Document:

<PAGE>
                                                                   Exhibit 10.58

                                 PROMISSORY NOTE

                                   $300,000.00

                           San Diego, CA July 29, 2002

        For value received, the undersigned hereby promises to pay to Discovery
Partners International, Inc., a Delaware corporation, or order (the "Holder") at
9640 Towne Centre Drive, San Diego, CA 92121, the principal amount of Three
Hundred Thousand Dollars ($300,000.00), plus interest accrued thereon.

        This Promissory Note shall bear no interest until due (upon maturity or
acceleration), and after it is due (upon maturity or acceleration) shall bear
interest at 10 percent per annum.

        All principal shall be due and payable in a lump sum on July 29, 2007.

        This Promissory Note may be prepaid at any time, without premium or
penalty; provided, that any such prepayment must be of the entire principal
amount.

        Upon the happening of any of the following events, Holder may, at its
option, declare immediately due and payable the entire unpaid principal amount
of this Promissory Note, plus any other amounts payable at the time of such
declaration pursuant to this Promissory Note. Such events are the following: (1)
the maker of this Promissory Note ("Maker") shall admit in writing his inability
to pay his debts as they become due, shall make a general assignment for the
benefit of creditors or shall file any petition or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law, or any other law or
laws for the relief of, or relating to, debtors; or (2) an involuntary petition
shall be filed against Maker under any bankruptcy, reorganization, insolvency or
moratorium law, or any other law or laws for the relief of, or relating to,
debtors unless such petition shall be dismissed or vacated within sixty (60)
days of the date thereof; or (3) Maker breaches his promise set forth in the
following paragraph; or (4) Maker dies; or (5) Maker's employment with the
Holder shall, for any reason whatsoever, cease, provided that, in such event,
Holder agrees to defer such declaration until the later of (a) the end of
Maker's severance period in the event Maker is terminated by Holder; or (b) July
1, 2004, if, in the event of a change in control of the Company, Maker is either
(i) terminated by Holder, or (ii) Maker suffers a material reduction in
responsibilities.

        Maker represents to Holder that Maker intends to purchase, within the
next 2 months, a home in San Diego County; and Maker agrees that immediately
upon such purchase he shall deliver to Holder a deed of trust covering such
property, to secure all of Maker's obligations under this Promissory Note.
Nothing in this Promissory Note shall be construed as a right for Maker to
remain in Holder's employee; such employment can be terminated by Maker or by
Holder at any time, for any reason.

        This is a full-recourse Promissory Note. The Holder shall not be
required to proceed first against the deed of trust collateral.

<PAGE>
        The acceptance by Holder of any payment hereunder which is less than the
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express consent of
Holder except as and to the extent otherwise provided by law.

        The Maker of this Promissory Note waives diligence, presentment, protest
and demand and also notice of protest, demand, dishonor and nonpayment of this
Promissory Note, and expressly agrees that this Promissory Note, or any payment
hereunder, may be extended from time to time and consents to the acceptance of
security, if any, or the release of security, if any, from this Promissory Note,
all without in any way affecting the liability of the Maker.

        The right to plead any and all statutes of limitations as a defense to
any demand on this Promissory Note, or any instrument securing this Promissory
Note, or any and all obligations or liabilities arising out of or in connection
with this Promissory Note, is expressly waived by Maker to the fullest extent
permitted by law.

        If Holder should institute collection efforts, of any nature whatsoever,
to attempt to collect any and all amounts due hereunder upon the default of
Maker, Maker shall be liable to pay to Holder immediately and without demand all
reasonable costs and expenses of collection incurred by Holder, including
without limitation reasonable attorneys fees, whether or not suit or other
action or proceeding be instituted and specifically including but not limited to
collection efforts that may be made on appeal or through a bankruptcy court, and
all such sums shall be fully secured by all instruments, if any, securing this
Promissory Note.

        The provisions of this Promissory Note are intended by Maker to be
severable and divisible and the invalidity or unenforceability of a provision or
term herein shall not invalidate or render unenforceable the remainder of this
Promissory Note or any part thereof.

        This Promissory Note shall be governed by and construed and interpreted
in accordance with the internal laws of the State of California.

                                /s/ TAYLOR J. CROUCH
                                --------------------------------
                                Taylor J. Crouch================================================================================

                        CALIFORNIA WATER SERVICE COMPANY

                       THIRD SUPPLEMENT TO NOTE AGREEMENT

                             Dated as of May 1, 2002

         Re:         $20,000,000 7.11% Series E Senior Notes
                                 Due May 1, 2032

================================================================================

<PAGE>

                                        THIRD SUPPLEMENT TO NOTE AGREEMENT

                                                                     Dated as of
                                                                     May 1, 2002

To the Purchasers named in
Schedule A hereto

Ladies and Gentlemen:

         This  Third   Supplement  to  Note  Purchase   Agreement   (the  "Third
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 7.11%  Series E Senior Notes due May 1, 2032
(the  "Series E Notes").  The Series E 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 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 E 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 E 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.

<PAGE>

         3. Delivery of the  $20,000,000  in aggregate  principal  amount of the
Series E 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 May 23, 2002 or such
later date (not later than May 31, 2002) as shall mutually be agreed upon by the
Company and the Purchasers of the Series E Notes (the "Closing Date").

         4. Prepayment of Notes.

         (a) Required  Prepayments.  No prepayments are required to be made with
respect to the Series E Notes prior to the expressed maturity date thereof other
than  prepayments  made in connection with an acceleration of the Series E 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 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
Third  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,

                                      -2-
<PAGE>

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 Third  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 E 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  E Notes  being  prepaid.  If the
Reinvestment  Rate is equal to or higher than 7.11%, the Make-Whole Amount shall
be zero.  For purposes of any  determination  of the  Make-Whole  Amount for the
Series E 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

                                      -3-
<PAGE>

         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  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
         E 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  E  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 E Notes being prepaid.

         5. Closing Conditions.

         (a) Conditions. The obligation of each Purchaser to purchase the Series
E 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 E 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 E 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 Third  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
         McCutchen,  Doyle,  Brown & Enersen LLP,  counsel for the Company,  and
         Chapman and Cutler,

                                      -4-
<PAGE>

         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 E 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 E 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 E Notes scheduled
         to be sold on the Closing Date pursuant to this Third Supplement.

                  (vi)  Satisfactory  Proceedings.   All  proceedings  taken  in
         connection with the transactions contemplated by this Third 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 E 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 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 E
         Notes.

                                      -5-
<PAGE>

         (b) The  obligation  of the  Company  to  deliver  the  Series  E Notes
hereunder  is  subject  to the  conditions  that (i) the  Commission  shall have
authorized  the  issuance  and sale by the  Company of the Series E 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 E Notes scheduled to be sold
on the Closing Date pursuant to this Third  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 Third  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  E 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 Third
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  E 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.

                                      -6-
<PAGE>

California Water Service Company
Third Supplement

         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:  Peter C. Nelson___________________
                                       Title: President and Chief Executive
                                              Officer___________________________

Accepted as of  May ___, 2002

                                    ALLSTATE LIFE INSURANCE COMPANY

                                    By _________________________________________
                                       Name:  __________________________________
                                       Title:  _________________________________

                                    ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

                                    By _________________________________________
                                       Name:  __________________________________
                                       Title:  _________________________________

                                      -7-
<PAGE>

California Water Service Company
Third Supplement

Accepted as of May ___, 2002

                                    NEW YORK LIFE INSURANCE COMPANY

                                    By _________________________________________
                                       Name:  __________________________________
                                       Title:  _________________________________

                                      -8-
<PAGE>

                       INFORMATION RELATING TO PURCHASERS

                                                    PRINCIPAL AMOUNT OF SERIES E
NAME AND ADDRESS OF PURCHASER                          NOTES TO BE PURCHASED

ALLSTATE LIFE INSURANCE COMPANY                             $8,000,000
3075 Sanders Road, STE G5D
Northbrook, Illinois  60062-7127
Attention:  Private Placements Department
Telephone Number:  (847) 402-8922
Telecopier Number:  (847) 402-3092

Payments

All  payments  on or in respect of the Notes to be made by Fedwire  transfer  of
immediately  available funds  (identifying  each payment with name of the Issuer
(and the Credit, if any), the Private Placement Number preceded by "DPP" and the
payment as principal, interest or premium) in the exact format as follows:

         BBK =        Harris Trust and Savings Bank
                      ABA #071000288
         BNF =        Allstate Life Insurance Company
                      Collection Account #168-117-0
         ORG =        [Name of Issuer]
         OBI  =       DPP - [Insert Private Placement Number]--
                      Payment Due Date (MM/DD/YY)--
                      P ______ (enter "P" and the amount of principal being
                           remitted, for example, P5000000.00)--
                      I ______ (enter "I" and the amount of interest being
                           remitted, for example, I225000.00)

Notices

All notices of scheduled payments and written confirmation of each such payment,
to be addressed:

         Allstate Insurance Company
         Investment Operations--Private Placements
         3075 Sanders Road, STE G4A
         Northbrook, Illinois  60062-7127
         Telephone:  (847) 402-6672
         Telecopy:  (847) 326-5040

All  financial   reports,   compliance   certificates   and  all  other  written
communications,  including  notice  of  prepayments  to be  addressed  as  first
provided above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  36-2554642

                                   SCHEDULE A
                                 (to Supplement)

<PAGE>

                                                    PRINCIPAL AMOUNT OF SERIES E
NAME AND ADDRESS OF PURCHASER                          NOTES TO BE PURCHASED

ALLSTATE LIFE INSURANCE COMPANY                             $2,000,000
  OF NEW YORK
3075 Sanders Road, STE G5D
Northbrook, Illinois  60062-7127
Attention:  Private Placements Department
Telephone Number:  (847) 402-4394
Telefacsimile Number:  (847) 402-3092

Payments

All  payments  on or in respect of the Notes to be made by Fedwire  transfer  of
immediately  available funds  (identifying  each payment with name of the Issuer
(and the Credit, if any), the Private Placement Number preceded by "DPP" and the
payment as principal, interest or premium) in the exact format as follows:

         BBK =        Harris Trust and Savings Bank
                      ABA #071000288
         BNF =        Allstate Life Insurance Company of New York
                      Collection Account #168-120-4
         ORG =        [Name of Issuer]
         OBI  =       DPP - [Insert Private Placement Number]--
                      Payment Due Date (MM/DD/YY)--
                      P ______ (enter "P" and the amount of principal being
                           remitted, for example, P5000000.00)--
                      I ______ (enter "I" and the amount of interest being
                           remitted, for example, I225000.00)

Notices

All notices of scheduled payments and written confirmation of each such payment,
to be addressed:

         Allstate Insurance Company
         Investment Operations--Private Placements
         3075 Sanders Road, STE G4A
         Northbrook, Illinois  60062-7127
         Telephone:  (847) 402-6672
         Telecopy:  (847) 326-5040

All  financial   reports,   compliance   certificates   and  all  other  written
communications,  including  notice  of  prepayments  to be  addressed  as  first
provided above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  36-2608394

                                      -2-
<PAGE>

                                                    PRINCIPAL AMOUNT OF SERIES E
NAME AND ADDRESS OF PURCHASER                          NOTES TO BE PURCHASED

NEW YORK LIFE INSURANCE COMPANY                            $10,000,000
c/o New York Life Investment Management LLC
51 Madison Avenue
New York, New York  10010
Attention:  Securities Investment Group, Private Finance, 2nd Floor
Telefacsimile Number:  (212) 447-4122

Payments

All payments on or in respect of the Notes to be by wire or  intrabank  transfer
of immediately available funds to:

         Chase Manhattan Bank
         New York, New York  10019
         ABA #021-000-021
         Credit:  New York Life Insurance Company
         General Account Number 008-9-00687

         With sufficient  information  (including issuer,  PPN number,  interest
         rate,  maturity  and  whether  payment  is of  principal,  premium,  or
         interest) to identify the source and application of such funds.

Notices

All notices  with  respect to payments  and  written  confirmation  of each such
payment, to be addressed:

         New York Life Insurance Company
         c/o New York Investment Management LLC
         51 Madison Avenue
         New York, New York  10010-1603
         Attention:        Financial Management and Operations Group
                           Securities Operations, 2nd Floor
         Fax Number:  (212) 447-4160

All other notices and  communications  to be addressed as first provided  above,
with a copy of any notices  regarding  defaults  or Events of Default  under the
operative documents to: Office of the General Counsel,  Investment Section, Room
1107, Fax Number (212) 576-8340

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  13-5582869

                                      -3-
<PAGE>

                             [FORM OF SERIES E 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

                           7.11% Series E Senior Note
                                 Due May 1, 2032

                                PPN: 130789 M * 8

No.                                                                May ___, 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 May, 2032,
                             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  7.11%  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
9.11% 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.

                                   EXHIBIT 1
                                (to Supplement)
<PAGE>

         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.

         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:  ___________________________________

                                      E-1-2
<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 E Notes. The issuance and sale
of the Series E Notes and the  execution  and  delivery of the Third  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
March 31, 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 March 31, 2002,
and  Forms 10 Q for CWSG for the  fiscal  quarter  ended  March  31,  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

                                   EXHIBIT 2
                                (to Supplement)
<PAGE>

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 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

                                     E-2-2
<PAGE>

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

that 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.  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

                                     E-2-3
<PAGE>

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

                                     E-2-4
<PAGE>

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  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 Third Supplement or the Series E 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 E 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

                                     E-2-5
<PAGE>

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 E Notes or the  execution,
delivery or performance of the Third 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 E 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 Third Supplement,  the consummation of the transactions  therein
provided for and compliance with the provisions of the Third  Supplement and the
Series E 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.

         17. Use of Proceeds.  The Company will use the gross  proceeds  derived
from the sale of the  Series E Notes  under the Third  Supplement  to  refinance
existing  Indebtedness  and  to  finance  a  portion  of the  Company's  general
construction  program.  None  of the  transactions  contemplated  in  the  Third
Supplement (including,  without limitation thereof, the use of the proceeds from
the sale of the Series E 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

                                     E-2-6
<PAGE>

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 E 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 $10,409,000.

         (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 Third
Supplement  and  compliance by the Company with the  provisions  thereof and the
Series E 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,

                                     E-2-7
<PAGE>

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 CWSG 10-K, 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.

         21. Full Disclosure.  The financial statements referred to in the Third
Supplement do not, nor does the Third 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 E 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 Third  Supplement  or the  Series E
Notes.

         22. Private Offering.  Neither the Company, directly or indirectly, nor
any agent on its  behalf  has  offered  or will  offer the Series E Notes or any
similar Security or has solicited or will solicit an offer to acquire the Series
E Notes or any similar  Security from or has otherwise  approached or negotiated
or will  approach or  negotiate  in respect of the Series E Notes or any similar
Security  with any Person other than the  Purchasers  and not more than five (5)
other institutional investors,  each of whom was offered a portion of the Series
E Notes at  private  sale for  investment.  Neither  the  Company,  directly  or
indirectly,  nor any agent on its behalf has  offered or will offer the Series E
Notes or any  similar  Security  or has  solicited  or will  solicit an offer to
acquire  the  Series E Notes or any  similar  Security  from any Person so as to
cause the  issuance  and sale of the  Series E Notes  not to be exempt  from the
provisions of Section 5 of the Securities Act of 1933, as amended.

                                     E-2-8
<PAGE>

                CURRENT DEBT, FUNDED DEBT AND CAPITALIZED LEASES
                              AS OF MARCH 31, 2002

1.       Current Debt

         $29,500,000  borrowed under the Company's bank 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.

         $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 Series Notes due November 1, 2031.

         $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)

         $2,866,000 California Department of Water Resources Loans maturing 2011
         to 2032.

         $519,000 obligations due on water system acquisitions.

3.       Capitalized Leases

         None.

                                    ANNEX A
                                 (to Exhibit 2)
<PAGE>

                         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.

                                    ANNEX B
                                 (to Exhibit 2)
<PAGE>

                         DESCRIPTION OF CLOSING OPINION
                            OF COUNSEL TO THE COMPANY

         The closing opinion of McCutchen,  Doyle,  Brown & Enersen LLP, counsel
for  the  Company,  which  is  called  for by  Section  5(a)(iii)  of the  Third
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  good  standing  under  the  laws  of  the  State  of
         California,  has the  corporate  power and the  corporate  authority to
         execute  and  perform  the Third  Supplement  and to issue the Series E
         Notes and has the full corporate  power and the corporate  authority to
         conduct the activities in which it is now engaged.

                  2. The Note Agreement and the Third  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  E 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. No  approval,  consent or  withholding  of objection on the
         part  of,  or  filing,   registration   or   qualification   with,  any
         governmental  body,  Federal or state,  is necessary in connection with
         the  execution  and  delivery of the Third  Supplement  or the Series E
         Notes  other  than  the   authorization   of  the   Commission,   which
         authorization has been duly obtained, and is in full force and effect.

                  5.  The  issuance  and  sale of the  Series  E  Notes  and the
         execution,  delivery  and  performance  by the  Company  of  the  Third
         Supplement  do  not  violate  or  result  in any  breach  of any of the
         provisions  of or  constitute a default under or result in the creation
         or  imposition  of any Lien  upon any of the  property  of the  Company
         pursuant to the provisions of the Articles of  Incorporation or By-laws
         of the  Company  or any  agreement  or  other  instrument  listed  as a
         material contract in the Company's most recent Annual Report.

                                   EXHIBIT 3
                                (to Supplement)
<PAGE>

                  6.  Based upon the  representations  set forth in Section 6 of
         the Third Supplement,  the issuance,  sale and delivery of the Series E
         Notes under the  circumstances  contemplated by the Third Supplement do
         not, under existing law, require the registration of the Series E Notes
         under the Securities Act of 1933, as amended,  or the  qualification of
         the Third  Supplement or an indenture  under the Trust Indenture Act of
         1939, as amended.

                  7. 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

         that 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,  in the  opinion of
         such counsel,  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  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.

         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

                                     E-3-2
<PAGE>

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.

         The opinion of McCutchen,  Doyle,  Brown & Enersen LLP shall cover such
other matters  relating to the sale of the Series E 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.

                                     E-3-3
<PAGE>

                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 Third  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:

                  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
         Third Supplement and to issue the Series E Notes.

                  2. The Note Agreement and the Third  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  E 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 E Notes under
         the  circumstances  contemplated by the Third  Supplement do not, under
         existing law,  require the registration of the Series E 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
McCutchen,  Doyle,  Brown & Enersen  LLP, as to matters of  California  law. The
opinion of Chapman and Cutler  shall also state that the  opinion of  McCutchen,
Doyle,  Brown & Enersen  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

                                   EXHIBIT 4
                                (to Supplement)

<PAGE>

representations  of the Company and the Purchasers  delivered in connection with
the issuance and sale of the Series E Notes.

                                     E-4-2

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