
representing or evidencing any Pledged Securities.

 

“Closing Date”
means the date on which the conditions set forth in Section 23 of the
Amendment are satisfied or waived.

 

“Collateral” means
and includes all present and future right, title and interest of Grantors, or
any one or more of them, in or to any personal property or assets whatsoever,
whether now or hereafter

 

10

 

acquired and
wherever the same may from time to time be located, and all rights and powers
of Grantors, or any one or more of them, to transfer any interest in or to any
personal property or assets whatsoever, including, without limitation,
any and all of the following personal property:

 

a.             All present and future accounts, accounts receivable,
agreements, contracts, leases, contract rights, payment intangibles, rights to
payment, instruments, documents, chattel paper (whether tangible or
electronic), promissory notes, security agreements, guaranties, letters of
credit, letter-of-credit rights, undertakings, surety bonds, insurance policies
(whether or not required by the terms of the Loan Documents), notes and drafts,
and all forms of obligations owing to any Grantor or in which any Grantor may
have any interest, however created or arising and whether or not earned by
performance;

 

b.             All present and future general intangibles, all tax
refunds of every kind and nature to which any Grantor now or hereafter may
become entitled, however arising, all other refunds, and all deposits, credits,
reserves, loans, royalties, cost savings, deferred payments, goodwill, choses
in action, liquidated damages, rights to indemnification, trade secrets,
computer programs, software, customer and supplier lists, licenses, permits,
copyrights, technology, processes, proprietary information, insurance proceeds
of which any Grantor is a beneficiary;

 

c.             All present and future: (i) trademarks, trade
names, trade styles, service marks, all prints and labels on which said
trademarks, trade names, trade styles and service marks appear, have appeared,
or will appear, and all designs and general intangibles of a like nature, all
applications, registrations, and recordings relating to the foregoing in the
United States Patent and Trademark Office (“USPTO”) or in any similar
office or agency of the United States of America, any state thereof, or any
political subdivision thereof, or in any other countries, and all reissues,
extensions, and renewals thereof, including, without limitation, those
registered and applied-for trademarks, terms, designs and applications
described in Schedule 1 attached hereto and made a part hereof (the
“Trademarks”), and (ii) the goodwill of the business symbolized by
each of the Trademarks, including, without limitation, all customer
lists and other records relating to the distribution of products or services
bearing the Trademarks (that portion of the Collateral described in the
foregoing clauses (i) and (ii) is referred to herein as the “Trademark
Collateral”);

 

d.             All present and future: patents, whether foreign or
domestic, applications, registrations, and recordings relating to such patents
in the USPTO or in any similar office or agency of the United States of
America, any state thereof, or any political subdivision thereof, or in any
other countries, and all licenses, reissues, extensions, and renewals thereof,
including those patents and applications, registrations and recordings
described in Schedule 2 attached hereto and made a part hereof (the “Patents”);

 

e.             All present and future: copyrights, rights and interests
in copyrights, works protectable by copyright, copyright registrations and
copyright applications, whether foreign or domestic, and United States, state
and international registrations of the foregoing, and all reissues, extensions
and renewals of the foregoing, including, without limitation, those listed on Schedule
3 hereto (the “Copyrights”), together with all income, royalties,
damages and payments now or hereafter due and/or payable with respect to the
foregoing; the right to sue for past, present and future infringements of
rights in copyrights, all goodwill of Grantors related thereto, and any and all
proceeds of any of the foregoing, including, but not limited to, any and all
proceeds of licensing thereof (the “Copyright Collateral”; and
collectively with the Trademark Collateral and the Patents, the “IP
Collateral”);

 

11

 

f.              All present and future deposit accounts of any Grantor,
including, without limitation, any demand, time, savings, passbook or
like account maintained by any Grantor with any bank, savings and loan
association, credit union or like organization, and all money, Cash and cash
equivalents of any Grantor, whether or not deposited in any such deposit
account;

 

g.             All present and future books and records, including,
without limitation, books of account and ledgers of every kind and nature, all
electronically recorded data relating to any Grantor or the business thereof,
all receptacles and containers for such records, and all files and
correspondence;

 

h.             All present and future goods, including, without
limitation, all consumer goods, farm products, inventory, equipment, catalogs,
machinery, tools, molds, dies, furniture, furnishings, fixtures, trade
fixtures, motor vehicles and all other goods used in connection with or in the
conduct of any Grantor’s business, including all goods as defined in Section 9102(44)
of the CCC;

 

i.              All present and future inventory and merchandise, including,
without limitation, all present and future goods held for sale or lease or to
be furnished under a contract of service, all raw materials, work in process
and finished goods, all packing materials, supplies and containers relating to
or used in connection with any of the foregoing, and all bills of lading,
warehouse receipts or documents of title relating to any of the foregoing;

 

j.              All present and future stocks, bonds, debentures,
securities (whether certificated or uncertificated), securities entitlements,
securities accounts, commodity contracts, commodity accounts, subscription
rights, options, warrants, puts, calls, certificates, investment property,
partnership interests, limited liability company membership or other interests,
joint venture interests, certificates of deposit, Investments and/or brokerage
accounts, including all Pledged Collateral, and all rights, preferences,
privileges, dividends, distributions, redemption payments, or liquidation
payments with respect thereto;

 

k.             All present and future accessions, appurtenances, components,
repairs, repair parts, spare parts, replacements, substitutions, additions,
issue and/or improvements to or of or with respect to any of the foregoing;

 

l.              All other present and future tangible and intangible
property of any Grantor;

 

m.            All present and future rights, remedies, powers and/or
privileges of any Grantor with respect to any of the foregoing, including
the right to make claims thereunder or with respect thereto; and

 

n.             Any and all proceeds and products of any of the
foregoing, including, without limitation, all money, accounts, payment
intangibles, general intangibles, deposit accounts, promissory notes,
documents, instruments, certificates of deposit, chattel paper, goods,
insurance proceeds, claims by Grantors against third parties for past, present
and future infringement of the IP Collateral or any license with respect
thereto, and any other tangible or intangible property received upon the sale
or disposition of any of the foregoing.

 

Notwithstanding the
foregoing, the Collateral shall not include (i) assets subject to any Lien
permitted under Section 7.01(p) of the Credit Agreement where the
security agreement or other

 

12

 

instrument
creating such purchase money Lien prohibits the granting of a security interest
in such assets to Secured Party or results in an event of default under such
security agreement or instrument (other than to the extent
that such term would be rendered ineffective pursuant to the CCC or any other
applicable law (including any Debtor Relief Law)); provided that
the security interest in any such assets shall automatically attach hereunder
when and after any such Liens are discharged or released or when the assets
encumbered by such Liens are no longer subject to such restrictions or (ii) the
Excluded Securities.

 

“Distribution”
means any dividend or other distribution (whether in cash, securities or other
property) with respect to any capital stock or other Equity Interest, or any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such capital stock or other
Equity Interest or on account of any return of capital to stockholders,
partners or members (or the equivalent Person thereof).

 

“Equity Interest”
has the meaning set forth in the Credit Agreement.

 

“Excluded Securities”
means the Equity Interests held by the Borrower in Suburban Water Systems.

 

“Issuer” means any
issuer of any Pledged Securities.

 

“Pledged Collateral”
means any and all property of any Grantor now or hereafter pledged and
delivered to Secured Party pursuant to this Agreement, and includes without
limitation (a) the Pledged Securities and any Certificates representing or
evidencing the same, (b) all proceeds and products of any of the
foregoing, (c) any and all collections, Distributions, Cash, instruments,
interest or premiums with respect to any of the foregoing and (d) any and
all rights, titles, interests, privileges, benefits and preferences
appertaining or incidental to any of the foregoing, provided that the
Pledged Collateral shall not include the Excluded Securities.

 

“Pledged Securities”
means (a) any and all Equity Interests in the Subsidiaries now or
hereafter owned by any Grantor, including any interest of any Grantor in
the entries on the books of any securities intermediary or financial
intermediary pertaining thereto (the existing Subsidiaries of Grantors are
listed on Schedule 4), (b) any and all Equity Interests now or
hereafter issued in substitution, exchange or replacement therefor, or with
respect thereto, and (c) any and all warrants, options or other rights to
subscribe to or acquire any additional Equity Interests in the Subsidiaries
owned by any Grantor, provided that the Pledged Securities shall not
include the Excluded Securities.

 

“Secured Obligations”
means any and all present and future Obligations of any type or nature of
Borrower and the other Loan Parties to Secured Party arising under or relating
to the Loan Documents, or any Swap Contract entered into by Borrower with any
Secured Party, or any Cash Management Agreement entered into by any Loan Party
with any Secured Party, or any one or more of them, 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 Debtor Relief Law by or against
Borrower or any other Loan Party.

 

“Secured Party”
means the Administrative Agent, the Lenders (including the Swing Line Lender),
the L/C Issuer, each Lender or Affiliate of a Lender party to a Swap Contract
with the Borrower or party to a Cash Management Agreement with any Loan Party,
and each of them, and any one or more of them. 
Subject to the terms of the Credit Agreement, each right, remedy,
privilege or power of Secured 

 

13

 

Party shall be
exercised by Administrative Agent.  Any
notices to be delivered to Secured Party shall be delivered to the
Administrative Agent

 

F.             Further Assurances.  At
any time and from time to time at the  request of Secured Party, each
Grantor shall execute and deliver to Administrative Agent all such financing
statements and other instruments and documents in form and substance reasonably
satisfactory to Secured Party as shall be necessary to fully perfect, when
filed and/or recorded, Secured Party’s security interests granted pursuant to Section 3
of this Agreement.  At any time and from time to time, Administrative
Agent shall be entitled to file and/or record any or all such financing
statements, instruments and documents held by it, and any or all such further
financing statements, documents and instruments, and to take all such other
actions, as Secured Party may deem appropriate to perfect and to maintain
perfected the security interests granted in Section 3 of this
Agreement.  At Secured Party’s request at any time, each Grantor
shall execute and deliver all such further financing statements, instruments
and documents, and shall do all such further acts and things, as may be deemed
necessary by Secured Party to create and perfect, and to continue and preserve,
an indefeasible security interest in the Collateral in favor of Secured Party,
or the priority thereof.  With respect to any Collateral consisting
of certificated securities, instruments, documents, certificates of title,
documents of title or other evidence of ownership of motor vehicles, trailers,
semi-trailers, and accessories thereof, as to which Secured Party’s security
interest need be perfected by, or the priority thereof need be assured by,
possession of such Collateral, Grantors will upon demand of Administrative
Agent deliver possession of same in pledge to Administrative Agent with, upon
the Administrative Agent’s request, appropriate notations satisfactory to Administrative
Agent disclosing that such Collateral is subject to Secured Party’s
interests.  With respect to any Collateral consisting of securities,
instruments, partnership or joint venture interests or the like, Grantors
hereby consent and agree that the issuers of, or obligors on, any such
Collateral, or any registrar or transfer agent or trustee for any such
Collateral, shall be entitled to accept the provisions of this Agreement as
conclusive evidence of the right of Secured Party to effect any transfer or
exercise any right hereunder or with respect to any such Collateral,
notwithstanding any other notice or direction to the contrary heretofore or
hereafter given by any Grantor or any other Person to such issuers or such
obligors or to any such registrar or transfer agent or trustee.

 

G.            Security Agreement.  For
valuable consideration, Grantors and each of them hereby assign and pledge to
Secured Party, and grant to Secured Party a security interest in, all presently
existing and hereafter acquired Collateral, as security for the timely payment
and performance of all of the Secured Obligations.  This Agreement is
a continuing and irrevocable agreement and all the rights, powers, privileges
and remedies hereunder shall apply to any and all Secured Obligations, including
those arising under successive transactions which shall either continue the
Secured Obligations, increase or decrease them, or from time to time create new
Secured Obligations after all or any prior Secured Obligations have been
satisfied, and notwithstanding the bankruptcy of Borrower, any other Grantor or
any other Person or any other event or proceeding affecting any Person.

 

H.            Delivery of Certain Pledged
Collateral.  On or within 20 days after
the Closing Date, each Grantor shall cause to be pledged and delivered to
Secured Party the Certificates, if any, evidencing the Equity Interests listed
on Schedule 4 hereto. 
Following the Closing Date, all additional Certificates and Pledged
Collateral shall from time to time be delivered to Secured Party by the
applicable Grantor.  All Certificates at
any time delivered to Secured Party shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured
Party.  Administrative Agent shall hold
all Certificates pledged hereunder pursuant to this Agreement unless and until
released in accordance with Section 5 of this Agreement.

 

14

 

I.              Release of Pledged
Collateral.  Pledged Collateral that is
required to be released from the pledge and security interest created by this
Agreement in order to permit any Grantor to consummate any disposition of stock
or assets, merger, consolidation, amalgamation, acquisition, or dividend
payment or distribution that such Grantor is entitled to consummate pursuant to
the Loan Documents, if any, shall be so released by Secured Party at such times
and to the extent necessary to permit such Grantor to consummate such permitted
transactions promptly following Secured Party’s receipt of written request
therefor by such Grantor specifying the purpose for which release is requested
and such further certificates or other documents as Secured Party shall request
in its reasonable discretion to confirm that such Grantor is permitted to
consummate such permitted transaction and to confirm Secured Party’s
replacement Lien on appropriate collateral (unless replacement
collateral is not required pursuant to the Loan Documents).  Any request for any permitted release shall
be transmitted to Administrative Agent on behalf of Secured Party.  Administrative Agent, at the expense of
Grantors, promptly shall redeliver all Certificates and shall execute and
deliver to Grantors all documents requested by Grantors that are reasonably
necessary to release Pledged Collateral of record whenever Grantors shall be
entitled to the release thereof in accordance with this Section 5.

 

J.             Grantors’ Representations,
Warranties and Agreements.  Except as otherwise disclosed to
Secured Party in writing concurrently herewith, and except as set forth in the
Schedules, each Grantor represents, warrants and agrees that: (a) Grantor
owns the sole, full and clear title to all of the existing Collateral in which
such Grantor is purporting to grant a security interest to Secured Party and
such Grantor has the right and power to grant the security interests granted
hereunder; (b) Grantor is the sole legal and beneficial owner of the
Pledged Collateral in which such Grantor is purporting to grant a security
interest to Secured Party, and the Collateral is not subject to any Lien other than
Liens permitted under Section 7.01 of the Credit Agreement; (c) 
Grantor has the right and power to pledge the Pledged Collateral owned by such
Grantor to Secured Party without the consent, approval or authorization of, or
notice to, any Person (other than such consents, approvals,
authorization or notices which have been obtained or given prior to the date
hereof) and such pledge constitutes the valid, binding and enforceable
obligation of such Grantor, enforceable against such Grantor in accordance with
the terms hereof and the other Loan Documents, 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; (d) all Equity Interests that constitute a portion of
the Pledged Collateral are duly authorized, validly issued in accordance with
all applicable Laws, fully paid and non-assessable, and represent (i) one
hundred percent (100%) of the Equity Interests owned by such Grantor in each
Subsidiary organized under the laws of any political subdivision of the United
States; or (ii) sixty-five percent (65%) of the Equity Interests owned by
such Grantor in each Subsidiary organized outside the United States; (e) except
as specifically permitted under the Loan Documents, Grantor will not (i) sell,
assign, exchange, transfer, grant an exclusive or nonexclusive license in, or
otherwise dispose of, or contract to sell, assign, exchange, transfer, grant an
exclusive or nonexclusive license in, or otherwise dispose of, or grant any
option with respect to, any of the Collateral, (ii) create or permit to
exist any Lien upon or with respect to any of the Collateral, except for
Liens permitted under Section 7.01 of the Credit Agreement, or (iii) take
any action with respect to the Collateral which is inconsistent with the
provisions or purposes of this Agreement or any other Loan Document; (f) each
Grantor will pay, prior to delinquency, all taxes, charges, Liens and
assessments against the portion of the Collateral owned by it, except
such as are timely contested in good faith, and upon its failure to pay or so
contest such taxes, charges, Liens and assessments, Secured Party at its option
may pay any of them, and Secured Party shall be the sole judge of the legality
or validity thereof and the amount necessary to discharge the same; (g) the
Collateral will not be used for any unlawful purpose or in violation of any
Law, regulation or ordinance, nor used in any way that will void or impair any
insurance required to be carried in connection therewith; (h) Grantor
will, to the extent consistent with good business practice, keep the portion of
the Collateral owned by it in reasonably good repair, working order and
condition, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto and, as 

 

15

 

appropriate and
applicable, will otherwise deal with such portion of the Collateral in all such
ways as are considered good practice by owners of like property; (i) Grantor
will take all reasonable steps to preserve and protect the portion of the
Collateral owned by it, including, with respect to the Patents,
Trademarks and Copyrights, the filing of any renewal affidavits and
applications; (j) as of the date hereof, Grantor has no Trademarks
registered, or subject to pending applications, in the USPTO, or to the best
knowledge of Grantor, any similar office or agency in the United States of
America other than those described in Schedule 1 attached hereto; (k) as
of the date hereof, Grantor has no Patents registered, or subject to
pending  applications, in the USPTO, or
to the best knowledge of Grantor, any similar office or agency in the United
States of America other than those described in Schedule 2
attached hereto; (l) to the best of Grantor’s knowledge there are no
actions, suits, proceedings or investigations pending or threatened in writing
against Grantor before any Governmental Authority which could reasonably be
expected to cause any portion of the IP Collateral to be adjudged invalid or
unenforceable, in whole or in part; (m) Grantor shall not file any
application for the registration of a Patent, Trademark or Copyright with the
USPTO, USCO (as defined below) or any similar office or agency in the United
States of America, or any State therein, unless such Grantor promptly
thereafter notifies Administrative Agent of such action; (n) Grantors have
not abandoned any Patent, Trademark or Copyright, and Grantors will not do any
act, or omit to do any act, whereby any Patent, Trademark or Copyright may
become abandoned, canceled, invalidated, unenforceable, avoided, or avoidable unless
such Grantor has reasonably determined that such Patent, Trademark or Copyright
is of no further material value in its business, as set forth in a notice to
Administrative Agent, or such Grantor has obtained the written consent of the
Administrative Agent; (o) Grantor shall immediately notify Administrative
Agent promptly if it knows or has reason to know of any reason why any
applicable registration or recording of any Patent, Trademark or Copyright of
any material value may become abandoned, canceled, invalidated, or
unenforceable; (p) subject to the preceding limitations respecting
immaterial Patents, Trademarks or Copyright, Grantor will render any
assistance, as Secured Party may reasonably determine is necessary, to Secured
Party in any proceeding before the USPTO, the USCO, any federal or state court,
or any similar office or agency in the United States of America, or any State
therein, to maintain any Patent, Trademark or Copyright and to protect Secured
Party’s security interest therein, including, without limitation, filing
of renewals, affidavits of use, affidavits of incontestability and opposition,
interference, and cancellation proceedings; (q) Grantor will promptly
notify Administrative Agent if such Grantor learns of any use by any Person of
any term or design likely to cause confusion with any of the Trademarks which
are material to Grantor’s business, or of any use by any Person of any other
process or product which infringes upon any of the Trademarks in a manner which
is material to Grantor’s business, and if requested by Administrative Agent,
such Grantor, at its expense, shall join with Secured Party in such action as
Secured Party in Secured Party’s discretion may reasonably deem advisable for
the protection of Secured Party’s interest in and to the Trademarks; (r) Grantor
assumes all responsibility and liability arising from the use of the
Trademarks, Patents and Copyrights, and such Grantor hereby indemnifies and holds
the Administrative Agent and each of the Lenders harmless from and against any
claim, suit, loss, damage or expense (including reasonable attorneys’
fees) arising out of any alleged defect in any product manufactured, promoted,
or sold by any Grantor (or any Affiliate or Subsidiary thereof) in connection
with any Patent, Trademark or Copyright or out of the manufacture, promotion,
labeling, sale, or advertisement of any such product by any Grantor or any
Affiliate or Subsidiary thereof; (s) Grantor shall promptly notify
Administrative Agent in writing of any adverse determination in any proceeding
in the USPTO, USCO, or any other foreign or domestic Governmental Authority,
court or body, regarding such Grantor’s claim of ownership in any of the
Trademarks, Patents or Copyrights, and in the event of any infringement of any
Trademarks, Patents or Copyrights owned by such Grantor by a third party which
is material to such Grantor’s business, such Grantor shall promptly notify
Secured Party of such infringement and sue for and diligently pursue damages
for such infringement, and if such Grantor shall fail to take such action
within one (1) month after such notice is given to Secured Party,
Secured Party may, but shall not be required to, itself take such action in the
name of such Grantor, and such Grantor hereby appoints Secured Party the true
and lawful attorney of such Grantor, for it and in its name, place and stead,
on behalf of such Grantor, to

 

16

 

commence judicial
proceedings in any court or before any other tribunal to enjoin and recover
damages for such infringement, any such damages due to such Grantor, net of
costs and reasonable attorneys’ fees, to be applied to the Secured Obligations;
(t) Grantor will maintain, with responsible insurance companies, insurance
covering the Collateral against such insurable losses as is required by the
Credit Agreement and as is consistent with sound business practice, and will,
at the Administrative Agent’s request, cause Administrative Agent (for the
benefit of Secured Party) to be designated as an additional insured and/or loss
payee (as customary for secured parties based on the type of insurance) with
respect to all insurance (whether or not required by the Credit Agreement),
will endeavor to obtain the written agreement of the insurers that such
insurance shall not be cancelled, terminated or materially modified to the
detriment of Secured Party without at least 20 days’ prior written notice
to Administrative Agent, and will furnish copies of such insurance policies or
certificates to Administrative Agent promptly upon request therefor and will
otherwise comply with the terms and provisions of the Credit Agreement with
respect to such insurance coverage; (u) Grantor will promptly notify
Administrative Agent in writing in the event of any substantial or material
damage to the Collateral (considered as a whole) from any source whatsoever,
and, except for the disposition of collections and other proceeds of the
Collateral permitted by Section 8 hereof, Grantor will not remove
or permit to be removed any part of the Collateral from its places of business
without the prior written consent of Secured Party, except for such
items of the Collateral as are removed in the ordinary course of business or in
connection with any transaction or disposition otherwise permitted by the Loan
Documents;  (v) in the event Grantor changes its name or its
address as either are set forth herein or in the Credit Agreement, such Grantor
will notify Administrative Agent of such name and/or address change promptly,
but in any event, within thirty (30) days; (w) as of the date hereof,
none of Grantors has any Copyrights registered with the United States Copyright
Office (“USCO”), or any similar office or agency in the United States of
America, or elsewhere other than those described in Schedule 3; (x) 
each Grantor authorizes Secured Party to modify this Agreement by amending the Schedules
hereto to include any new IP Collateral, renewal thereof or any IP Collateral
applied for and obtained hereafter; and each Grantor shall, upon request of
Secured Party from time to time execute and deliver to Secured Party any and
all assignments, agreements, instruments, documents and such other papers as
may be requested by Secured Party to evidence the assignment of a security
interest in each such IP Collateral; and (y) with respect to the Copyright
Collateral, each Grantor shall, at its sole expense, do, make, execute and
deliver all such additional and further acts, things, deeds, assurances, and
instruments, in each case in form and substance satisfactory to Secured Party,
relating to the creation, validity, or perfection of the security interests
provided for in this Agreement under 35 U.S.C. Section 261, 15 U.S.C. Section 1051
et seq., 17 U.S.C. Sections 101, 201 et seq., the CCC or other Law of the
United States of America, the State of California, other States or any other
domestic or foreign jurisdiction as Secured Party may from time to time
reasonably request, and shall take all such other action as Secured Party may
reasonably require to perfect Secured Party’s security interest in any of the
Copyright Collateral and to completely vest in and assure to Secured Party its
rights hereunder in any of the Copyright Collateral, and each Grantor hereby
irrevocably authorizes Secured Party or its designee, at such Grantor’s
expense, to execute such documents, and file such financing statements with
respect thereto, with or without such Grantor’s signature, as Secured Party may
reasonably deem appropriate.  In the
event that any recording or refiling (or the filing of any statement of
continuation or assignment of any financing statement) or any other action, is
required at any time to protect and preserve such security interests in the
Copyright Collateral, Grantors shall, at their sole cost and expense, cause the
same to be done or taken at such time and in such manner as may be necessary
and as may be reasonably requested by Secured Party.  Each Grantor further authorizes Secured Party
to have this or any other similar agreement recorded or filed with the USCO or
other appropriate federal, state or foreign government office.

 

K.            Deposit Accounts.  For each deposit account included in the
Collateral that any Grantor at any time opens or maintains, such Grantor shall,
at Administrative Agent’s request enter into and cause the depository bank to
enter into a deposit account control agreement, in such form reasonably

 

17

 

satisfactory to
Administrative Agent, pursuant to which the depository bank agrees to comply at
any time with instructions from the Administrative Agent to such depositary
bank directing the disposition of funds from time to time credited to such
deposit account, without further consent of such Grantor, with the Grantor
being permitted, unless an Event of Default has occurred and is
continuing, to exercise rights to withdraw funds from such deposit
account.  Without limitation on the
foregoing, Administrative Agent shall also have the right at any time, whether
or not an Event of Default shall have occurred or be continuing, to make
inquiry of each applicable depositary institution at which a deposit account is
maintained to verify the account balance of such deposit account.

 

L.             Secured Party’s Rights Re
Collateral.  At any time (whether or not an Event of Default has
occurred), and without notice or demand and at the expense of each Grantor,
Secured Party may, to the extent it may be necessary or desirable to protect
the security hereunder, but Secured Party shall not be obligated to: (a) at
all times on reasonable notice, enter upon any premises on which Collateral is
situated and examine the same, provided such examinations shall occur no more
frequently than twice every 12 months unless an Event of Default has occurred
and is continuing, or (b) perform any obligation of any Grantor under this
Agreement or any obligation of any other Person under the Loan
Documents.  At any time and from time to time, at the expense of each
Grantor, Secured Party may, to the extent it may be necessary or desirable to
protect the security hereunder, but Secured Party shall not be obligated
to:  (i) after the occurrence and during the continuance of an
Event of Default, notify obligors on the Collateral that the Collateral has
been assigned to Secured Party; and (ii) at any time and from time to time
request from obligors on the Collateral, in the name of any Grantor or in the
name of Secured Party, information concerning the Collateral and the amounts
owing thereon.  The foregoing power of attorney is coupled with an
interest and is irrevocable.  Each Grantor shall maintain books and
records pertaining to the Collateral in such detail, form and scope as is consistent
with such Grantor’s prior practices.  Secured Party shall at all
times on reasonable notice have full access to and the right to audit any and
all of Grantors’ books and records pertaining to the Collateral, and to confirm
and verify the value of the Collateral and to do whatever else Secured Party
may deem necessary or desirable to protect its interests provided that
Secured Party shall not conduct more than two such audits in any 12 month
period unless an Event of Default has occurred and is
continuing.  Secured Party shall be under no duty or obligation
whatsoever to take any action to preserve any rights of or against any prior or
other parties in connection with the Collateral, to exercise any voting rights
or managerial rights with respect to any Collateral, whether or not an Event of
Default shall have occurred, or to make or give any presentments, demands for
performance, notices of non-performance, protests, notices of protests, notices
of dishonor or notices of any other nature whatsoever in connection with the
Collateral or the Secured Obligations.  Secured Party shall be under
no duty or obligation whatsoever to take any action to protect or preserve the
Collateral or any rights of any Grantor therein, or to make collections or
enforce payment thereon, or to participate in any foreclosure or other
proceeding in connection therewith.

 

M.           Collections on the
Collateral.  Except as otherwise provided in any Loan
Document, Grantors shall have the right to use and to continue to make
collections on and receive dividends and other proceeds of all of the
Collateral in the ordinary course of business so long as no Event of Default
shall have occurred and be continuing.  Upon the occurrence and
during the continuance of an Event of Default, at the option of Secured Party,
Grantors’ right to make collections on and receive dividends and other proceeds
of the Collateral and to use or dispose of such collections and proceeds shall
terminate, and any and all dividends, proceeds and collections, including
all partial or total prepayments, then held or thereafter received on or on
account of the Collateral will be held or received by Grantors in trust for
Secured Party and immediately delivered in kind to Administrative Agent on
behalf of Secured Party.  Any remittance received by any Grantor from
any Person shall be presumed to relate to the Collateral and to be subject to
Secured Party’s security interests.  Upon the occurrence and during
the continuance of an Event of Default, Secured Party shall have the right at
all times to receive, receipt for, endorse, assign, deposit and deliver, in the
name of Secured Party or in the name of the appropriate

 

18

 

Grantor, any and all
checks, notes, drafts and other instruments for the payment of money
constituting proceeds of or otherwise relating to the Collateral; and each
Grantor hereby authorizes Secured Party to affix, by facsimile signature or
otherwise, the general or special endorsement of it, in such manner as Secured
Party shall deem advisable, to any such instrument in the event the same has
been delivered to or obtained by Secured Party without appropriate endorsement,
and Secured Party and any collecting bank are hereby authorized to consider
such endorsement to be a sufficient, valid and effective endorsement by the
appropriate Grantor, to the same extent as though it were manually executed by
the duly authorized officer of the appropriate Grantor, regardless of by whom
or under what circumstances or by what authority such facsimile signature or
other endorsement actually is affixed, without duty of inquiry or
responsibility as to such matters, and each Grantor hereby expressly waives
demand, presentment, protest and notice of protest or dishonor and all other
notices of every kind and nature with respect to any such instrument.

 

N.            Possession of Collateral by Secured
Party.  All the Collateral now, heretofore or hereafter delivered to
Secured Party shall be held by Administrative Agent on behalf of Secured Party
in Administrative Agent’s possession, custody and control.  Any or
all of the Collateral consisting of Cash or Cash Equivalents delivered to
Secured Party shall, to the extent possible, be held in an interest-bearing
account and Secured Party may, in its discretion, apply any such interest to
payment of the Secured Obligations.  Nothing herein shall obligate
Secured Party to invest any Collateral or obtain any particular return
thereon.  Upon the occurrence and during the continuance of an Event
of Default, whenever any of the Collateral is in Secured Party’s possession,
custody or control, Secured Party may use, operate and consume the Collateral,
whether for the purpose of preserving and/or protecting the Collateral, or for
the purpose of performing any of Grantors’ obligations with respect thereto, or
otherwise.  Administrative Agent may at
any time deliver or redeliver the Collateral or any part thereof to Grantors,
and the receipt of any of the same by any Grantor shall be complete and full
acquittance for the Collateral so delivered, and Secured Party thereafter shall
be discharged from any liability or responsibility therefor.   So
long as Secured Party exercises reasonable care with respect to any Collateral
in its possession, custody or control, Secured Party shall have no liability
for any loss of or damage to such Collateral, and in no event shall Secured
Party have liability for any diminution in value of Collateral occasioned by
economic or market conditions or events.  Secured Party shall be
deemed to have exercised reasonable care within the meaning of the preceding
sentence if the Collateral in the possession, custody or control of Secured
Party is accorded treatment substantially equal to that which Secured Party
accords its own property, it being understood that Secured Party shall not have
any responsibility for (a) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relating to
any Collateral, whether or not Secured Party has or is deemed to have knowledge
of such matters, or (b) taking any necessary steps to preserve rights
against any Person with respect to any Collateral.

 

O.            Events of Default.  There
shall be an Event of Default hereunder upon the occurrence and during the
continuance of an Event of Default under the Credit Agreement.

 

P.             Rights Upon Event of
Default.  Upon the occurrence and during the continuance of an Event
of Default, Secured Party shall have, in any jurisdiction where enforcement
hereof is sought, in addition to all other rights and remedies that Secured
Party may have under applicable Law or in equity or under this Agreement (including,
without limitation, all rights set forth in Section 8 hereof) or
under any other Loan Document, all rights and remedies of a secured party under
the Uniform Commercial Code as enacted in any jurisdiction, and, in addition,
the following rights and remedies, all of which may be exercised with or
without notice to Grantors and without affecting the Obligations of Grantors
hereunder or under any other Loan Document, or the enforceability of the Liens
and security interests created hereby: (a) to foreclose the Liens and
security interests created hereunder or under any other agreement relating to
any Collateral by any available judicial procedure or without judicial process;
(b) to enter any premises where any Collateral may be located for the
purpose of securing, protecting,

 

19

 

inventorying, appraising,
inspecting, repairing, preserving, storing, preparing, processing, taking
possession of or removing the same; (c) to sell, assign, lease or
otherwise dispose of any Collateral or any part thereof, either at public or
private sale or at any broker’s board, in lot or in bulk, for cash, on credit
or otherwise, with or without representations or warranties and upon such terms
as shall be acceptable to Secured Party; (d) to notify obligors on the
Collateral that the Collateral has been assigned to Secured Party and that all
payments thereon are to be made directly and exclusively to Secured Party; (e) to
notify any Issuer of any Pledged Securities, and  any and all other obligors on any Pledged
Collateral, that the same has been pledged to Secured Party and that all
Distributions, interest and other payments thereon are to be made directly and
exclusively to Administrative Agent, for the benefit of Secured Party, (f) to
collect by legal proceedings or otherwise all dividends, Distributions,
interest, principal or other sums now or hereafter payable upon or on account
of the Collateral; (g) to cause the Collateral to be registered in the
name of Secured Party, as legal owner; (h) to enter into any extension,
reorganization, deposit, merger or consolidation agreement, or any other
agreement relating to or affecting the Collateral, and in connection therewith
Secured Party may deposit or surrender control of the Collateral and/or accept
other property in exchange for the Collateral; (i) to settle, compromise
or release, on terms acceptable to Secured Party, in whole or in part, any
amounts owing on the Collateral and/or any disputes with respect thereto; (j) to
extend the time of payment, make allowances and adjustments and issue credits
in connection with the Collateral in the name of Secured Party or in the name
of any Grantor; (k) to enforce payment and prosecute any action or
proceeding with respect to any or all of the Collateral and take or bring, in
the name of Secured Party or in the name of any Grantor, any and all steps,
actions, suits or proceedings deemed by Secured Party necessary or desirable to
effect collection of or to realize upon the Collateral, including any
judicial or nonjudicial foreclosure thereof or thereon, and each Grantor
specifically consents to any nonjudicial foreclosure of any or all of the
Collateral or any other action taken by Secured Party which may release any
Loan Party from personal liability on any of the Collateral, and each Grantor
waives any right not expressly provided for in this Agreement to receive notice
of any public or private judicial or nonjudicial sale or foreclosure of any
security or any of the Collateral, and each Grantor agrees that any money or
other property received by Secured Party in exchange for or on account of the
Collateral, whether representing collections or proceeds of Collateral, and
whether resulting from voluntary payments or foreclosure proceedings or other
legal action taken by Secured Party or Grantors may be applied by Secured Party
without notice to Grantors to the Secured Obligations in such order and manner
as Secured Party in its sole discretion shall determine; (l) to insure,
process and preserve the Collateral; (m) to exercise all rights (including
voting rights), remedies, powers or privileges provided under any of the Loan
Documents; (n) to remove, from any premises where the same may be located,
the Collateral and any and all documents, instruments, files and records, and
any receptacles and cabinets containing the same, relating to the Collateral,
and Secured Party may, at the cost and expense of each Grantor, use such of its
supplies, equipment, facilities and space at its places of business as may be
reasonably necessary or appropriate to properly administer, process, store,
control, prepare for sale or disposition and/or sell or dispose of the portion
of the Collateral owned by such Grantor or to properly administer and control
the handling of collections and realizations thereon, and Secured Party shall
be deemed to have a rent-free tenancy of any premises of any Grantor for such
purposes and for such periods of time as required by Secured Party, subject to
the terms and conditions of any lease thereof; (o) to receive, open and
dispose of all mail addressed to any Grantor and notify postal authorities to
change the address for delivery thereof to such address as Secured Party may
reasonably designate; provided that Secured Party agrees that it will
promptly deliver over to the appropriate Grantor such opened mail as does not
relate to the Collateral; and (p) to exercise all other rights, powers,
privileges and remedies of an owner of the Collateral; all at Secured Party’s
sole option and as Secured Party in its sole discretion may deem
advisable.  Grantors will, at Secured Party’s request, assemble the
Collateral and make it available to Secured Party at places which Secured Party
may designate, whether at the premises of Grantors or elsewhere, and will make
available to Secured Party, free of cost, all premises, equipment and
facilities of Grantors for the purpose of Secured Party’s taking possession of
the Collateral or storing same or removing or putting the Collateral in salable
form or selling or disposing of same.

 

20

 

Upon the occurrence and
during the continuance of an Event of Default, Secured Party also shall have
the right, without notice or demand, either in person, by agent or by a
receiver to be appointed by a court (and Grantors hereby expressly consent upon
the occurrence and during the continuance of an Event of Default to the appointment
of such a receiver), and without regard to the adequacy of any security for the
Secured Obligations, to take possession of the Collateral or any part thereof
and to collect and receive the rents, issues, profits, income and proceeds
thereof.  Secured Party shall further
have the right to use any of the IP Collateral for the sale of goods,
completion of work in process or rendering of services in connection with
enforcing any of the security interests granted to Secured Party by Grantors.
Taking possession of the Collateral shall not cure or waive any Event of
Default or notice thereof or invalidate any act done pursuant to such
notice.  The rights, remedies and powers
of any receiver appointed by a court shall be as ordered by said court.

 

Any public or private
sale or other disposition of the Collateral may be held at any office of
Administrative Agent, or at Grantors’ places of business, or at any other place
permitted by applicable Law, and without the necessity of the Collateral’s
being within the view of prospective purchasers.  Secured Party may direct the order and manner
of sale of the Collateral, or portions thereof, as it in its sole and absolute
discretion may determine, and Grantors expressly waive any right to direct the
order and manner of sale of any Collateral. 
Secured Party or any Person on Secured Party’s behalf may bid and
purchase at any such sale or other disposition. 
The net cash proceeds resulting from the collection, liquidation, sale,
lease or other disposition of the Collateral shall be applied, first, to the
expenses (including attorneys’ fees and disbursements) of retaking,
holding, storing, processing and preparing for sale or lease, selling, leasing,
collecting, liquidating and the like, and then to the satisfaction of the
Secured Obligations in such order as shall be determined by Secured Party in
its sole and absolute discretion. 
Grantors and any other Person then obligated therefor shall pay to
Secured Party on demand any deficiency with regard thereto which may remain
after such sale, disposition, collection or liquidation of the Collateral.

 

Unless the Collateral is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, and notwithstanding any provision of
this Agreement to the contrary, Secured Party will send or otherwise make
available to Borrower, as agent for Grantors and each of them, reasonable
notice of the time and place of any public sale thereof or of the time on or
after which any private sale thereof is to be made.  The requirement of sending reasonable notice
conclusively shall be met if such notice is given to the Borrower in accordance
with the Credit Agreement at least ten (10) days before the date of
the sale.  Each Grantor other than
Borrower hereby irrevocably appoints Borrower as its agent for the purpose of
receiving notice of sale hereunder, and agrees that such Grantor conclusively
shall be deemed to have received notice of sale when notice of sale has been
received by Borrower.  Each Grantor expressly
waives any right to receive notice of any public or private sale of any
Collateral or other security for the Secured Obligations except as
expressly provided for in this paragraph.

 

With respect to any
Collateral, including the Pledged Collateral, consisting of securities,
partnership interests, joint venture interests, Investments or the like, and
whether or not any of such Collateral has been effectively registered under the
Securities Act of 1933, as amended, or other applicable Laws, Secured Party
may, in its sole and absolute discretion, upon the occurrence and during the
continuance of an Event of Default, sell all or any part of such Collateral at
private sale in such manner and under such circumstances as Secured Party may
deem necessary or advisable in order that the sale may be lawfully
conducted.  Without limiting the
foregoing, Secured Party may (i) approach and negotiate with a limited
number of potential purchasers, and (ii) restrict the prospective bidders
or purchasers to persons who will represent and agree that they are purchasing
such Collateral for their own account for investment and not with a view to the
distribution or resale thereof.  In the
event that any such Collateral is sold at private sale, Grantors agree that if
such Collateral is sold for a price which Secured Party in good faith believes
to be reasonable under the circumstances then existing, then (a) the sale
shall

 

21

 

be deemed to be
commercially reasonable in all respects, (b) Grantors shall not be
entitled to a credit against the Secured Obligations in an amount in excess of
the purchase price, and (c) Secured Party shall not incur any liability or
responsibility to Grantors in connection therewith, notwithstanding the
possibility that a substantially higher price might have been realized at a
public sale.  Grantors recognize that a
ready market may not exist for such Collateral if it is not regularly traded on
a recognized securities exchange, and that a sale by Secured Party of any such
Collateral for an amount substantially less than the fair market value of the
issuer’s assets minus liabilities may be commercially reasonable in view of the
difficulties that may be encountered in attempting to sell a large amount of
such Collateral or Collateral that is privately traded.

 

Upon the occurrence and
during the continuance of an Event of Default, Secured Party may use any of the
IP Collateral for the sale of goods, completion of work in process, or
rendering of services in connection with enforcing any security interest
granted to Secured Party by Grantors. 
Secured Party may grant such license or licenses relating to the IP
Collateral for such term or terms, on such conditions and in such manner, as
Secured Party shall, in its sole discretion, deem appropriate.  Such license or licenses may be general,
special, or otherwise, and may be granted on an exclusive or nonexclusive basis
throughout all or part of the United States of America, its territories and
possessions, and all foreign countries. 
In connection with any such license or any sale or other disposition of
the IP Collateral (or any part thereof), the applicable Grantors shall supply
to Secured Party, or Secured Party’s designee, such Grantors’ knowledge and
expertise relating to the manufacture and sale of the products and services
bearing the IP Collateral and Grantors’ customer lists and other records
relating to the IP Collateral and the distribution thereof.

 

Upon consummation of any
sale of Collateral hereunder, Secured Party shall have the right to assign,
transfer and deliver to the purchaser or purchasers thereof the Collateral so
sold.  Each such purchaser at any such
sale shall hold the Collateral so sold absolutely free from any claim or right
upon the part of any Grantor or any other Person, and each Grantor hereby
waives (to the extent permitted by applicable Laws) all rights of redemption,
stay and appraisal which it now has or may at any time in the future have under
any rule of Law or statute now existing or hereafter enacted.  If the sale of all or any part of the
Collateral is made on credit or for future delivery, Secured Party shall not be
required to apply any portion of the sale price to the Secured Obligations
until such amount actually is received by Secured Party, and any Collateral so
sold may be retained by Secured Party until the sale price is paid in full by
the purchaser or purchasers thereof. 
Secured Party shall not incur any liability in case any such purchaser
or purchasers shall fail to pay for the Collateral so sold, and, in case of any
such failure, the Collateral may be sold again.

 

Q.            Voting Rights; Dividends;
etc.  With respect to any Collateral consisting of securities,
partnership interests, joint venture interests, Investments or the like, including
any Pledged Collateral (referred to collectively and individually in this Section 13
and in Section 14 as the “Investment Collateral”), so long
as no Default or Event of Default occurs and remains continuing:

 

1.             Voting Rights.  Grantors
shall be entitled to exercise any and all voting and other consensual rights
pertaining to the Investment Collateral, or any part thereof, for any purpose
not inconsistent with the terms of this Agreement, the Credit Agreement, or the
other Loan Documents; provided, however, that Grantors shall not
exercise, or shall refrain from exercising, any such right if it would result
in a Default or an Event of Default.

 

2.             Interest Dividend and
Distribution Rights.  Except as otherwise provided in any
Loan Document, Grantors shall be entitled to receive and to retain and use any
and all interest and Distributions paid in respect of the Investment
Collateral; provided, however, that, any and all such interest and
Distributions received in the form of capital stock, or other equity interests,
certificated

 

22

 

securities, warrants,
options or rights to acquire any Equity Interests forthwith shall be, and the
certificates representing such Equity Interests, if any, forthwith shall be
delivered to Administrative Agent (on behalf of Secured Party) to hold as pledged
Collateral and shall, if received by any Grantor, be received in trust for the
benefit of Secured Party, and forthwith be delivered to Administrative Agent
(on behalf of Secured Party) as pledged Collateral in the same form as so
received (with any necessary endorsements in suitable form for transfer by
delivery or accompanied by executed and undated instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured Party).

 

R.            Rights During Event of
Default.  With respect to any Investment Collateral, at any time an
Event of Default has occurred and is continuing:

 

1.             Voting, Dividend, and
Distribution Rights.  At the option of Secured Party, all rights
of Grantors to exercise the voting and other consensual rights which they would
otherwise be entitled to exercise pursuant to Section 13.1 above,
and to receive the interest and Distributions which they would otherwise be
authorized to receive and retain pursuant to Section 13.2 above,
shall cease, and all such rights thereupon shall become vested in Secured Party
which thereupon shall have the sole right to exercise such voting and other
consensual rights and to receive and to hold as pledged Collateral such
interest and Distributions.

 

2.             Dividends and Distributions Held
in Trust.  All Distributions which are received by Grantors
contrary to the provisions of this Agreement shall be received in trust for the
benefit of Secured Party, shall be segregated from other funds of Grantors, and
forthwith shall be paid over to Administrative Agent (on behalf of Secured
Party) as pledged Collateral in the same form as so received (with any
necessary endorsements).

 

3.             Irrevocable Proxy.  Each
Grantor does hereby revoke all previous proxies with regard to the Investment
Collateral and appoints Administrative Agent for the benefit of Secured Party
as its proxyholder to attend and vote at any and all meetings of the
shareholders or other equity holders of the Persons that issued the Investment
Collateral and any adjournments thereof, held on or after the date of the
giving of this proxy and prior to the termination of this proxy, and to execute
any and all written consents of shareholders or other equity holders of such
Persons executed on or after the date of the giving of this proxy and prior to
the termination of this proxy, with the same effect as if such Grantor had
personally attended the meetings or had personally voted its shares or other
interests or had personally signed the written consents; provided,
however, that the proxyholder shall have rights hereunder only upon the
occurrence and during the continuance of a Default or Event of
Default.  Each Grantor hereby authorizes Administrative Agent to
substitute another Person as the proxyholder and, upon the occurrence and during
the continuance of any Default or Event of Default, hereby authorizes the
proxyholder to file this proxy and any substitution instrument with the
secretary or other appropriate official of the appropriate
Person.  This proxy is coupled with an interest and is irrevocable
until such time as no commitment to extend credit to Borrower remains
outstanding from the Lenders, until such times as all Secured Obligations have
been paid and performed in full, or until such time as all Events of Default
have been cured or waived in accordance with the Credit Agreement.

 

S.             Attorney-in-Fact.  Each
Grantor hereby irrevocably nominates and appoints Secured Party as its
attorney-in-fact for the following purposes: (a) to do all acts and things
which Secured Party may deem necessary or advisable to perfect and continue
perfected the security interests created by this Agreement and to preserve,
protect and maintain the Collateral, and, upon the occurrence and during the
continuance of an Event of Default, to process and develop the Collateral; (b) upon
the occurrence and during the continuance of an Event of Default, to do any and
every act which any Grantor is obligated to do under this Agreement, at the
expense of the Grantors and without any obligation to do so; (c) to
prepare, sign, file and/or record, for any Grantor, in the name of the
appropriate Grantor, any

 

23

 

financing statement,
application for registration, or like paper, and to take any other action
deemed by Secured Party necessary or desirable in order to perfect or maintain
perfected the security interests granted hereby; (d) to execute any and
all papers and instruments and do all other things necessary or desirable to
preserve and protect the Collateral and to protect Secured Party’s security
interests therein, and (e) upon the occurrence and during the continuance
of an Event of Default, to endorse and transfer the Pledged Collateral to any
transferee or designee; provided, however, that Secured Party shall be
under no obligation whatsoever to take any of the foregoing actions, and if
Secured Party so acts, it shall have no liability or responsibility for any
such action taken with respect thereto.  The foregoing power of
attorney is coupled with an interest and is irrevocable.

 

T.            Costs and Expenses.  Each Grantor agrees to pay
to Secured Party all actual, out-of-pocket costs and expenses (including,
without limitation, attorneys’ fees and disbursements) incurred by Secured
Party in the enforcement or attempted enforcement of this Agreement (including
in connection with any workout, restructuring, bankruptcy, insolvency or other
similar proceeding), whether or not an action is filed in connection therewith,
and in connection with any waiver, supplementation, extension, renewal or
amendment of any term or provision hereof.  All advances, charges,
costs and expenses, including attorneys’ fees and disbursements,
incurred or paid by Secured Party in exercising any right, privilege, power or
remedy conferred by this Agreement (including, without limitation, the
right to perform any Secured Obligation of any Grantor under the Loan
Documents), or in the enforcement or attempted enforcement thereof (including
in connection with any workout, restructuring, bankruptcy, insolvency or other
similar proceeding), shall be secured hereby and shall become a part of the
Secured Obligations and shall be paid to Secured Party by each Grantor,
immediately upon demand, together with interest thereon at the rate(s) provided
for under the Credit Agreement.

 

U.            Statute of Limitations and Other
Laws.  Until the Secured Obligations shall have been paid and
performed in full, the power of sale and all other rights, privileges, powers
and remedies granted to Secured Party hereunder shall continue to exist and may
be exercised by Secured Party at any time and from time to time irrespective of
the fact that any of the Secured Obligations may have become barred by any
statute of limitations.  Each Grantor expressly waives the benefit of
any and all statutes of limitation, and any and all Laws providing for
exemption of property from execution or for valuation and appraisal upon
foreclosure, to the maximum extent permitted by applicable Law.

 

V.            Other Agreements.  Nothing
herein shall in any way modify or limit the effect of terms or conditions set
forth in any other security or other agreement executed by any Grantor or in
connection with the Secured Obligations, but each and every term and condition
hereof shall be in addition thereto.  All provisions contained in the
Credit Agreement or any other Loan Document that apply to Loan Documents
generally are fully applicable to this Agreement and are incorporated herein by
this reference as though set forth herein in full.

 

W.           Waivers and Consents.  Each
Grantor acknowledges that the Liens created or granted herein will or may
secure Obligations of Persons other than such Grantor and,
in full recognition of that fact, each Grantor consents and agrees that Secured
Party may, at any time and from time to time, without notice or demand, and
without affecting the enforceability or security hereof:  (a) supplement,
modify, amend, extend, renew, accelerate or otherwise change the time for
payment or the terms of the Secured Obligations or any part thereof, including
any increase or decrease of the rate(s) of interest thereon; (b) supplement,
modify, amend or waive, or enter into or give any agreement, approval or
consent with respect to, the Secured Obligations or any part thereof, or any of
the Loan Documents or any additional security or guaranties, or any condition,
covenant, default, remedy, right, representation or term thereof or thereunder;
(c) accept new or additional instruments, documents or agreements in
exchange for or relative to any of the Loan Documents or the Secured
Obligations or any part thereof; (d) accept partial payments on the
Secured Obligations; (e) receive and hold additional security or
guaranties for the

 

24

 

Secured Obligations or
any part thereof; (f) release, reconvey, terminate, waive, abandon, fail
to perfect, subordinate, exchange, substitute, transfer and/or enforce any
security or guaranties, and apply any security and direct the order or manner
of sale thereof as Secured Party in its sole and absolute discretion may
determine; (g) release any Person from any personal liability with respect
to the Secured Obligations or any part thereof; (h) settle, release on
terms satisfactory to Secured Party or by operation of applicable Laws or otherwise
liquidate or enforce any Secured Obligations and any security or guaranty in
any manner, consent to the transfer of any security and bid and purchase at any
sale; and/or (i) consent to the merger, change or any other restructuring
or termination of the corporate or other existence of any Grantor or any other
Person, and correspondingly restructure the Secured Obligations, and any such
merger, change, restructuring or termination shall not affect the liability of
any Grantor or the continuing existence of any Lien hereunder, under any other
Loan Document to which any Grantor is a party or the enforceability hereof or
thereof with respect to all or any part of the Secured Obligations.  Without limiting the foregoing, each Grantor
waives any rights and defenses that are or may become available to such Grantor
by reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of the California
Civil Code, and successor provisions.

 

Upon the occurrence and
during the continuance of any Event of Default, Secured Party may enforce this
Agreement independently as to each Grantor and independently of any other
remedy or security Secured Party at any time may have or hold in connection
with the Secured Obligations, and it shall not be necessary for Secured Party
to marshal assets in favor of any Grantor or any other Person or to proceed
upon or against and/or exhaust any other security or remedy before proceeding
to enforce this Agreement.  Each Grantor
expressly waives any right to require Secured Party to marshal assets in favor
of any Grantor or any other Person or to proceed against any other Loan Party
or any Collateral provided by any other Loan Party, and agrees that Secured
Party may proceed against the Loan Parties and/or the Collateral in such order
as it shall determine in its sole and absolute discretion.  Secured Party may file a separate action or
actions against any Grantor, whether or not action is brought or prosecuted
with respect to any other security or against any other Grantor or any other
Person, or whether or not any other Person is joined in any such action or
actions.  Each Grantor agrees that
Secured Party and any other Loan Party and any Affiliate of any other Loan
Party may deal with each other in connection with the Secured Obligations or
otherwise, or alter any contracts or agreements now or hereafter existing
between any of them, in any manner whatsoever, all without in any way altering
or affecting the validity of, or the lien or security interest granted or
created by, this Agreement.  Secured
Party’s rights hereunder shall be reinstated and revived, and the
enforceability of this Agreement shall continue, with respect to any amount at
any time paid on account of the Secured Obligations which thereafter shall be
required to be restored or returned by Secured Party upon the bankruptcy,
insolvency or reorganization of any Loan Party or otherwise (and whether by
litigation, settlement, demand or otherwise), all as though such amount had not
been paid.  Each Grantor agrees that the
Liens created or granted herein and the enforceability of this Agreement at all
times shall remain effective to secure the full amount of all the Secured
Obligations even though the Secured Obligations, including any part
thereof or any other security or guaranty therefor, may be or hereafter may
become invalid or otherwise unenforceable as against any other Loan Party and
whether or not any other Loan Party shall have any personal liability with
respect thereto.  Each Grantor expressly
waives any and all defenses now or hereafter arising or asserted by reason of (a) any
disability or other defense of any other Loan Party with respect to the Secured
Obligations, (b) the unenforceability or invalidity of any security or
guaranty for the Secured Obligations or the lack of perfection or continuing
perfection or failure or subordination of priority of any security for the
Secured Obligations, (c) the cessation for any cause whatsoever of the
liability of any other Loan Party (other than by reason of
the full payment and performance of all Secured Obligations), (d) any
failure of Secured Party to marshal assets in favor of any Grantor or any other
Person, (e) except as otherwise provided in this Agreement, any
failure of Secured Party to give notice of sale or other disposition of
Collateral to any Grantor or any other Person or any defect in any notice that
may be given in connection with any sale or disposition of Collateral, (f) except
as otherwise provided in this

 

25

 

Agreement, any
failure of Secured Party to comply with applicable Laws in connection with the
sale or other disposition of any Collateral or other security for any Secured
Obligation, including, without limitation, any failure of Secured Party
to conduct a commercially reasonable sale or other disposition of any
Collateral or other security for any Secured Obligation, (g) any act
or omission of Secured Party or others that directly or indirectly results in
or aids the discharge or release of Borrower or any other Loan Party or the
Secured Obligations or any other security or guaranty therefor by operation of
Law or otherwise, (h) any Law which provides that the obligation of a
surety or guarantor must neither be larger in amount nor in other respects more
burdensome than that of the principal or which reduces a surety’s or guarantor’s
obligation in proportion to the principal obligation, (i) any failure of
Secured Party to file or enforce a claim in any bankruptcy or other proceeding
with respect to any Person, (j) the election by Secured Party, in any
bankruptcy proceeding of any Person, of the application or non-application of Section 1111(b)(2) of
the United States Bankruptcy Code, (k) any extension of credit or the
grant of any Lien under Section 364 of the United States Bankruptcy Code, (l) any
use of cash collateral under Section 363 of the United States Bankruptcy
Code, (m) any agreement or stipulation with respect to the provision of
adequate protection in any bankruptcy proceeding of any Person, (n) the
avoidance of any Lien in favor of Secured Party for any reason, (o) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against any Person, including
any discharge of, or bar or stay against collecting, all or any of the Secured
Obligations (or any interest thereon) in or as a result of any such proceeding,
(p) to the extent permitted, the benefits of any form of one-action rule under
any applicable Law, or (q) any action taken by Secured Party that is
authorized by this Section 19 or any other provision of any Loan
Document.  Each Grantor expressly waives
all setoffs and counterclaims and all presentments, demands for payment or
performance, notices of nonpayment or nonperformance, protests, notices of
protest, notices of dishonor and all other notices or demands of any kind or
nature whatsoever with respect to the Secured Obligations, and all notices of
acceptance of this Agreement or of the existence, creation or incurring of new
or additional Secured Obligations.

 

X.            Condition of Borrower and its
Subsidiaries and Other Loan Parties.  Each Grantor represents and
warrants to Secured Party that such Grantor has established adequate means of
obtaining from Borrower and its Subsidiaries on a continuing basis, financial
and other information pertaining to the businesses, operations and condition
(financial and otherwise) of Borrower and its Subsidiaries and their
properties, and such Grantor now is and hereafter will be completely familiar with
the businesses, operations and condition (financial and otherwise) of Borrower
and its Subsidiaries and their properties.  Each Grantor hereby
expressly waives and relinquishes any duty on the part of Secured Party (should
any such duty exist) to disclose to such Grantor any matter, fact or thing
related to the businesses, operations or condition (financial or otherwise) of
Borrower or its Subsidiaries or their properties, whether now known or
hereafter known by Secured Party.  With respect to any of the Secured
Obligations, Secured Party need not inquire into the powers of Borrower or any
of its Subsidiaries or the officers or employees acting or purporting to act on
their behalf, and all Secured Obligations made or created in good faith
reliance upon the professed exercise of such powers shall be secured hereby.

 

Y.            [Intentionally Omitted.]

 

Z.            Waiver of Rights of Subrogation,
Etc..  Notwithstanding anything to the contrary elsewhere contained
herein or in any other Loan Document to which any Grantor is a party, until
such time as the Obligations shall have been paid in full, the Commitments have
been terminated and no Letters of Credit shall be outstanding, each Grantor
hereby waives with respect to the other Loan Parties and their successors and
assigns (including any surety) and any other Person, any and all rights
at Law or in equity to subrogation, to reimbursement, to exoneration, to
indemnity, to contribution, to setoff or to any other rights that could accrue
to a surety against a principal, to a guarantor against a maker or obligor, to
an accommodation party against the party accommodated, or to a holder or
transferee against a maker

 

26

 

and which such Grantor
may have or hereafter acquire against any other Loan Party or any other Person
in connection with or as a result of such Grantor’s execution, delivery and/or
performance of this Agreement or any other Loan Document to which such Grantor
is a party.  Each Grantor agrees that it
shall not have or assert any such rights against any other Loan Party or its
successors and assigns or any other Person (including any surety) which
is directly or indirectly a creditor of any other Loan Party or any surety for
any other Loan Party, either directly or as an attempted setoff to any action
commenced against such Grantor by any other Loan Party (as borrower or in any
other capacity) or any other Person.  Each Grantor hereby
acknowledges and agrees that this waiver is intended to benefit the other Loan
Parties and Secured Party and shall not limit or otherwise affect such Grantor’s
liability hereunder, under any other Loan Document to which such Grantor is a
party, or the enforceability hereof or thereof.

 

AA.        Waiver of Discharge.  Without
limiting the generality of the foregoing, each Grantor hereby waives discharge
by waiving all defenses based on suretyship or impairment of collateral.

 

BB.          Understandings with Respect to Waivers
and Consents.  Each Grantor warrants and agrees that each of the
waivers and consents set forth herein is made after consultation with legal
counsel and with full knowledge of its significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which such Grantor
otherwise may have against any other Grantor, Secured Party or others, or
against Collateral, and that, under the circumstances, the waivers and consents
herein given are reasonable and not contrary to public policy or Law.  If
any of the waivers or consents herein are determined to be contrary to any
applicable Law or public policy, such waivers and consents shall be effective
to the maximum extent permitted by Law.

 

CC.          Continuing Effect.  This
Agreement shall remain in full force and effect and continue to be effective
should any petition be filed by or against any Grantor for liquidation or
reorganization, should any Grantor become insolvent or make an assignment for
the benefit of creditors or should a receiver or trustee be appointed for all
or any significant part of any Grantor’s assets, and shall continue to be
effective or be reinstated, as the case may be, if at any time payment and
performance of the Secured Obligations, or any part thereof, is, pursuant to
applicable Law, rescinded or reduced in amount, or must otherwise be restored
or returned by any Secured Party, whether as a “voidable preference,” “fraudulent
conveyance,” or otherwise (and whether by litigation, settlement, demand or
otherwise), all as though such payment or performance had not been
made.  In the event that any payment or any part thereof is
rescinded, reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.

 

DD.         Covenant Not to Dilute Interests of
Secured Party in Pledged Securities. 
Each Grantor represents, warrants and covenants to Secured Party that it
will not at any time cause or permit any Issuer to issue any additional Equity
Interests, or any warrants, options or other rights to acquire any additional
Equity Interests, if the effect thereof would be to dilute in any way the
interests of Secured Party in any Pledged Securities or in any Issuer.

 

EE.          Additional Grantors.  From
time to time following the Closing Date, additional Subsidiaries of Borrower
may become parties hereto, as additional Grantors, by executing and delivering
to the Administrative Agent an Instrument of Joinder substantially in the form
of Exhibit A hereto, accompanied by such documentation as
Administrative Agent may require in connection therewith, wherein such
additional Grantors agree to become a party hereto and to be bound
hereby.  Upon delivery of such Instrument of Joinder to and
acceptance thereof by the Administrative Agent, notice of which acceptance is
hereby waived by Grantors, each such additional Grantor shall be as fully a
party hereto as if such Grantor were an original signatory
hereof.  Each Grantor expressly agrees that its Obligations and the
Liens upon its property granted herein shall not be affected or diminished by
the addition or release of

 

27

 

additional Grantors
hereunder, nor by any election of Secured Party not to cause any Subsidiary of
Borrower to become an additional Grantor hereunder.  This Agreement
shall be fully effective as to any Grantor who is or becomes a party hereto
regardless of whether any other Person becomes or fails to become or ceases to
be a Grantor hereunder.

 

FF.          Counterparts.  This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original and all of which, taken together, shall constitute one and
the same agreement.

 

GG.          Additional Powers and
Authorization.  The Administrative Agent has been appointed as the
Administrative Agent hereunder pursuant to the Credit Agreement and shall be
entitled to the benefits of the Credit Agreement and the other Loan
Documents.  Notwithstanding anything contained herein to the contrary,
the Administrative Agent may employ agents, trustees, or attorneys-in-fact and
may vest any of them with any property (including, without limitation,
any Collateral pledged hereunder), title, right or power deemed necessary for
the purposes of such appointment.

 

HH.         GOVERNING LAW.  THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF CALIFORNIA.

 

II.            JURISDICTION; WAIVER OF RIGHT TO
TRIAL BY JURY AND JUDICIAL REFERENCE. 
Sections 10.13, 10.14 and 10.15 of the Credit Agreement are hereby
incorporated herein in full by this reference and, where applicable, references
to the Borrower or the Credit Agreement shall be deemed to refer to this
Agreement and the Grantors hereunder.

 

JJ.            OTHER RELATIONSHIPS.  Nothing contained in this Agreement shall be
construed as a waiver of any right or remedy which any Lender may have under
any present or future loan or other agreement with any Issuer or any subsidiary
or affiliate of any Issuer; and all such rights and remedies are hereby expressly
retained.

 

[THIS SPACE INTENTIONALLY LEFT BLANK -

 

SIGNATURE PAGE
TO FOLLOW]

 

28

 

IN WITNESS WHEREOF, each
Grantor has executed this Agreement by its duly authorized officer as of the
date first written above.

 

	
   

  	
  “Grantors”

  
	
   

  	
   

  
	
   

  	
  SOUTHWEST
  WATER COMPANY,

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: 

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SWWC
  SERVICES, INC.,

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ECO
  RESOURCES, INC.,

  
	
   

  	
  a
  Texas corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OPERATIONS
  TECHNOLOGIES, INC.,

  
	
   

  	
  a
  Georgia corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SWWC
  ENTERPRISES, INC.,

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SWWC
  UTILITIES, INC.,

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  METRO-H2O,
  LTD.,

  
	
   

  	
  a
  Texas limited partnership

  

 

S-1

 

	
   

  	
   

  	
  By:
  

  	
  METRO-H2O
  UTILITIES, INC.

  
	
   

  	
   

  	
  Its:

  	
  General
  Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  METRO-H2O
  UTILITIES, INC.,

  
	
   

  	
  a
  Texas corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CDC
  MAINTENANCE, INC.,

  
	
   

  	
  a
  Texas corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NEW
  MEXICO UTILITIES, INC.,

  
	
   

  	
  a
  New Mexico corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

S-2

 

ACCEPTED AND AGREED

AS OF THE DATE FIRST

ABOVE WRITTEN:

 

“Secured Party”

 

BANK OF AMERICA, N.A.,

as Administrative Agent

 

 

	
  By:

  	
   

  	
   

  
	
  Name: 

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

S-3

 

EXHIBIT A

 

TO

 

SECURITY AGREEMENT

 

INSTRUMENT OF JOINDER

 

THIS INSTRUMENT OF JOINDER (“Joinder”) is
executed as of
                                  ,
          , by
                                                            ,
a
                                                      
(“Joining Party”), and delivered to Bank of America, N.A., as
Administrative Agent, pursuant to the Security Agreement dated as of May 28,
2009 made by the Persons listed on the signature pages thereof and all
other Grantors who later become a party thereto, in favor of the Secured Party
described therein (as amended, extended, renewed, supplemented or otherwise
modified, the “Security Agreement”). 
Terms used but not defined in this Joinder shall have the meanings
defined for those terms in the Security Agreement.

 

RECITALS

 

A.            The
Security Agreement was made by the Grantors in favor of the Secured Party
described therein in connection with that certain Amended and Restated Credit
Agreement (as amended, restated, extended, supplemented or otherwise modified
from time to time, the “Credit Agreement”), dated as of February 15,
2008, by and among SouthWest Water Company, a Delaware corporation (“Borrower”),
each lender from time to time party thereto (each a “Lender” and
collectively the “Lenders”), and Bank of America, N.A., as
Administrative Agent.

 

B.            Pursuant
to Section 6.13 of the Credit Agreement, Joining Party is required
to become a Grantor under the terms and conditions of the Security Agreement.

 

C.            Joining
Party expects to realize direct and indirect benefits as a result of the
availability to Borrower of the credit facilities under the Credit Agreement.

 

NOW THEREFORE, Joining Party agrees as follows:

 

AGREEMENT

 

(1)           By
this Joinder, Joining Party becomes a “Grantor” under and pursuant to Section 27
of the Security Agreement.  Joining Party
agrees that, upon its execution hereof, it will become a Grantor under the
Security Agreement with respect to all Secured Obligations as further set forth
therein, and will be bound by all terms, conditions, and duties applicable to a
Grantor under the Security Agreement.

 

(2)           Concurrently
with the execution hereof, Joining Party shall cause to be pledged and
delivered to Secured Party the Certificates evidencing the Equity Interests of the
Subsidiaries listed on Schedule 1 hereto, or as otherwise required
under the Security Agreement.  All
Certificates delivered to Secured Party shall be in suitable form for transfer
by delivery, or shall be accompanied by duly executed instruments of transfer
or assignment in blank, all in form and substance satisfactory to Secured
Party.  All Certificates delivered
pursuant to this Joinder shall be considered “Pledged Securities” as defined in
the Security Agreement.

 

(3)           The
effective date of this Joinder is
                  ,
            .

 

“Joining Party”

 

 

A-1

 

	
   

  	
  a

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [Printed Name
  and Title]

  

 

 

ACKNOWLEDGED:

 

BANK OF AMERICA, N.A.,

as Administrative Agent

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  [Printed Name and Title]

  	
   

  	
   

  
				

 

A-2

 

SCHEDULE 1 TO 

INSTRUMENT OF JOINDER

 

Pledged Securities

 

	
  Name of Issuer

  	
   

  	
  Certificate

  Number

  	
   

  	
  Number of

  Shares

  	
   

  	
  Percentage of Total Equity

  Interests

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

SCHEDULE 1

TO

SECURITY AGREEMENT

 

Existing and Pending Trademarks

 

The following existing
and pending trademarks are owned by SouthWest Water Company.

 

	
  COUNTRY

  	
   

  	
  SERIAL /

  REGISTRATION

  NO.

  	
   

  	
  FILING /

  REGISTRATION

  DATE

  	
   

  	
  MARK

  	
   

  
	
  USA

  	
   

  	
  77467330

  	
   

  	
  3601426

  	
   

  	
  SouthWest Water Company

  	
   

  
	
  USA

  	
   

  	
  77355034

  	
   

  	
  3476053

  	
   

  	
  SouthWest Water Company

  	
   

  

 

 

SCHEDULE 2

TO

SECURITY AGREEMENT

 

Existing and Pending Patents

 

None.

 

 

SCHEDULE
3

TO

SECURITY AGREEMENT

 

Existing
and Pending Copyrights

 

None.

 

 

SCHEDULE
4

TO

SECURITY AGREEMENT

 

Equity
Interests

 

	
  NAME OF ISSUER

  	
   

  	
  NAME OF OWNER

  	
   

  	
  % TOTAL EQUITY INTERESTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SWWC
  ENTERPRISES, INC.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SWWC UTILITIES,
  INC.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MONARCH
  UTILITIES, INC.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NEW MEXICO
  UTILITIES, INC.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CDC MAINTENANCE,
  INC.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OPERATIONS
  TECHNOLOGIES, INC.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ECO RESOURCES,
  INC.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SWWC SERVICES,
  INC.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  METRO-H2O
  UTILITIES, INC.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  METRO-H2O, LTD.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  99

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NEW MEXICO
  UTILITIES, INC.

  	
   

  	
  SOUTHWEST WATER COMPANY

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  METRO-H2O, LTD.

  	
   

  	
  METRO-H2O UTILITIES, INC.

  	
   

  	
  1

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NORTH COUNTY WATER RECLAMATION, INC.

  	
   

  	
  SWWC ENTERPRISES, INC.

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SOUTHWEST WATER ALABAMA ONSITE SYSTEM SERVICES, LLC

  	
   

  	
  SWWC UTILITIES, INC.

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ECO CAPISTRANO
  VALLEY, INC.

  	
   

  	
  ECO RESOURCES, INC.

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SOUTHWEST ENVIRONMENTAL LABORATORIES, INC.

  	
   

  	
  ECO RESOURCES, INC.

  	
   

  	
  100

  	
  %

  

 

 

Schedule
A to Amendment

 

LIST
OF ONE-TIME CHARGES

 

[See
Attached]

 

 

Schedule B to Amendment

 

SUBSIDIARIES

 

[See Attached]

 

 

Schedule 5.03 to Amendment

 

RESTRICTIONS ON GUARANTIES

 

Suburban Water Systems

 

Monarch Utilities, Inc.

 

 

Schedule 5.06 to Amendment

 

SCHEDULE OF LITIGATION

 

NEW
MEXICO UTILITIES, INC.

 

On January 29,
2009, New Mexico Utilities, Inc., (“NMUI) and the Albuquerque Bernalillo
County Water Utility Authority (“ABCWUA”) entered into a Settlement,
Arbitration Award, and Acquisition Agreement (the “Agreement”) to resolve all
outstanding claims, demands and existing lawsuits between them. Under the
Agreement, the ABCWUA acquired certain of the assets of NMUI necessary for the
ABCWUA to own, operate and maintain the water and wastewater system of NMUI in
settlement of condemnation. The Agreement closed on May 11, 2009 (the “Closing”).  In consideration of the assets acquired, the
ABCWUA agreed to pay to NMUI at the Closing as full, final and complete
consideration the sum of: (i) $60 million; (ii) an amount equal to
the NMUI accounts receivable at the date of Closing; and (iii) an amount
equal to the unbilled services at the date of Closing.

 

NMUI also received the
right to receive an amount equal to 7/8th of the total Rate Rider Escrow Funds
deposited from the period from November 27, 2007 through January 12,
2009. The remaining Rate Rider Escrow Funds deposited through January 12,
2009 shall be released to NMUI for transfer to the ABCWUA to fund customer bill
credits or refunds.  NMUI also received
reimbursement from the Rate Rider Escrow Funds for amounts paid to the ABCWUA
for the period January 13, 2009 through the date of Closing.

 

In addition, the
settlement resolves all other legal issues between NMUI and ABCWUA including
the dispute over the sewer fee the ABCWUA charged NMUI for the treatment of
wastewater and the ownership of the return flow credits from that treated
wastewater, as well as all other disputed amounts of the ABCWUA. As part of the
settlement, NMUI paid $7 million to the ABCWUA at the time of closing to
resolve the sewer fee issue.

 

Substantially all of
the utility plant assets of NMUI are pledged as collateral of a $12 million
first mortgage bond with an original maturity of 2024.  These security interests were released at
Closing.  Accordingly, the Company
effectively paid to retire the related bond. 
The Company used the remaining cash proceeds to pay any unassumed
liabilities of NMUI and pay down the Company’s $150 million credit facility.

 

CLASS ACTION LITIGATION

 

Perrin v. SouthWest Water
Company, et al.,
Case No. CV 08-07844 (Central District of California) and related,
consolidated cases:  On November 26,
2008, an alleged purchaser of the Company’s stock filed an alleged securities
class action lawsuit in the United States District Court for the Central
District of California.  The complaint
generally alleges that from May 10, 2005 through November 9, 2008,
the Company made false statements or omitted to state facts necessary to make
the Company’s disclosures not misleading. 
Five additional and substantially similar cases were filed in the same
court.  On January 26, 2009, motions
for consolidation and for the appointment of lead plaintiff and lead counsel
were filed by the plaintiffs.  On February 12,
2009, the court granted the motion for consolidation and for the appointment of
lead plaintiff and lead counsel. 
Pursuant to stipulation, the lead plaintiff has up to and including the
later of 60 days after the appointment of lead plaintiff or the filing of
a restatement to file a consolidated complaint. 
The Company will have 60 days to answer or move to dismiss the
consolidated complaint.

 

 

DERIVATIVE
LITIGATION

 

Sherman v. Christie, et al., Case No. BC404946 (Los Angeles
County Superior Court) and related cases): 
On January 2, 2009, an alleged shareholder of the Company filed an
alleged shareholder derivative case on behalf of the Company, alleging breach
of fiduciary duty arising from the Company’s announcement of its intent to
restate its financial statements against certain of its present and former
members of the Company’s Board of Directors. 
Two additional, substantially similar cases were filed.  Stipulations were entered extending the time
to respond to the complaints.  On April 23,
2009, the court found that the three derivative suits were “complex” and
related and transferred the cases to a single judge for all purposes and
ordered an initial status conference for June 23, 2009.  On April 30, 2009, the parties submitted
a stipulation for court approval that would consolidate the cases, appoint a
lead plaintiffs’ counsel, give plaintiffs 60 days from the order consolidating
the cases to file a consolidated complaint and give the Company and the other
defendants 60 days to respond to the consolidated complaint.

 

 

Schedule 5.09 to Amendment

 

SCHEDULE OF ENVIRONMENTAL MATTERS

 

SWEL

 

On May 18, 2005,
the Environmental Protection Agency (“EPA”) executed a search warrant at the
Company’s Texas-based testing laboratory and on July 20, 2006 the
laboratory received a subpoena to provide additional records and information to
a grand jury. We have cooperated fully with the EPA’s investigation and have
provided the records requested. The Company remains in close cooperation and
coordination with EPA’s counsel in an attempt to resolve the matter favorably.
In April 2009, the Company submitted to the EPA its formal request that
the EPA not pursue criminal sanctions against the Company.

 

State
Water Resources Control Board

 

The Company received a
letter dated January 28, 2008 from the California State Water Resources
Control Board Office of Enforcement (the “Board”). The letter indicates that
the Board has conducted an investigation of the operations of a subsidiary of
the Company with respect to various California wastewater treatment facilities
which are operated, but not owned, by the subsidiary. The Board alleges that
the subsidiary has violated certain provisions of the California Water Code and
may be subject to civil administrative liability in excess of $15.0 million,
and possible administrative action against the subsidiary’s status as a
contract operator in California Since receipt of the letter, the Company has
conducted an internal investigation and worked in cooperation with the Board to
resolve the matter favorably. The Board has made an offer of settlement,
assuming that the Company implements an acceptable compliance program that
would entail the Company paying fines and penalties in the sum of $1.25
million. The Company is still in discussions with the Board to negotiate that
offer further.Exhibit 10.17.3

 

AMENDMENT NO. 3 

TO AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS
AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is
entered into as of June 17, 2009, between SouthWest Water Company, a
Delaware corporation (“Borrower”), and Bank of America, N.A., as Administrative
Agent, with reference to the Amended and Restated Credit Agreement dated as of February 15,
2008 (as amended, the “Credit Agreement”), among Borrower, the Lenders
described therein, and the Administrative Agent. Capitalized terms not
otherwise defined herein are used with the meanings set forth for those terms
in the Credit Agreement.

 

The
parties hereto enter into this Amendment with reference to the following facts:

 

A.                                   The Borrower (i) has
failed to deliver the required financial statements with respect to the fiscal
year ended December 31, 2008, on or prior to the June 10, 2009
deadline set forth in Amendment No. 2 to Amended and Restated Credit
Agreement dated as of May 28, 2009 (“Amendment No. 2”), between the
Borrower and the Administrative Agent (with the consent of the Required
Lenders), and (ii) has informed the Administrative Agent and the Lenders
that it will not be able to deliver the required financial statements with
respect to the fiscal quarters ended September 30, 2008 and March 31,
2009, on or prior to the July 13, 2009 deadline set forth in Amendment No. 2
(collectively the “Existing and Anticipated Defaults”).

 

B.                                     Borrower has
requested that the Lenders (i) waive the Existing and Anticipated
Defaults, (ii) extend the time by which the required financial statements
with respect to the fiscal year ended December 31, 2008 must be delivered
to July 1, 2009, and (iii) extend the time by which the required
financial statements with respect to the fiscal quarters ended September 30,
2008 and March 31, 2009 must be delivered to August 3, 2009.

 

C.                                     The
Administrative Agent, acting with the consent of the Required Lenders pursuant
to Section 10.01 of the Credit Agreement, has agreed to waive the Existing
and Anticipated Defaults and to otherwise amend the Credit Agreement and the
other Loan Documents on the terms set forth in this Amendment.

 

NOW,
THEREFORE, Borrower and Administrative Agent, acting with the consent of the
Required Lenders pursuant to Section 10.01 of the Credit Agreement, agree
as follows:

 

1.                                       Representations
and Warranties. Borrower represents and warrants to Administrative
Agent and the Lenders that:

 

(a)           after giving effect to this Amendment, no Default or Event
of Default has occurred and remains continuing;

 

(b)           after giving effect to this Amendment, except for
representations or warranties which are inaccurate as a direct result of the
correction and restatement of the Subject Financial Statements, and except as
set forth in the Schedules to the Credit Agreement, each of the representations
and warranties set forth in Article V of the Credit Agreement are true and
correct as of the date of this Agreement (other than those representations
which relate solely to a prior date, each of which was true as of that date) provided that Schedules
5.06 and 5.09 are updated in the manner attached to Amendment No. 2; and

 

1

 

(c)           neither Borrower nor any of its Subsidiaries is in default
of any indenture, loan or credit or similar agreement governing Indebtedness in
a principal amount which exceeds $1,000,000 in any manner which entitles the
holder of such Indebtedness, or which would entitle the holder of such
Indebtedness with the giving of any notice, the passage of time (including any cure
period), or both, to require the payment of any such Indebtedness prior to the
date upon which such Indebtedness would otherwise be due and payable.

 

2.                                       Waiver. In reliance
upon the agreements, representations and warranties set forth in this
Amendment, the Lenders hereby waive the Existing and Anticipated Defaults. The
Lenders’ waiver of the Existing and Anticipated Defaults constitutes a one-time
waiver of the specific Existing and Anticipated Defaults described in this
Amendment, shall not constitute a waiver of any other or future Defaults or
Events of Default, whether or not similar to the Existing and Anticipated
Defaults, and shall not be construed as a waiver of the Borrower’s obligation
to deliver the financial statements described in Section 3 of this
Amendment when due thereunder.

 

3.                                       Covenant
Regarding Financial Statements.

 

(a)           Notwithstanding any provision to the contrary in the
Credit Agreement, the Borrower shall have until July 1, 2009, to deliver
the financial statements and Compliance Certificate required under Sections
6.01(a) and 6.02(a) of the Credit Agreement, respectively, with
respect to the fiscal year ended December 31, 2008, and such financial
statements shall not be materially different than the drafts of such financial
statements delivered pursuant to Section 26(j) of Amendment No. 2.

 

(b)           Notwithstanding any provision to the contrary in the
Credit Agreement, Borrower shall have until August 3, 2009, to deliver the
financial statements and Compliance Certificates required under Sections 6.01(b) and
6.02(a) of the Credit Agreement, respectively, with respect to each of the
fiscal quarters ended September 30, 2008, and March 31, 2009.

 

The
Borrower acknowledges and agrees that (i) each failure by the Borrower to
comply with any covenant set forth in this Section 3, and (ii) each
delivery by the Borrower of financial statements or compliance certificates
pursuant to this Section 3 that contradict the representations and
warranties made by the Borrower in this Amendment or in Amendment No. 2,
shall in each case constitute an immediate Event of Default under the Credit
Agreement with respect to which the Administrative Agent and the Lenders shall
have all rights and remedies set forth therein and at law.

 

4.                                       Conditions to
Effectiveness. The effectiveness of this Amendment shall be subject
to the prior satisfaction of the following conditions precedent, in each case
in form and substance satisfactory to the Administrative Agent:

 

(a)           the Administrative Agent shall have received a consent of
the Guarantors in the form of Exhibit A hereto executed by each of the
parties thereto;

 

(b)           the Administrative Agent shall have received written
consent of the Required Lenders as required under Section 10.01 of the
Credit Agreement in the form of Exhibit B hereto;

 

(c)           the Administrative Agent shall have received, for the
account of each Lender which has executed a consent hereto prior to 3:00 p.m.
(Los Angeles time) on June 16,

 

2

 

2009
(or any extension of such deadline announced via the Intralinks system), an
amendment fee in an amount equal to 0.05% of such Lender’s Commitment under the
Credit Agreement.

 

5.                                       Effectiveness
of the Credit Agreement. Except as hereby expressly amended, the
Credit Agreement remains in full force and effect, and is hereby ratified and
confirmed in all respects.

 

6.                                       Counterparts. This
Amendment may be executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.

 

[Signature Page Follows]

 

3

 

IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be duly executed and delivered as
of the date first written above.

 

	
   

  	
  SOUTHWEST WATER COMPANY, a Delaware corporation,

  as Borrower

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark A. Swatek

  
	
   

  	
  Name:

  	
  Mark A. Swatek

  
	
   

  	
  Title:

  	
  CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A., 

  as Administrative Agent

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ken Puro

  
	
   

  	
  Name:

  	
  Ken Puro

  
	
   

  	
  Title:

  	
  Vice President

  

 

Signature Page

 

 

Exhibit
A to Amendment

 

CONSENT OF GUARANTORS

 

This
Consent of Guarantors (this “Consent of Guarantors”) is delivered with
reference to (a) the Amended and Restated Credit Agreement dated as of February 15,
2008 (as heretofore amended, restated, extended, supplemented, or otherwise
modified, the “Credit Agreement”), among SouthWest Water Company, a Delaware
corporation (“Borrower”), the lenders from time to time party thereto
(collectively, the “Lenders”), and Bank of America, N.A., as Administrative
Agent (“Administrative Agent”) and (b) the Amended and Restated Continuing
Guaranty dated as of February 15, 2008, made by each of the undersigned
Guarantors (as heretofore amended, restated, extended, supplemented, or
otherwise modified, the “Guaranty”). Capitalized terms not otherwise defined
herein are used with the meanings set forth for those terms in the Credit
Agreement.

 

Each
of the undersigned Guarantors (i) consents to and approves Borrower’s
execution and delivery of the attached Amendment No. 3 to Amended and
Restated Credit Agreement (the “Amendment”), (ii) agrees that such
Amendment does not and shall not limit or diminish in any manner the
obligations of such Guarantor under the Guaranty and that such obligations
would not be limited or diminished in any manner even if such Guarantor had not
executed this Consent of Guarantors, (iii) reaffirms the Guaranty, and (iv) agrees
that the Guaranty remains in full force and effect and is hereby ratified and
confirmed.

 

Dated as of June 17, 2009.

 

	
   

  	
  ECO RESOURCES, INC., 

  a Texas corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

	
   

  	
  OPERATIONS
  TECHNOLOGIES, INC., 

  a Georgia corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

	
   

  	
  SWWC
  SERVICES, INC., 

  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
   

  	
  METRO-H20,
  LTD.,

  	 

	
   

  	
  a
  Texas limited partnership

  	 

	
   

  	
   

  
	
   

  	
  By:
  Metro-H20 Utilities, Inc.

  
	
   

  	
  Its:
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

 

	
   

  	
  METRO-H20
  UTILITIES, INC., 

  a Texas corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
   

  	
  SWWC
  ENTERPRISES, INC., 

  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

	
   

  	
  SWWC
  UTILITIES, INC., 

  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
   

  	
  CDC
  MAINTENANCE, INC., 

  a Texas corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
   

  	
  NEW
  MEXICO UTILITIES, INC., 

  a New Mexico corporation,

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

Exhibit
B to Amendment

 

CONSENT OF LENDER

 

Reference is hereby made
to the Amended and Restated Credit Agreement dated as of February 15, 2008
(as heretofore amended, restated, extended, supplemented, or otherwise
modified, the “Credit Agreement”), among SouthWest Water Company, a Delaware
corporation (“Borrower”), the lenders from time to time party thereto
(collectively, the “Lenders”), and Bank of America, N.A., as Administrative
Agent (“Administrative Agent”). Capitalized terms not otherwise defined herein
are used with the meanings set forth for those terms in the Credit Agreement.

 

The undersigned Lender
hereby consents to the execution and delivery of an Amendment No. 3 to
Amended and Restated Credit Agreement by Administrative Agent on its behalf, substantially
in the form of the most recent draft thereof presented to the undersigned
Lender.

 

Dated as of June 11,
2009.

 

	
   

  	
   

  
	
   

  	
  [Name
  of Lender]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00160-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00160-of-00352.parquet"}]]