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                                                                     EXHIBIT 4.1

                             WESTERN WATER COMPANY

                          CERTIFICATE OF DESIGNATIONS

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                             Pursuant to Section 151
             of the General Corporation Law of the State of Delaware

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        Western Water Company (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware does hereby
certify that pursuant to the provisions Section 151 of the General Corporation
Law of the State of Delaware, its Board of Directors, by unanimous written
consent adopted the following resolution, which resolution remains in full force
and effect as of the date hereof:

        WHEREAS, the Board of Directors of the Corporation (the "Board of
Directors") is authorized, within the limitations and restrictions stated in the
Corporation's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), to fix by resolution or resolutions the designation, powers,
preferences, voting rights and other rights of each series of preferred stock,
and the qualifications, limitations or restrictions thereof, and such other
subjects or matters as may be fixed by resolution or resolutions of the Board of
Directors under the General Corporation Law of Delaware;

        WHEREAS, the Corporation has previously designated a series of preferred
stock called Series C Convertible Redeemable Preferred Stock ("Series C
Preferred Stock") and authorized 15,000 shares of such Series C Preferred Stock;

        WHEREAS, the Corporation has previously designated a series of preferred
stock called Series D Convertible Redeemable Preferred Stock ("Series D
Preferred Stock") and authorized 25,000 shares of such Series D Preferred Stock;

        WHEREAS, the Corporation has previously designated a series of preferred
stock called Series E Junior Participating Preferred Stock ("Series E Preferred
Stock") and authorized 20,000 shares of such Series E Preferred Stock;

        WHEREAS, the holders of the Series D Convertible Redeemable Preferred
Stock have approved the terms and issuance of the new Series F Convertible
Redeemable Preferred Stock designated hereby;

        WHEREAS, no shares of Series E Preferred Stock have been issued, and
other than shares of the Series C Preferred Stock and Series D Preferred Stock,
there are no other shares of any series of preferred stock currently
outstanding; and

        WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a new series of
preferred stock and the number of shares constituting such series:

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        NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such
series of preferred stock on the terms and with the provisions herein set forth:

        1. DESIGNATION OF SERIES. The designation of such series of preferred
stock is Series F Convertible Redeemable Preferred Stock ("Series F Preferred
Stock"). The number of shares constituting such series is 6,000, with a value of
$1,000 per share for the purpose of calculating dividends and amounts payable
upon liquidation, dissolution or winding up ("stated value"). Shares of Series F
Preferred Stock redeemed or purchased by the Corporation shall be canceled and
shall revert to authorized but unissued shares of preferred stock undesignated
as to series.

        2. RANK. The Series F Preferred Stock shall, with respect to payment of
dividends, redemption payments (other than with respect to redemption of the
Series C Preferred Stock) and rights upon liquidation, dissolution or winding up
of the affairs of the Corporation, rank (A) senior and prior to the Common
Stock, par value $.001 per share (the "Common Stock"), (B) senior and prior to
the Series E Preferred Stock, and (C) pari passu with the shares of the Series C
Preferred Stock and Series D Preferred Stock and any shares of capital stock
issued in exchange for Series C Preferred Stock or Series D Preferred Stock.
Except as set forth in the immediately prior sentence, the Corporation may issue
additional series of capital stock that rank senior to, junior to, or pari passu
with the shares of the Series F Preferred Stock with respect to the payment of
dividends, redemption payments and/or rights upon liquidation, dissolution or
winding up of the affairs of the Corporation without the consent of the holders
of the Series F Preferred Stock. Any shares of the Corporation's capital stock
that are junior to the shares of the Series F Preferred Stock with respect to
the payment of dividends are hereinafter referred to as "Junior Dividend Shares"
and any shares which are junior to the shares of the Series F Preferred Stock
with respect to redemption, payment and rights upon liquidation, dissolution or
winding up of the affairs of the Corporation are hereinafter referred to as
"Junior Liquidation Shares;" the shares of the Series C Preferred Stock, the
Series D Preferred Stock and any other shares of capital stock that the
Corporation may hereafter issue which are pari passu with the shares of the
Series F Preferred Stock with respect to the payment of dividends are
hereinafter referred to as "Parity Dividend Shares," and the shares of Series C
Preferred Stock, the Series D Preferred Stock and any additional shares that the
Corporation may hereafter issue which are pari passu with the shares of the
Series F Preferred Stock with respect to redemption, payment and rights upon
liquidation, dissolution or winding up of the affairs of the Corporation are
hereinafter referred to as "Parity Liquidation Shares;" and any shares of the
Corporation's capital stock that the Corporation may hereafter issue which are
senior to the shares of the Series F Preferred Stock with respect to the payment
of dividends are hereinafter referred to as "Senior Dividend Shares" and any
shares which are senior to the shares of the Series F Preferred Stock with
respect to redemption, payment and rights upon liquidation, dissolution or
winding up of the affairs of the Corporation are hereinafter referred to as
"Senior Liquidation Shares."

        3.     DIVIDENDS.

               a. The holders of the outstanding shares of Series F Preferred
Stock shall be entitled to receive cumulative dividends at a rate of 6.00% per
annum of the stated value of the Series F Preferred Stock. Dividends on shares
of the Series F Preferred Stock shall be fully cumulative, accruing from the
date of the issuance of the shares of Series F Preferred Stock

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through the date of redemption or conversion thereof, and shall be paid
semi-annually in arrears, out of funds legally available for the payment of
dividends, on January 15 and July 15 of each year, commencing July 15, 2001,
except that if such date is not a business day then the dividend shall be
payable on the first immediately succeeding business day (as used herein, the
term "business day" shall mean any day except a Saturday, Sunday or day on which
banking institutions are legally authorized to close in San Francisco,
California) (each such period being hereinafter referred to as a "Semi-annual
Dividend Period"). Except as set forth below, dividend payments made with
respect to the Series F Preferred Stock may be made, subject to the terms
hereof, in cash or, at the option of and in the sole discretion of the Board of
Directors, in full or in part, by issuing fully paid and nonassessable shares of
Series F Preferred Stock such that the stated value of such shares of Series F
Preferred Stock plus the amount of cash dividend paid in part, if any, is equal
to the amount of the cash dividend which would otherwise be paid on such
dividend payment date if such dividend were paid entirely in cash. Each dividend
shall be paid to the holders of record of shares of the Series F Preferred Stock
as they appear on the stock register of the Corporation on the record date, not
less than 10 nor more than 60 days preceding the payment date thereof, as shall
be fixed by the Board of Directors. Dividends payable for each Semi-annual
Dividend Period shall be computed on the basis of a 360-day year of twelve
30-day months. Dividends on account of arrearages for any past Semi-annual
Dividend Period may be declared and paid at any time, without reference to any
regular dividend payment date, to holders of record on such date, not exceeding
45 days preceding the payment date thereof, as may be fixed by the Board of
Directors of the Corporation. Dividends shall accrue and be paid regardless of
whether the Corporation has earnings, whether there are funds legally available
therefor and whether declared. Holders of shares of the Series F Preferred Stock
called for redemption between the close of business on a dividend payment record
date and the close of business on the corresponding dividend payment date shall,
in lieu of receiving such dividend on the dividend payment date fixed therefor,
receive such dividend payment, in cash, on the date fixed for redemption
together with the cash payment for all other accrued and unpaid dividends to the
date fixed for redemption. The holders of shares of the Series F Preferred Stock
shall not be entitled to any dividends other than the dividends provided for in
this Paragraph 3.

               b. No dividends, except as described in the next succeeding
sentence, shall be declared or paid or set apart for payment on any Parity
Dividend Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and set aside for payment
for all accrued dividends with respect to the Series F Preferred Stock through
the most recent semi-annual dividend period ending on or prior to the date of
payment. Unless dividends accrued and payable but unpaid on shares of the Series
F Preferred Stock and any Parity Dividend Shares at the time outstanding have
been paid in fall, all dividends declared by the Corporation upon shares of the
Series F Preferred Stock or Parity Dividend Shares shall be declared and paid
pro rata with respect to all such shares, so that the amounts of any dividends
declared on shares of the Series F Preferred Stock and the Parity Dividend
Shares shall in all cases bear to each other the same ratio that, at the time of
the declaration, all accrued but unpaid dividends on shares of the Series F
Preferred Stock and the other Parity Dividend Shares, respectively, bear to each
other.

               c. If at any time the Corporation has failed to pay or set apart
for payment all accrued dividends on any shares of the Series F Preferred Stock
through the then most recent

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semi-annual dividend period, the Corporation shall not, and shall not permit any
corporation or any other entity directly or indirectly controlled by the
Corporation to:

                      (i) declare or pay or set aside for payment any dividend
or other distribution on or with respect to the Junior Dividend Shares, whether
in cash, securities, obligations or otherwise (other than dividends or
distributions paid in shares of Junior Stock, or options, warrants or rights to
subscribe for or purchase shares of Junior Stock); or

                      (ii) redeem, purchase or otherwise acquire, or pay into,
set apart money or make available for a sinking or other analogous fund for the
redemption, purchase or other acquisition of, any shares of Parity Dividend
Shares, Parity Liquidation Shares or Shares of Junior Stock for any
consideration (except by conversion into or exchange for Junior Stock), unless,
in each such case, all dividends accrued on shares of the Series F Preferred
Stock through the most recent semi-annual dividend period and on any Parity
Dividend Shares have been or contemporaneously are declared and paid in full.

               d. Any reference to "distribution" contained in this Paragraph 3
shall not be deemed to include any distribution made in connection with any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.

        4.     LIQUIDATION.

               a. The liquidation value per share of shares of the Series F
Preferred Stock, in case of the voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Corporation, shall be $1,000 per
share, plus an amount equal to the dividends accrued and unpaid thereon, whether
or not declared, to the payment date (such aggregate amount being hereinafter
referred to as the "Liquidation Preference"). For purposes of using the
definition of Liquidation Preference in connection with any redemption of shares
of Series F Preferred Stock, the date of redemption shall be substituted for the
payment date referred to in the preceding sentence.

               b. In the event of any voluntary or involuntary liquidation,
Deemed Liquidation (as defined in subparagraph 4c. below), dissolution or
winding-up of the Corporation, the holders of shares of the Series F Preferred
Stock (i) shall not be entitled to receive the liquidation value of the shares
held by them until the liquidation value of all Senior Liquidation Shares shall
have been paid in full and (ii) shall be entitled to receive out of the assets
of the Corporation, whether such assets are capital or surplus of any nature, an
amount per share equal to the Liquidation Preference of such shares held by them
in preference to and in priority over any distributions upon the Junior
Liquidation Shares. Upon payment in full of the Liquidation Preference to which
the holders of shares of the Series F Preferred Stock are entitled, the holders
of shares of the Series F Preferred Stock will not be entitled to any further
participation in any distribution of assets by the Corporation. If, in a
liquidation other than Deemed Liquidation (as defined in subparagraph 4c.
below), the assets of the Corporation are not sufficient to pay in full the
Liquidation Preference payable to the holders of shares of the Series F
Preferred Stock and the liquidation value payable to the holders of any Parity
Liquidation Shares, the holders of all such shares shall share ratably in such
distribution of assets in accordance with the amounts that would be payable on
the distribution if the amounts to which

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the holders of shares of the Series F Preferred Stock and the holders of Parity
Liquidation Shares are entitled were paid in full.

               c. Except in a Deemed Liquidation (as defined below), neither a
consolidation or merger of the Corporation with or into any other entity, nor a
merger of any other entity with or into the Corporation, nor a sale or transfer
of all or any part of the Corporation's assets for cash or securities or other
property shall be considered a liquidation, dissolution or winding-up of the
Corporation within the meaning of this Paragraph 4. However, a merger,
consolidation, sale of assets or other transaction that results in a Change of
Control (as defined below) will be deemed, for the purposes of this Paragraph 4,
to be a liquidation (a "Deemed Liquidation"), unless 50% of the then outstanding
shares of the Series F Preferred Stock agree otherwise. A "Change of Control"
with respect to the Corporation shall be deemed to have occurred: (i) upon the
consummation of a merger, consolidation, sale of or transfer of the
Corporation's assets or other similar transaction if, upon such consummation,
the holders of shares of the Corporation's capital stock immediately prior to
such transaction do not own shares of capital stock of the entity that results
from the consummation of any such transaction representing more than 50% of the
voting power of all shares of capital stock of such resulting entity, or (ii) at
such time as any person (within the meaning of Sections 13(D) and 14(D) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), including a
group (within the meaning of Rule 13d-5 under the Exchange Act), together with
any of such person's affiliates or associates, is or becomes the direct or
indirect beneficial owner (as defined in Section 13 of the Exchange Act and the
rules and regulations promulgated by the Securities and Exchange Commission
thereunder) of shares of capital stock of the Corporation representing in excess
of 50% of the total voting power of all shares of capital stock entitled to vote
in the election of directors of the Corporation under ordinary circumstances or
to elect a majority of the Board of Directors of the Corporation.

               d. Written notice of any liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when and the place or
places where the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage prepaid, not less than 30 days prior
to any payment date stated therein to the holders of shares of the Series F
Preferred Stock at their respective addresses as the same shall appear on the
books of the transfer agent with respect to the Series F Preferred Stock.

        5. VOTING. The holders of Series F Preferred Stock shall be entitled to
vote upon all matters presented to the stockholders, together with the holders
of the Series C Preferred Stock, the Series D Preferred Stock (and shares of
capital stock issued in exchange therefor) and the Common Stock as one class,
except as otherwise required by law or this Certificate of Designations. Each
share of Series F Preferred Stock shall entitle the holder thereof to that
number of votes equal to the number of shares of Common Stock into which each
such share of Series F Preferred Stock would have been convertible, if such
conversion had taken place on the record date set for determining stockholders
entitled to vote at a meeting or the date of the consent of stockholders if
action is being taken by written consent.

        6. CONVERSION RIGHTS. The holder of any shares of Series F Preferred
Stock shall have the right at any time commencing from the date of issuance to
convert any of his or her shares of Series F Preferred Stock into duly
authorized, validly issued, fully paid and

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nonassessable shares of Common Stock of the Corporation at the Conversion Price,
as defined herein, and upon the terms set forth herein.

        7. CONVERSION PRICE. Each share of Series F Preferred Stock shall be
converted into a number of shares of Common Stock determined by dividing (i)
$1,000 by (ii) the Conversion Price of such shares as in effect on the
Conversion Date. The initial Conversion Price shall be $5.60 per share. The
initial Conversion Price shall be subject to further adjustment as set forth in
Paragraph 9 hereof.

        8. CONVERSION PROCEDURE. The holder of any shares of the Series F
Preferred Stock may exercise his or her right to convert such shares into shares
of Common Stock by surrendering for such purpose to the Corporation, at its
principal office or at such other office or agency maintained by the Corporation
for that purpose, a certificate or certificates representing the shares of
Series F Preferred Stock to be converted, accompanied by a written notice
stating that such holder elects to convert all or a specified whole number of
such shares in accordance with the provisions of this Paragraph 8 and specifying
the name or names in which such holder wishes the certificate or certificates
for shares of Common Stock to be issued. In case such notice shall specify a
name or names other than that of such holder, such notice shall be accompanied
by payment of all transfer taxes payable upon the issuance of shares of Common
Stock in such name or names. As promptly as practicable, and in any event within
ten business days after the surrender of such certificates and the receipt of
such notice relating thereto and, if applicable, payment of all transfer taxes,
the Corporation shall deliver or cause to be delivered (i) certificates
representing the number of validly issued, fully paid and nonassessable shares
of Common Stock to which the holder of the Series F Preferred Stock so converted
shall be entitled and (ii) if less than the full number of shares of the Series
F Preferred Stock evidenced by the surrendered certificate or certificates are
being converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or certificates less
the number of shares converted. Such conversions shall be deemed to have been
made at the close of business on the date of giving of such notice and of such
surrender of the certificate or certificates representing the shares of the
Series F Preferred Stock to be converted so that the rights of the holder
thereof shall cease except for the right to receive Common Stock in accordance
herewith, and the converting holder shall be treated for all purposes as having
become the record holder of such Common Stock at such time.

        Shares of the Series F Preferred Stock may not be converted after the
close of business of the third business day preceding the date fixed for
redemption of such shares pursuant to Paragraph 14 hereof.

        Upon conversion of any shares of the Series F Preferred Stock, the
holder thereof shall be entitled to receive any accumulated, accrued or unpaid
dividends in respect of the shares so converted, including any dividends on such
shares of Series F Preferred Stock declared prior to such conversion if such
holder held such shares on the record date fixed for the determination of
holders of Series F Preferred Stock entitled to receive payment of such dividend
and any dividends that are accrued or unpaid, whether or not such dividends have
been declared or a record date for determining holders entitled to such
dividends has been fixed.

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        9. CONVERSION PRICE ADJUSTMENTS. The initial Conversion Price for each
respective issuance of shares of Series F Preferred Stock shall be subject to
adjustment from time to time upon the occurrence of certain events as follows:

               a. Stock Dividends, Subdivisions, Reclassifications or
Combinations. If the Corporation shall (i) declare a dividend or make a
distribution in shares of Common Stock, (ii) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect at the time of the record date of such
dividend or distribution on the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that the holder of any
shares of Series F Preferred Stock surrendered for conversion after such date
shall be entitled to receive the number of shares of Common Stock which he or
she would have owned or been entitled to receive had such Series F Preferred
Stock been converted immediately prior to such date. Successive adjustments in
the Conversion Price shall be made whenever any event specified above shall
occur.

               b. Other Distributions. In case the Corporation shall fix a
record date for the making of a distribution to all holders of shares of Common
Stock, (i) of shares of any class of capital stock of the Corporation other than
shares of Common Stock, or (ii) of evidences of indebtedness of the Corporation,
or (iii) of assets (excluding cash dividends or distributions, and dividends or
distributions referred to in subparagraph 9a. hereof), or (iv) of rights or
warrants entitling the holders of Common Stock to subscribe for or purchase
shares of Common Stock at less than the Trading Price, as defined in Paragraph
14 hereof, on the record date fixed to determine stockholders entitled to
subscribe or purchase; in each such case, the Conversion Price in effect
immediately prior thereto shall be reduced immediately thereafter to the price
determined by dividing (1) an amount equal to the difference resulting from (A)
the number of shares of Common Stock outstanding on such record date multiplied
by the Conversion Price per share on such record date, less (B) the fair market
value (as determined by the Board of Directors in their reasonable discretion)
of said shares or evidences of indebtedness or assets or rights or warrants to
be so distributed by (2) the number of shares of Common Stock outstanding on
such record date. Such adjustment shall be made successively whenever such a
record date is fixed. In the event that such distribution is not so made, the
Conversion Price then in effect shall be readjusted, effective as of the date
when the Board of Directors determines not to distribute such shares, evidences
of indebtedness, assets, rights or warrants, as the case may be, to the
Conversion Price which was in effect prior to the fixing of the record date
(subject to any adjustments made pursuant to this Paragraph 9 since such record
date).

               c. Rounding of Calculations; Minimum Adjustment. All calculations
under this Paragraph 9 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. No adjustment in the Conversion
Price shall be made if the amount of such adjustment would be less than $0.05,
but any such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $0.05 or more.

               d. Adjustments for Consolidation, Merger, etc. Subject to the
rights of holders of the Series F Preferred Stock in the event of a Deemed
Liquidation pursuant to the

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provisions of Paragraph 4, in case the Corporation, (i) shall consolidate with
or merge into any other person and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) shall permit any other person
to consolidate with or merge into the Corporation and the Corporation shall be
the continuing or surviving person, but, in connection with such consolidation
or merger, the Common Stock shall be changed into or exchanged for stock or
other securities of any other person or cash or any other property, or (iii)
shall effect a capital reorganization or reclassification of the Common Stock
(other than a capital reorganization or reclassification resulting in the issue
of additional shares of Common stock for which adjustment is provided in this
Paragraph 9); then, and in each such case, proper provision shall be made so
that each share of Series F Preferred Stock then outstanding shall be converted
into, or exchanged for, one share of preferred stock of the acquiring
corporation entitling the holder thereof to all of the rights (including voting
rights), powers, privileges and preferences with respect to the acquiring
corporation to which the holder of a share of Series F Preferred Stock is
entitled with respect to the Corporation, and being subject with respect to the
acquiring corporation to the qualifications, limitations and restrictions to
which a share of Series F Preferred Stock is subject with respect to the
Corporation.

               e.     Issue or Sale of Shares Below Trading Price.

                      (i) In the event the Corporation at any time or from time
to time shall issue or sell (or be deemed to have issued or sold) additional
shares of Common Stock, other than as a dividend in Paragraph 9b. above and
other than upon a subdivision or combination of shares of Common Stock as
provided in Paragraph 9a. above, without consideration or for a consideration
per share less than the Trading Price (as defined in Paragraph 14 below) on the
date immediately prior to the date of such issuance, then and in each case the
then Conversion Price shall be reduced, as of the opening of business on the
date of such issue or sale, to a price determined by multiplying that Conversion
Price by a fraction the numerator of which shall be (A) the number of shares of
Common Stock outstanding at the close of business on the day preceding the date
of such issue or sale plus (B) the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
additional shares of Common Stock so issued would purchase at such Trading
Price, and the denominator of which shall be the number of shares of Common
Stock outstanding at the close of business on the date of such issue or sale
after giving effect to the issuance of such additional shares of Common Stock.

                      (ii) For the purpose of making any adjustment in the
Conversion Price or number of shares of Common Stock purchasable on conversion
of Series F Preferred Stock as provided in clause (i) of this Paragraph 9e., the
consideration received by the Corporation for any issue or sale of securities
shall, (A) to the extent it consists of cash, be computed at the sales price
before deduction of any expenses payable by the Corporation and any underwriting
or similar commissions, compensations, or concessions paid or allowed by the
Corporation in connection with such issue or sale, (B) to the extent it consists
of property other than cash, be computed at the fair market value of that
property as determined in good faith by the Board of Directors of the
Corporation, irrespective of any accounting treatment; provided, however, that
the aggregate fair market value of such non-cash and cash consideration shall
not exceed the Trading Price of the shares of Common Stock, and (C) if
additional shares of Common Stock, "Convertible Securities" (as hereinafter
defined) or rights or options to purchase either additional

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shares of Common Stock or Convertible Securities are issued or sold together
with other stock or securities or other assets of the Corporation for a
consideration which covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith by the Board of
Directors of the Corporation to be allocable to such additional shares of Common
Stock, Convertible Securities or rights or options.

                      (iii) For the purpose of the adjustment provided for in
clause of this Paragraph 9e., if at any time or from time to time the
Corporation shall issue any rights or options (other than options granted to the
Corporation's officers, directors, employees or agents under the Corporation's
stock option plans or otherwise) for the purchase of, or stock or other
securities convertible into or exchangeable for, additional shares of Common
Stock (such convertible stock or securities being hereinafter referred to as
"Convertible Securities"), than in each case, if the "Effective Price" (as
hereinafter defined) of such rights, options or Convertible Securities shall be
less than the Trading Price, the Corporation shall be deemed to have issued at
the time of the issuance of such rights or options or Convertible Securities the
maximum number of additional shares of Common Stock issuable upon exercise,
conversion or exchange thereof and to have received as consideration for the
issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Corporation for the issuance of such
rights or options or Convertible Securities, plus, in the case of such options
or rights, the minimum amounts of consideration, if any, payable to the
Corporation upon the exercise of such options or rights, and, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Corporation for such Convertible Securities, plus the minimum amount of
consideration, if any, payable to the Corporation upon the conversion or
exchange of such Convertible Securities. "Effective Price" for this purpose
shall mean the quotient determined by dividing the total of all of such
consideration by such maximum number of additional shares of Common Stock. No
further adjustment of the Conversion Price adjusted upon the issuance of such
rights, options or Convertible Securities shall be made as a result of the
actual issuance of additional shares of Common Stock on the exercise of any such
rights or options or the conversion or exchange of any such Convertible
Securities.

        If any such rights or options or the conversion privilege represented by
any such Convertible Securities shall expire without having been exercised, the
Conversion Price adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the only
additional shares of Common Stock so issued were the additional shares of Common
Stock, if any, actually issued or sold on the exercise of such rights or options
or rights of conversion of such Convertible Securities, and such additional
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Corporation upon such exercise, plus the consideration,
if any, actually received by the Corporation for the granting of all such rights
or options, whether or not exercised, plus the consideration received for
issuing or selling the Convertible Securities actually converted plus the
consideration, if any, actually received by the Corporation (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities.

        10. VOLUNTARY ADJUSTMENT. The Corporation may make, but shall not be
obligated to make, such decreases in the Conversion Price so as to increase the
number of shares of Common Stock into which the Series F Preferred Stock may be
converted, in addition to those

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required by Paragraph 9 hereof, as it considers to be advisable in order to
avoid federal income tax treatment as a dividend of stock or stock rights.

        11. RESERVATION OF SHARES OF COMMON STOCK FOR CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
and unissued shares of Common Stock such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all shares of
Series F Preferred Stock that are then outstanding.

        12. NOTICE OF ADJUSTMENT OF CONVERSION PRICE. Whenever the Conversion
Price is adjusted as herein provided, the Corporation shall forthwith file with
any transfer agent or agents for the Series F Preferred Stock, if any, and at
the principal office of the Corporation, a statement signed by the President or
a Vice President and by the Chief Financial Officer or the Secretary of the
Corporation setting forth the adjusted Conversion Price. The statement so filed
shall be open to inspection by any holder of record of shares of Series F
Preferred Stock. The Corporation shall also, at the time of filing any such
statement, mail notice to the same effect to the holders of shares of Series F
Preferred Stock at their addresses appearing on the books of the Corporation or
supplied by such holder to the Corporation for the purpose of notice.

        13. FRACTIONAL SHARES IN CONVERSION. The Corporation shall not be
required to issue fractions of shares of Common Stock on the conversion of
Series F Preferred Stock. If any fraction of a share of Common Stock would be
issuable upon the conversion of a share, except for the provisions hereof, the
Corporation shall purchase such fraction for an amount in cash equal to the
Trading Price (as defined in Paragraph 14 hereof) multiplied by such fraction.
If more than one certificate for shares of Series F Preferred Stock shall be
presented for conversion at any one time by the same registered holder, the
number of shares of Common Stock which shall be issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares of Common Stock
issuable upon conversion of the shares so presented. All calculations under this
Paragraph 13 shall be made to the nearest one-hundredth of a share.

        14. REDEMPTION AT OPTION OF CORPORATION. In the event that the Trading
Price (as hereinafter defined below in this Paragraph 14) of the Common Stock is
equal to or greater than 100% of the Conversion Price for 30 consecutive trading
days, the Corporation may, at its option, at any time thereafter, redeem the
shares of the Series F Preferred Stock, in whole or in part, for a cash
redemption price equal to the Liquidation Preference of the shares of Series F
Preferred Stock being redeemed at the date of such redemption. In case of the
redemption of a part only of the outstanding shares of Series F Preferred Stock,
the shares so to be redeemed shall be selected pro rata.

        At least 30 days' prior notice by mail, postage prepaid, shall be given
to the holders of record of the shares of Series F Preferred Stock to be
redeemed, such notice to be addressed to each such stockholder at the address of
such holder appearing on the books of the Corporation or given by such holder to
the Corporation for the purpose of notice, or if no such address appears or is
so given, at the place where the principal office of the Corporation is located.
Such notice shall state the date fixed for redemption and the redemption price,
and shall call upon such

                                       10
<PAGE>   11

holder to surrender to the Corporation on or before said date at the place
designated in the notice such holder's certificate or certificates representing
the shares to be redeemed. On or after the date fixed for redemption and stated
in such notice, each holder of shares of Series F Preferred Stock called for
redemption shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the redemption price provided in this Paragraph
14. If less than all the shares represented by any such surrendered certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares. If such notice of redemption shall have been duly given, and if on the
date fixed for redemption funds necessary for the redemption shall be available
therefor, then, notwithstanding that the certificate evidencing any shares of
Series F Preferred Stock so called for redemption shall not have been
surrendered, all rights pertaining to such shares shall terminate, except only
the right of the holders to receive the redemption price to the date fixed for
redemption, without interest, upon surrender of their certificates therefor.

        If, after notice of redemption has been given, the Corporation deposits,
on or prior to any date fixed for redemption of shares of Series F Preferred
Stock, with any bank or trust company in the State of California that has a
combined capital and surplus of not less than $100 million, as a trust fund, a
sum sufficient to redeem, on the date fixed for redemption thereof, the shares
called for redemption, with irrevocable instructions and authority to the bank
or trust company to give the notice of redemption thereof (or to complete the
giving of such notice if theretofore commenced) and to pay, on or after the date
fixed for redemption or prior thereto, the redemption price of the shares to
their respective holders upon the surrender of their share certificates, then
from and after the date of the deposit (although prior to the date fixed for
redemption), the shares shall no longer be outstanding, and the holders thereof
shall cease to be stockholders with respect to such shares, and shall have no
rights with respect thereto except the right to receive from the bank or trust
company payment of the redemption price of the shares without interest, upon the
surrender of their certificates therefor. The right to convert said shares as
provided herein at any time shall continue up to but not after the close of
business on the third day prior to the date fixed for redemption of such shares.
The deposit shall constitute full payment of the shares to the holders thereof.
Any moneys so deposited on account of the redemption price of Series F Preferred
Stock converted subsequent to the making of such deposit shall be repaid to the
Corporation forthwith upon the conversion of such shares of Series F Preferred
Stock. Any interest accrued on any funds so deposited shall be the property of,
and paid to, the Corporation. If the holders of Series F Preferred Stock so
called for redemption shall not, at the end of two years from the date fixed for
redemption thereof, have claimed any funds so deposited, such bank or trust
company shall thereupon pay over to the Corporation such unclaimed funds, and
such bank or trust company shall thereafter be relieved of all responsibility in
respect thereof to such holders and such holders shall look only to the
Corporation for payment of the redemption price.

        The term "Trading Price" shall mean the price of the Common Stock
determined as follows: (i) If the Common Stock is listed or admitted to trade on
a national securities exchange, on the Nasdaq National Market System ("NMS"), or
on the Nasdaq SmallCap Market ("SmallCap"), the closing sales price of the
Common Stock on the composite tape of the principal national securities exchange
on which the Common Stock is so listed or admitted to trade or on the NMS or
SmallCap systems, as the case may be; (ii) If the Common Stock is traded on the
OTC Bulletin Board or other similar trading market that publishes last trade
prices,

                                       11
<PAGE>   12

the last sales price so listed by the OTC Bulletin Board; or (iii) If the Common
Stock is not listed or admitted to trade on an exchange or a system that
publishes daily closing sales prices or last sales prices, the average of the
last bid and asked prices of the Common Stock quoted on such other trading
system. If the Common Stock is not quoted by any such organization and no such
closing prices are available, the Trading Price shall be the price determined by
the Disinterested Directors in good faith.

        15. REDEMPTION AT OPTION OF HOLDER. Commencing on January 15, 2010 and
continuing until January 14, 2011, each holder of shares of the Series F
Preferred Stock may, from time to time, during such period, at such holder's
option, cause the Corporation to redeem for cash, out of funds legally available
therefore, some or all of such holder's shares of Series F Preferred Stock.
Shares of Series F Preferred Stock shall be redeemed by the Corporation in the
order received for the record holders thereof. If the Corporation receives
redemption requests from more than one stockholder on any one day and does not
have sufficient funds from which it can legally redeem all shares of Series F
Preferred Stock that have been tendered for redemption on that day, the number
of shares that shall be redeemed from the available funds shall be determined on
a pro rata basis, based on the relative amounts of shares of Series F Preferred
Stock that have been tendered for redemption.

        The redemption price for each share of Series F Preferred Stock shall be
Liquidation Preference of the tendered shares. Each holder of shares of Series F
Preferred Stock may exercise his rights to have such shares redeemed pursuant to
this Paragraph 15 by surrendering for such purpose to the Corporation, at its
principal office or at such other office or agency maintained by the Corporation
for such purpose, a certificate or certificates representing the shares to be
redeemed accompanied by a written notice stating that such holder elects to have
redeemed the specified whole number of such shares in accordance with the
provisions of this Paragraph 15 and, if less than the full number of shares
evidenced by the surrendered certificates are being redeemed, specifying the
name or names in which such holder wishes the certificates for the balance of
such shares to be issued. Within 10 calendar days after the surrender of such
certificate or certificates and the receipt of the required written notice
relating thereto, the Corporation shall deliver or cause to be delivered to the
holder (A) the redemption price of the shares being so redeemed and (B) if less
than the full number of shares evidenced by the surrendered certificate or
certificates are being redeemed, any certificate or certificates, of like tenor,
for the full number of shares evidenced by the surrendered certificate or
certificates, less the number of shares redeemed. Any redemption notice
delivered pursuant to this Paragraph 15 shall be irrevocable for 30 days. During
such 30-day period, or until the date on which the redemption price is paid,
whichever is earlier, the shares tendered to the Corporation for redemption
shall not be convertible by the holder pursuant to Paragraph 6, but shall
otherwise be entitled to all rights and privileges contained in this Certificate
of Designations.

        16. MUTILATED OR MISSING PREFERRED STOCK CERTIFICATES. If any of the
Series F Preferred Stock certificates shall be mutilated, lost, stolen or
destroyed, the Corporation shall issue, in exchange and substitution for and
upon cancellation of the mutilated Series F Preferred Stock certificate, or in
lieu of and in substitution for the Series F Preferred Stock certificate lost,
stolen or destroyed, a new Series F Preferred Stock certificate of like tenor
and representing an equivalent amount of shares of Series F Preferred Stock, but
only upon

                                       12
<PAGE>   13

receipt of evidence of such loss, theft or destruction of such Series F
Preferred Stock certificate and indemnity, if requested.

        17. REISSUANCE OF PREFERRED STOCK. Shares of Series F Preferred Stock
that have been issued and reacquired in any manner, including shares purchased
or redeemed or exchanged, shall (upon compliance with any applicable provisions
of the laws of the State of Delaware) have the status of authorized and unissued
shares of preferred stock undesignated as to series and may be redesignated and
reissued as part of any series of preferred stock other than the Series F
Preferred Stock.

        18. BUSINESS DAY. If any payment, redemption or exchange shall be
required by the terms hereof to be made on a day that banks are not open in the
State of California, such payment, redemption or exchange shall be made on the
immediately succeeding day on which such banks are open.

        19. HEADINGS OF SUBDIVISIONS. The headings of various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.

        20. SEVERABILITY OF PROVISIONS. If any right, preference or limitation
of the Series F Preferred Stock set forth in these resolutions and the
Certificate of Designations filed pursuant hereto (as such resolution may be
amended from time to time) is invalid, unlawful or incapable of being enforced
by reason of any rule of law or public policy, all other rights, preferences and
limitations set forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.

        21. NOTICE TO THE COMPANY.

        All notices and other communications required or permitted to be given
to the Corporation hereunder shall be made by courier to the Corporation at its
principal executive offices located at 102 Washington Avenue, Point Richmond,
California 94801, Attention: President. Minor imperfections in any such notice
shall not affect the validity thereof.

        22. LIMITATIONS.

        Except as may otherwise be required by law, the shares of Series F
Preferred Stock shall not have any powers, preferences or relative,
participating, optional or other special rights other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) or otherwise in the Certificate of Incorporation of the Corporation.

        IN WITNESS WHEREOF, Western Water Company, has caused this certificate
to be executed by Michael Patrick George, Chief Executive Officer, and attested
by, James E. Sherman as Secretary, this 6th of March 2001.

                                       13
<PAGE>   14

                                        WESTERN WATER COMPANY

                                        By: /s/ MICHAEL PATRICK GEORGE
                                            ------------------------------------
                                        Name:  Michael Patrick George
                                        Title:  Chief Executive Officer

Attest:

/s/ JAMES E. SHERMAN
-----------------------------------
Name:  James E. Sherman
Title:  Secretary

                                       14<PAGE>   1
                                                                    EXHIBIT 10.1

                        INVESTMENT RESTRUCTURE AGREEMENT

        THIS INVESTMENT RESTRUCTURE AGREEMENT (this "Agreement"), dated as of
March 16, 2001, is entered into by and between Western Water Company, a Delaware
corporation ("Western Water"), on the one hand, and Sociedad General de Aguas de
Barcelona, a Spanish corporation ("Agbar"), and Interagua, Servicios Integrales
del Agua, S.A., a Spanish corporation and an affiliate of Agbar ("Interagua"),
on the other.

                                    RECITALS

        A. On October 13, 1998, Western Water entered into that certain
Strategic Relationship Agreement (the "SRA") with Agbar to sell to Agbar, or to
an affiliate of Agbar, $10,000,000 of Western Water's Series D Convertible
Redeemable Preferred Stock, par value $.001 per share ("Series D Preferred"), at
a cash purchase price of $1,000 per share;

        B. In accordance with the terms of the SRA, Agbar assigned its rights to
purchase the Series D Preferred to Interagua, and on October 27, 1998 Interagua
purchased 10,000 shares of the Series D Preferred for an aggregate cash purchase
price of $10,000,000; and

        C. Western Water, Agbar and Interagua desire to restructure the
investment of Interagua in Western Water, to terminate the SRA, and to enter
into a new on-going operating arrangement.

        NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto, and of good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

                                   ARTICLE 1.

                           SHARE EXCHANGE; TERMINATION

        Subject to the terms and conditions of this Agreement, and in reliance
upon the representations, warranties, covenants and agreements contained herein,
Western Water, Agbar and Interagua hereby agree to restructure the equity
investment of Interagua in Western Water and to enter into a new contractual
arrangement between the parties, all as follows:

        1.1. Cancellation of Series D Preferred. Concurrently with the execution
of this Agreement, Interagua is delivering to Western Water for cancellation
stock certificate No. 1, representing all of the 10,000 issued and outstanding
shares of Series D Preferred owned by Interagua. The stock certificate has been
duly endorsed for cancellation by Interagua in a manner satisfactory to Western
Water. Western Water hereby acknowledges receipt of certificate No. 1 and agrees
to cancel all of the shares represented by certificate No. 1.

        1.2. Issuance of Series F Preferred and Common Stock. Concurrently with
the execution of this Agreement, Western Water is delivering to Interagua 2,000
shares of its new Series F Convertible Redeemable Preferred Stock (the "Series F
Preferred") and 175,000 shares of Western Water's common stock. The new shares
of Series F Preferred have a $1,000 per

                                       1
<PAGE>   2

share stated value, a $5.60 per share conversion price, and such other rights,
preferences and privileges as are set forth in the "Certificate of
Designations--Series F Convertible Redeemable Preferred Stock," a certified copy
of which is attached hereto as Exhibit A. (The 2,000 shares of Series F
Preferred and the 175,000 shares of Common Stock issued to Interagua hereunder
are hereinafter sometimes collectively referred to as the "Shares.") Western
Water covenants and agrees that any shares of Preferred Stock issued in exchange
for Series C Preferred Stock or Series D Preferred Stock will not rank senior to
or prior to the Series F Preferred Stock with respect to payments of dividends,
redemption payments or rights on liquidation.

        1.3. Cash Payment. As payment for $187,500 of accrued dividends and for
any additional accrued and unpaid dividends that Western Water may owe Interagua
under the terms of the Series D Preferred through the date of this Agreement,
and as additional consideration for the agreements made by Agbar and Interagua
hereunder, concurrently with the execution and delivery of this Agreement,
Western Water is hereby delivering to Interagua $4,041,143 by wire transfer.

        1.4. Termination and Cancellation of SRA. Agbar, Interagua and Western
Water hereby agree that, effective as of the date of this Agreement, the SRA is
hereby terminated and cancelled, and that all rights, obligations and
liabilities of the parties thereto are hereby terminated and forgiven. The
parties hereto agree to execute any and all additional documents either party
hereafter reasonably requests to evidence the termination of the SRA.

        1.5. Business Development Agreement. Western Water and Agbar hereby
agree to jointly pursue certain water-related business opportunities in the U.S.
water service industry that both find attractive. In order to induce Western
Water to agree to this business development arrangement, Agbar hereby represents
and warrants to Western Water that it intends to pursue water infrastructure
development opportunities, water utilities acquisitions and municipal water and
wastewater privatization business opportunities in the United States (the "Water
Business Opportunity"), and that it has the capability to do so. Accordingly, in
the event that Western Water becomes aware of a Water Business Opportunity that
it is interested in pursuing in joint venture, Western Water shall provide Agbar
with written notice of the Water Business Opportunity, which notice shall
include a brief summary of the Water Business Opportunity including a
description of the project, the potential business opportunity associated with
the project and the estimated costs related to the realization of such
opportunity. Western Water will remain available to answer reasonable requests
for additional information from Agbar. In the event that Agbar is interested in
pursuing the Water Business Opportunity with Western Water, Agbar shall notify
Western Water in writing of its interest within twenty-one (21) calendar days of
its receipt of Western Water's initial notice. If Agbar either declines the
Water Business Opportunity or fails to respond to Western Water's notice within
the foregoing twenty-one -day (21-day) period, Western Water may thereafter
pursue that Water Business Opportunity for its own account, or in joint venture
with other entities, without any further obligation to Agbar. If Agbar timely
notifies Western Water of its interest in jointly developing any Water Business
Opportunity that Western Water has identified, Agbar and Western Water shall
thereafter, in good faith, promptly negotiate the terms of an agreement (a
"Water Agreement") that allocates all of the benefits and obligations related
Water Business Opportunity amongst the parties, including the manner in which
the Water Business Opportunity shall be acquired, developed,

                                       2
<PAGE>   3

financed, operated and shared among the parties. Both Agbar and Western Water
may incur expenses related to the Water Business Opportunity during the period
of time commencing with Western Water's receipt of notice from Agbar that it
intends to participate in a Water Business Opportunity. The parties agree that
Western Water's obligation to include Agbar in any such Water Business
Opportunity is contingent upon Agbar's agreement to devote appropriate time and
resources to developing the Water Business Opportunity, and that Western Water
shall not be required to commit resources to develop such Water Business
Opportunity without an affirmative commitment by Agbar to devote appropriate
time and resources to such development.

        1.6. Retention of Employees. Pursuant to provisions of the SRA, Western
Water hired and undertook the training of Richard Onses and Ramon Garcia, both
of whom remain in exodus employees of Agbar. Prior to the date of this
Agreement, Agbar and Western Water instituted a cost sharing arrangement related
to such relocation, expatriate support and employment of Messrs. Onses and
Garcia. As part of the transactions effected by this Agreement, Agbar hereby
agrees that Western Water will have the right, but not the obligation, to
continue the employment of Messrs. Onses and Garcia, on terms mutually
acceptable to each of them and Western Water, through December 31, 2002. Western
Water shall have the right to terminate the employment of either or both of
Messrs. Onses and Garcia upon (ninety) 90 days' written notice to the affected
employee and to Agbar. Each of Messrs. Onses and Garcia shall have the right to
terminate his employment by Western Water upon 90 (ninety) days' written notice
to Western Water and to Agbar. Agbar agrees that it will not solicit or
encourage either Mr. Onses or Mr. Garcia to terminate his employment with
Western Water. Agbar represents that it has binding agreements with Messrs.
Onses and Garcia to provide Messrs. Onses and Garcia full-time, permanent
employment within Agbar at appropriate levels of responsibility and remuneration
and to pay their reasonable relocation expenses. Agbar agrees to credit the time
of employment with Western Water of Messrs. Onses and Garcia as part of their
dates of credited service within the Agbar group of companies. Agbar further
agrees to continue to make Tesoreria de la Seguridad Social TC2 payments on
behalf of Messrs. Onses and Garcia during the time of their employment with
Western Water so as to maintain their retirement, term of service and other
long-term employment benefits within the Spanish Retirement System. Commencing
as of January 1, 2001 through the end of their respective periods of employment
with Western Water, Agbar hereby agrees to reimburse Western Water for 25% of
all of the payroll expenses (consisting primarily of salary, payroll taxes and
benefits other than expatriate expenses or benefits, such as housing allowances,
automobile expense, tax neutralization and tuition reimbursement) incurred in
connection with Western Water's employment of Messrs. Onses and Garcia during
calendar year 2001 and 15% of all of the payroll expenses (consisting primarily
of salary, payroll taxes and benefits other than expatriate expenses or
benefits) incurred in connection with Western Water's employment of Messrs.
Onses and Garcia during calendar year 2002. Such reimbursement shall be made
monthly within 15 days of presentation to Agbar of a proper invoice by Western
Water.

        1.7. Payment of Outstanding Fee. As payment in full for all accrued and
unpaid invoices owing by Agbar to Western Water through the date of this
Agreement, concurrently with the execution and delivery of this Agreement, Agbar
is delivering to Western Water a total of U.S. $204,782 by wire transfer.

                                       3
<PAGE>   4

                                   ARTICLE 2.

              REPRESENTATIONS AND WARRANTIES OF INTERAGUA AND AGBAR

        To induce Western Water to execute, deliver and perform this Agreement,
Agbar and Interagua hereby jointly and severally represent and warrant to
Western Water as follows:

        2.1. Authority Relative to this Agreement. This Agreement has been duly
authorized by all necessary action on the part of Agbar and Interagua and has
been duly executed and delivered by each of Agbar and Interagua, and is a valid
and binding agreement of each them, enforceable in accordance with its terms,
except as such enforcement is subject to any applicable bankruptcy, insolvency,
reorganization or other law relating to or affecting creditors' rights generally
and general principles of equity. Neither the execution nor the delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, or result in the imposition of any lien or
encumbrance upon any of the shares Series D Preferred that Interagua is hereby
delivering to Western Water for cancellation.

        2.2. Title to the Shares of Series D Preferred. Interagua owns, of
record and beneficially, all 10,000 shares of Series D Preferred represented by
stock certificate No. 1, free and clear of all pledges, security interests,
liens, charges, encumbrances, equities, claims and options of whatever nature.
No individual, corporation, entity or person has any claim or interest in, to,
or against any of the shares of Series D Preferred represented by certificate
No. 1 and owned by Interagua.

        2.3. Investment Intent. Interagua is acquiring the Shares for investment
for its own account, not as a nominee or agent, and not with a view to, or for
resale in connection with, any distribution thereof. Interagua understands that
the issuance of the Shares has not been, and will not be, registered under the
Securities Act of 1933, as amended (the "Securities Act"), by reason of a
specific exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
Interagua's investment intent and the accuracy of Interagua's representations as
expressed herein. Interagua is an "accredited investor" as that term is defined
in the rules and regulations promulgated under the Securities Act, and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment to be made in the Shares.

        2.4. Rule 144. Interagua acknowledges that (i) the Shares must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from such registration is available, and (ii) it is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
public resale of securities purchased in a private placement only upon the
satisfaction of certain conditions.

        2.5. Restrictions on Transfer; Restrictive Legends. Interagua
understands that the transfer of the Shares is restricted by applicable state
and U.S. federal securities laws, and that the certificates evidencing the
Shares have been imprinted with the following (or substantially equivalent)
legend restricting transfer except in compliance therewith:

                                       4
<PAGE>   5

        THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT
        BE TRANSFERRED UNLESS (i) A REGISTRATION STATEMENT UNDER THE SECURITIES
        ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), SHALL HAVE BECOME
        EFFECTIVE WITH RESPECT THERETO, OR (ii) IN THE OPINION OF COUNSEL IN
        FORM AND SUBSTANCE SATISFACTORY TO WESTERN WATER, AN EXEMPTION UNDER THE
        SECURITIES ACT AND FROM ANY APPLICABLE STATE SECURITIES LAWS IS
        AVAILABLE.

The legend set forth above shall be removed by Western Water from the
aforementioned securities upon delivery to Western Water of an opinion by
counsel, reasonably satisfactory to Western Water, that a registration statement
under the Securities Act is at that time in effect with respect to the legended
security or that such security can be freely transferred in a public sale
without such a registration statement being in effect and that such transfer
will not jeopardize the exemption or exemptions from registration pursuant to
which Western Water issued the Shares.

        2.6. Information. Interagua has been furnished with all materials that
it has requested relating to the business, finances and operations of Western
Water and materials relating to the Shares, and has been afforded the
opportunity to ask questions of the principals of Western Water. Interagua
understands that an investment in the Shares involves a high degree of risk and
that it has received such accounting, legal and tax advice as it deems necessary
to make an informed investment decision with respect to its cancellation of the
Series D Preferred and its acquisition of the Shares.

                                   ARTICLE 3.

                 REPRESENTATIONS AND WARRANTIES OF WESTERN WATER

        To induce Agbar and Interagua to execute, deliver and perform this
Agreement, Western Water hereby represents and warrants to each of Agbar and
Interagua as follows:

        3.1. Organization. Western Water is a corporation duly formed, validly
existing and in good standing under the laws of the State of Delaware with the
power and authority to conduct its business as it is now being conducted and to
own and lease its properties and assets.

        3.2. Authorization; Enforcement; Compliance with Other Laws. Western
Water has the requisite corporate power and authority to enter into and perform
this Agreement and to issue the Shares in accordance with the terms of this
Agreement. The execution and delivery of this Agreement by Western Water and the
consummation by it of the transactions contemplated hereby, including without
limitation the issuance of the Shares, has been duly authorized by Western
Water's Board of Directors and no further consent or authorization is required
by Western Water, its Board of Directors or its stockholders. Neither the
execution nor the delivery of this Agreement nor the consummation of the
transactions contemplated hereby will conflict with, or result in a breach of
the terms, conditions or provisions of or constitute a default under any
agreement to which Western Water is a party. This Agreement has been duly
executed and delivered by Western Water and constitutes the valid and binding
obligation of Western Water,

                                       5
<PAGE>   6

enforceable against Western Water in accordance with its terms, except as such
enforcement is subject to any applicable bankruptcy, insolvency, reorganization
or other law relating to or affecting creditors' rights generally and general
principles of equity.

        3.3. Validity of Issuance. Upon the issuance of the Shares in accordance
with the terms of this Agreement, the Shares shall be (i) validly issued, fully
paid and non-assessable; (ii) free from all taxes or liens; and (iii) Interagua
will be entitled to all rights accorded to a holder of such Shares.

        3.4. Exempt Transaction. The issuance of the Shares hereunder shall
constitute a transaction exempt from the registration requirements of Section 5
of the Securities Act and the qualification or registration requirements of any
applicable state securities laws.

                                   ARTICLE 4.

                                  MISCELLANEOUS

        4.1. Survival of Representations, Warranties. Each of the
representations, warranties, agreements, covenants and obligations herein is
material and shall be deemed to have been relied upon by the other party or
parties and shall survive after the date hereof and shall not merge in the
performance of any obligation by any party hereto.

        4.2. Entire Agreement. This Agreement, and the other certificates,
agreements, and other instruments to be executed and delivered by the parties in
connection with the transactions contemplated hereby, constitute the sole
understanding of the parties with respect to the subject matter hereof and
supersede all prior oral or written agreements with respect to the subject
matter hereof.

        4.3. Parties Bound by Agreement; Successors and Assigns. The terms,
conditions, and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns.

        4.4. Amendments and Waivers. No modification, termination, extension,
renewal or waiver of any provision of this Agreement shall be binding upon a
party unless made in writing and signed by such party. A waiver on one occasion
shall not be construed as a waiver of any right on any future occasion. No delay
or omission by a party in exercising any of its rights hereunder shall operate
as a waiver of such rights.

        4.5. Severability. If for any reason any term or provision of this
Agreement is held to be invalid or unenforceable, all other valid terms and
provisions hereof shall remain in full force and effect, and all of the terms
and provisions of this Agreement shall be deemed to be severable in nature.

        4.6. Attorney's Fees. Should any party hereto retain counsel for the
purpose of enforcing, or preventing the breach of, any provision hereof
including the institution of any action or proceeding, whether by arbitration,
judicial or quasi-judicial action or otherwise, to enforce any provision hereof
or for damages for any alleged breach of any provision hereof, or

                                       6
<PAGE>   7

for a declaration of such party's rights or obligations hereunder, then, whether
such matter is settled by negotiation, or by arbitration or judicial
determination, the prevailing party shall be entitled to be reimbursed by the
losing party for all costs and expenses incurred thereby, including reasonable
attorneys' fees for the services rendered to such prevailing party.

        4.7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.

        4.8. Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.

        4.9. Expenses. Except as specifically provided herein, each of Agbar,
Interagua and Western Water shall pay all of its own costs and expenses incurred
by it or on its behalf in connection with this Agreement and the transactions
contemplated hereby, including fees and expenses of its own financial
consultants, accountants, and counsel.

        4.10. Notices. All notices, requests, demands, claims, and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given: when received, if
personally delivered; when transmitted, if transmitted by telecopy, electronic
or digital transmission method; five business days after such notice, request,
demand claim or other communication is sent, if sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:

        if to Agbar, to:

        Sociedad General de Aguas de Barcelona, S.A.
        Diputacion 353
        08009 Barcelona, Spain
        Fax:   34-93-342-2682

        if to Interagua, to:

        Interagua, Servicios Integrales del Agua, S.A.
        Diputacion 353
        08009 Barcelona, Spain
        Fax:  34-93-245 0642

        if to Western Water, to:

        102 Washington Avenue
        Point Richmond, CA  94801
        Fax:  (510) 307-7863

                                       7
<PAGE>   8

Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means, but no such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it actually is received
by the intended recipient. Any party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other parties notice in the manner herein set forth.

        4.11. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of California without giving effect
to the principles of choice of law thereof.

        4.12. Arbitration. Any dispute arising under or in connection with any
matter related to this Agreement or any related agreement shall be resolved
exclusively by arbitration. The arbitration shall be in conformity with and
subject to the then-applicable rules and procedures of the American Arbitration
Association or, at the election of the demanding party, any other form of
"alternative dispute resolution" procedure generally recognized in the State of
California; e.g., a reference pursuant to California Code of Civil Procedure
("Code") Section 638 or reliance upon Section 1280 et. seq. of the Code. All
parties agree to be (1) subject to the jurisdiction and venue of the arbitration
in the County of Contra Costa State of California, (2) bound by the decision of
the arbitrator as the final decision with respect to the dispute and (3) subject
to the jurisdiction of the Superior Court of the State of California for the
purpose of confirmation and enforcement of any award.

        IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first indicated above.

INTERAGUA, SERVICIOS INTEGRALES              WESTERN WATER COMPANY,
DEL AGUA, S.A., a Spanish                    a Delaware corporation
corporation

By: /s/ MANUEL NAVARRO                       By: /s/ WILLIAM T. GOCHNAUER
   --------------------------------             --------------------------------
     Name: Manuel Navarro                         Name: William T. Gochnauer
     Title: Director General                      Title: Senior Vice President &
                                                         Chief Financial Officer

SOCIEDAD GENERAL DE AGUAS DE
BARCELONA, a Spanish corporation

By: /s/ JUAN RAS
   --------------------------------
     Name: Juan Ras
     Title: Director General

                                       8

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