Document:

<PAGE>
                                                                   EXHIBIT 10.49

                            TENTH AMENDMENT TO LEASE

        THIS TENTH AMENDMENT TO LEASE AGREEMENT (this "TENTH AMENDMENT") is
dated as of August 20, 2002, between ARE-9363/9373/9393 TOWNE CENTRE, LLC, a
Delaware limited liability company ("LANDLORD"), and AMYLIN PHARMACEUTICALS,
INC., a Delaware corporation ("TENANT").

        A. Nexus/Gadco-UTC, a California Joint Venture, or its successor in
interest Nippon Landic (U.S.A.) Inc. (collectively, "ORIGINAL LANDLORD"), as
landlord, and Tenant as tenant, entered into that certain Lease dated as of
January 2, 1989 ("ORIGINAL LEASE") as amended by that certain Amendment to Lease
dated as of February 23, 1989, that certain Second Amendment to Lease dated as
of July 29, 1991, that certain Third Amendment to Lease dated as of August 22,
1991, that certain Fourth Amendment to Lease dated as of February 26, 1997, that
certain Fifth Amendment to Lease dated as of February 8, 1999, that certain
Sixth Amendment to Lease dated as of October 11, 1999, that certain Seventh
Amendment to Lease dated as of March 1, 2000, that certain Eighth Amendment to
Lease dated as of May 2, 2000, and that certain Ninth Amendment to Lease dated
as of October 15, 2001. The Original Lease and all amendments thereto shall
hereinafter collectively be referred to as the "LEASE".

        B. Tenant desires to lease additional space at the Project and, subject
to the terms and conditions set forth below, Landlord desires to lease
additional space to Tenant at the Project.

        NOW THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree, and amend the Lease again, as follows:

        1. Demised Premises.

               (a) Effective on the Second Floor Office Effective Date (as
defined in Section 2(a) below), Section 2.1.2: "Designation of Tenant's
Premises" is hereby amended to include (i) 22,105 rentable square feet of office
space on the second floor of the building located at 9363 Towne Centre Drive,
and (ii) 2,630 rentable square feet of office space on the second floor of the
building located at 9373 Towne Centre Drive (collectively, the "SECOND FLOOR
OFFICE Space"). The Second Floor Office Space is more particularly described on
EXHIBITS A-1 AND A-2 attached hereto and incorporated herein by this reference.

               (b) Effective on the First Floor Laboratory Effective Date (as
defined in Section 2(b) below), Section 2.1.2: "Designation of Tenant's
Premises" is hereby amended to include 16,559 rentable square feet of laboratory
and other space on the first floor of the building located at 9363 Towne Centre
Drive (the "FIRST FLOOR LABORATORY SPACE"). The First Floor Laboratory Space is
more particularly described on EXHIBIT B attached hereto and incorporated herein
by this reference.

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE
<PAGE>

        2. Commencement Date.

               (a) Landlord shall deliver the Second Floor Office Space to
Tenant no later than the earlier of (i) after the current tenant, Oricon
Corporation, has vacated the Second Floor Office Space and Landlord has
demolished the existing improvements and returned the Second Floor Office Space
to shell condition, or (ii) January 1, 2003. The "SECOND FLOOR OFFICE EFFECTIVE
DATE" shall mean the date that the Second Floor Office Space is delivered to
Tenant. Landlord shall endeavor to diligently perform the demolition of the
existing improvements and return the Second Floor Office Space to shall
condition and shall use reasonable efforts to complete such work prior to
January 1, 2003; provided, however, that reasonable efforts shall not be
construed to require Landlord to pay for overtime or similar type costs not
reasonably contemplated by Landlord to complete the work.

                      If Landlord fails to deliver the Second Floor Office Space
to Tenant on or before January 1, 2003, (x) Landlord shall not be liable to
Tenant for any loss or damage resulting therefrom, and (y) the lease with
respect to the Second Floor Office Space may be terminated by Tenant by written
notice to Landlord, and if so terminated neither Landlord nor Tenant shall have
any further rights, duties or obligations with respect to the Second Floor
Office Space. If Tenant does not elect to terminate the lease with respect to
the Second Floor Office Space within 5 business days after January 1, 2003, such
right to terminate the lease with respect to the Second Floor Office Space shall
be waived and the lease with respect to the Second Floor Office Space shall
remain in full force and effect and Landlord shall deliver the Second Floor
Office Space as provided in Section 2(a)(i).

               (b) Landlord shall deliver the First Floor Laboratory Space to
Tenant no later than the earlier of (i) after the current tenant, Oricon
Corporation, has vacated the First Floor Laboratory and Landlord's Work is
Substantially Completed, or (ii) July 1, 2003. The "FIRST FLOOR LABORATORY
EFFECTIVE DATE" shall mean the date that the First Floor Laboratory Space is
delivered to Tenant. Landlord shall endeavor to diligently perform Landlord's
Work and shall use reasonable efforts to complete such work prior to July 1,
2003; provided however, that reasonable efforts shall not be construed to
require Landlord to pay for overtime or similar type costs not reasonably
contemplated by Landlord to complete Landlord's Work. The terms "Landlord's
Work" and "Substantially Completed" shall have the meanings set forth for such
terms in Section 8 below.

                      If Landlord fails to deliver the First Floor Laboratory
Space to Tenant on or before July 1, 2003, (x) Landlord shall not be liable to
Tenant for any loss or damage resulting therefrom, and (y) the lease with
respect to the First Floor Laboratory Space may be terminated by Tenant by
written notice to Landlord, and if so terminated neither Landlord nor Tenant
shall have any further rights, duties or obligations with respect to the First
Floor Laboratory Space. If Tenant does not elect to terminate the lease with
respect to the First Floor Laboratory Space within 5 business days after July 1,
2003, such right to terminate the lease with respect to the First Floor
Laboratory Space shall be waived and the lease with respect to the First Floor
Laboratory Space shall remain in full force and effect and Landlord shall
deliver the First Floor Laboratory Space as provided in Section 2(b)(i).

               (c) Upon the request of Landlord, Tenant shall execute and
deliver a written acknowledgment of the Second Floor Office Effective Date and
the First Floor Laboratory

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                       2
<PAGE>

Effective Date when such are established; provided, however, Tenant's failure to
execute and deliver such acknowledgments shall not affect Landlord's rights
hereunder.

        3. Rent.

               (a) Effective 60 days after the Second Floor Office Effective
Date (the "SECOND FLOOR OFFICE RENT COMMENCEMENT DATE"), (i) Section 2.14:
"Initial Basic Annual Rent" is hereby amended to provide that the Initial Basic
Annual Rent for the Second Floor Office Space shall be $549,117.00, and (ii)
Section 2.15: "Initial Monthly Rental Installments" is hereby amended to provide
that Initial Monthly Rental Installments for the Second Floor Office Space shall
be $45,759.75.

               (b) Effective on the First Floor Laboratory Effective Date, (i)
Section 2.14: "Initial Basic Annual Rent" is hereby amended to provide that the
Initial Basic Annual Rent for the First Floor Laboratory Space shall be
$596,124, and (ii) Section 2.15: "Initial Monthly Rental Installments" is hereby
amended to provide that Initial Monthly Rental Installments for the First Floor
Laboratory Space shall be $49,677.00.

        4. Rental Adjustments.

               (a) Effective on the first anniversary of the Second Floor Office
Rent Commencement Date, the Initial Basic Annual Rent and the Initial Monthly
Rental Installments for the Second Floor Office Space shall be increased to
$47,361.34.

               (b) Effective on the first anniversary of the First Floor
Laboratory Effective Date, the Initial Basic Annual Rent and the Initial Monthly
Rental Installments for the First Floor Laboratory Space shall be increased to
$51,415.70.

        5. Operating Expenses.

               (a) Effective on the Second Floor Office Rent Commencement Date,
Tenant's Pro Rata Share of the building located at 9363 Towne Centre Drive with
respect to the Second Floor Office Space shall be 49.09%, Tenant's Pro Rata
Share of the building located at 9373 Towne Centre Drive with respect to the
Second Floor Office Space shall be 5.04%, and that Tenant's Pro Rata Share of
the Project with respect to the Second Floor Office Space shall be 17.59%.
Effective on the First Floor Laboratory Effective Date, Tenant's Pro Rata Share
of the Building with respect to the First Floor Laboratory Space shall be
36.77%, and that Tenant's Pro Rata Share of the Project with respect to the
First Floor Laboratory Space shall be 11.78%.

               (b) Effective on the Second Floor Office Rent Commencement Date,
the last sentence of Section 7.1 (b) of the Original Lease is hereby amended by
replacing the words "five percent (5%) of the total gross Rent due from all
tenants of the Project," with the words "four percent (4%) of the Basic Annual
Rent due from Tenant."

        6. Security Deposit. Concurrently with Tenant's delivery of an executed
copy of this Tenth Amendment to Landlord, Tenant shall deliver to Landlord a
security deposit in the amount of $95,500.00 which sum shall be held by Landlord
as security for the faithful performance by Tenant of all the terms, covenants
and conditions of the Lease. Except for the

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                       3
<PAGE>

first sentence of Section 9.1 and the provisions of Section 9.3 of the Original
Lease, all of the provisions of Section 9 of the Original Lease shall apply to
such security deposit. Such security deposit shall be returned to Tenant
immediately upon expiration or earlier termination of the Lease, provided Tenant
is not then in default under this Lease.

        7. Second Floor Office Tenant Improvements.

               (a) Landlord shall provide to Tenant an allowance for Tenant
Improvements to the Second Floor Office Space of not more than $123,675 (the "TI
ALLOWANCE"). "TENANT IMPROVEMENTS" shall mean all improvements to the Second
Floor Office Space desired by Tenant of a fixed and permanent nature. The Tenant
Improvements shall be undertaken by Tenant in accordance with the requirements
for alterations which are set forth in Section 17 of the Original Lease. Other
than funding the TI Allowance as provided herein, Landlord shall not have any
obligation whatsoever with respect to the finishing of the Second Floor Office
Space for Tenant's use and occupancy. It is understood and agreed that Landlord
is under no obligation to bear any portion of the cost of any of the Tenant
Improvements except to the extent of the TI Allowance.

               (b) Landlord shall pay the costs of the Tenant Improvements once
a month against a draw request on Landlord's standard form, containing such
certifications, lien waivers, inspection reports and other matters as Landlord
customarily obtains, to the extent of Landlord's approval thereof for payment,
no later than 30 days following receipt of such draw request. Upon completion of
the Tenant Improvements, Tenant shall deliver to Landlord: (i) sworn statements
setting forth the names of all contractors and subcontractors who did the work
and final lien waivers from all such contractors and subcontractors; (ii) "as
built" plans for such Tenant Improvements, and (ii) a signed off permit card
from the City of San Diego.

               (c) Tenant shall, promptly after request from Landlord, reimburse
for any costs or expenses incurred by Landlord in excess of $74,205.00 in
connection with the demolition of the existing improvements and returning the
Second Floor Office Space to shell condition; provided, however, that Tenant
shall not be required to reimburse Landlord more than $25,000. The third party
contractor who performs the demolition work to return the Second Floor Office
Space to shell condition shall be selected by Landlord after consultation with
Tenant.

               (d) Upon the expiration or earlier termination of this Lease, if
Landlord elects in its sole discretion to remove any of the Tenant Improvements,
Tenant shall, promptly after request from Landlord, reimburse Landlord for any
costs or expenses incurred by Landlord up to a maximum of $74,205.00.

               (e) Landlord shall pay the 1st $10,000 of any required HVAC
repairs and related costs in connection with the Second Floor Office Space in
the building located at 9363 Towne Centre Drive; provided, however, that no
portion of such $10,000 shall be used to pay any HVAC maintenance costs.

               (f) Until July 1, 2003, Tenant acknowledges that Landlord has the
right to install chases on the second floor of the building located at 9363
Towne Centre Drive for

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                       4
<PAGE>

equipment serving the first floor of such building that will be located on the
roof. Tenant acknowledges that during the period until July 1, 2003, such
installation may adversely impact the construction of the Tenant Improvements
and Tenant's use and enjoyment of the Second Floor Office Space. Tenant agrees
to cooperate with Landlord and to permit Landlord and its contractors to enter
the Second Floor Office Space so that Landlord may install chases in locations
selected by Landlord.

        8. First Floor Laboratory Tenant Improvements.

               (a) Landlord shall construct the First Floor Laboratory Space in
accordance, in all material respects, with the plan attached hereto as EXHIBIT B
("LANDLORD'S WORK").

               (b) Landlord shall substantially complete or cause to be
substantially completed Landlord's Work in a good and workmanlike manner subject
to Minor Variations and normal "punch list" items of a non-material nature which
do not interfere with the use of the First Floor Laboratory Space ("SUBSTANTIAL
COMPLETION"). Upon the Substantial Completion of Landlord's Work, Landlord shall
require Landlord's architect and/or the general contractor to execute and
deliver, for the benefit of Tenant and Landlord, a Certificate of Substantial
Completion in the form of the American Institute of Architects document G704.
For purposes hereof, "MINOR VARIATIONS" shall mean any modifications reasonably
required: (i) to comply with all applicable legal requirements and/or to obtain
or to comply with any required permit; (ii) to comport with good design,
engineering, and construction practices which are not material; or (iii) to make
reasonable adjustments for field deviations or conditions encountered during the
construction of Landlord's Work.

               (c) Tenant shall be entitled to receive the benefit of all
construction warranties and manufacturer's equipment warranties relating to
equipment installed in the First Floor Laboratory Space.

               (d) In addition to Landlord's Work, Landlord shall provide to
Tenant an allowance of not more than $81,200 (the "LABORATORY ALLOWANCE") for
Laboratory Improvements to the portion of the First Floor Laboratory Space
containing approximately 812 rentable square feet and which space is more
particularly shown on EXHIBIT C attached hereto (the "LABORATORY ALLOWANCE
SPACE"). The "LABORATORY IMPROVEMENTS" shall mean the construction of a vivarium
in the Laboratory Allowance Space. The Laboratory Improvements shall be
undertaken by Tenant in accordance with the requirements for alterations which
are set forth in Section 17 of the Original Lease. Other than funding the
Laboratory Allowance as provided herein, Landlord shall not have any obligation
whatsoever with respect to the finishing of the Laboratory Allowance Space for
Tenant's use and occupancy. It is understood and agreed that Landlord is under
no obligation to bear any portion of the cost of any of the Laboratory
Improvements except to the extent of the Laboratory Allowance. The provisions of
Section 7(b) above regarding Tenant Improvements shall also apply to Laboratory
Improvements. Tenant acknowledges and agrees that completion of the Laboratory
Improvements is not a condition precedent and is unrelated to the First Floor
Laboratory Effective Date. Tenant further acknowledges and agrees that under no
circumstances may the construction of Landlord's Work be delayed or impacted by
the construction of the Laboratory Improvements. If for any reason Landlord's
Work is delayed or impacted by the construction of the Laboratory Improvement,
the

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                       5
<PAGE>

First Floor Laboratory Effective Date shall be the date determined by Landlord
that Landlord's Work would have be Substantially Completed but for such delay or
impact.

        9. Early Access.

               (a) Landlord hereby agrees to permit Tenant access, at Tenant's
sole risk and expense, to the First Floor Laboratory Space 30 days prior to the
First Floor Laboratory Space Effective Date to perform any work required by
Tenant (other than Landlord's Work); provided that all of Tenant's work is
coordinated with Landlord's architect and the general contractor, and complies
with the Lease and all other reasonable restrictions and conditions Landlord may
impose, and all such access shall be during normal business hours or at such
other times as are reasonably designated by Landlord. Any entry by Tenant shall
comply with all established safety practices of Landlord's contractor and
Landlord until completion of Landlord's Work and acceptance thereof by Tenant.

               (b) Neither Tenant nor its employees, consultants, agents,
contractors, and suppliers shall interfere with the performance of Landlord's
Work in the First Floor Laboratory Space, nor with any inspections or issuance
of any approvals by San Diego County or the City of San Diego, and upon any such
interference, Landlord shall have the right to exclude Tenant and Tenant's
employees, consultants, contractors and agents from the First Floor Laboratory
Space until Substantial Completion of Landlord's Work.

               (c) In connection with Tenant's right to access the First Floor
Laboratory Space prior to the First Floor Laboratory Effective Date, Tenant
hereby agrees to indemnify and hold Landlord harmless from any loss of or damage
to Tenant's property, completed work, fixtures, equipment, materials or
merchandise, and from liability for death of, or injury to, any person, caused
by the willful misconduct or negligence of Tenant or its agents.

        10. Parking. Tenant shall have the right to park in common with other
tenants of the Project pro rata in accordance with the rentable area of the
Second Floor Office Space and First Floor Laboratory Space and the rentable
areas of the Project occupied by such other tenants in those areas designated
for non-reserved parking, subject in each case to Landlord's rules and
regulations.

        11. Signage. Tenant shall be entitled, at Tenant's sole cost and
expense, (i) to place a sign with Tenant's trade name and/or corporate trademark
on the entrance (inside the building) to the Second Floor Office Space and the
First Floor Laboratory Space (collectively, the "SUITE SIGN"), and (ii) to place
one sign with Tenant's name on the exterior of the building located at 9363
Towne Centre Drive (the "BUILDING SIGN"). The Suite Sign and the Building Sign
shall be referred to herein collectively as "TENANT'S SIGNS." Tenant Signs shall
be subject to Landlord's prior written approval with respect to signage contents
(other than the appearance of Tenant's trade name and corporate trademark),
which approval shall not be unreasonably withheld. If, in addition to Tenant's
Signs, Tenant desires to place any other sign on the Premises ("ADDITIONAL
SIGN"), and Landlord is willing at that time to consent to allow Tenant to do
so, such Additional Sign shall conform Landlord's portfolio design criteria.
Tenant shall be solely responsible for all costs, fees, charges, expenses or
other sums related to Tenant's Signs and Additional Sign, including without
limitation, costs related to (i) manufacture, installation and maintenance of

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                       6
<PAGE>

Tenant's Signs, and Additional Sign, (ii) removal of Tenant's Signs, and
Additional Sign upon the expiration or earlier termination of the Lease or the
termination of Tenant's right thereto, (iii) permits required by any
governmental authority with respect to Tenant's Signs and Additional Sign, and
(iv) assuring that Tenant's Signs and Additional Sign conform to all legal
requirements applicable to the Project.

        12. Extension Option. If Tenant is not then in Default, and provided
that Tenant shall deliver written notice to Landlord of its exercise of this
option not later than 9 months prior to the Expiration Date, then Tenant shall
have the right to extend the Term of the Lease for the Premises for a period of
36 months beyond the Expiration Date (the "EXTENDED TERM"). If written notice is
not timely given by Tenant and received by Landlord, this option shall
automatically expire and be of no further force or effect. This option shall
terminate in the event Tenant shall sublease or assign any part of the Premises.
Except for (i) Basic Annual Rent and the monthly installments thereof which
shall be increased by 3.5% on the first day of the Extended Term and by 3.5% on
each anniversary thereof, and (ii) Landlord providing Tenant with an allowance
of $123,675.00 for Tenant Improvements which allowance shall be made available
to Tenant as provided for in Section 7(b), the terms, covenants, and conditions
for the Extended Term shall be the same as in the Lease. This option is personal
to Tenant, and may not be transferred.

        13. Right to Expand.

               (a) Tenant shall have the right, but not the obligation, to
expand the Premises (the "EXPANSION RIGHT") to include any space available in
the building located at 9373 Towne Centre Drive (the "EXPANSION SPACE") upon the
terms and conditions in this Section. If Vical Inc., does not exercise any of
its extension rights with respect to the Expansion Space, Landlord shall deliver
to Tenant written notice (the "EXPANSION NOTICE") of the availability of the
Expansion Space, together with the terms and conditions on which Landlord is
prepared to lease to Tenant such portion of the Expansion Space. Tenant shall
have 10 business days following delivery of the Expansion Notice to deliver to
Landlord written notification of Tenant's exercise of the Expansion Right and
Tenant's acceptance of the terms and conditions set forth in the Expansion
Notice.

               (b) If: (i) Tenant fails to timely deliver notice accepting the
terms of an Expansion Notice, or (ii) after the expiration of a period of 10
days from the date Tenant gives notice accepting Landlord's offer to lease such
Expansion Space, no lease amendment or lease agreement for the Expansion Space
has been executed, and Landlord tenders to Tenant an amendment to this Lease
setting forth the terms for the rental of the Expansion Space consistent with
those set forth in the Expansion Notice and otherwise consistent with the terms
of this Lease and Tenant fails to execute such Lease amendment within 10
business days following such tender, Tenant shall be deemed to have waived its
right to lease such Expansion Space.

               (c) Exceptions. Notwithstanding the above, the Expansion Right
shall not be in effect and may not be exercised by Tenant:

                      (i) during any period of time that Tenant is in Default
                      under any provision of the Lease; or

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                       7
<PAGE>

                      (ii) if Tenant has been in Default under any provision of
                      the Lease 3 or more times, whether or not the Defaults are
                      cured, during the 12 month period prior to the date on
                      which Tenant seeks to exercise the Expansion Right.

               (d) Termination. The Expansion Right shall terminate and be of no
further force or effect even after Tenant's due and timely exercise of the
Expansion Right, if, after such exercise, but prior to the commencement date of
the Expansion Space, (i) Tenant fails to timely cure any default by Tenant under
the Lease; or (ii) Tenant has Defaulted 3 or more times during the period from
the date of the exercise of the Expansion Right to the date of the commencement
of the lease of the Expansion Space, whether or not such Defaults are cured.

               (e) Expansion Rights are personal to Tenant and are not
assignable without Landlord's consent, which may be granted or withheld in
Landlord's sole discretion separate and apart from any consent by Landlord to an
assignment of Tenant's interest in the Lease.

        14. Broker. Landlord and Tenant each represent and warrant that it has
not dealt with any broker, agent or other person (collectively, "BROKER") in
connection with this transaction other than Burnham Real Estate Services and
that no Broker other than Burnham Real Estate Services was the procuring cause
of the transaction. Landlord shall pay Burnham Real Estate Services a commission
in connection with this transaction pursuant to a separate written agreement
entered into between Landlord and Burnham Real Estate Services. Landlord and
Tenant each hereby agree to indemnify and hold the other harmless from and
against any claims by any Broker other than Burnham Real Estate Services
claiming a commission or other form of compensation by virtue of having dealt
with Tenant or Landlord, applicable, with regard to the transaction documented
by this Tenth Amendment.

        15. Governing Law. This Tenth Amendment shall be governed by and
construed and enforced in accordance with, the laws of the State of California,
regardless of conflict of laws principles.

        16. Counterparts. This Tenth Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts taken together shall constitute but
one and the same instrument. Signature pages may be detached from the
counterparts and attached to a single copy of this Tenth Amendment to physically
form one document.

        17. Reaffirmation of Obligations. Each party hereby acknowledges and
reaffirms all of its obligations under the Lease, as such Lease has been amended
by this Tenth Amendment, and agrees that any reference made in any other
document to the Lease shall mean the Lease as amended pursuant to this Tenth
Amendment. Each party acknowledges that, to the best of such party's knowledge,
it is not currently in default of any obligation under the Lease. Except as
expressly provided herein, the Lease remains unmodified and in full force and
effect. Any breach by either party of this Tenth Amendment, including any
exhibit hereto, shall constitute a breach and default by such party under the
Lease.

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                       8
<PAGE>

        18. Time of Essence. Time is of the essence with respect to each
provision of this Tenth Amendment.

                       SIGNATURES APPEAR ON FOLLOWING PAGE

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                       9
<PAGE>

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

                                   "Landlord"

                                   ARE-9363/9373/9393 TOWNE CENTRE, LLC,
                                   a Delaware limited liability company

                                   By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
                                       a Delaware limited partnership,
                                       as Managing Member

                                       By: ARE-QRS CORP.,
                                           a Maryland corporation,
                                           as General Partner

                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Its:
                                               ---------------------------------

                                   "Tenant"

                                   AMYLIN PHARMACEUTICALS, INC.,
                                   a Delaware corporation

                                   By:
                                      ------------------------------------------
                                   Name:
                                        ----------------------------------------
                                   Its:
                                       -----------------------------------------

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                       10
<PAGE>

                                    EXHIBIT A

                    DESCRIPTION OF SECOND FLOOR OFFICE SPACE

                                   [Attached]

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                       A-1
<PAGE>

                                    EXHIBIT B

                   DESCRIPTION OF FIRST FLOOR LABORATORY SPACE

                                   [Attached]

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                      B-1
<PAGE>

                                    EXHIBIT C

                        FIRST FLOOR LABORATORY SPACE PLAN

                                   [Attached]

                                        CONFIDENTIAL - DO NOT COPY OR DISTRIBUTE

                                      C-1EXHIBIT 4.1

                        California Water Service Company

                       Fourth Supplement to Note Agreement

                           Dated as of August 15, 2002

                   Re: $20,000,000 5.90% Series F Senior Notes
                              Due November 1, 2017

                                                                               5
<PAGE>

Fourth Supplement to Note Agreement

Dated as of
August 15, 2002

To the Purchasers named in
Schedule A hereto

Ladies and Gentlemen:

This Fourth Supplement to Note Purchase  Agreement (the "Fourth  Supplement") is
between  California  Water Service Company (the "Company") whose address is 1720
North First Street, San Jose,  California 95112 and the institutional  investors
named on Schedule A attached hereto (the "Purchasers"). Reference is hereby made
to that certain Note Agreement dated as of March 1, 1999 (the "Note  Agreement")
between  the  Company  and the  purchasers  listed on  Schedule I  thereto.  All
capitalized  terms not otherwise  defined  herein shall have the same meaning as
specified  in the Note  Agreement.  Reference  is further  made to  Section  4.3
thereof which requires that, prior to the delivery of any Additional  Notes, the
Company and each  Additional  Purchaser  shall execute and deliver a Supplement.
The  Company  hereby  agrees with the  Purchasers  named on Schedule A hereto as
follows:

1. The  Company  has  authorized  the  issue and sale of  $20,000,000  aggregate
principal  amount of its 5.90%  Series F Senior  Notes due November 1, 2017 (the
"Series  F  Notes").  The  Series F  Notes,  together  with  the  Series B Notes
initially  issued  pursuant  to the Note  Agreement,  the Series C Notes  issued
pursuant to the First  Supplement to Note Agreement dated as of October 1, 2000,
the Series D Notes issued  pursuant to the Second  Supplement to Note  Agreement
dated as of September 1, 2001,  the Series E Notes issued  pursuant to the Third
Supplement  to Note  Agreement  dated  as of May 1,  2002  and  each  Series  of
Additional  Notes  which  may  from  time  to  time be  issued  pursuant  to the
provisions of Section 1.4 of the Note Agreement, are collectively referred to as
the "Notes" (such term shall also include any such notes issued in  substitution
therefor  pursuant  to Section  9.2 of the Note  Agreement).  The Series F Notes
shall be substantially in the form set out in Exhibit 1 hereto with such changes
therefrom, if any, as may be approved by the Purchasers and the Company.

2.  Subject  to the terms  and  conditions  hereof  and as set forth in the Note
Agreement and on the basis of the representations and warranties hereinafter set
forth,  the  Company  agrees  to  issue  and  sell to each  Purchaser,  and each
Purchaser  agrees to purchase from the Company,  Series F Notes in the principal
amount set forth opposite such  Purchaser's name on Schedule A hereto at a price
of 100% of the principal amount thereof on the closing date hereafter mentioned.

3. Delivery of the  $20,000,000  in aggregate  principal  amount of the Series F
Notes will be made at the offices of Chapman and Cutler, 111 West Monroe Street,
Chicago,  Illinois  60603-4080  against  payment  therefor in Federal Reserve or
other funds current and immediately available at the principal office of Bank of
America, ABA No. 121000358,  Account No. 14879-00161,  Account Name:  California
Water Service  Company  Security  Sales,  in the amount of the purchase price at
11:00 A.M.,  San  Francisco,  California  time, on August 27, 2002 or such later
date (not later than  August 31,  2002) as shall  mutually be agreed upon by the
Company and the Purchasers of the Series F Notes (the "Closing Date").

4. Prepayment of Notes.

         (a) Required  Prepayments.  No prepayments are required to be made with
respect to the Series F Notes prior to the expressed maturity date thereof other
than  prepayments  made in connection with an acceleration of the Series F Notes
pursuant to the provisions of Section 6.3 of the Note Agreement.

         (b) Optional Prepayment with Premium. Upon compliance with Section 4(d)
below the Company shall have the  privilege,  at any time and from time to time,
of prepaying  the  outstanding  Notes of any Series,  either in whole or in part
(but if in part then in a minimum  principal  amount of  $100,000) by payment of
the  principal  amount of the Notes of such  Series,  or  portion  thereof to be
prepaid,  and accrued interest thereon to the date of such prepayment,  together
with a premium equal to the  Make-Whole  Amount,  determined as of five Business
Days prior to the date of such prepayment pursuant to this Section 4(b).

         (c) Optional  Prepayment  at Par in the Event of  Condemnation.  In the
event a Material  Condemnation  shall have occurred with respect to any property
of the Company or a Restricted  Subsidiary,  then upon  compliance  with Section
4(d) below the Company  shall have the privilege of applying the

                                                                               6
<PAGE>

proceeds of any  condemnation  award  received in connection  with such Material
Condemnation  to the  prepayment  of the  principal  amount  of the Notes of any
Series then outstanding,  or any portion thereof to the extent of such proceeds,
together  with  accrued  interest  thereon to the date of such  prepayment.  Any
optional prepayment made pursuant to this Section 4(c) shall be without premium.

         (d) Notice of Optional Prepayments. The Company will give notice of any
prepayment of the Notes pursuant to Section 4(b) or 4(c) to each Holder of Notes
to be prepaid  not less than 30 days nor more than 60 days before the date fixed
for such optional  prepayment  specifying (a) such date, (b) the Section of this
Fourth  Supplement  under which the  prepayment is to be made, (c) the principal
amount of the Holder's  Notes to be prepaid on such date,  (d) whether a premium
may be payable,  (e) the date when the premium, if any, will be calculated,  (f)
the estimated premium,  together with a reasonably detailed  computation of such
estimated  premium,  and (g) the accrued interest  applicable to the prepayment.
Such  notice of  prepayment  shall also  certify  all facts,  if any,  which are
conditions precedent to any such prepayment. Notice of prepayment having been so
given, the aggregate  principal  amount of the Notes to be prepaid  specified in
such notice,  together with accrued  interest  thereon and the premium,  if any,
payable with respect thereto shall become due and payable on the prepayment date
specified  in said  notice.  Not  later  than  two  Business  Days  prior to the
prepayment date specified in such notice,  the Company shall provide each Holder
of a Note to be  prepaid  written  notice of the  premium,  if any,  payable  in
connection with such prepayment  and,  whether or not any premium is payable,  a
reasonably detailed computation of the Make-Whole Amount.

         (e) Application of Prepayments.  In the case of each partial prepayment
of the Notes  pursuant to the  provisions of Section 4(b) or 4(c), the principal
amount of the Notes of the Series to be prepaid shall be allocated  among all of
the Notes of such Series at the time  outstanding  in  proportion,  as nearly as
practicable, to the respective unpaid principal amounts thereof.

         (f) Direct Payment.  Notwithstanding anything to the contrary contained
in the Note Agreement,  this Fourth  Supplement or the Notes, in the case of any
Note owned by any Holder that is a Purchaser,  Additional Purchaser or any other
Institutional  Holder which has given written  notice to the Company  requesting
that  the  provisions  of this  Section  4(f)  shall  apply,  the  Company  will
punctually pay when due the principal thereof,  interest thereon and premium, if
any,  due with  respect to said  principal,  without  any  presentment  thereof,
directly to such Holder at its address set forth herein or such other address as
such Holder may from time to time  designate  in writing to the Company or, if a
bank account with a United  States bank is so  designated  for such Holder,  the
Company  will make such  payments in  immediately  available  funds to such bank
account,  marked for attention as indicated,  or in such other manner or to such
other  account in any United  States  bank as such  Holder may from time to time
direct in writing.

         (g) Make Whole  Amount.  The term  "Make-Whole  Amount" shall mean with
respect to the Series F Notes in connection with any prepayment or acceleration,
the following:  the excess, if any, of (a) the aggregate present value as of the
date of such prepayment of each dollar of principal being prepaid and the amount
of interest (exclusive of interest accrued to the date of prepayment) that would
have been  payable  in respect of such  dollar if such  prepayment  had not been
made,  determined by discounting such amounts at the Reinvestment  Rate from the
respective  dates on which they would  have been  payable,  over (b) 100% of the
principal  amount  of the  outstanding  Series  F Notes  being  prepaid.  If the
Reinvestment  Rate is equal to or higher than 5.90%, the Make-Whole Amount shall
be zero.  For purposes of any  determination  of the  Make-Whole  Amount for the
Series F Notes, the following terms have the following meanings:

"Reinvestment  Rate" shall mean (1) the sum of 0.50%, plus the yield reported on
page "USD" of the  Bloomberg  Financial  Markets  Services  Screen  (or,  if not
available,  any other nationally  recognized  trading screen  reporting  on-line
intraday  trading  in the United  States  government  Securities)  at 10:00 A.M.
(Chicago,  Illinois  time) for the United States  government  Securities  have a
maturity  (rounded to the nearest month)  corresponding to the Remaining Life to
Maturity of the principal of the Notes being prepaid or (2) in the event that no
nationally  recognized  trading screen reporting on-line intraday trading in the
United States government  Securities is available,  Reinvestment Rate shall mean
0.50%,  plus the  arithmetic  mean of the yields for the two  columns  under the
heading "Week  Ending"  published in the  Statistical  Release under the caption
"Treasury  Constant  Maturities" for the maturity (rounded to the nearest month)
corresponding  to the Remaining Life to Maturity of the principal being prepaid.
If no maturity  exactly  corresponds to such Remaining Life to Maturity,  yields
for the published  maturity next longer than the Remaining  Life to Maturity and
for the  published  maturity  next shorter than the  Remaining  Life to Maturity
shall be  calculated  pursuant to the  immediately  preceding  sentence  and the
Reinvestment Rate

                                                                               7
<PAGE>

shall be  interpolated  from such yields on a straight-line  basis,  rounding in
each of such  relevant  periods  to the  nearest  month.  For  the  purposes  of
calculating the Reinvestment Rate, the most recent Statistical Release published
prior to the  date of  determination  of the  Make-Whole  Amount  shall be used.
"Statistical  Release" shall mean the then most recently  published  statistical
release designated  "H.15(519)" or any successor  publication which is published
weekly by the Federal  Reserve System and which  establishes  yields on actively
traded U.S.  Government  Securities  adjusted to constant maturities or, if such
statistical release is not published at the time of any determination hereunder,
then such other  reasonably  comparable  index which shall be  designated by the
Holders holding 66-2/3% in aggregate  principal amount of the outstanding Series
F  Notes,  subject  to  approval  of the  Company  which  approval  will  not be
unreasonably withheld.

"Remaining Life to Maturity" of the principal amount of the Series F Notes being
prepaid shall mean, as of the time of any determination  thereof,  the number of
years (calculated to the nearest one-twelfth) which will elapse between the date
of determination and the final maturity of the Series F Notes being prepaid.

5. Closing Conditions.

         (a) Conditions. The obligation of each Purchaser to purchase the Series
F Notes on the Closing Date shall be subject to the  performance  by the Company
of its agreements  hereunder which by the terms hereof are to be performed at or
prior to the time of delivery of the Series F Notes and to the following further
conditions precedent:

         (i)  Closing   Certificate.   Such  Purchaser  shall  have  received  a
certificate  dated the Closing Date, signed by the President or a Vice President
of the  Company,  the truth and  accuracy of which shall be a condition  to such
Purchaser's  obligation  to purchase  the Series F Notes  proposed to be sold to
such Purchaser and to the effect that (1) the  representations and warranties of
the  Company  set forth in  Exhibit 2 hereto  are true and  correct  on and with
respect  to  the  Closing  Date,  (2)  the  Company  has  performed  all  of its
obligations hereunder which are to be performed on or prior to the Closing Date,
and (3) no Default or Event of Default has occurred and is continuing.

         (ii)  Compliance  Certificate.  Such  Purchaser  shall have  received a
certificate  dated the Closing Date,  signed by the Senior Financial  Officer of
the Company  stating that such officer has reviewed the  provisions  of the Note
Agreement  and this Fourth  Supplement  and setting  forth the  information  and
computation (in sufficient  detail)  required in order to establish  whether the
Company is in compliance  with Section 5.6 of the Note  Agreement on the Closing
Date.

         (iii) Legal  Opinions.  Such Purchaser shall have received from Bingham
McCutchen LLP, counsel for the Company, and Chapman and Cutler,  special counsel
for the Purchasers, their opinions dated the Closing Date, in form and substance
satisfactory to such Purchasers, and covering the matters set forth respectively
in Exhibits 3 and 4 hereto.

         (iv) Regulatory Approval. Prior to the Closing Date, the issue and sale
of the Series F Notes shall have been duly authorized or approved by appropriate
order  of the  Public  Utilities  Commission  of the  State of  California  (the
"Commission").  Such  order  shall be final and in full force and effect and not
subject to any appeal,  hearing,  rehearing or contest. All conditions contained
in any such order which are to be  fulfilled  on or prior to the issuance of the
Series F Notes shall have been  fulfilled.  The Company shall have  delivered to
the Purchasers and their special  counsel a certified copy of such order and the
application therefor.

         (v) Related  Transactions.  The Company shall have consummated the sale
of the entire principal amount of the Series F Notes scheduled to be sold on the
Closing Date pursuant to this Fourth Supplement.

         (vi) Satisfactory Proceedings. All proceedings taken in connection with
the  transactions  contemplated  by this Fourth  Supplement,  and all  documents
necessary  to the  consummation  thereof,  shall  be  satisfactory  in form  and
substance to such  Purchaser  and such  Purchaser's  special  counsel,  and such
Purchaser  shall  have  received  a  copy  (executed  or  certified  as  may  be
appropriate) of all legal documents or proceedings  taken in connection with the
consummation of said transactions.

         (vii)  Purchase  Permitted By Applicable  Law. On the Closing Date, the
purchase of Series F Notes shall (a) be permitted by the laws and regulations of
each  jurisdiction  to which any  Purchaser  is  subject,  without  recourse  to
provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting
limited  investments  by  insurance  companies  without  restriction  as to  the
character of the  particular  investment,  (b) not violate any applicable law or
regulation (including, without limitation,  Regulation U, T or X of the Board of
Governors of the Federal  Reserve  System) and (c) not subject any  Purchaser to
any tax,  penalty  or  liability  under or  pursuant  to any  applicable  law or
regulation,  which law

                                                                               8
<PAGE>

or  regulation  was not in  effect  on the  date  hereof.  If  requested  by any
Purchaser,   such  Purchaser  shall  have  received  an  Officer's   Certificate
certifying as to such matters of fact as such Purchaser may  reasonably  specify
to enable such Purchaser to determine whether such purchase is so permitted.

         (viii) Payment of Special Counsel Fees. The Company shall have paid, on
or  before  the  Closing  Date,  the  fees,  charges  and  disbursements  of the
Purchasers'  special counsel referred to in (iii) above, to the extent reflected
in a statement of such counsel rendered to the Company at least one Business Day
prior to the Closing Date.

         (ix) Private  Placement  Number.  A Private  Placement Number issued by
Standard & Poor's  CUSIP  Service  Bureau (in  cooperation  with the  Securities
Valuation Office of the National  Association of Insurance  Commissioners) shall
have been obtained for the Series F Notes.

         (b) The  obligation  of the  Company  to  deliver  the  Series  F Notes
hereunder  is  subject  to the  conditions  that (i) the  Commission  shall have
authorized  the  issuance  and sale by the  Company of the Series F Notes at the
price herein provided and said  authorization  shall be in full force and effect
and (ii) the entire  principal amount of the Series F Notes scheduled to be sold
on the Closing Date pursuant to this Fourth  Supplement shall have been tendered
by the  Purchasers.  If the  condition  specified in this Section 5(b) shall not
have been fulfilled prior to or on the Closing Date, this Fourth  Supplement and
all the obligations of the Company hereunder,  except as provided in Section 9.4
of the Note Agreement, may be cancelled by the Company.

         (c) If on the Closing Date the Company fails to tender to any Purchaser
the  Series  F Notes  to be  issued  to any  Purchaser  on  such  date or if the
conditions specified in Section 5(a) have not been fulfilled, such Purchaser may
thereupon  elect to be  relieved of all  further  obligations  under this Fourth
Supplement.  Without  limiting the  foregoing,  if the  conditions  specified in
Section 5(a) have not been fulfilled, such Purchaser may waive compliance by the
Company with any such condition to such extent as such Purchaser may in its sole
discretion determine.  Nothing in this Section 5(c) shall operate to relieve the
Company of any of its obligations  hereunder or to waive any Purchaser's  rights
against the Company.

6.  Each  Purchaser   represents  and  warrants  that  the  representations  and
warranties  set forth in Section 3.2 of the Note  Agreement are true and correct
on the  date  hereof  with  respect  to the  Series  F Notes  purchased  by such
Purchasers.

7. The Company and each Purchaser agree to be bound by and comply with the terms
and  provisions  of the Note  Agreement  as if such  Purchaser  were an original
signatory to the Note Agreement.

The  execution  hereof shall  constitute a contract  between the Company and the
Purchaser(s) for the uses and purposes hereinabove set forth, and this agreement
may be  executed  in any  number  of  counterparts,  each  executed  counterpart
constituting an original but all together only one agreement.

California Water Service Company

By                Name:    Gerald F. Feeney
Title:   Vice President, Chief Financial Officer and Treasurer

                                                                               9
<PAGE>

[Form of Series F Note]

This Note has not been  registered  with the Securities And Exchange  Commission
under the Securities Act of 1933, as amended, and any sale, transfer,  pledge or
other disposition thereof may be made only (1) in a transaction registered under
said Act or (2) if an exemption from  registration  under said Act is available.
California Water Service Company

5.90% Series F Senior Note
Due November 1, 2017

PPN:  130789 M@ 6
No. August 27, 2002
$
California Water Service Company, a California corporation (the "Company"),  for
value received, hereby promises to pay to

or registered assigns
on the first day of November, 2017,
the principal amount of

         Dollars ($____________)

and to pay interest  (computed  on the basis of a 360-day year of twelve  30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate  of  5.90%  per  annum  from  the  date  hereof  until  maturity,   payable
semiannually on the first day of each May and November in each year  (commencing
on the first of such dates after the date hereof) and at  maturity.  The Company
agrees to pay interest on overdue  principal  (including any overdue required or
optional  prepayment  of  principal)  and  premium,  if any,  and (to the extent
legally  enforceable)  on any overdue  installment  of interest,  at the rate of
7.90% per annum after the due date, whether by acceleration or otherwise,  until
paid. Both the principal hereof and interest hereon are payable at the principal
office of the Company in San Jose,  California in coin or currency of the United
States of  America  which at the time of payment  shall be legal  tender for the
payment of public and private debts.

This  Note is one of a series  of  Notes  (the  "Notes")  issued  pursuant  to a
supplement to the Note Agreement dated as of March 1, 1999 (as from time to time
amended  and  supplemented,  the "Note  Agreement"),  between the  Company,  the
Purchasers  named therein and  Additional  Purchasers of Notes from time to time
issued  pursuant  to any  Supplement  to the Note  Agreement.  This Note and the
holder  hereof are  entitled  equally and ratably  with the holders of all other
Notes of all Series from time to time  outstanding  under the Note  Agreement to
all the  benefits  provided  for thereby or referred to therein.  Each holder of
this  Note  will  be  deemed,  by  its  acceptance  hereof,  to  have  made  the
representation  set forth in Section 3.2 of the Note  Agreement,  provided  that
such holder may (in reliance  upon  information  provided by the Company,  which
shall not be unreasonably withheld) make a representation to the effect that the
purchase by such holder of any Note will not constitute a non-exempt  prohibited
transaction under Section 406(a) of ERISA.

This Note and the  other  Notes  outstanding  under  the Note  Agreement  may be
declared due prior to their expressed  maturity dates, all in the events, on the
terms and in the manner and amounts as provided in the Note Agreement. The Notes
are not subject to  prepayment  or redemption at the option of the Company prior
to their expressed  maturity dates except on the terms and conditions and in the
amounts and with the premium, if any, set forth in the Note Agreement.

This Note is registered on the books of the Company and is transferable  only by
surrender  thereof at the  principal  office of the  Company  duly  endorsed  or
accompanied by a written  instrument of transfer duly executed by the registered
holder of this Note or its attorney duly authorized in writing. Payment of or on
account of principal,  premium,  if any, and interest on this Note shall be made
only to or upon the order in writing of the registered holder.

                                                                              10
<PAGE>

This Note shall be construed and enforced in accordance  with, and the rights of
the parties shall be governed by, the law of the State of  California  excluding
choice-of-law  principles  of the law of  such  State  that  would  require  the
application of the laws of a jurisdiction other than such State.

California Water Service Company

By
   Name:
   Title:

                                                                              11
<PAGE>

Representations and Warranties

The Company represents and warrants to each Purchaser that:

         1. Corporate Organization,  Subsidiaries. The Company is duly organized
and existing and in good  standing  under and by virtue of the laws of the State
of  California  and is duly  authorized  and  empowered  to own and  operate its
properties  and to carry on its  business,  all as and in the places  where such
properties  are now owned and  operated  and such  business  is  conducted.  The
Company has no Subsidiaries.

         2.  Corporate  Authority.  The  Company  has full  corporate  power and
corporate  authority to sell and issue the Series F Notes. The issuance and sale
of the Series F Notes and the  execution  and delivery of the Fourth  Supplement
will have been duly  authorized  by the Board of Directors of the Company and by
the Public  Utilities  Commission of the State of California (the  "Commission")
prior to the Closing  Date,  and no other action is required to be taken by, and
no consents or approvals are required to be obtained from, the  shareholders  of
the Company or any public body or bodies,  and no other corporate  action of the
Company is requisite to such issue and sale.

         3. Business and Property.  Each Purchaser has heretofore been furnished
with a copy of the Company  Information which generally sets forth the principal
properties  of the  Company  and  the  business  conducted  and  proposed  to be
conducted by the Company.

         4.  Indebtedness.  Annex A  attached  hereto  correctly  describes  all
Current Debt, Funded Debt and Capitalized  Leases of the Company  outstanding on
June 30, 2002.

         5.  Financial  Statements  and Reports.  The Company has furnished each
Purchaser with a copy of its audited  financial  reports for 1999, 2000 and 2001
hereinafter  called  the  "Company  Reports,"  and a copy of Form 10-K  filed by
California Water Service Group ("CWSG")  hereinafter called the "CWSG 10-K" with
the  Securities and Exchange  Commission for 2001,  together with all reports or
documents  required to be filed by CWSG  pursuant to Sections  13(a) or 15(d) of
the  Securities  Exchange Act of 1934, as amended,  since the filing of the CWSG
10-K. The Company has also furnished each Purchaser with an unaudited  quarterly
financial  statement for the Company for the fiscal quarter ended June 30, 2002,
and  Forms  10 Q for CWSG for the  fiscal  quarter  ended  June  30,  2002  (the
"Quarterly  Reports").  The  financial  statements  contained  in the  foregoing
Company Reports, the CWSG 10-K, the Quarterly Reports and such other reports and
documents  were  prepared  in  accordance  with  generally  accepted  accounting
principles upon a consistent  basis and are complete and correct and the balance
sheets included therein fairly present the financial condition of the Company or
CWSG, as the case may be, as at the respective  dates thereof and the Statements
of Income,  Common  Shareholders'  Equity and Cash Flows included therein fairly
present the  results of the  operations  of the Company for the periods  covered
thereby,  subject  in the  case  of  unaudited  statements  to  normal  year-end
adjustments.

         6.  Material  Contracts.  The Company has no contracts or  commitments,
whether  contingent  or other,  which are material to the Company and which were
not made in the ordinary course of business.  Certain material contracts related
to water  supply are listed in Annex B hereto.  The Company has no  contracts or
commitments,  contingent or other,  which  materially and adversely affect or in
the future may (so far as the  Company can  foresee)  materially  and  adversely
affect the Company or its business,  property,  assets, operations or condition,
financial or other. As at December 31, 2001, there were no material  liabilities
of the Company (other than those under contracts  entered into in the normal and
ordinary  course of business),  actual,  contingent  or accrued,  which were not
reflected  in the  Company  Reports and CWSG 10-K  except for (i)  liability  in
respect of uncompleted construction work under open contracts in connection with
the Company's  construction  program and (ii) the  obligations of the Company to
contribute  to a pension  plan,  an  employees'  savings  plan and a health  and
welfare plan.

         7. No  Material  Adverse  Change.  (a)  There has been no change in the
condition of the Company,  financial or other,  from that set forth or reflected
in the Company  Information,  other than changes  which may have occurred in the
ordinary course of business or by reason of ordinary  dividends paid or declared
or outstanding  First Mortgage Bonds redeemed by the Company in accordance  with
their terms,  and no such changes in the ordinary  course of business  have been
material adverse changes.

         (b)  Since  December  31,  2001,  neither  the  business,   operations,
properties  nor  assets of the  Company  have  been  adversely  affected  in any
material way by any casualties such as fire, windstorm, riot, strike, explosion,
accident, flood, earthquake,  lockout, sabotage, activities of armed forces, act
of God or

                                                                              12
<PAGE>

the public enemy or condemnation  of properties by the United States  government
or any municipal governmental agency, authority or body.

         8. Title to  Properties.  The  Company is engaged in the  business of a
public utility water company  serving all or a portion of the California  cities
and  communities  listed in the 2001 Company Report and paragraph 9 hereof.  The
Company  has  good  and  merchantable  title,  subject  only to the  lien of the
Mortgage  Indenture  and to current  tax and  assessment  liens,  rights-of-way,
easements  and certain  minor  liens,  encumbrances,  clouds or defects in title
which do not  materially  affect  the use  thereof,  to all the  material  water
distribution  facilities  (including,   without  limitation,   transmission  and
distribution  mains,  pump stations,  wells,  storage tanks and  reservoirs) and
other material units of property used in its business except as follows:

         (a) some of the offices,  but not its principal  office,  are in leased
premises and some wells, well sites and other minor distribution  facilities are
rented; and

         (b) several  wells are located on property  which the Company  does not
own but in which it has an easement for the  location of such wells;  and except
as to easements and rights-of-way and certain parcels of land (not exceeding for
said  parcels of land an  aggregate  book value of  $1,000,000)  with respect to
which there is a possibility  of reverter if the property  ceases to be used for
public  utility   purposes,   and,  except  that  the  greater  portion  of  its
transmission and distribution  systems is located in public highways and streets
and in  rights-of-way  owned by the Company over lands of others,  the Company's
title thereto is fee simple.

         Except for parcels of land having an  aggregate  book value of not more
than $1,000,000,  the Company has good and  merchantable  title to all its other
property and assets  subject only to the lien of the Mortgage  Indenture and the
lien of the Dominguez Mortgage Indenture and to current tax and assessment liens
and minor liens and encumbrances which do not materially affect the use thereof.
All of the  properties of the Company are located in the State of California and
substantially  all of the properties of the Company used or useful in its public
utility business are subject to the Mortgage Indenture.

         As used herein, the term "Dominguez Mortgage Indenture" means the Trust
Indenture dated as of August 1, 1954, as supplemented from time to time, between
the Company,  as successor to Dominguez  Water  Company  ("Dominguez")  and U.S.
Bank,  as  Trustee,  which  provides  a lien on  properties  owned by  Dominguez
immediately  prior to the merger  described  in  paragraph  9 hereof  which lien
secures  $9,000,000 in aggregate  principal amount of Dominguez bonds which were
assumed by the Company upon the merger.

         9. Franchises.  The Company has, in its judgment,  adequate  franchises
and  permits  without  burdensome   restrictions  (other  than  those  typically
contained  in  franchises  and  permits  of this  type) to allow the  Company to
conduct  the  business  in which it is  engaged.  The Company has two classes of
franchises to install and operate water pipes and mains under public streets and
highways:

         (a)  so-called  "constitutional"  franchises  obtained by virtue of the
provisions  of Article XI,  Section 19, of the  California  Constitution,  as in
effect prior to 1911; and

         (b) franchises  granted  pursuant to statutory  authority.  The Company
believes,  based on the  advice  of  counsel  (which is  itself  based  upon the
assumption of the accuracy of  information  obtained by the Company from sources
believed to be reliable that the following cities served by the Company were all
incorporated prior to 1911:

Bakersfield       Marysville        South San Francisco
Chico             Oroville          Stockton
Dixon             Redondo Beach     Visalia
Hermosa Beach     Salinas           Willows
King City         San Mateo
Livermore         Selma

         The water  distribution  systems were constructed and service furnished
to the inhabitants of each by various predecessors of the Company prior to 1911,
and  that  there  were  no  public  water  works  owned  or  controlled  by  the
municipality   in  any  of  them  prior  to  1911),   that  the  Company  has  a
"constitutional"   franchise  in  each  of  the  above  cities  and  under  such
constitutional  franchise  has a perpetual  right which was not  repealed by the
repeal of Article XI, Section 19, of the California  Constitution to continue to
occupy public streets of each of said cities with its pipes and mains and to lay
down  additional  pipes and mains in said  streets for the  supplying  of water,
subject to reasonable regulation by the respective municipalities.

                                                                              13
<PAGE>
         The Company also  believes,  based on the advice of counsel,  that this
right is not  limited to streets in which pipes or mains were laid prior to 1911
but extends at least to all streets in the said  municipalities  as they existed
at the date of repeal of the constitutional  provision in 1911 and probably also
extends to territory  incorporated  into each respective city after such repeal,
although  this  latter  question  remains  somewhat in doubt in the absence of a
final decision of the courts thereon.

         The  Company  holds  either  by  assignment  or  as  original   grantee
franchises  granted  under  statutory  authority  by the  Counties of Kern,  Los
Angeles,  San  Joaquin,  Santa  Clara and  Monterey,  the Cities of  Montebello,
Torrance, Cupertino, Sunnyvale, Los Altos, Mountain View, Bakersfield, Commerce,
San Carlos,  Rolling Hills Estates and Thousand Oaks, and the Towns of Los Altos
Hills and Atherton.  Following  incorporation of the City of Rancho Palos Verdes
in 1973, the Company made  franchise  payments to the City and the City accepted
the same as successor in interest to the  grantor's  rights under the  Company's
former  franchise  from the County of Los Angeles;  the City has agreed that the
Company may exercise its rights in the City under its current  County  franchise
until the expiration of that franchise in 2012.

         The Company's franchises from the Cities of Palos Verdes Estates, Menlo
Park and Woodside terminated in 1977, 1993 and 1994, respectively. While none of
the Cities and the Company have executed a new franchise agreement,  the Company
has made and will continue to make  franchise  payments to each of the Cities in
accordance with the provisions of the prior franchise.  In other areas where the
Company has no franchise, the Company or its predecessors have distributed water
for many years and, to the Company's knowledge, no question has ever been raised
as to the right to make such  distribution  and to maintain  all pipes and mains
necessary therefor.

         On May 25,  2000,  Dominguez  Service  Corporation  was merged into the
Company and subsequently  Dominguez and its  subsidiaries  were also merged into
the Company (collectively,  the "merger"). The Company acquired in the Dominguez
merger  operations in the following  cities,  counties,  townships or localities
that Dominguez previously served:

Bodfish                              Kern County              Los Angeles County
Carson Kernville                     Lucerne                  Compton
Lake Hughes                          Mountain Shadows         Duncans Mills
Lakeland                             Onyx                     Fremont Valley
Lancaster                            Squirrel Valley          Guerneville
Leona Valley                         Torrance                 Harbor City
Long Beach                           Wofford Heights

         Water  distribution  systems were constructed and service  furnished to
the  inhabitants of the localities  currently known as Carson,  Compton,  Harbor
City,  Long Beach and Torrance by various  predecessors  of the Company prior to
1911 and the  Company  believes  that it has a prior  right to  operate in these
locations which right was not extinguished by the  incorporation of these cities
subsequent to 1911.  Except as noted below,  Dominguez  has no  franchises  from
these  cities and has made no franchise  payments to them and, to the  Company's
knowledge,  no  question  has ever been  raised  as to the  right to make  water
distribution and to maintain all pipes and mains necessary therefor.

         As  to  the  remaining  localities,   Dominguez  has  received  written
franchise  agreements  which  are in full  force  and  effect  and has  paid all
franchise  fees to date,  with the  exception  of Compton and the City of Carson
Redevelopment Project #2, as to which the franchises expired without renewal in,
respectively,  1994 and 1998.  Dominguez  continued to provide water services to
Compton  and the City of  Carson  Redevelopment  Project  #2  subsequent  to the
expiration of the respective  franchises,  and to pay franchise fees, and to the
Company's  knowledge  no  question  has ever been raised as to the right to make
such distribution and to maintain all pipes and mains necessary therefor.

         10.  Condition  of Assets.  The  physical  assets of the Company are in
sound operating  condition,  there are no material arrears in the maintenance of
any such physical assets and the Company  believes that its sources of water are
adequate to meet its requirements for the foreseeable future.

         11. Pending Litigation, Proceedings. (a) There are no actions, suits or
proceedings  pending  at law or in equity or  before or by any  federal,  state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality,  domestic  or foreign,  or, to the  knowledge  of the  Company,
threatened  against or affecting the Company not adequately covered by insurance
or for which

                                                                              14
<PAGE>

reserves  adequate in the  Company's  judgment have not been  established  which
involve, in the opinion of the Company, a reasonable possibility of judgments or
liabilities exceeding $500,000 in the aggregate net of insurance,  or which may,
in the  opinion of the  Company  result in any  material  adverse  change in the
business or properties or in the condition,  financial or other, of the Company,
or the  ability  of the  Company  to perform  its  obligations  under the Fourth
Supplement or the Series F Notes.

         (b) There  are no  proceedings  pending  or,  to the  knowledge  of the
Company,  threatened  against the  Company  before or by any  federal,  state or
municipal commission, board or other administrative agency, which materially and
adversely affect the water rates of the Company presently in effect.

         (c) The  Company is not in  default  with  respect to any order,  writ,
injunction  or  decree  of  any  court,  or  any  federal,  state  or  municipal
commission,  board or other  administrative  agency and the Company has complied
with all applicable statutes and regulations of the United States of America and
of any state,  municipality or agency of any thereof,  in respect of the conduct
of its business known or believed by the Company to be applicable  thereto,  the
failure to comply  with which  could  reasonably  be expected to have a material
adverse effect on the Company or its properties.

         12. No  Condemnation  Proceedings.  Since January 1, 1995, no elections
have  been  held  or  other  actions  taken   authorizing  the  commencement  of
proceedings for  condemnation of any of the properties of the Company.  However,
from time to time  there are  expressions  of  interest  made by public  bodies,
elected or appointed municipal officials,  persons seeking political position or
citizens groups urging acquisition of the Company's facilities in one or more of
the  communities  served by the  Company.  The Company does not believe that any
acquisition  by a city or  municipality  of its  properties by  condemnation  or
threat thereof would be adverse to the holders of the Series F Notes.

         13. No  Burdensome  Restrictions.  The  Company  is not  subject to any
burdensome corporate  restrictions in its Articles of Incorporation,  By-Laws or
otherwise, which materially and adversely affect or in the future may (so far as
the Company can  foresee)  materially  and  adversely  affect the Company or its
business, property, assets, operations or condition, financial or other.

         14. Regulatory  Status,  Approval.  (a) The Company is not a registered
holding company or a subsidiary of a registered  holding company and the Company
is not  required to register  under the Public  Utility  Holding  Company Act of
1935, as amended. The Company is subject to the jurisdiction of the Commission.

         (b) No consent of, approval or authorization by, filing or registration
with, or notice to any  governmental  or public  authority or agency is required
for the  issuance,  sale or  delivery  of the  Series F Notes or the  execution,
delivery or performance of the Fourth  Supplement,  other than the authorization
of the Commission,  which authorization has been duly obtained, is in full force
and effect and is not subject to any appeal, hearing,  rehearing or contest. All
conditions  contained in any such authorization which were to be fulfilled on or
prior to the issuance of the Series F Notes have been fulfilled. The Company has
furnished  to your special  counsel  true,  correct and complete  copies of said
authorization  and all  applications  heretofore  filed with or submitted to the
Commission in connection with its action to obtain said authorization.

         15. No Defaults,  Compliance with Other Instruments. The Company is not
in default under any outstanding  indentures,  contracts or agreements which are
material to the Company including,  without limitation,  the Mortgage Indenture;
and on the  Closing  Date there will not exist any  condition  which  would be a
default  under any such  indenture,  contract or  agreement.  The  execution and
delivery of the Fourth Supplement,  the consummation of the transactions therein
provided for and compliance with the provisions of the Fourth Supplement and the
Series F Notes by the  Company  will not  violate or result in any breach of the
terms,  conditions or provisions of, or constitute a default under, its Articles
of Incorporation,  By-Laws or any indenture,  mortgage, deed of trust, bank loan
or credit  agreement,  or other  material  agreement or  instrument to which the
Company  is a party or by which the  Company  may be  bound,  nor will such acts
result  in the  violation  of any  applicable  law,  rule,  regulation  or order
applicable  to the  Company  of  any  court  or  governmental  authority  having
jurisdiction  in the  premises  or in the  creation or  imposition  of any lien,
charge or encumbrance of any nature  whatsoever,  upon any property or assets of
the Company.

         16. Leases.  The Company has the right to, and does, enjoy peaceful and
undisturbed possession under all material leases to which it is a party or under
which it is operating.  All such leases are valid,  subsisting and in full force
and effect, and the Company is not in default under any thereof and no event has
occurred  and is  continuing,  and no  condition  exists  that,  after notice or
passage of time or both could become a material default under any such Lease.

                                                                              15
<PAGE>

         17. Use of Proceeds.  The Company will use the gross  proceeds  derived
from the sale of the Series F Notes  under the Fourth  Supplement  to  refinance
existing  Indebtedness  and  to  finance  a  portion  of the  Company's  general
construction  program.  None  of the  transactions  contemplated  in the  Fourth
Supplement (including,  without limitation thereof, the use of the proceeds from
the sale of the Series F Notes) will violate or result in a violation of Section
7 of the Securities  Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto,  including without  limitation,  Regulations U, T and X of the
Board of Governors of the Federal  Reserve  System,  12 C.F.R.,  Chapter II. The
Company  does not own or intend to carry or purchase any "margin  stock"  within
the meaning of said Regulation U, including  margin stock  originally  issued by
it.  None of the  proceeds  from the sale of the  Series F Notes will be used to
purchase or carry (or refinance any borrowing the proceeds of which were used to
purchase or carry) any margin stock.

         18. ERISA.  (a) The fair market value of all assets under all "employee
pension  benefit  plans" (as such term is  defined  in  Section  3(2) of ERISA),
maintained  by the  Company,  as from  time to time in  effect,  exceeded  as of
December 31, 2001, the last annual  valuation date, the actuarial  present value
of all benefits vested under the Plans by more than $10,898,000.

         (b) Neither any of the Plans nor any of the trusts created  thereunder,
nor  any  trustee  or  administrator  thereof,  has  engaged  in  a  "prohibited
transaction,"  as such term is defined in Section  4975 of the Code which  could
subject  the  Plans  or  any  of  them,  any  such  trust,  or  any  trustee  or
administrator  thereof,  or any disqualified person with respect to the Plans to
the tax or penalty on  prohibited  transactions  imposed by said  Section  4975,
except  that,  with  respect to any  actions  or  omissions  of  administrators,
trustees,  other fiduciaries,  parties in interest or disqualified persons of or
in respect to the Plans (other than  employees of the Company),  the Company has
no knowledge  that any of such persons has  committed a prohibited  transaction,
nor has the Company participated knowingly in or knowingly undertaken to conceal
a prohibited  transaction with or by any of such persons nor enabled any of them
to commit a prohibited transaction.

         (c)  Neither  any of the  Plans  subject  to Title IV of ERISA  nor any
trusts  related  to such  plans  have been  terminated,  nor have there been any
Reportable Events, as that term is defined in Section 4043 of ERISA (as modified
by the  regulations  thereunder),  in respect of those plans since the effective
date of ERISA.

         (d)  Neither any of the Plans which are subject to Section 302 of ERISA
nor any trusts  related to such plans have  incurred  any  "accumulated  funding
deficiency,"  as such  term is  defined  in said  Section  302  (whether  or not
waived), since the effective date of ERISA.

         (e) The  consummation  of the  transactions  provided for in the Fourth
Supplement  and  compliance by the Company with the  provisions  thereof and the
Series F Notes issued  thereunder  will not involve any  prohibited  transaction
within the meaning of ERISA or Section 4975 of the Code.

         19. Taxes. All Federal,  state and local taxes and assessments due from
the Company have been (a) fully paid or adequately  provided for on the books of
the Company in accordance with generally accepted  accounting  principles or (b)
are being contested in good faith by the Company.  There has been no examination
of the Federal income tax returns of the Company by the Internal Revenue Service
subsequent to the examinations of the returns for tax years 1984-1991.

         20. Compliance with Laws. To the best of the Company's knowledge, after
due inquiry, the Company is in compliance with all applicable Federal, state, or
local laws, statutes, rules, regulations or ordinances relating to public heath,
safety or the environment,  including, without limitation, relating to releases,
discharges,  emissions or disposals to air, water,  land or ground water, to the
withdrawal  or use of  ground  water,  to  the  use,  handling  or  disposal  of
polychlorinated  biphenyls  (PCB's),  asbestos  or  urea  formaldehyde,  to  the
treatment,  storage,  disposal or management of hazardous substances (including,
without   limitation,   petroleum,   its   derivatives,   by-products  or  other
hydrocarbons),  and to exposure to hazardous  substances,  the failure to comply
with which could reasonably be expected to have a material adverse effect on the
Company or its properties.  Except as disclosed in the  "Environmental  Matters"
section  of Item 1 of the CWSG  10-K,  the  "Environmental  Matters"  section of
CWSG's 2001 Annual Report and the "Legal  Proceedings"  section of Item 3 of the
CWSG 10-K with  respect  to  matters in Chico and  Marysville,  California,  the
Company does not know of any  liability of the Company  under the  Comprehensive
Environmental  Response,  Compensation  and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601
et seq.) with respect to any property now or  heretofore  owned or leased by the
Company.

                                                                              16
<PAGE>

         21. Full Disclosure. The financial statements referred to in the Fourth
Supplement do not, nor does the Fourth  Supplement,  the Company  Information or
any written statement  (including without limitation the 2001 Company Report and
the 2001 CWSG  Report)  furnished by the Company to you in  connection  with the
negotiation of the sale of the Series F Notes, contain any untrue statement of a
material fact or, taken  together,  omit a material  fact  necessary to make the
statements  contained  therein or herein not misleading.  There is no fact which
the  Company  has not  disclosed  to you in  writing  which  materially  affects
adversely  nor, so far as the Company can now foresee,  will  materially  affect
adversely the properties,  business,  prospects, profits or condition (financial
or  otherwise)  of the  Company  or the  ability of the  Company to perform  its
obligations  under the Note  Agreement,  the Fourth  Supplement  or the Series F
Notes.

         22. Private Offering.  Neither the Company, directly or indirectly, nor
any agent on its  behalf  has  offered  or will  offer the Series F Notes or any
similar Security or has solicited or will solicit an offer to acquire the Series
F Notes or any similar  Security from or has otherwise  approached or negotiated
or will  approach or  negotiate  in respect of the Series F Notes or any similar
Security  with any  Person  other  than the  Purchasers.  Neither  the  Company,
directly  or  indirectly,  nor any agent on its behalf has offered or will offer
the Series F Notes or any similar  Security or has  solicited or will solicit an
offer to acquire the Series F Notes or any similar  Security  from any Person so
as to cause the  issuance  and sale of the Series F Notes not to be exempt  from
the provisions of Section 5 of the Securities Act of 1933, as amended.

                                                                              17
<PAGE>

Current Debt, Funded Debt and Capitalized Leases
as of June 30, 2002

1.       Current Debt

         $24,000,000 borrowed under the Company's bank short-term line of credit
         with Bank of America.

2.       Funded Debt

         $111,865,000  outstanding  under the Company's  various series of First
         Mortgage Bonds with due dates ranging from 2002 to 2023.
         $4,000,000 First Mortgage Bonds,  Series J due 2023 (formerly Dominguez
         Water Company).
         $5,000,000 First Mortgage Bonds,  Series K due 2012 (formerly Dominguez
         Water Company).
         $20,000,000 Series A Senior Notes due November 1, 2025.
         $20,000,000 Series B Senior Notes due November 1, 2028.
         $20,000,000 Series C Senior Notes due November 1, 2030.
         $20,000,000 Series D Senior Notes due November 1, 2031.
         $20,000,000 Series E Senior Notes due May 1, 2032.
         $2, 818,000  California  Department of Water  Resources  Loans maturing
         2011 to 2032.
         $459,000 obligations due on water system acquisitions.

3.       Capitalized Leases

         None.

Material Water Supply Contracts

1. Water Supply Contract between the Company and the County of Butte relating to
the Company's Oroville District.

2. Water  Supply  Contract  between the Company  and Kern  County  Water  Agency
relating to the Company's Bakersfield District.

3. Water Supply  Contract  between the Company and Stockton East Water  District
relating to the Company's Stockton District.

4.  Amended  Contract  between  the  Company and  Stockton  East Water  District
relating to the Company's Stockton District.

5.  Settlement  Agreement and Master Water Sales  Contract  between the City and
County of San Francisco and Certain Suburban Purchasers.

6.  Supplement to Settlement  Agreement and Master Water Sales Contract  between
the Company and the City and County of San  Francisco  relating to the Company's
Bear Gulch District.

7.  Supplement to Settlement  Agreement and Master Water Sales Contract  between
the Company and the City and County of San  Francisco  relating to the Company's
San Carlos District.

8.  Supplement to Settlement  Agreement and Master Water Sales Contract  between
the Company and the City and County of San  Francisco  relating to the Company's
San Mateo District.

9.  Supplement to Settlement  Agreement and Master Water Sales Contract  between
the Company and the City and County of San  Francisco  relating to the Company's
South San Francisco District.

10.  Water  Supply  Contract  between the Company and Santa Clara  Valley  Water
District relating to the Company's Los Altos District.

11.  Water  Supply  Contract  between the  Company and Pacific Gas and  Electric
Company related to the Company's Oroville District.

12. Water Supply  Contract  between the Company and Alameda County Flood Control
and Water Conservation District related to the Company's Livermore District.

13. Water Supply Contract  between the Company,  ARCO Products  Company and West
Basin Municipal Water District relating to recycled water.

Description of Closing Opinion
of Counsel to the Company

                                                                              18
<PAGE>

The closing opinion of Bingham McCutchen LLP, counsel for the Company,  which is
called for by Section  5(a)(iii)  of the Fourth  Supplement,  shall be dated the
Closing Date and addressed to the Purchasers, shall be satisfactory in scope and
form to the Purchasers and shall be to the effect that:

         1. The Company is a corporation duly incorporated, validly existing and
in corporate good standing under the laws of California.

         2. The execution and delivery by the Company of the Note Agreement, the
Fourth  Supplement  and the Notes,  and the  performance  by the  Company of its
obligations  under the Note Agreement,  the Fourth Supplement and the Notes, are
within  the  Company's  corporate  powers and have been duly  authorized  by all
requisite  corporate  action on the part of the  Company.  The  Company has duly
executed and delivered the Note Agreement, the Fourth Supplement and the Notes.

         3. Each of the Note  Agreement,  the  Fourth  Supplement  and the Notes
constitutes a valid and binding  agreement of the Company,  enforceable  against
the Company in accordance with its terms.

         4. The execution and delivery by the Company of the Note Documents, and
compliance by the Company with the provisions  thereof (i) will not, to the best
of our  knowledge,  result in a breach or default  (or give rise to any right of
termination,  cancellation or acceleration)  under the Articles of Incorporation
or By-Laws of the Company, or the Mortgage Indenture, the Credit Agreement dated
as of July 31, 2001,  between the Company and Bank of America as  Administrative
Agent,  or any  agreement  or other  instrument  that is  listed  as a  material
contract in CWSG's  Annual  Report on Form 10-K for the year ended  December 31,
2001.  To the  best  of  our  knowledge,  no  consent  or  approval  by,  or any
notification of or filing with, any court, public body or authority of the State
of  California  is  required  to be  obtained  or  effected  by the  Company  in
connection  with the execution,  delivery and  performance by the Company of the
Note  Documents  or  the  issuance  or  sale  of  the  Notes,   except  for  the
authorization of the Commission,  which authorization has been duly obtained and
is in full force and effect.

         5. Based upon the  representations set forth in Section 6 of the Fourth
Supplement,  the  accuracy  of  which  we have  not  independently  verified  or
investigated,   the  issuance,   sale  and  delivery  of  the  Notes  under  the
circumstances  contemplated by the Fourth Supplement do not, under existing law,
require the  registration  of the Notes  under the  Securities  Act of 1933,  as
amended, or the qualification of the Fourth Supplement or an indenture under the
Trust Indenture Act of 1939, as amended.

         6. Based upon the assumption of the accuracy of information obtained by
the Company  from  sources  believed by the Company to be reliable  (a) that the
following cities served by the Company were all incorporated prior to 1911:

Bakersfield
Marysville
South San Francisco

Chico
Oroville
Stockton

Dixon
Redondo Beach
Visalia

Hermosa Beach
Salinas
Willows

King City
San Mateo

Livermore
Selma

                                                                              19
<PAGE>

         (b) that  water  distribution  systems  were  constructed  and  service
furnished  to the  inhabitants  of each by various  predecessors  of the Company
prior to 1911; and

         (c) that there were no public  water works owned or  controlled  by the
municipality in any of them prior to 1911; in our opinion,

         (i) the Company has a  "constitutional"  franchise in each of the above
cities and under such "constitutional" franchise has a perpetual right which was
not  repealed  by the  repeal of  Article  XI,  Section  19,  of the  California
Constitution  to continue to occupy  public  streets of each of said cities with
pipes and mains and to lay down  additional  pipes and mains in said streets for
the  supplying of water,  subject to  reasonable  regulation  by the  respective
municipalities;

         (ii) this right is not  limited to streets in which pipes or mains were
laid  prior  to  1911  but   extends  at  least  to  all  streets  in  the  said
municipalities  as they  existed  at the date of  repeal  of the  constitutional
provision in 1911; and

         (iii) the right  probably  also extends to territory  annexed into each
respective city after such repeal, although this latter question is not entirely
free from doubt in the absence of a final decision of the courts thereon.

         7.  Dominguez  Services   Corporation  (along  with  its  subsidiaries,
"Dominguez")  was merged into the Company  effective  May 25, 2000 and Dominguez
Water  Company was also merged into the Company  effective  October 12, 2000. In
the Dominguez mergers,  the Company acquired the operations of Dominguez,  which
to our knowledge included service to the following cities,  counties,  townships
or localities:

Bodfish    Kernville     Mountain Shadows      Carson        Lake Hughes    Onyx
Compton    Lakeland      Torrance              Duncans Mills Lancaster
Squirrel Valley          Fremont Valley        Leona Valley  Wofford Heights
Guerneville              Long Beach            Los Angeles County
Harbor City              Lucerne               Kern County

         8. We note  that the  Officers'  Certificates  state  that:  (a) to the
Company's  knowledge,  water  distribution  systems were constructed and service
furnished  to the  inhabitants  of the  localities  currently  known as  Carson,
Compton,  Harbor City,  Long Beach and Torrance by various  predecessors  of the
Company  prior to 1911;  (b) the Company  believes  that it has a prior right to
operate in these locations which right was not extinguished by the incorporation
of these cities  subsequent to 1911; (c) except as noted below, to the Company's
knowledge  Dominguez  has no  franchises  from  these  cities  and  has  made no
franchise payments to them; and (d) to the Company's knowledge,  no question has
ever been raised as to the right to make water  distribution and to maintain all
pipes and mains necessary therefor.

         9. We note that the Officers'  Certificates  state that:  (a) as to the
remaining  localities  listed  in  paragraph  7,  to  the  Company's  knowledge,
Dominguez has received written franchise  agreements which are in full force and
effect and has paid all  franchise  fees to date,  with the exception of Compton
and the City of Carson  Redevelopment  Project  #2,  as to which the  franchises
expired  without renewal in,  respectively,  1994 and 1998; (b) to the Company's
knowledge, Dominguez continued to provide water services to Compton and the City
of  Carson  Redevelopment  Project  #2  subsequent  to  the  expiration  of  the
respective  franchises,  and to pay  franchise  fees;  and (c) to the  Company's
knowledge,  no  question  has ever  been  raised  as to the  right to make  such
distribution and to maintain all pipes and mains necessary therefor. The opinion
of Bingham  McCutchen LLP shall cover such other matters relating to the sale of
the Series F Notes as the  Purchasers may  reasonably  request.  With respect to
matters of fact on which such opinion is based,  such counsel  shall be entitled
to rely on  appropriate  certificates  of public  officials  and officers of the
Company.

Description of Special Counsel's Closing Opinion

         The  closing  opinion of Chapman  and  Cutler,  special  counsel to the
Purchasers,  called for by Section 5(a)(iii) of the Fourth Supplement,  shall be
dated the Closing Date and addressed to the Purchasers, shall be satisfactory in
form and substance to the Purchasers and shall be to the effect that:

                                                                              20
<PAGE>

         1. The Company is a corporation,  validly existing and in good standing
under the laws of the State of California  and has the  corporate  power and the
corporate  authority to execute and deliver the Fourth  Supplement  and to issue
the Series F Notes.

         2.  The  Note  Agreement  and the  Fourth  Supplement  have  been  duly
authorized by all necessary  corporate  action on the part of the Company,  have
been duly executed and delivered by the Company and constitute the legal,  valid
and binding  contract of the Company  enforceable in accordance  with its terms,
subject to  bankruptcy,  insolvency,  fraudulent  conveyance  and  similar  laws
affecting  creditors'  rights  generally,   and  general  principles  of  equity
(regardless  of whether the  application  of such  principles is considered in a
proceeding in equity or at law).

         3. The  Series F Notes  have  been  duly  authorized  by all  necessary
corporate  action  on the part of the  Company,  have  been  duly  executed  and
delivered by the Company and constitute the legal, valid and binding obligations
of  the  Company  enforceable  in  accordance  with  their  terms,   subject  to
bankruptcy,   insolvency,  fraudulent  conveyance  and  similar  laws  affecting
creditors' rights  generally,  and general  principles of equity  (regardless of
whether the  application  of such  principles  is  considered in a proceeding in
equity or at law).

         4. The  issuance,  sale and  delivery  of the Series F Notes  under the
circumstances  contemplated by the Fourth Supplement do not, under existing law,
require the registration of the Series F Notes under the Securities Act of 1933,
as amended,  or the  qualification of an indenture under the Trust Indenture Act
of 1939, as amended.

         The  opinion of Chapman and Cutler may rely upon the opinion of Bingham
McCutchen LLP as to matters of California law. The opinion of Chapman and Cutler
shall also state that the opinion of Bingham  McCutchen LLP is  satisfactory  in
scope and form to Chapman and Cutler and that, in their opinion,  the Purchasers
are justified in relying thereon.

         In rendering  the opinion set forth in  paragraph 1 above,  Chapman and
Cutler may rely,  as to matters  referred  to in  paragraph  1,  solely  upon an
examination of the Articles of Incorporation  certified by, and a certificate of
good  standing  of the  Company  from,  the  Secretary  of State of the State of
California,  the By-laws of the Company and the general business corporation law
of the State of California.

         With  respect to  matters  of fact upon  which  such  opinion is based,
Chapman and Cutler may rely on appropriate  certificates of public officials and
officers  of the  Company  and  upon  representations  of the  Company  and  the
Purchasers  delivered in  connection  with the issuance and sale of the Series F
Notes.

                                                                              21

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00044-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00044-of-00352.parquet"}]]