Document:

Exhibit
10.1(c)(1)

 

FORM OF

 

NONQUALIFIED
STOCK OPTION AGREEMENT

 

FOR
NON-EMPLOYEE DIRECTORS

 

THIS
AGREEMENT, dated
                ,
is made by and between Southwest Water Company, a Delaware corporation
hereinafter referred to as the “Company,” and                      ,
a non-employee director of the Company or Subsidiary of the Company,
hereinafter referred to as “Optionee”:

 

WHEREAS,
the Company wishes to afford the Optionee the opportunity to purchase shares of
its $.01 par value Common Stock;

 

WHEREAS,
the Company wishes to carry out its Amended and Restated Stock Option Plan for
Non-Employee Directors (the “Plan”) (the terms of which are hereby incorporated
by reference and made a part of this Agreement); and

 

WHEREAS,
the Plan provides for the grant of the Non-Qualified Stock Option set forth
herein to the Optionee as an inducement to enter into or remain in the service
of the Company or its Subsidiaries and as an incentive for increased efforts
during such service, and has advised the Company thereof and instructed the
undersigned officers to issue said Option;

 

NOW,
THEREFORE, in consideration of the mutual covenants herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto do hereby agree as follows:

 

ARTICLE I.

DEFINITIONS

 

Whenever
the following terms are used in this Agreement, they shall have the meaning
specified below unless the context clearly indicates to the contrary.  The masculine pronoun shall include the
feminine and neuter, and the singular the plural, where the context so
indicates.

 

Section 1.1             Board

 

“Board”
shall mean the Board of Directors of the Company as constituted from time to
time.

 

Section 1.2             Code

 

“Code”
shall mean the Internal Revenue Code of 1986, as amended from time to time.

 

 

Section 1.3             Common Stock

 

“Common
Stock” shall mean the common stock of the Company, par value $.01 per share, of
the Company.

 

Section 1.4             Company

 

“Company”
shall mean Southwest Water Company, a Delaware corporation, or any successor
entity.

 

Section 1.5             Director

 

“Director”
shall mean a person who is a member of the Board as constituted at that time.

 

Section 1.6             Employee

 

“Employee”
shall mean any employee (as defined in accordance with the Regulations and
Revenue Rulings then applicable under Section 3401(c) of the Code) of the
Company, or of any corporation which is then a Subsidiary or a Parent
Corporation, whether such employee is so employed at the time the Plan is
adopted or becomes so employed subsequent to the adoption of the Plan.

 

Section 1.7             Exchange Act

 

“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.

 

Section 1.8             Fair Market Value

 

“Fair
Market Value” of a share of Common Stock as of a given date shall be (i) the
closing price of a share of Common Stock on the principal exchange on which
shares of Common Stock are then trading, if any (or as reported on any
composite index which includes such principal exchange), on the trading day
preceding such date, or if shares were not traded on the trading day preceding
such date, then on the next preceding trading day during which a sale occurred,
or (ii) if the Common Stock is not traded on an exchange (x) the last sales price of a
share of the Common Stock on The Nasdaq Stock Market (if the stock is then
traded on The Nasdaq Stock Market) on the trading day preceding such date, or,
if shares were not traded on the day preceding such date, then on the next
preceding trading day during which a sale occurred; or (y) the mean between the
closing representative bid and asked prices for the Common Stock on the trading
day next preceding such date as reported by the National Association of
Securities Dealers, Inc. through NASDAQ or a successor quotation system or, if
shares were not quoted on the day immediately preceding such date, then on the
next preceding trading day during which a quote occurred, or (iii) if the
Common Stock is not publicly traded on an exchange and prices are not provided
through The Nasdaq Stock Market, NASDAQ or a successor quotation system, the
mean between the closing bid and asked prices for the Common Stock on the
trading day next preceding such date as determined in good faith by the Board;
or (iv) if the Common Stock is not publicly traded, the fair market value of
the Common Stock established by the Board acting in good faith.

 

 

Section 1.9             Non-Employee Director

 

“Non-Employee
Director” shall mean any Director who is not at the same time an Employee.

 

Section 1.10           Option

 

“Option”
shall mean a non-qualified stock option to purchase Common Stock of the Company
granted under this Agreement and Article 3 of the Plan.

 

Section 1.11           Optionee

 

“Optionee”
shall mean a Non-Employee Director to whom an Option is granted under this
Agreement and the Plan.

 

Section 1.12           Parent Corporation

 

“Parent
Corporation” shall have the meaning given in Section 424(e) of the Code.

 

Section 1.13           Plan

 

“Plan”
shall mean the Amended and Restated Stock Option Plan for Non-Employee
Directors of Southwest Water Company, as the same may be amended or restated from
time to time.

 

Section 1.14           Rule 16b-3

 

“Rule
16b-3” shall mean that certain Rule 16b-3 under the Exchange Act, as such Rule
may be amended from time to time.

 

Section 1.15           Secretary

 

“Secretary”
shall mean the Secretary of the Company.

 

Section 1.16           Securities Act

 

“Securities
Act” shall mean the Securities Act of 1933, as amended.

 

Section 1.17           Subsidiary

 

“Subsidiary”
shall mean any corporation in an unbroken chain of corporations beginning with
the Company if each of the corporations other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.

 

 

Section 1.18           Termination as a Non-Employee Director

 

“Termination
as a Non-Employee Director” shall mean the time when the Optionee who is a
Non-Employee Director ceases to be a member of the Board by reason of such
Optionee’s death or disability (within the meaning of Section 22(e)(3) of the
Code), retirement, resignation or for any other reason.

 

ARTICLE II.

GRANT OF OPTION

 

Section 2.1             Grant of Option

 

In
consideration of the Optionee’s agreement to serve as a Non-Employee Director
of the Company or its Subsidiaries until the next annual meeting of
stockholders of the Company and for other good and valuable consideration,
effective as of «Award_Date», the
Company irrevocably grants to the Optionee the option to purchase any part or
all of an aggregate of «Shares» shares
of its $.01 par value Common Stock upon the terms and conditions set forth in
this Agreement.

 

Section 2.2             Purchase Price

 

The
price per share of the Common Stock subject to each Option shall be «Exercise_Price_» per share (which is the
Fair Market Value of a share of Common Stock on the date of the granting of
this Option) without commission or other charge.

 

Section 2.3             Consideration to Company

 

In
consideration of the granting of this Option by the Company, the Optionee
agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from
time to time prescribe, until the next annual meeting of stockholders of the
Company.  Nothing in the Plan or this
Agreement shall confer upon any Optionee any right to continue as a director of
the Company, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
the Optionee at any time for any reason whatsoever, with or without good cause.

 

Section 2.4             Adjustments in Option

 

In the
event that the outstanding shares of the Common Stock subject to the Option are
changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger (including
reincorporation by means of merger), consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of shares (a
“Recapitalization”), the Board shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Option, or portions
thereof then unexercised, shall be exercisable, to the end that after such
event the Optionee’s proportionate interest shall be maintained as before the
occurrence of such event.  Such
adjustment in the Option may include any necessary corresponding

 

 

adjustment
in the Option price per share, but shall be made without change in the total
price applicable to the Option or the unexercised portion of the Option (except
for any change in the aggregate price resulting from rounding-off of share
quantities or prices).  Any such
adjustment made by the Board shall be final and binding upon the Optionee, the
Company and all other interested persons.

 

Section 2.5             Merger, Consolidation, Exchange,
Acquisition, Liquidation or Dissolution

 

The
Board may provide by the terms of the Option that the Option cannot be
exercised after the merger or consolidation of the Company into another
corporation, the exchange of all or substantially all of the assets of the
Company for the securities of another corporation, the acquisition by another
corporation of 80% or more of the Company’s then outstanding voting stock or
the liquidation or dissolution of the Company; or the Board may, in its
absolute discretion and on such terms and conditions as it deems appropriate,
also provide that the Option shall be assumed or an equivalent option
substituted by any successor corporation of the Company, or the Board may, in
its absolute discretion and upon such terms and conditions as it deems
appropriate, provided by resolution adopted prior to the occurrence of such
merger, consolidation, exchange, acquisition, liquidation or dissolution, that,
for some period of time prior to such event, that such Option shall be
exercisable as to all shares covered thereby, notwithstanding anything to the
contrary in Sections 3.1(a) or 3.1(b) below. 
Any determinations made by the Board pursuant to this Section shall be
applied uniformly to all Options outstanding on the date of such determination.

 

ARTICLE III.

PERIOD OF EXERCISABILITY

 

Section 3.1             Commencement of Exercisability

 

(a)           The Option may not be exercised in whole or in part
during the first year after the date of grant of the Option.

 

(b)           Subject to the provisions of Sections 3.1(a) and
3.1(c), the Option shall become exercisable in two (2) cumulative installments
as follows:

 

(i)            The first installment shall consist
of fifty percent (50%) of the shares covered by the Option and shall become
exercisable on the first anniversary of the date the Option is granted.

 

(ii)           The second installment shall consist
of fifty percent (50%) of the shares covered by the Option and shall become
exercisable on the second anniversary of the date the Option is granted.

 

(c)           Subject to Section 3.1(a), the portion, if any, of an
Option which is unexercisable on the date of Termination as a Non-Employee
Director shall become immediately exercisable.

 

 

Section 3.2             Duration of Exercisability

 

The
installments provided for in Section 3.1 are cumulative.  Each such installment which becomes
exercisable pursuant to Section 3.1 shall remain exercisable until it becomes
unexercisable under Section 3.3.

 

Section 3.3             Expiration of Option

 

The
Option may not be exercised to any extent by anyone after the first to occur of
the following events:

 

(a)           The expiration of a period of seven years and one day
from the date the Option was granted; or

 

(b)           The expiration of one year from the date of the
Optionee’s Termination as a Non-Employee Director for any reason, unless the
Optionee dies within said one year period; or

 

(c)           The expiration of one year from the date of the
Optionee’s death.

 

ARTICLE IV.

EXERCISE OF OPTION

 

Section 4.1             Person Eligible to Exercise

 

During
the lifetime of the Optionee, only the Optionee may exercise the Option or any
portion thereof; provided, however, that nothing in this Section 4.1 shall
prevent the exercise of the Option by a person to whom the Option was lawfully
transferred, in whole or in part, pursuant to a qualified domestic relations
order (as defined in the Code).  After
the death of the Optionee, any exercisable portion of the Option may, prior to
the time when the Option becomes unexercisable under Section 3.3, be exercised
by his personal representative or by any person empowered to do so under the
Optionee’s will or under the then applicable laws of descent and distribution
or if the Optionee has made a permitted transfer pursuant to Section 5.2(ii) to
a family member the Option may be exercised by such family member.

 

Section 4.2             Partial Exercise

 

Any
exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time and from time to
time prior to the time when the Option or portion thereof becomes unexercisable
under Section 3.3; provided, however, that each partial exercise shall be for
not less than one hundred (100) shares and shall be for whole shares only.

 

 

Section 4.3             Manner of Exercise

 

The
Option, or any exercisable portion thereof, shall be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:

 

(a)           Notice in writing signed by the Optionee or the other
person then entitled to exercise the Option or portion, stating that the Option
or portion is thereby exercised, such notice complying with all applicable
rules established by the Board;

 

(b)           The payment to the Company of the aggregate Option
exercise price for the shares with respect to which such Option or portion is
exercised in:

 

(i)            Cash;

 

(ii)           With the consent of the Board, (A)
shares of the Company’s Common Stock owned by the Optionee duly endorsed for
transfer to the Company or (B) shares of the Company’s Common Stock issuable to
the Optionee upon exercise of the Option, with a Fair Market Value on the date
of Option exercise equal to the aggregate purchase price of the shares with
respect to which such Option or portion is exercised;

 

(iii)          With the consent of the Board, a
full recourse promissory note bearing interest (at no less than such rate as
shall then preclude the imputation of interest under the Code or successor
provision) and payable upon such terms as may be prescribed by the Board.  The Board may also prescribe the form of
such note and the security to be given for such note.  The Option may not be exercised, however, by delivery of a
promissory note or by a loan from the Company when or where such loan or other
extension of credit is prohibited by law; or

 

(iv)          With the consent of the Board, any
combination of the consideration provided in the foregoing subparagraphs (i),
(ii) and (iii);

 

(c)           Full payment to the Company (or other employer
corporation) of all amounts which, under federal, state or local law, it is
required to withhold in connection with the exercise of the Option or a portion
thereof; all or any part of such payment may be made, with the consent of the
Board, (i) with shares of the Company’s Common Stock owned by the Optionee duly
endorsed for transfer, or (ii) with shares of the Company’s Common Stock
issuable to the Optionee upon exercise of the Option, in each case, having a
Fair Market Value at the date of Option exercise equal to the sums required to
be withheld;

 

(d)           Such representations and documents as the Board, in
its absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act and any other Federal or state
securities laws or regulations.  The
Board may, in its absolute discretion, also take whatever additional actions it
deems appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer orders to
transfer agents and registrars; and

 

 

(e)           In the event the Option or portion thereof shall be
exercised pursuant to Section 4.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to exercise
the Option.

 

(f)            Notwithstanding anything herein to the contrary, the
Optionee may satisfy the requirements of subsections (b) and (c) of this
Section 4.3 concerning payment for the shares and all applicable withholding
taxes, with the consent of the Board, through the delivery to the Secretary or
his office of (i) an irrevocable written exercise notice containing
instructions to the Company to deliver to Optionee’s broker the certificate(s)
representing the shares with respect to which the Option or portion is thereby
exercised and (ii) a copy of Optionee’s irrevocable written instructions to
such broker to deliver to the Company, within five business days from the date
of the Company’s receipt of such exercise notice, full payment (in cash or by
check) for the shares with respect to which such Option or portion is thereby
exercised and all amounts which the Company is required to withhold under
federal, state or local law in connection with the exercise of the Option or
portion thereof.  Provided the Optionee
complies with clauses (i) and (ii) above and the Company receives such full
payment the Optionee shall be deemed to have such exercised such Option on the
date of the Company’s receipt of the deliveries specified in clauses (i) and
(ii) above.  Notwithstanding anything to
the contrary in this Section 4.3, the Board shall not take any discretionary
action which will result in the failure of the Plan to satisfy any exemptive
condition imposed by Rule 16b-3 of the code with respect to the effected
Option.

 

Section 4.4             Conditions to Issuance of Stock
Certificates

 

The
shares of stock issuable and deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company.  Such shares shall be fully paid and nonassessable.  The Company shall not be required to issue
or deliver any certificate or certificates for shares of stock purchased upon
the exercise of the Option or portion thereof prior to fulfillment of all of
the following conditions:

 

(a)           The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;

 

(b)           The completion of any registration or other
qualification of such shares under any state or federal law or under rulings or
regulations of the Securities and Exchange Commission or of any other governmental
regulatory body, which the Board shall, in its absolute discretion, deem
necessary or advisable;

 

(c)           The obtaining of any approval or other clearance from
any state or federal governmental agency which the Board shall, in its absolute
discretion, determine to be necessary or advisable;

 

(d)           The receipt by the Company of full payment for such
shares, including payment of all amounts which, under federal, state or local
tax law, it is required to withhold upon exercise of the Option; and

 

 

(e)           The lapse of such reasonable period of time following
the exercise of the Option as the Board may establish from time to time for
reasons of administrative convenience.

 

Section 4.5             Rights as Stockholder

 

The
holder of the Option shall not be, nor have any of the rights or privileges of,
a stockholder of the Company in respect of any shares purchasable upon the
exercise of any part of the Option unless and until certificates representing
such shares shall have been issued by the Company to such holder.

 

ARTICLE V.

OTHER PROVISIONS

 

Section 5.1             Administration

 

With
respect to this Option, the full Board, acting by a majority of its members in
office, shall have the power to interpret the Plan and this Agreement and to
adopt such rules for the administration, interpretation and application of the
Plan as are consistent therewith and to interpret or revoke any such
rules.  All actions taken and all
interpretations and determinations made by the Board in good faith shall be final
and binding upon the Optionee, the Company and all other interested
persons.  No member of the Board shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Plan or the Option.

 

Section 5.2             Option Not Transferable

 

Neither
the Option nor any interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that nothing in this Section 5.2
shall prevent (i) transfers by will or by the applicable laws of descent and
distribution, or, to the extent not prohibited by the Code, pursuant to a
qualified domestic relations order (as defined in the Code) or (ii) with the
prior written consent of the Board, by gift or as a contribution, to a family
member of the Optionee, (as defined under the instructions to use of Form S-8),
provided, that an Option that has been so transferred shall continue to be
subject to all of the terms and conditions as applicable to the original
Optionee, and the transferee shall execute any and all such documents requested
by the Board in connection with the transfer, including without limitation to
evidence the transfer and to satisfy any requirements for an exemption for the
transfer under applicable federal and state securities laws.

 

 

Section 5.3             Shares to Be Reserved

 

The
Company shall at all times during the term of the Option reserve and keep
available such number of shares of stock as will be sufficient to satisfy the
requirements of this Agreement.

 

Section 5.4             Notices

 

Any
notice to be given under the terms of this Agreement to the Company shall be
addressed to the Company in care of its Secretary, and any notice to be given
to the Optionee shall be addressed to him at the address given beneath his
signature hereto.  By a notice given
pursuant to this Section 5.4, either party may hereafter designate a different
address for notices to be given to him. 
Any notice which is required to be given to the Optionee shall, if the
Optionee is then deceased, be given to the Optionee’s personal representative
if such representative has previously informed the Company of his status and
address by written notice under this Section 5.4.  Any notice shall be deemed duly given when enclosed in a properly
sealed envelope or wrapper addressed as aforesaid, deposited (with postage
prepaid) in a post office or branch post office regularly maintained by the United
States Postal Service.

 

Section 5.5             Titles

 

Titles
are provided herein for convenience only and are not to serve as a basis for
interpretation or construction of this Agreement.

 

Section 5.6             Construction

 

This
Agreement shall be administered, interpreted and enforced under the laws of the
State of California.

 

Section 5.7             Conformity to Securities Laws

 

The
Optionee acknowledges that the Plan and this Option grant are intended to
conform to the extent necessary with all provisions of the Securities Act and
the Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including without limitation
Rule 16b-3.  Notwithstanding anything
herein to the contrary, the Plan shall be administered, and the Option is
granted and may be exercised, only in such a manner as to conform to such laws,
rules and regulations.  To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.

 

 

IN
WITNESS WHEREOF, this Agreement has been executed and delivered by the parties
hereto.

 

	
   

  	
  SOUTHWEST WATER
  COMPANY,

  
	
   

  	
  a Delaware
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Anton C.
  Garnier, President & CEO

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Peter J.
  Moerbeek, EVP & Secretary

  

 

	
   

  	
   

  
	
  «Name_», Director
  Optionee

  

 

 

Optionee’s
Taxpayer

Identification
Number:

Shares Awarded:

Award Date:

Exercise Price:Exhibit 10.7

 

CREDIT
AGREEMENT

 

between

 

SOUTHWEST
WATER COMPANY

 

and

 

BANK
OF AMERICA, N.A.

October
6, 2003

 

 

TABLE
OF CONTENTS

 

	
  ARTICLE I DEFINITIONS

  	
   

  
	
   

  	
  SECTION 1.01. Defined
  Terms.

  	
   

  
	
   

  	
  SECTION 1.02. Other
  Definitional Provisions.

  	
   

  
	
  ARTICLE II THE CREDIT

  	
   

  
	
   

  	
  SECTION 2.01. The
  Revolving Loans.

  	
   

  
	
   

  	
   

  	
  (a)

  	
  The Revolving Commitment.

  	
   

  
	
   

  	
   

  	
  (b)

  	
  Making the Revolving
  Loans.

  	
   

  
	
   

  	
   

  	
  (c)

  	
  Reduction of the
  Revolving Commitment.

  	
   

  
	
   

  	
   

  	
  (d)

  	
  Revolving
  Note.

  	
   

  
	
   

  	
   

  	
  (e)

  	
  Standby Letters of
  Credit.

  	
   

  
	
   

  	
  SECTION 2.02.
  Mandatory Repayment.

  	
   

  
	
   

  	
  SECTION 2.03.
  Interest Computation and Payment; Fee Computation.

  	
   

  
	
   

  	
  SECTION 2.04. Unused
  commitment fee.

  	
   

  
	
   

  	
  SECTION 2.05.
  Annual Credit Facility Fee.

  	
   

  
	
  ARTICLE III GENERAL PROVISIONS CONCERNING
  THE LOANS

  	
   

  
	
   

  	
  SECTION 3.01. Use of
  Proceeds.

  	
   

  
	
   

  	
  SECTION 3.02. Payment on
  Non-Business Days.

  	
   

  
	
   

  	
  SECTION 3.03. Reduced
  Return.

  	
   

  
	
   

  	
  SECTION 3.04. Indemnities.

  	
   

  
	
   

  	
  SECTION 3.05. Funding
  Sources.

  	
   

  
	
  ARTICLE IV CONDITIONS OF LENDING

  	
   

  
	
   

  	
  SECTION 4.01. Conditions
  Precedent to Initial Revolving Loan.

  	
   

  
	
   

  	
  SECTION 4.02.
  Conditions Precedent to Each Revolving Loan.

  	
   

  
	
  ARTICLE V REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
  SECTION
  5.01. Representations and Warranties.

  	
   

  
	
   

  	
   

  	
  (a)

  	
  Organization.

  	
   

  
	
   

  	
   

  	
  (b)

  	
  Authorization;
  No Conflict.

  	
   

  
	
   

  	
   

  	
  (c)

  	
  Governmental
  Consents.

  	
   

  
	
   

  	
   

  	
  (d)

  	
  Validity.

  	
   

  
	
   

  	
   

  	
  (e)

  	
  Financial
  Condition.

  	
   

  
	
   

  	
   

  	
  (f)

  	
  Litigation.

  	
   

  
	
   

  	
   

  	
  (g)

  	
  Employee
  Benefit Plans.

  	
   

  
	
   

  	
   

  	
  (h)

  	
  Disclosure.

  	
   

  
	
   

  	
   

  	
  (i)

  	
  Environmental
  Matters.

  	
   

  
	
   

  	
   

  	
  (j)

  	
  Employee
  Matters.

  	
   

  
	
   

  	
   

  	
  (k)

  	
  Solvency.

  	
   

  
	
   

  	
   

  	
  (l)

  	
  Title
  to Properties.

  	
   

  
	
   

  	
   

  	
  (m)

  	
  Tax Returns.

  	
   

  
	
   

  	
   

  	
  (n)

  	
  Compliance with
  Other Agreements and Applicable Laws.

  	
   

  
	
   

  	
   

  	
  (o)

  	
  No Default.

  	
   

  
	
   

  	
   

  	
  (p)

  	
  Regulation U;
  Investment Company Act.

  	
   

  
	
   

  	
   

  	
  (q)

  	
  Intangible Assets.

  	
   

  
	
  ARTICLE VI COVENANTS

  	
   

  
	
   

  	
  SECTION 6.01.
  Affirmative Covenants.

  	
   

  
	
   

  	
   

  	
  (a)

  	
  Financial
  Information.

  	
   

  

 

i

 

	
   

  	
   

  	
  (b)

  	
  Notices and Information.

  	
   

  
	
   

  	
   

  	
  (c)

  	
  Corporate Existence,
  Etc.

  	
   

  
	
   

  	
   

  	
  (d)

  	
  Payment of Taxes and
  Claims.

  	
   

  
	
   

  	
   

  	
  (e)

  	
  Maintenance of
  Properties; Insurance.

  	
   

  
	
   

  	
   

  	
  (f)

  	
  Inspection.

  	
   

  
	
   

  	
   

  	
  (g)

  	
  Compliance
  with Laws Etc.

  	
   

  
	
   

  	
   

  	
  (h)

  	
  Hazardous
  Waste Studies.

  	
   

  
	
   

  	
  SECTION 6.02.
  Negative Covenants.

  	
   

  
	
   

  	
   

  	
  (a)

  	
  Consolidated Tangible Net
  Worth.

  	
   

  
	
   

  	
   

  	
  (b)

  	
  Consolidated Net Profit.

  	
   

  
	
   

  	
   

  	
  (c)

  	
  EBITDA
  Coverage Ratio.

  	
   

  
	
   

  	
   

  	
  (d)

  	
  Liens Etc.

  	
   

  
	
   

  	
   

  	
  (e)

  	
  Debt.

  	
   

  
	
   

  	
   

  	
  (f)

  	
  Consolidation, Merger or
  Dissolution.

  	
   

  
	
   

  	
   

  	
  (g)

  	
  Loans, Investments, Acquisitions, Secondary
  Liabilities.

  	
   

  
	
   

  	
   

  	
  (h)

  	
  Asset Sales.

  	
   

  
	
   

  	
   

  	
  (i)

  	
  Hostile Tender Offers.

  	
   

  
	
   

  	
   

  	
  (j)

  	
  Distributions.

  	
   

  
	
   

  	
   

  	
  (k)

  	
  Transactions with
  Affiliates.

  	
   

  
	
   

  	
   

  	
  (l)

  	
  Books and Records.

  	
   

  
	
   

  	
   

  	
  (m)

  	
  Restructure.

  	
   

  
	
  ARTICLE VII EVENTS OF DEFAULT

  	
   

  
	
   

  	
  SECTION
  7.01. Events of Default.

  	
   

  
	
  ARTICLE VIII MISCELLANEOUS

  	
   

  
	
   

  	
  SECTION 8.01.
  Amendments, Etc.

  	
   

  
	
   

  	
  SECTION 8.02. Notices,
  Etc.

  	
   

  
	
   

  	
  SECTION 8.03. Right of
  Setoff:  Security Interest in Deposit
  Accounts.

  	
   

  
	
   

  	
  SECTION 8.04. No
  Waiver; Remedies.

  	
   

  
	
   

  	
  SECTION 8.05. Costs
  and Expenses.

  	
   

  
	
   

  	
  SECTION 8.06.
  Participations.

  	
   

  
	
   

  	
  SECTION 8.07.
  Effectiveness: Binding Effect.

  	
   

  
	
   

  	
  SECTION 8.08.
  Governing Law.

  	
   

  
	
   

  	
  SECTION 8.09. Dispute
  Resolution.

  	
   

  
	
   

  	
  SECTION 8.10. Waiver
  of Notices.

  	
   

  
	
   

  	
  SECTION 8.11. Entire
  Agreement.

  	
   

  
	
   

  	
  SECTION 8.12.
  Severability of Provisions.

  	
   

  
	
   

  	
  SECTION 8.13.
  Execution in Counterparts.

  	
   

  
	
   

  	
  SECTION 8.14. Further
  Assurances.

  	
   

  

 

ii

 

	
  Schedules

  
	
   

  
	
  5.01(f) - Litigation

  
	
  5.01(i)
  - Environmental Matters

  
	
  6.02(d)
  - Liens

  
	
  6.02(e) - Other secured debt

  

 

	
  Exhibits

  
	
   

  
	
  A - Form of Note

  

 

iii

 

CREDIT
AGREEMENT

This
Credit Agreement (“Agreement”) dated as of October 6, 2003 is entered into
between SOUTHWEST WATER COMPANY, a Delaware corporation (the “Borrower”) and
BANK OF AMERICA, N.A. (the “Bank”).

 

RECITALS

 

A.                                   WHEREAS,
Borrower and Bank have previously entered into that certain Credit Agreement
dated as of July 30, 1999, as amended by that certain First Amendment to Credit
Agreement dated as of June 30, 2000, that certain Second Amendment to Credit
Agreement dated as of September 29, 2000, that certain Third Amendment to
Credit Agreement dated as of March 9, 2001, that certain Fourth Amendment to
Credit Agreement dated as of July 13, 2001, that certain Fifth Amendment to
Credit Agreement dated as of October 22, 2001, that certain Sixth Amendment to
Credit Agreement dated as of November 9, 2001, and that certain Seventh
Amendment to Credit Agreement dated as of November 1, 2002, and that certain
Eighth Amendment to Credit Agreement dated as of March 14, 2003 (collectively
“Credit Agreement”);

 

B.                                     WHEREAS,
Bank and Borrower wish to amend and completely restate the Credit Agreement
under the terms and conditions set forth in this Agreement.

 

NOW
THEREFORE, in consideration of the premises and of the mutual covenants and
agreements contained herein, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

SECTION 1.01.  Defined Terms.  As used in this Agreement, the following
terms have the following meanings:

 

“Acquisition”:
Any transaction, or any series of related transactions, by which Borrower
and/or any of its Subsidiaries directly or indirectly (a) acquires the ongoing
business or all or substantially all of the assets of any firm, partnership,
joint venture, limited liability company, corporation or division thereof, (b)
acquires in one transaction or as the most recent transaction in a series of
transactions control of securities of a Person engaged in an ongoing business
representing more than 50% of the ordinary voting power for the election of
directors or other governing position if the business affairs of such Person
are managed by a board of directors or other governing body or (c) acquires
control of more than 50% of the ownership interest in any partnership, joint
venture, limited liability company, business trust or other Person that is not
managed by a board of directors or other governing body.

 

1

 

“Agreement”:  This Agreement, as amended, supplemented or
modified from time to time.

 

“Aqua”:
Aqua Services LP, a Texas limited partnership.

 

“Bank”:  As set forth in the introductory paragraph
of this Agreement.

 

“Borrower”:  As set forth in the introductory paragraph
of this Agreement.

 

“Business
Day”:  Has the meaning set forth in the
Revolving Note.

 

“Capistrano
Letter of Credit”: The standby letter of credit issued by Bank of America,
N.A., for the account of Borrower in the face amount of $3,430,000 for the
benefit of Capistrano Valley Water District.

 

“Capital
Leases”:  As applied to any Person, any
lease of any property (whether real, personal or mixed) by that Person as
lessee which would, in accordance with GAAP, be required to be accounted for as
a capital lease on the balance sheet of that Person.

 

“CDC”:
CDC Maintenance, Inc., a Texas corporation.

 

“Change
of Control”:  Shall be deemed to have
occurred at such times as:  (a) a
“person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Act of 1934), becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of more than thirty percent (30%) of the
total voting power of all classes of stock then outstanding of Borrower
normally entitled to vote in the election of directors; or (b)  the
Borrower shall fail to own directly one hundred percent (100%) of the issued
and outstanding common stock or other equity interest of Aqua, Suburban, SWUC,
NMUI or ECO or shall lose voting control of Aqua’s, Suburban’s, SWUC’s, NMUI’s
or ECO’s issued and outstanding common stock or other equity interest; or (c)
the Borrower shall fail to own directly 50.1% of the issued and outstanding
common stock or other equity interest of Metro, MTI or OpTech or shall lose
voting control of 50.1% of the issued and outstanding common stock or other
equity interest of Metro, MTI or OpTech; or (d) the Borrower shall fail to own
directly 67% of the issued and outstanding common stock of WRI or shall lose
voting control of 67% of the issued and outstanding common stock of WRI; or (e)
ECO shall fail to own directly one hundred percent (100%) of the issued and
outstanding common stock of CDC or shall lose voting control of CDC’s issued
and outstanding common stock; or (f) SWUC shall fail to own directly one
hundred percent (100%) of the issued and outstanding common stock of Hornsby or
shall lose voting control of Hornsby’s issued and outstanding common stock; or
(g) SWUC shall fail to own directly 80% of the issued and outstanding common
stock of Windermere or shall lose voting control of 80% of the issued and
outstanding common stock of Windermere. 
A change of control shall not include a transfer of NMUI’s operating
assets through a condemnation or sale in lieu of condemnation.

 

2

 

“Closing
Date”:  The Business Day on which the
conditions set forth in Section 4.01 are satisfied or waived.

 

“Commitment”:  The Bank’s obligation to make Revolving
Loans to the Borrower pursuant to Article II in the amount or amounts referred
to therein.

 

“Consolidated
EBITDA” means, for any period of Borrower and its Subsidiaries on a
consolidated basis, Consolidated Net Profit for such period, plus interest
expense (net of capitalized interest expense) and provision for income taxes
for such period, plus depreciation and amortization for such period, plus the non-cash expense of Borrower and its
Subsidiaries recognized during such period for any stock options granted by Borrower
and its Subsidiaries permitted hereunder.

 

“Consolidated
Net Profit” means, in respect of any period of the Borrower and its
Subsidiaries, the consolidated net profit after taxes of the Borrower and its
Subsidiaries as such would appear on the consolidated statement of earnings of
Borrower and its Subsidiaries prepared in accordance with GAAP, consistently
applied, minus nonrecurring or extraordinary income.

 

“Consolidated
Tangible Net Worth”:  At any date of
determination, the sum of the capital stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of the Borrower and its
consolidated subsidiaries plus the outstanding principal amount of the
Convertible Subordinate Debentures Due 2021 of Borrower (the “Convertible
Debentures”) minus (i) treasury stock, (ii) intangible assets (including,
without limitation, franchises, patents, patent applications, trademarks, brand
names, goodwill, purchased contracts, deferred charges (including unamortized
debt discount and expense and organization costs) and research and development
expenses, provided, however that water rights shall not be
considered an intangible asset) and (iii) receivables, advances, loans and all
other amounts due from employees, officers, shareholders and/or affiliates
(excluding those Subsidiaries of which Borrower owns at least 80% of the
outstanding equity), on a consolidated basis determined in conformity with
GAAP.

 

“Debt”:  As applied to any Person, (i) all
indebtedness for borrowed money, (ii) that portion of obligations with respect
to Capital Leases which is properly classified as a liability on a balance
sheet in conformity with GAAP, (iii) notes payable
and drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money, (iv) any obligation owed for all
or any part of the deferred purchase price of property or services which
purchase price is (y) due more than six months from the date of incurrence of
the obligation in respect thereof, or (z) evidenced by a note or similar
written instrument; (v) all indebtedness secured by any Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is non-recourse to
the credit of that person; (vi) reimbursement obligations under letters of
credit; and (vii) other contingent liabilities.

 

“Default
Rate”:  As defined in the Revolving
Note.

 

3

 

“Distribution”:  With respect to any Person shall mean that
such Person has paid any dividend or returned any capital to, its stockholders
or equity holders as such or authorized or made any other distribution, payment
or delivery of property or cash to its stockholders or equity holders as such,
or redeemed, retired, purchased, or otherwise acquired, directly or indirectly,
for consideration, any shares of any class of its capital stock or equity
interests (or any options, warrants or rights issued by such Person with
respect to its capital stock or equity interests), or set aside any funds for
any of the foregoing purposes, or shall have permitted any of its Subsidiaries
to purchase or otherwise acquire for a consideration any shares of any class of
the capital stock or any equity interests of such Person (or any options,
warrants or rights issued by such Person with respect to its capital stock or
equity interests). Without limiting the foregoing, “Distributions” with respect
to any Person shall also include all payments made or required to be made by
such Person with respect to any stock appreciation rights plans, equity
incentive or the setting aside of any funds for the foregoing purposes.

 

“Dividend
Reinvestment Plan”:  Borrower’s Dividend
Reinvestment and Stock Purchase Plan dated September 26, 2001.

 

“Dollars
and $”:  Dollars in lawful currency of
the United States of America.

 

“EBITDA
Coverage Ratio”: For any period of Borrower and its Subsidiaries on a
consolidated basis, Consolidated EBITDA divided by the sum of the total
interest expense plus current portion of long-term Debt  plus current portion of
advances for construction plus cash Distributions.

 

“ECO”:  ECO Resources, Inc., a Texas corporation.

 

“Employee
Benefit Plan”:  Any Pension Plan, any
employee welfare benefit plan, or any other employee benefit plan which is
described in Section 3(3) of ERISA and which is
maintained for employees of the Borrower or any ERISA Affiliate of the
Borrower.

 

“Employee
Stock Purchase Plan”:  Borrower’s
Amended and Restated Employee Stock Purchase Plan dated May 28, 1998.

 

“ERISA”:  The Employee Retirement Income Security Act
of 1974, as amended to the date hereof and from time to time hereafter.

 

“ERISA
Affiliate”:  As applied to any Person,
any trade or business (whether or not incorporated) which is a member of a
group of which that Person is a member and which is under common control within
the meaning of Section 414(b) and (c) of the
Internal Revenue Code.

 

“Event
of Default”: As defined in Section 7.01.

 

4

 

“GAAP”:  Generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession or any public commission having regulatory
responsibility over the Borrower or any Subsidiary.

 

“Hornsby”:  Hornsby Bend Utility Company, a Texas
corporation.

 

“Internal
Revenue Code”:  The Internal Revenue
Code of 1986, as amended to the date hereof and from time to time hereafter and
any successor statute.

 

“Lien”:  Any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).

 

“Loan
Documents”:  This Agreement, the
Revolving Note, each alternative dispute resolution agreement entered into by
Borrower and Bank in connection with this Agreement, and each other agreement,
document, instrument and guarantee required by the Bank in connection with this
Agreement and/or the credit extended hereunder.

 

“Maturity
Date”:  September 30, 2005.

 

“Metro”:
Metro-H20 Utilities, Limited, a Texas limited partnership.

 

“MTI”:  Master Tek International, Inc., a Colorado
corporation.

 

“Multiemployer
Plan”:  A “multiemployer plan” as
defined in Section 4001(a)(3) of ERISA which is
maintained for employees of the Borrower or any ERISA Affiliate of the
Borrower.

 

“NMUI”:
New Mexico Utilities, Inc., a New Mexico corporation.

 

“OpTech”:
Operations Technologies, Inc., a Georgia corporation.

 

“Pension
Plan”: any employee plan which is subject to Section 412 of the Internal
Revenue Code and which is maintained for employees of the Borrower or any ERISA
Affiliate of the Borrower, other than a Multiemployer Plan.

 

“Permitted
Acquisition”:  An Acquisition by Borrower
or any of its Subsidiaries of all or substantially all of the assets of, or 80%
or more of the capital stock or other equity interests of, a Person (the
“Acquired Person”) engaged in the same line of business as Borrower or such
Subsidiary, provided that (a) if such Acquisition is of all of the
capital stock or other equity interests of the Acquired Person, such Acquired
Person is merged with and into Borrower or such Subsidiary substantially
simultaneously with Borrower’s or such Subsidiary’s acquisition of such capital
stock or other equity interests or becomes a wholly-owned Subsidiary, (b) no
Potential Event of Default or Event of Default shall have occurred or be
continuing or would result after giving effect to such Permitted Acquisition,
(c) the Acquisition shall have been

 

5

 

consummated
in compliance with all applicable laws, and (d) Borrower shall be in compliance
with all covenants on a pro forma basis having given effect to the Acquisition
both prior to and upon consummation of such Acquisition.

 

“Person”:  An individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental authority or other entity
of whatever nature.

 

“Potential
Event of Default”:  A condition or event
which, after notice or lapse of time or both, would constitute an Event of
Default if that condition or event were not cured or removed within any
applicable grace or cure period.

 

“Regulations
T, U and X”:  Regulations T, U and X,
respectively, promulgated by the Board of Governors of the Federal Reserve
System, as amended from time to time, and any successors thereto.

 

“Revolving
Commitment”: The amount of $15,000,000, as such amount may be reduced pursuant
to Section 2.01(c).

 

“Revolving
Loans”:  As defined in Section 2.01(a).

 

“Revolving
Note”:  As defined in Section 2.01(d).

 

“S.E.C.”:  The United States Securities and Exchange
Commission and any successor institution or body which performs the functions
or substantially all of the functions thereof.

 

“Solvent”:  When used with respect to any Person, that
as of the date as to which the Person’s solvency is to be measured:

 

(i)             the fair saleable
value of its assets is in excess of the total amount of its liabilities
(including contingent liabilities) as they become absolute and matured;

 

(ii)          it has sufficient
capital to conduct its business; and

 

(iii)       it is able to meet its
debts as they mature.

 

“Subsidiary”:  Any corporation, limited liability company
or partnership (whether or not, in any case, characterized as such or as a
“joint venture”): (i) in the case of a corporation or limited liability
company, of which a majority of the securities having ordinary voting power for
the election of directors or other governing body (other than securities having
such power only by reason of the happening of a contingency) are at the time
owned directly, or indirectly through one or more intermediaries, or both, by
the Borrower, or (ii) in the case of a partnership or limited liability
company, of which a majority of the partnership or limited liability company or
other ownership interest are at the time owned directly, or indirectly through
one or more intermediaries, or both, by the Borrower.

 

6

 

“Suburban”:  Suburban Water Systems, a California
corporation.

 

“Suburban
Loan Documents”:  That Credit Agreement
dated as of July 30, 1999 between Bank and Suburban, and each agreement,
document, instrument and guarantee required by Bank in connection with such
Credit Agreement and/or the credit extended thereunder, in each case as
amended.

 

“SWUC”:
SW Utility Company, a Texas corporation.

 

“Termination
Event”:  (i) a “Reportable Event”
described in Section 4043 of ERISA and the regulations issued thereunder (other
than a “Reportable Event” not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation under such regulations) with respect to
any Pension Plan, or (ii) the withdrawal of the Borrower or any of its ERISA
Affiliates from a Pension Plan during a plan year in which it was a
“substantial employer” as defined in Section 4001(a)(2) of ERISA, or (iii) the
filing of a notice of intent to terminate a Pension Plan or the treatment of a
Pension Plan amendment as a termination under Section 4041 of ERISA, or (iv)
the institution of proceedings to terminate a Pension Plan by the Pension
Benefit Guaranty Corporation under Section 4042 of ERISA, or (v) any other
event or condition which might constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan
under Section 4042 of ERISA, or (vi) the imposition of a lien with respect to
any Pension Plan pursuant to Section 412(n) of the Internal Revenue Code.

 

“Union”:  Union Bank of California

 

“Union
Loan Documents”:  That Credit Agreement
dated as of June 6, 2003 between Union Bank of California, N.A. and Borrower,
and each agreement, document, instrument and guarantee required by Union Bank
of California, N.A., in connection with such Credit Agreement and/or the credit
extended thereunder, in each case as amended.

 

“Windermere”:
Windermere Utility Co., Inc., a Texas corporation.

 

“WRI”:
Wastewater Rehabilitation, Inc., a Texas corporation.

 

SECTION 1.02.  Other Definitional Provisions.  All terms defined in this Agreement shall
have the defined meanings when used in the Revolving Note or any certificate or
other document made or delivered pursuant hereto.

 

(b)         As used herein and in the
Revolving Note, and any certificate or other document made or delivered
pursuant hereto, accounting terms not defined in Section 1.01, and accounting
terms partly defined in Section 1.01 to the extent
not defined, shall have the respective meanings given to them under GAAP.

 

(c)          The words “hereof”,
“herein” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and section, subsection, schedule and exhibit
references are to this Agreement unless otherwise specified.

 

7

 

(d)         So long as the Borrower
does not have any Subsidiaries, references to a Subsidiary or Subsidiaries in
this Agreement shall be deemed to be deleted.

 

ARTICLE II

THE CREDIT

 

SECTION 2.01.  The Revolving Loans.  

 

(a) The Revolving Commitment.  The Bank agrees, on the terms and conditions
hereinafter set forth, to make loans (“Revolving Loans”) to the Borrower from
time to time during the period from the date hereof to and including the
Maturity Date in an aggregate amount not to exceed the Revolving Commitment, as
such amount may be reduced pursuant to Section 2.01(c).  Within the limits of the Revolving
Commitment and prior to the Maturity Date, the Borrower may borrow, repay, and
reborrow subject to the terms of this Agreement and the Revolving Note.

 

(b) Making the Revolving Loans.  The Borrower may borrow under the Revolving
Commitment on any Business Day, provided that the Borrower shall give the Bank
notice pursuant to the terms of the Revolving Note specifying (i) the
amount of the proposed Revolving Loan and (ii) the requested date of the
Revolving Loan.  Upon satisfaction of
the applicable conditions set forth in Article IV, the proceeds of all
such Revolving Loans will then be made available to the Borrower by the Bank by
crediting the account of the Borrower on the books of the Bank, or as otherwise
directed by the Borrower.

 

(c) Reduction of the Revolving Commitment.  The Borrower shall have the right, upon at
least two Business Days’ notice to the Bank, to terminate in whole or reduce in
part the unused portion of the Revolving Commitment, without premium or
penalty, provided that each partial reduction shall be in the aggregate amount
of $100,000 or an integral multiple thereof and that such reduction shall not
reduce the Revolving Commitment to an amount less than the amount outstanding
hereunder on the effective date of the reduction.  Such notice shall be irrevocable and such reduction shall not be
reinstated.

 

(d) Revolving Note. 
The Revolving Loans made by the Bank pursuant hereto shall be evidenced
by a promissory note of the Borrower, substantially in the form of
Exhibit A, with any appropriate insertions (as amended from time to time,
the “Revolving Note”), payable to the order of the Bank and representing the
obligation of the Borrower to pay the aggregate unpaid principal amount of all
Revolving Loans made by the Bank, with interest thereon as prescribed in Section
2.03. The Bank is hereby authorized to record in its books and records and on
any schedule annexed to the Revolving Note, the date and amount of each
Revolving Loan made by the Bank, the date and amount of each payment of
principal thereof, and the applicable interest rate, and any such recordation
shall constitute prima facie evidence of the accuracy of the information so
recorded; provided that failure by the Bank to effect such recordation shall
not affect the Borrower’s obligations hereunder.  Prior to the transfer of the Revolving Note, the Bank shall
record such information on any schedule annexed to and forming a part of the
Revolving Note.

 

8

 

(e) Standby Letters of
Credit.  The Revolving
Commitment may be used for financing standby letters of credit with a maximum
maturity of 365 days but not to extend more than 365 days beyond the Maturity
Date. The standby letters of credit may include a provision providing that the
maturity date will be automatically extended each year for an additional year
unless the Bank gives written notice to the contrary. The amount of standby
letters of credit outstanding at any one time (including amounts drawn on
letters of credit and not yet reimbursed) may not exceed Three Million Dollars  ($3,000,000).
Each standby letter of credit must be requested by the Borrower at least three
(3) Business Days prior to the proposed date of issuance of such standby letter
of credit, and any such request may be submitted by telecopy, rapidfax or other
telecommunication method (other  than telephonic or oral
advice).  The Borrower agrees:

 

(i)                  to
pay the Bank an amount equal to any payment made by the Bank with respect to
each letter of credit within one (1) Business Day after demand made by the Bank
therefor, together with interest on such amount from the date of any payment
made by the Bank at the rate applicable to advances bearing interest with
reference to the Reference Rate for the period commencing on the date of any
such payment and continuing through the first Business Day following such
demand and thereafter at the Default Rate. 
The Borrower also agrees that any sum drawn under a letter of credit
may, without further action of the Bank, upon the Borrower’s failure to make the
payment referred to in the preceding sentence, be added to the principal amount
outstanding under the Revolving Commitment. The amount will bear interest and
be due as described elsewhere in this Agreement.

 

(ii)               if
there is a default under this Agreement, to immediately prepay and make the
Bank whole for any outstanding letters of credit.

 

(iii)            the issuance of any letter of credit and
any amendment to a letter of credit is subject to the Bank’s written approval
and must be in form and content satisfactory to the Bank and in favor of a
beneficiary acceptable to the Bank.

 

(iv)           to
sign the Bank’s form application and agreement for standby letters of credit
with respect to each letter of credit, which must be submitted to the Bank
concurrently with the Borrower’s request for any standby letter of credit.

 

(v)              to
pay any issuance and/or other fees that the Bank notifies the Borrower will be
charged for issuing and processing letters of credit for the Borrower.

 

(vi)           to
allow the Bank to automatically charge its checking account for applicable
fees, discounts, and other charges.

 

(vii)        to pay the Bank a non-refundable fee equal to
1.25% per annum of the outstanding undrawn amount of each standby letter of
credit, provided that the minimum amount per annum of such fee with
respect to each standby letter of credit shall be $500.  This fee shall be calculated in advance as
of the first day of each calendar quarter on the basis of such amount in effect
on the day the fee is calculated, and is payable on the 14th day
after each such date of calculation. If there is a default under this

 

9

 

Agreement,
at the Bank’s option, the amount of the fee shall be increased to 3.25% per
annum, effective starting on the day the Bank provides notice of the increase
to the Borrower.

 

SECTION 2.02.  Mandatory Repayment.  The aggregate principal amount of the
Revolving Loans outstanding on the Maturity Date, together with accrued
interest thereon, shall be due and payable in full on the Maturity Date.  If at any time the aggregate outstanding
Revolving Loans exceed the Revolving Commitment then in effect, the Borrower
shall immediately repay the excess to the Bank without penalty or premium.

 

SECTION 2.03. 
Interest Computation and Payment; Fee
Computation.  The outstanding principal
balance of the Revolving Loans shall bear interest as set forth in the
Revolving Note.  Interest shall be
computed on the basis of a 360-day year, actual days elapsed.  Interest shall be payable at the times and
place set forth in the Revolving Note. 
All fees under this Agreement shall be computed on the basis of a
360-day year, actual days elapsed.

 

SECTION 2.04.  Unused commitment fee.  The Borrower agrees to pay a fee on any
difference between the Revolving Commitment and the amount of credit it
actually uses, determined by the weighted average credit outstanding during the
specified period. The fee will be calculated at 0.25% per year. The calculation
of credit outstanding shall include the Revolving Loans and the undrawn amount
of outstanding letters of credit. This fee shall be calculated in arrears as of
the end of each calendar quarter, and is payable on the 15th day of
the calendar month beginning immediately after each calendar quarter end.  Each such fee shall be fully earned when
paid and shall be non-refundable.

 

SECTION 2.05.  Annual Credit Facility Fee.  The Borrower agrees to pay, on the Closing
Date and on each anniversary thereof, an annual credit facility fee in the
amount of $25,000.  Each such fee shall
be fully earned when paid and shall be non-refundable.Borrower shall pay to
Bank an amendment fee of
$          for the processing
and approval of this Agreement, which fee will be fully earned on the date of
this Agreement.

 

ARTICLE III

GENERAL PROVISIONS CONCERNING THE LOANS

 

SECTION 3.01.  Use of Proceeds.  The proceeds of Revolving Loans hereunder
shall be used by the Borrower (i) for general corporate purposes, working
capital and acquisitions permitted hereunder of the Borrower and those Subsidiaries
of Borrower as to which Borrower owns at least 80% of the outstanding equity,
and (ii) to finance capital additions to the
water utility and other operations of the Borrower and those Subsidiaries of
Borrower as to which Borrower owns at least 80% of the outstanding equity.

 

SECTION 3.02.  Payment on Non-Business
Days.  Whenever any payment to be made
hereunder or under the Revolving Note shall be stated to be due on a day which
is not a Business Day, such payment may be made on the next succeeding Business
Day, and with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.

 

10

 

SECTION 3.03.  Reduced Return.  If the Bank shall have determined that any
applicable law, regulation, rule or regulatory requirement generally applicable
to banks located in California and (collectively in this Section 3.03,
“Requirement”) regarding capital adequacy, or any change therein, or any change
in the interpretation or administration thereof by any United States federal or
state governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by the Bank with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on the Bank’s capital as a
consequence of its Commitment and obligations hereunder to a level below that
which would have been achieved but for such Requirement, change or compliance
(taking into consideration the Bank’s policies with respect to capital
adequacy) by an amount deemed by the Bank to be material (which amount shall be
determined by the Bank’s reasonable allocation of the aggregate of such
reductions resulting from such events), then from time to time, within five (5)
Business Days after demand by the Bank, the Borrower shall pay to the Bank such
additional amount or amounts as will compensate the Bank for such
reduction.  The Bank does not presently
have knowledge of any new Requirement or any pending change in any existing
Requirement which would result in such additional amounts being owed.

 

SECTION 3.04.  Indemnities.  The Borrower agrees to indemnify, pay and
hold the Bank, and the shareholders, officers, directors, employees and agents
of the Bank (“Indemnified Persons”), harmless from and against any and all
claims, liabilities, losses, damages, costs and expenses (whether or not any of
the foregoing Indemnified Persons is a party to any litigation), including,
without limitation, reasonable attorneys’ fees and costs (including, without
limitation, the reasonable estimate of the allocated cost of in-house legal counsel
and staff) and costs of investigation, document production, attendance at a
deposition, or other discovery, prior to the assumption of defense by the
Borrower, with respect to or arising out of any proposed acquisition by the
Borrower or any of its Subsidiaries of any Person or any securities (including
a self-tender), this Agreement or any use of proceeds hereunder, or any claim,
demand, action or cause of action being asserted against the Borrower or any of
its Subsidiaries (collectively, the “Indemnified Liabilities”), provided that
the Borrower shall have no obligation hereunder with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of any such
Indemnified Persons. If any claim is made, or any action, suit or proceeding is
brought, against any Indemnified Person with respect to Indemnified
Liabilities, the Indemnified Person shall notify the Borrower within thirty (30) days of the Bank being notified in writing of any
such claim or the commencement of such action, suit or proceeding, and the
Borrower will assume the defense of such action, suit or proceeding, employing
counsel selected by Borrower’s insurance carrier, or selected by the Borrower
and reasonably satisfactory to the Indemnified Person, and pay the fees and
expenses of such counsel. This covenant shall survive termination of this
Agreement and payment of the amounts outstanding under the Revolving Note for a
period of six (6) years.

 

SECTION 3.05.  Funding Sources.  Nothing in this Agreement shall be deemed to
obligate the Bank to obtain the funds for any Revolving Loan in any particular
place or manner or to constitute a representation by the Bank that it has
obtained or will obtain the funds for any Revolving Loan in any particular
place or manner.

 

11

 

ARTICLE IV

CONDITIONS OF LENDING

 

SECTION 4.01. 
Conditions Precedent to Initial Revolving Loan.  The obligation of the Bank to make its
initial Revolving Loan is subject to the conditions precedent that:

 

(a)          The Bank shall have
received on or before the day of the initial Revolving Loan the following, each
dated prior to or as of such day, in form and substance satisfactory to the
Bank:

 

(i)                  The
Revolving Note issued by the Borrower to the order of the Bank;

 

(ii)               Copies
of the Articles of Incorporation or Certificate of Incorporation of the
Borrower, certified as of a recent date by the Secretary of State of Delaware;

 

(iii)            Copies of the Bylaws, if any, of the
Borrower, certified by the Secretary or an Assistant Secretary of the Borrower;

 

(iv)           Copies
of resolutions of the Board of Directors or other authorizing documents of the
Borrower, in form and substance satisfactory to the Bank, approving the Loan
Documents and the Revolving Loans hereunder;

 

(v)              An
incumbency certificate executed by the Secretary or an Assistant Secretary of
the Borrower or equivalent document, certifying the names and signatures of the
officers of the Borrower or other Persons authorized to sign the Loan Documents
and the other documents to be delivered hereunder;

 

(vi)           Executed
copies of all other Loan Documents;

 

(b)         The Bank shall have
completed its due diligence review of the Borrower, and the scope and results
thereof shall be satisfactory to Bank in its discretion;

 

(c)          All information
previously furnished by Borrower to Bank shall be true and correct in all
material respects;

 

(d)         All fees and expenses
required to be paid on the Closing Date shall have been paid or arrangements
satisfactory to Bank shall have been made with respect to the payment thereof;

 

(e)          Borrower shall be in
compliance with the Loan Documents, and after giving effect to the initial
Revolving Loan, no Potential Event of Default or Event of Default shall have
occurred and be continuing;

 

(f)            The representations
and warranties of Borrower contained in Article V shall be true and correct in
all respects;

 

12

 

(g)         Bank shall have received
evidence of the insurance policies required by Section 6.01(e);

 

(h)         All corporate and legal
proceedings and all instruments and documents in connection with the
transactions contemplated by this Agreement shall be reasonably satisfactory in
content, form and substance to the Bank and its counsel, and the Bank and such
counsel shall have received any and all further information and documents which
the Bank or such counsel may reasonably have requested in connection therewith,
such documents where appropriate to be certified by proper corporate or
governmental authorities;

 

(i)             Nothing shall have
occurred and the Bank shall not have become aware of any fact or condition not
previously known, which the Bank shall determine has, or could reasonably be
expected to have, a material adverse effect on the rights or remedies of the
Bank, or on the ability of the Borrower to perform its obligations to the Bank
or which has, or could reasonably be expected to have, a materially adverse
effect on the performance, business, property, assets, condition (financial or
otherwise) or prospects of Borrower and its Subsidiaries taken as a whole;

 

(j)             Suburban shall have
reduced the outstanding principal balance of the credit facility provided to
Suburban pursuant to the Suburban Loan Documents to $0; the commitment
represented by the Suburban Loan Documents hereby being deemed terminated.

 

SECTION 4.02. 
Conditions Precedent to Each Revolving Loan.  The obligation of the Bank to make a
Revolving Loan on the occasion of each Revolving Loan (including the initial
Revolving Loan) shall be subject to the further conditions precedent that on
the date of such Revolving Loan (a) the following statements shall be true
and the Bank shall have received the notice required by Section 2.01(b), which
notice shall be deemed to be a certification by the Borrower that:

 

(i)                  The
representations and warranties contained in Section 5.01 are correct on and as
of the date of such Revolving Loan as though made on and as of such date,

 

(ii)               No
event has occurred and is continuing, or would result from such Revolving Loan,
which constitutes an Event of Default or Potential Event of Default; and

 

(iii)            Nothing shall have occurred and the Bank
shall not have become aware of any fact or condition not previously known,
which the Bank shall determine has, or could reasonably be expected to have, a
material adverse effect on the rights or remedies of the Bank, or on the
ability of the Borrower to perform its obligations to the Bank or which has, or
could reasonably be expected to have, a material adverse effect on the performance,
business, property, assets, condition (financial or otherwise) or prospects of
Borrower and its Subsidiaries taken as a whole; and

 

(iv)           All
Loan Documents are in full force and effect,

 

and (b) the Bank shall have received such other
approvals, opinions or documents as the Bank may reasonably request.

 

13

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES

 

SECTION 5.01. 
Representations and Warranties.  The Borrower represents and warrants as
follows:

 

(a) Organization. 
The Borrower and each of its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
The Borrower and each of its Subsidiaries is also duly authorized, qualified
and licensed in all applicable jurisdictions, and under all applicable laws,
regulations, ordinances or orders of public authorities, to carry on its
business in the locations and in the manner presently conducted, and the
Borrower and each of its Subsidiaries has all requisite power and authority to
conduct its business and to own and lease its properties.  Schedule 5.01(a) attached hereto correctly
sets forth the names, form of legal entity, number of shares of capital stock
or membership or other equity interests, as applicable, issued and outstanding,
number of shares of capital stock or membership or other equity interests, as
applicable, owned by the Borrower or any of its Subsidiaries (specifying such
owner) and jurisdictions of organization of all Subsidiaries of the Borrower.  Except as set forth on Schedule 5.01(a),
there are no outstanding options, warrants or other rights to purchase any
capital stock, membership interests or units of other equity interest of any
Subsidiary other than in favor of the Borrower, and all shares, membership
interests or other equity interests issued by the Subsidiaries are  free
and clear of all liens, except for liens permitted under Section 6.02(d).

 

(b) Authorization; No Conflict.  The execution, delivery and performance by
the Borrower of the Loan Documents, and the borrowing of Revolving Loans
hereunder, are within the Borrower’s corporate powers, have been duly
authorized by all necessary corporate action, do not contravene (i) the
Borrower’s charter, by-laws or other organizational document or (ii) any
law or regulation (including, without limitation, Regulations T, U and X and
regulations of public utility commissions or similar regulatory authorities)
binding on or affecting the Borrower or its properties, and will not constitute
an event of default under any material agreement to which Borrower is a party
or by which its assets or properties may be bound.

 

(c) Governmental Consents.  No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body (except routine reports required pursuant to the Securities Exchange Act
of 1934, as amended (if such act is applicable to the Borrower), which reports
will be made in the ordinary course of business) is required for the due execution,
delivery and performance by the Borrower of the Loan Documents.

 

(d) Validity.  The Loan Documents are the binding
obligations of the Borrower or other executing Person, if any, enforceable in
accordance with their respective terms; except in each case as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws of general application and
equitable principles relating to or affecting creditors’ rights.

 

(e) Financial Condition.  The balance sheets of the Borrower and its
consolidated Subsidiaries as at December 31, 2002, and the related consolidated
statements of income and changes in common stockholders’ equity of the Borrower
and its consolidated Subsidiaries for

 

14

 

the fiscal twelve months then ended, copies of which
have been furnished to the Bank, fairly present the financial condition of the
Borrower and its consolidated Subsidiaries as at such dates and the results of
the operations of the Borrower and its consolidated Subsidiaries for the period
ended on such date, all in accordance with GAAP, consistently applied, and
since December 31, 2002 there has been no material adverse change in the
business, operations, properties, assets or condition (financial or otherwise)
of the Borrower and its Subsidiaries, taken as a whole.

 

(f) Litigation.  Except as set forth in the Form 10-K dated
December 31, 2002, and on Schedule 5.01(f) hereto, there is no known pending or
threatened action or proceeding affecting the Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the consolidated financial condition or operations
of the Borrower or which may have a material adverse effect on the Borrower’s
ability to perform its obligations under the Loan Documents, having regard for
its other financial obligations.

 

(g) Employee Benefit Plans.  The Borrower and each of its ERISA
Affiliates is in compliance in all material respects with any applicable
provisions of ERISA and the regulations and published interpretations
thereunder with respect to all Employee Benefit Plans.  No Termination Event has occurred with
respect to any Pension Plan.  The excess
of the actuarial present value of all benefit liabilities under all Pension
Plans (excluding in such computation Pension Plans with assets greater than
benefit liabilities) over the fair market value of the assets allocable to such
benefit liabilities are not greater than five percent (5%) of Consolidated
Tangible Net Worth.  For purposes of the
preceding sentence, the term “benefit liabilities” shall have the meaning
specified in Section 4001 of ERISA.

 

(h) Disclosure.  No representation or warranty of the
Borrower contained in this Agreement or any other document, certificate or
written statement furnished to the Bank by or on behalf of the Borrower for use
in connection with the transactions contemplated by this Agreement contains any
known untrue statement of a material fact or omits to state a known material
fact (known to the Borrower in the case of any document not furnished by it)
necessary in order to make the statements contained herein or therein not
misleading. There is no fact known to the Borrower (other than matters of a
general economic nature) which materially adversely affects the business,
operations, property, assets or condition (financial or otherwise) of the
Borrower and its Subsidiaries, taken as a whole, which has not been disclosed
herein or in such other documents, certificates and statements furnished to the
Bank for use in connection with the transactions contemplated hereby.

 

(i) Environmental Matters.  Except as set forth in Schedule 5.01(i)
hereto, neither the Borrower nor any Subsidiary, nor any of their respective
officers, employees, representatives or agents, nor, to the best of their
knowledge, any other person, has treated, stored, processed, discharged,
spilled, or otherwise disposed of any substance defined as hazardous or toxic
by any applicable federal, state or local law, rule, regulation, order or
directive, or any waste or by-product thereof, at any real property or any
other facility owned, leased or used by the Borrower or any Subsidiary, in
violation of any applicable statutes, regulations, ordinances or directives of
any governmental authority or court, which violations may result in liability
to the Borrower or any Subsidiary or any of their respective officers,
employees, representatives, agents or shareholders in an amount exceeding $500,000
for all such violations; and the unresolved

 

15

 

violations set forth in said Schedule 5.01(i) will not result in liability to the Borrower or
any Subsidiary or any of their respective officers, employees, representatives,
agents or shareholders in an amount exceeding $500,000 for all such unresolved
violations. Except as set forth in said Schedule, no employee or other person
has made a claim or demand against the Borrower or any Subsidiary based on alleged
damage to health caused by any such hazardous or toxic substance or by any
waste or by-product thereof; and the unsatisfied claims or demands against the
Borrower or any Subsidiary set forth in said Schedule 5.01(i)
will not result in uninsured liability to the Borrower or any Subsidiary or any
of their respective officers, employees, representatives, agents or
shareholders in an amount exceeding $250,000 in excess of reserves on the books
of the Borrower for all such unsatisfied claims or demands. Except as set forth
in said Schedule 5.01(i), neither the Borrower nor any Subsidiary has been
charged by any governmental authority with improperly using, handling, storing,
discharging or disposing of any such hazardous or toxic substance or waste or
by-product thereof or with causing or permitting any pollution of any body of
water; and the outstanding related charges set forth in said Schedule 5.01(i)
will not result in liability to the Borrower or any Subsidiary or any of their
respective officers, employees, representatives, agents or shareholders in an
amount exceeding $500,000 for all such outstanding charges.

 

(j) Employee Matters.  There is no known strike or work stoppage in
existence or threatened involving the Borrower or its Subsidiaries that may materially
adversely affect the consolidated financial condition or operations of the
Borrower or that may have a material adverse effect on the Borrower’s ability
to perform its obligations under the Loan Documents, having regard for its
other financial obligations.

 

(k) Solvency.  Borrower and each of its Subsidiaries is
Solvent.

 

(l) Title to Properties.  Borrower and each of its Subsidiaries has
good and marketable title to or interests in all of its properties and assets
subject to no liens, mortgages, pledges, security interests, encumbrances or
charges of any kind, except those granted to Bank and such others as are
permitted under Section 6.02(d) hereof.

 

(m) Tax Returns.  Borrower and each of its Subsidiaries has
filed, or caused to be filed, in a timely manner all tax returns, reports and
declarations which are required to be filed by it (without requests for
extension (other than automatic extensions provided by law) except as
previously disclosed in writing to Bank). 
All information in such tax returns, reports and declarations is
complete and accurate in all material respects.  Borrower and each of its Subsidiaries has paid or caused to be
paid all taxes due and payable or claimed due and payable in any assessment
received by it, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
or its Subsidiaries and with respect to which adequate reserves have been set
aside on its books.  Adequate provision
has been made for the payment of all accrued and unpaid Federal, State, county,
local, foreign and other taxes whether or not yet due and payable and whether
or not disputed.

 

(n) Compliance with
Other Agreements and Applicable Laws. 
Neither Borrower nor any of its Subsidiaries is in default in any
material respect under, or in violation in any material respect of any of the
terms of, any agreement, contract, instrument, lease or other commitment
(including, but not limited to any such agreement involving the debts or

 

16

 

investments of Borrower or liens upon its assets) to
which it is a party or by which it or any of its assets are bound and Borrower
and each of its Subsidiaries is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits, approvals
and orders of any foreign, Federal, State or local governmental authority.

 

(o) No Default.  No event has occurred and is continuing that
is a Potential Event of Default or an Event of Default.

 

(p) Regulation U;
Investment Company Act.  No part of the
proceeds of any Revolving Loan hereunder will be used to purchase or carry, or
to extend credit to others for the purpose of purchasing or carrying, any
“margin stock” (as defined in Regulation U) in violation of Regulation U.  Borrower is not required to be registered as
an “investment company” under the Investment Company Act of 1940.

 

(q) Intangible Assets.  Borrower owns, or possesses the right to use
to the extent necessary in its business, all trademarks, trade names,
copyrights, patents, patent rights, computer software, licenses and other
intangible assets that are used in the conduct of its business as now operated,
and no such intangible asset, to Borrower’s actual knowledge, conflicts with
the valid trademark, trade name, copyright, patent, patent right or intangible
asset of any other Person.

 

ARTICLE VI

COVENANTS

 

SECTION 6.01. 
Affirmative Covenants.  So
long as any Revolving Loan shall remain unpaid or the Bank shall have any
Commitment hereunder, the Borrower will, unless the Bank shall otherwise
consent in writing:

 

(a) Financial Information.  Furnish to the Bank:

 

(i)                  as
soon as available, but in any event within 120 days after the end of each
fiscal year of the Borrower, (1) a copy of the Borrower’s annual report to
shareholders containing the audited consolidated balance sheets of itself and
its consolidated Subsidiaries as at the end of each fiscal year and the related
consolidated statements of income and changes in common stockholders’ equity
(or comparable statement) employed in the business and changes in financial
position and cash flow for such year, in each case prepared in accordance with
GAAP, setting forth in each case in comparative form the figures for the
previous year, accompanied by an unqualified report and opinion thereon of
independent certified public accountants acceptable to the Bank and, if
prepared, such accountants’ letter to management, and (2) a copy of the
Borrower-prepared consolidating balance sheets and statements of income
prepared in connection with each of the statements provided in subpart (1)
above; and

 

(ii)               as
soon as available, but in any event within forty-five (45)
days after the end of each fiscal quarter, the Borrower’s unaudited
consolidated and consolidating balance sheets of itself and its consolidated
Subsidiaries as at the end of such period and the related unaudited
consolidated and consolidating statements of income and the related unaudited
consolidated statement of changes in common

 

17

 

stockholders’
equity (or comparable statement) and changes in financial position and cash
flow for such period and year to date, setting forth in each case in
comparative form the figures as at the end of the previous fiscal year as to
the balance sheet and the figures for the previous corresponding period as to
the other statements, certified by a duly authorized officer of the Borrower as
being fairly stated in all material respects subject to year end adjustments;
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail acceptable to the Bank and in
accordance with GAAP applied consistently throughout the periods reflected
therein (except as approved by such accountants and disclosed therein and
except for the exclusion of certain information and footnote disclosures
omitted pursuant to the rules and regulations of the S.E.C.); and

 

(iii)            as soon as available, copies of all reports
which the Borrower sends to any of its security holders, and copies of all
reports and registration statements which the Borrower or any Subsidiary files
with the S.E.C. or any national securities exchange; and

 

(iv)           (a) together
with each delivery of financial statements of Borrower and its Subsidiaries
pursuant to subdivision (i) above, a certificate, executed by the Borrower’s
chairman of the board (if an officer) or its president or one of its vice
presidents or by its chief financial officer stating that the signers have
reviewed the terms of this Agreement and have made, or caused to be made under
their supervision, a review in reasonable detail of the transactions and
condition of Borrower and its Subsidiaries during the accounting period covered
by such financial statements and that such review has not disclosed the
existence during or at the end of such accounting period, and that the signers
do not have knowledge of the existence as at the date of such certificate, of
any condition or event that constitutes an Event of Default or Potential Event
of Default, or, if any such condition or event existed or exists, specifying
the nature and period of existence thereof and what action Borrower has taken,
is taking and proposes to take with respect thereto; and (b) together with
each delivery of financial statements of Borrower and its Subsidiaries pursuant
to subdivision (i) and (ii) above, a certificate
demonstrating in reasonable detail compliance during and at the end of the
applicable accounting periods with the restrictions contained in Section 6.02
hereof.

 

(b) Notices and Information.  Deliver to the Bank:

 

(i)                  promptly
upon any officer of the Borrower obtaining knowledge (a) of any condition
or event which constitutes an Event of Default or Potential Event of Default,
(b) that any Person has given any notice to the Borrower or any Subsidiary
of the Borrower or taken any other action with respect to a claimed default or
event or condition of the type referred to in Section 7.01(e) or Section
7.01(f), (c) of the institution of any litigation involving an alleged
liability (including possible forfeiture of property) of the Borrower or any of
its Subsidiaries equal to or greater than $500,000 which is not, except for
deductibles and self insurance reserves, fully covered by insurance maintained
by Borrower or any adverse determination in any litigation involving a
potential liability of the Borrower or any of its Subsidiaries equal to or
greater than $500,000 which is not, except for deductibles and self insurance
reserves, fully covered by insurance maintained by 

 

18

 

Borrower
or (d) of a material adverse change in the business, operations,
properties, assets or condition (financial or otherwise) of the Borrower and
its Subsidiaries, taken as a whole, an officers’ certificate specifying the
nature and period of existence of any such condition or event, or specifying
the notice given or action taken by such holder or Person and the nature of such
claimed default, Event of Default, Potential Event of Default, event or
condition, and what action the Borrower has taken, is taking and proposes to
take with respect thereto;

 

(ii)               promptly
upon becoming aware of the occurrence of any (a) Termination Event, or
(b) non-exempt “prohibited transaction”, as such term is defined in
Section 4975 of the Internal Revenue Code or a transaction prohibited by
Section 406 of ERISA, in connection with any Employee Benefit Plan or any trust
created thereunder, a written notice specifying the nature thereof, what action
the Borrower has taken, is taking or proposes to take with respect thereto,
and, when known, any action taken or threatened by the Internal Revenue
Service, the Department of Labor, or the Pension Benefit Guaranty Corporation
with respect thereto;

 

(iii)            with reasonable promptness copies of
(a) all notices received by the Borrower or any of its ERISA Affiliates of
the Pension Benefit Guaranty Corporation’s intent to terminate any Pension Plan
or to have a trustee appointed to administer any Pension Plan and (b) all
notices received by the Borrower or any of its ERISA Affiliates from a
Multiemployer Plan sponsor concerning the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA;

 

(iv)           promptly,
and in any event within 10 days after the effective date thereof, a copy of all
amendments to any of the loan documents governing any of the unsecured debt
permitted by Section 6.02(e)(iv) (including, without limitation, the Union Loan
Documents);

 

(v)              promptly,
and in any event within 30 days after receipt thereof, a copy of any notice,
summons, citation, directive, letter or other form of communication from any
governmental authority or court in any way concerning any action or omission on
the part of the Borrower or any of its Subsidiaries in connection with any
substance defined as toxic or hazardous by any applicable federal, state or
local law, rule, regulation, order or directive or any waste or byproduct
thereof, or concerning the filing of a lien upon, against or in connection with
the Borrower, its Subsidiaries, or any of their leased or owned real or
personal property, in connection with a Hazardous Substance Superfund or a
Post-Closure Liability Fund as maintained pursuant to § 9507 of the Internal
Revenue Code; and

 

(vi)           promptly,
and in any event within 30 days after request, such other information and data
with respect to the Borrower or any of its Subsidiaries as from time to time
may be reasonably requested by the Bank and is reasonably available to
Borrower.

 

(c) Corporate Existence,
Etc.  At all times preserve and keep in
full force and effect its and its Subsidiaries’ corporate existence and rights,
licenses and franchises material to

 

19

 

its business and those of each of its Subsidiaries; provided,
however, that the corporate existence of any such Subsidiary may be
terminated if such termination is in the best interest of Borrower and does not
result in a Change of Control.

 

(d) Payment of Taxes and Claims.  Pay, and cause each of its Subsidiaries to
pay, all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its franchises,
business, income or property before any penalty which would exceed the Penalty
Cap (as defined below) or interest accrues thereon, and all claims (including,
without limitation, claims for labor, services, materials and supplies) for
sums which have become due and payable and which by law have or may become a
lien upon any of its properties or assets, prior to the time when any penalty
or fine shall be incurred with respect thereto; provided that no such charge or
claim need be paid if being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and if such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor.  As used
herein, the term “Penalty Cap” means an amount equal to $10,000 in the
aggregate for the Borrower and its Subsidiaries for each calendar year.

 

(e) Maintenance of Properties; Insurance.  Maintain or cause to be maintained in good
repair, working order and condition all material properties used or useful in
the business of the Borrower and its Subsidiaries and from time to time will
make or cause to be made all appropriate repairs, renewals and replacements
thereof. The Borrower will maintain or cause to be maintained, with financially
sound and reputable insurers, insurance with respect to its properties and
business and the properties and business of its Subsidiaries against loss or
damage of the kinds customarily insured against by corporations of established
reputation engaged in the same or similar businesses and similarly situated, of
such types and in such amounts as are customarily carried under similar
circumstances by such other corporations. 
The Borrower will comply with any other insurance requirement set forth
in any other Loan Document.

 

(f) Inspection.  Permit any authorized representatives designated
by the Bank to visit and inspect any of the properties of the Borrower or any
of its Subsidiaries, including its and their financial and accounting records,
and to make copies and take extracts therefrom, and to discuss its and their
affairs, finances and accounts with its and their officers and independent
public accountants, all at such reasonable times during normal business hours
and as often as may be reasonably requested.

 

(g) Compliance with Laws Etc.  Exercise, and cause each of its Subsidiaries
to exercise, all due diligence in order to comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
including, without limitation, all rules and regulations of public utility
commissions or similar regulatory authorities, and all environmental laws,
rules, regulations and orders, noncompliance with which would materially
adversely affect the business, properties, assets, operations or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a
whole.

 

(h) Hazardous Waste Studies.  Promptly, and in any event within thirty (30) days after submission, provide the Bank with copies
of all such investigations, studies, samplings and testings as may be requested
by any governmental or regulatory authority relative to any substance defined
as hazardous or toxic by any applicable federal, state or local law, rule,

 

20

 

regulation, order or directive, or any waste or
by-product thereof, at or affecting any real property or any facility owned,
leased or used by the Borrower or any Subsidiary.  The foregoing shall not include sampling and testing of water, waste
water and effluent conducted by the Subsidiaries of Borrower on periodic bases
as a normal part of their water delivery and wastewater treatment businesses.

 

SECTION 6.02.  Negative Covenants.  So long as any Revolving Loan shall remain
unpaid or the Bank shall have any Commitment hereunder, the Borrower will not,
without the written consent of the Bank:

 

(a) Consolidated Tangible Net
Worth.  At any time, permit Consolidated
Tangible Net Worth to be less than the sum of (i) $55,500,000 plus (ii)
fifty percent (50%) of the cash proceeds received by Borrower or any of its
Subsidiaries from the issuance of any capital stock of Borrower or any of its
Subsidiaries after the date hereof (net of underwriting discounts and
commissions, professional fees and disbursements in each case not paid to an affiliate
of Borrower or a Subsidiary of Borrower)(other  than any such
proceeds received by Borrower in connection with the Employee Stock Purchase
Plan or the Dividend Reinvestment Plan).

 

(b) Consolidated Net Profit.  At the end of any fiscal quarter of the
Borrower, permit Consolidated Net Profit, determined on a four quarter rolling
basis, to be less than $1.00.

 

(c) EBITDA Coverage Ratio.  At the end of any fiscal quarter of
Borrower, permit the EBITDA Coverage Ratio, determined on a four quarter
rolling basis, to be less than 1.50:1.00.

 

(d) Liens Etc.  Create or suffer to exist, or permit any of
its Subsidiaries to create or suffer to exist, any Lien upon or with respect to
any of its properties, whether now owned or hereafter acquired, or assign, or
permit any of its Subsidiaries to assign, any right to receive income, in each
case to secure any Debt of any Person other than (i) Liens in favor of the
Bank; (ii) Liens existing on the date hereof and set forth in Schedule 6.02(d) hereto; (iii) purchase money Liens upon or in
any equipment acquired or held by the Borrower or any Subsidiary in the
ordinary course of business with respect to principal indebtedness up to a
maximum of $2,000,000 to secure the purchase price of such equipment or to
secure indebtedness incurred solely for the purpose of financing the
acquisition of such equipment; (iv) Liens existing on property acquired by
the Borrower or any Subsidiary, and all refundings and extensions of any such
Liens; (v) Liens, deposits and/or pledges made to secure the performance
of operating leases; provided that the principal amount of Debt secured by any
such Lien permitted hereunder shall not exceed an amount equal to (x) one
hundred percent (100%) of the cost of the real
property subject to such lien or security interest or (y) one hundred
percent (100%) of the cost of the personal property subject to such lien or
security interest, and further provided that none of such liens or security
interests shall extend to other assets of the Borrower or its Subsidiaries,
(vi) Liens for taxes, assessments or other governmental charges which are not
delinquent, and (vii) materialmen’s, mechanics’ or other similar liens arising
in the ordinary course of business the underlying claim with respect to which
is not delinquent or is being contested in good faith.

 

(e) Debt.  Create, incur, assume or
permit to exist, or permit any Subsidiary to create, incur, assume or permit to
exist, any indebtedness or liabilities resulting from borrowings,

 

21

 

loans or advances, whether matured or unmatured,
liquidated or unliquidated, joint or several, secured or unsecured, except for
(i) Debt incurred pursuant to the Convertible Debentures in a principal amount
not to exceed $20,000,000 outstanding at any time, (ii) secured indebtedness
for purchase money financing of equipment which is permitted under Section
6.02(d)(iii) in a principal amount not to exceed an aggregate of $2,000,000
outstanding at any time, (iii) other secured Debt identified on Schedule
6.02(e) not to exceed the applicable amount indicated on such schedule, (iv)
unsecured senior funded bank debt in a principal amount not to exceed
$30,000,000 outstanding at any time in the aggregate for the Borrower and its
Subsidiaries (including, without limitation, unsecured senior funded bank debt
incurred pursuant to the Loan Documents and the Union Loan Documents, and
excluding the undrawn face amount of the Capistrano Letter of Credit); provided
that (A) the principal amount outstanding under the credit facility provided to
Suburban pursuant to the Suburban Loan Documents shall not exceed $0 at any
time, and (B) the only unsecured senior funded debt of the Subsidiaries which
may be outstanding shall be (I) unsecured bank indebtedness of NMUI in an
aggregate principal amount not to exceed at any one time $4,000,000 and (II)
other unsecured senior funded debt in a principal amount not to exceed $500,000
outstanding at any time in the aggregate for all Subsidiaries,  and
(v) intercompany Debt between Borrower and its majority-owned
Subsidiaries.  In no event shall funded
debt at Suburban exceed Suburban’s bondable capacity at any time, and any and
all mortgage bonds issued by Suburban and/or NMUI subsequent to the date of
this Agreement shall have an NAIC rating of “1” or “2”.

 

(f) Consolidation,
Merger or Dissolution. 
(i) Consolidate with or merge into any other Person, or permit any
Subsidiary to consolidate with or merge into any other Person, unless Borrower
or the applicable Subsidiary is the surviving entity and no event has occurred
and is continuing, or would result from such consolidation or merger, which
constitutes an Event of Default or Potential Event of Default, (ii) wind up, liquidate or dissolve (provided,
however, that the corporate existence of any Subsidiary may be
terminated if such termination is in the best interest of Borrower and does not
result in a Change of Control) or (iii) agree to do any of the foregoing
or permit any Subsidiary to agree to do any of the foregoing.

 

(g)
Loans, Investments, Acquisitions, Secondary Liabilities.  Make or permit to remain outstanding, or
permit any Subsidiary to make or permit to remain outstanding, any loan or
advance to, or guarantee, induce or otherwise become contingently liable,
directly or indirectly, in connection with the obligations, stock or dividends
of, or own, purchase or acquire any stock, obligations or securities of or any
other interest in, or make any capital contribution to, any other Person, or
make any Acquisition or enter into any agreement to make any Acquisition,
except that the Borrower and its Subsidiaries may:

 

(i)                  own,
purchase or acquire certificates of deposit issued by a bank, commercial paper
rated Moody’s P-1, municipal bonds rated Moody’s AA or better, direct
obligations of the United States of America or its agencies, obligations
guaranteed by the United States of America, and “money market preferred stock”
issued by a corporation incorporated under the laws of the United States of
America or any state thereof given on the date of such investment a credit
rating of at least Moody’s Aa (and having an investment period not exceeding 50
days);

 

22

 

(ii)               make
Permitted Acquisitions, provided that the aggregate consideration paid
or payable by Borrower and its Subsidiaries in connection with all Permitted
Acquisitions consummated in any fiscal year of Borrower shall not exceed
$5,000,000, provided  further that such limit on consideration
shall be increased to $10,000,000 with respect to each fiscal year of Borrower
if all Permitted Acquisitions are made by Borrower in such fiscal year and all
purchase price payments to be made by Borrower in connection with such
Permitted Acquisitions are payable only in stock of Borrower;

 

(iii)            continue to own the existing capital stock
of the Borrower’s Subsidiaries;

 

(iv)           endorse
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business;

 

(v)              allow
the Borrower’s Subsidiaries to make or permit to remain outstanding advances
from the Borrower’s Subsidiaries to the Borrower;

 

(vi)           make
or permit to remain outstanding loans or advances to those Subsidiaries of
Borrower as to which Borrower owns at least 80% of the outstanding equity;

 

(vii)        with respect to the Borrower only, enter into
or permit to remain outstanding (a) a guaranty of the unsecured bank
indebtedness of NMUI in an amount not to exceed at any one time $4,000,000 for
principal, plus all interest thereon and all costs and expenses pertaining to
the enforcement of the guaranty and/or the collection of such indebtedness, (b)
a guaranty of the unsecured bank indebtedness of Suburban in an amount not to
exceed at any one time $4,000,000 for principal, plus all interest thereon and
all costs and expenses pertaining to the enforcement of the guaranty and/or the
collection of such indebtedness, (c) a guaranty of the senior secured bank
indebtedness provided by Bank of the West to Windermere in an amount not to
exceed at any one time $10,000,000 for principal, plus all interest thereon and
all costs and expenses pertaining to the enforcement of the guaranty and/or the
collection of such indebtedness, (d) guaranties of the obligations of ECO under
that certain Service Contract for the Design, Construction, Financing and
Operation of the San Juan Basin Desalter Project dated as of September 3, 2002
between the Capistrano Valley Water District and ECO and associated project
agreements, and (e) a guaranty of the senior secured bank indebtedness provided
by Compass Bank to Metro in an amount not to exceed at any one time $250,000
for principal, plus all interest thereon and all costs and expenses pertaining
to the enforcement of the guaranty and/or the collection of such indebtedness;  and

 

(viii)     make or permit to remain outstanding loans and
advances to any of its officers, shareholders or affiliates or enter into or
permit to remain outstanding guarantees in connection with the obligations of
its officers, shareholders or affiliates, in an aggregate amount for all such
loans, advances and guarantees not exceeding $100,000 in addition to the loans
outstanding and reflected on the Borrower’s financial statements dated March
31, 2003.

 

23

 

(h) Asset
Sales.  Convey, sell, lease,
transfer or otherwise dispose of, or permit any Subsidiary to convey, sell,
lease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its or its Subsidiary’s business, property or
fixed assets outside the ordinary course of business, whether now owned or
hereafter acquired, except that the Borrower and its Subsidiaries may convey,
sell, lease, transfer or otherwise dispose of business, property or fixed
assets for consideration which in the aggregate does not exceed $1,000,000 per
year.  The foregoing covenant shall not
extend to any property taken by eminent domain by any governmental authority or
other person or entity having the power of eminent domain or to any sale in
lieu of condemnation to a governmental authority or other person or entity
having the power of eminent domain made after threat of condemnation by such
governmental authority or other person or entity.

 

(i) Hostile
Tender Offers.  Make any offer to
purchase or acquire, or consummate a purchase or acquisition of, five percent
(5%) or more of the capital stock of any publicly held corporation or other
publicly held business entity, unless the board of directors of such
corporation or business entity has notified the Borrower that it invites or
does not oppose such offer or purchase.

 

(j) Distributions.  Upon the occurrence and during the
continuance of an Event of Default or Potential Event of Default, authorize,
declare or pay, or permit any of its Subsidiaries to authorize, declare or pay,
any Distributions.

 

(k) Transactions
with Affiliates.  Neither Borrower nor
any of its Subsidiaries shall enter into any transaction for the purchase, sale
or exchange of property or the rendering of any service to or by any affiliate,
except in the ordinary course of and pursuant to the reasonable requirements of
Borrower’s or its Subsidiary’s business and upon fair and reasonable terms no
less favorable to the Borrower or its Subsidiary than Borrower or its Subsidiary
would obtain in a comparable arm’s length transaction with an unaffiliated person.

 

(l) Books and Records.  Borrower will, and will cause each of its
Subsidiaries to, keep proper books of record and account in which full, true
and correct entries in conformity with GAAP and all requirements of applicable
law shall be made of all dealings and transactions in relation to its business
and activities.

 

(m) Restructure.  Make any change in the principal nature of
Borrower’s and its Subsidiaries’ business operations (taken as a whole) or the
date of its fiscal year.

 

ARTICLE VII

EVENTS OF DEFAULT

 

SECTION 7.01.  Events of Default.  If any of the following events (“Events of
Default”) shall occur and be continuing:

 

(a)          Borrower shall fail to
pay within three (3) days of the date when due, any principal, interest, fees
or other amounts payable under any of the Loan Documents; or

 

24

 

(b)         Any representation or
warranty made by the Borrower herein or by the Borrower (or any of its
officers)  in connection with the Loan
Documents shall prove to have been incorrect in any material respect when made;
or

 

(c)          Borrower shall fail to
perform or observe any term, any affirmative or negative covenant, including,
but not limited to, those covenants set forth in Sections 6.01 and 6.02 hereof,
or any other agreement contained in this Agreement on its part to be performed
or observed (other than those referred to in subsections (a) and (b) above);
and with respect to any such default which by its nature can be cured, such
default shall continue for a period of twenty (20) days from its occurrence; or

 

(d)         The Borrower or any of
its Subsidiaries shall default in the performance of or compliance with any
term contained in any Loan Document other than this Agreement and such default
shall not have been remedied or waived within any applicable grace period in
such Loan Document or in (c) above; or

 

(e)          The Borrower shall
default in the performance of or compliance with any term contained in any
Union Loan Document, and such default shall continue after the applicable grace
period, if any, specified in the applicable Union Loan Document; or

 

(f)            to the extent not
already addressed in this Section 7.01, (i) The Borrower or any of its
Subsidiaries shall (A) fail to pay any principal of, or premium or
interest on, any Debt the aggregate outstanding principal amount of which is at
least $500,000 (excluding Debt evidenced by the Revolving Note), when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Debt, or
(B) fail to perform or observe any term, covenant or condition on its part
to be performed or observed under any agreement or instrument relating to any
such Debt or material to the performance, business, property, assets, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries
taken as a whole, when required to be performed or observed, and such failure
shall continue after the applicable grace period, if any, specified in such
agreement or instrument; or

 

(g)         (i) The Borrower or
any of its Subsidiaries shall commence any case, proceeding or other action
(A) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian or other similar official for it or for all
or any substantial part of its assets, or the Borrower or any of its
Subsidiaries shall make a general assignment for the benefit of its creditors;
or (ii) there shall be commenced against the Borrower or any of its Subsidiaries
any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days (Bank may, in its discretion, cease
making Revolving Loans during the pendency of such action or proceeding); or
(iii) there shall be commenced against the Borrower or any of its
Subsidiaries any case,

 

25

 

proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) days from the entry thereof (Bank may,
in its discretion, cease making Revolving Loans during the pendency of such
action or proceeding); or (iv) the Borrower or any of its Subsidiaries shall
take any action in furtherance of, or indicating its consent to, approval of,
or acquiescence in, any of the acts set forth in clauses (i), (ii) and
(iii) above; or (v) the Borrower or any of its Subsidiaries shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due; or

 

(h)         One or more judgments or
decrees shall be entered against the Borrower or any of its Subsidiaries
involving in the aggregate a liability (not paid or fully covered by insurance
or reserves)  equal to or greater than
$500,000 and all such judgments or decrees shall not have been vacated,
discharged, or stayed or bonded pending appeal within thirty (30) days from the
entry thereof; or

 

(i)                                                             (i)  The
Borrower or any of its ERISA Affiliates fails to make full payment when due of
all material amounts which, under the provisions of any Pension Plan or Section
412 of the Internal Revenue Code, the Borrower or any of its ERISA Affiliates
is required to pay as contributions thereto and such development is not
remedied or reversed within fifteen (15) days after the Borrower knows of such
development;

 

(ii)               any
material accumulated funding deficiency occurs or exists, whether or not
waived, with respect to any Pension Plan and such development is not remedied
or reversed within fifteen (15) days after the Borrower knows of such
development;

 

(iii)            the excess of the actuarial present value
of all benefit liabilities under all Pension Plans over the fair market value
of the assets of such Pension Plans (excluding in such computation Pension
Plans with assets greater than benefit liabilities)  allocable to such benefit liabilities are greater than five
percent (5%) of Consolidated Tangible Net Worth and such development is not
remedied or reversed within fifteen (15) 
days after the Borrower knows of such development;

 

(iv)           the
Borrower or any of its ERISA Affiliates enters into any transaction which has
as its principal purpose the evasion of liability under Subtitle D of Title IV
of ERISA;

 

(v)              (A) Any
Pension Plan maintained by the Borrower or any of its ERISA Affiliates shall be
terminated within the meaning of Title IV of ERISA in a distress termination,
or (B) a trustee shall be appointed by an appropriate United States
district court in accordance with Section 4042 of ERISA to administer any
Pension Plan, or (C) the Pension Benefit Guaranty Corporation (or any
successor thereto) shall institute proceedings to terminate any Pension Plan or
to appoint a trustee to administer any Pension Plan in accordance with Section 4042 of ERISA, or (D) the Borrower or any of its
ERISA Affiliates shall withdraw (under Section 4063 of ERISA) from a Pension
Plan, if as of the date of the event listed in subclauses (A)-(D) above or any
subsequent date,

 

26

 

either the Borrower or its ERISA Affiliates has any
material liability (such liability to include, without limitation, any
liability to the Pension Benefit Guaranty Corporation, or any successor
thereto, or to any other party under Sections 4062, 4063 or 4064 of ERISA or
any other provision of law) resulting from or otherwise associated with the
events listed in subclauses (A)-(D) above;

 

(vi)      As used in this subsection
7.01(i) the term “accumulated funding deficiency” has the meaning specified in
Section 412 of the Internal Revenue Code, and the term “benefit liabilities”
has the meaning specified in Section 4001 of ERISA;

 

(j)             There shall be
instituted against the Borrower or any Subsidiary, or against any guarantor,
any proceeding for which forfeiture of any property with a value of $500,000 or
more is a potential penalty and such proceeding remains undismissed,
undischarged or unbonded for a period of thirty (30) days from the date the
Borrower knows of such proceeding; or

 

(k)          A Change of Control
shall have occurred.

 

Then,
(i) upon the occurrence of any Event of Default described in clause
7.01(g) above, the Commitment shall immediately terminate and all Revolving
Loans hereunder with accrued interest thereon, and all other amounts owing
under the Loan Documents shall automatically become due and payable, and
(ii) upon the occurrence of any other Event of Default, the Bank may, by
notice to the Borrower, declare the Commitment to be terminated forthwith,
whereupon the Commitment shall immediately terminate; and, by notice to the
Borrower, declare the Revolving Loans hereunder, with accrued interest thereon,
and all other amounts owing under the Loan Documents to be due and payable
forthwith, whereupon the same shall immediately become due and payable.  Bank shall have all rights, powers and
remedies available under each of the Loan Documents, or accorded by law,
including, without limitation, the right to resort to any or all security for
any credit accommodation from the Bank subject hereto and to exercise any or
all of the rights of a beneficiary or secured party pursuant to applicable
law.  All rights, powers and remedies of
Bank in connection with each of the Loan Documents may be exercised at any time
by Bank and from time to time after the occurrence of an Event of Default, are
cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.  Except as expressly provided above in this
Section, presentment, demand, protest and all other notices of any kind are
hereby expressly waived. Notwithstanding any other provision of this Agreement,
including Section 8.02, notices to the Borrower under this Section shall be
communicated in writing (including telex or facsimile transmissions).

 

ARTICLE VIII

MISCELLANEOUS

 

SECTION 8.01.  Amendments, Etc.  No amendment or waiver of any provision of the Loan Documents nor
consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Bank, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.

 

27

 

SECTION 8.02.  Notices, Etc.  Except as otherwise set forth in this Agreement, all notices and
other communications provided for hereunder shall be in writing (including
facsimile communication) and mailed certified mail, return receipt requested or
sent by facsimile or delivered, if to the Borrower, at its address set forth on
the signature page hereof; and if to the Bank, at its address set forth on the
signature page hereof; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall be effective upon personal delivery or upon
receipt when sent by facsimile, or on the date of receipt or refusal indicated
on the return receipt if sent by certified mail, except that notices and
communications to the Bank pursuant to Article II or VII shall not be effective
until received by the Bank.

 

SECTION 8.03.  Right of Setoff:  Security Interest in Deposit Accounts.  Upon and only after the occurrence of any Event of Default not
cured within any applicable grace period, the Bank is hereby authorized by the
Borrower, at any time and from time to time, without notice, (a) to set
off against, and to appropriate and apply to the payment of, the obligations
and liabilities of the Borrower under the Loan Documents (whether matured or
unmatured, fixed or contingent or liquidated or unliquidated) any and all
amounts owing by the Bank to the Borrower (whether payable in Dollars or any
other currency, whether matured or unmatured, and, in the case of deposits,
whether general or special, time or demand and however evidenced) and
(b) pending any such action, to the extent necessary, to hold such amounts
as collateral to secure such obligations and liabilities and to return as
unpaid for insufficient funds any and all checks and other items drawn against
any deposits so held as the Bank in its sole discretion may elect. The Borrower
hereby grants to the Bank a security interest in all deposits and accounts
maintained with the Bank and with any other financial institution. The Bank is
authorized to debit any account maintained with it by the Borrower for any
amount of principal, interest or fees which are then due and owing to the Bank.

 

SECTION 8.04.  No Waiver; Remedies.  No failure on the part of either party
hereto to exercise, and no delay in exercising, any right under any of the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by law.

 

SECTION 8.05.  Costs and Expenses.  Borrower shall pay to Bank immediately upon
demand the full amount of all costs and expenses, including reasonable
attorneys’ fees (to include outside counsel fees and all allocated costs of
Bank’s in-house counsel), incurred by Bank in connection with (a) the
negotiation and preparation of this Agreement and each other of the Loan Documents,
and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank’s rights and/or the
collection of any amounts which become due to Bank under any of the Loan
Documents (including, without limitation, in appellate, bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceedings) or the
restructuring of the Loan Documents, and (c) the prosecution or defense of
any action in any way related to any of the Loan Documents, including, without
limitation, any action for declaratory relief.

 

SECTION 8.06.  Participations.  The Bank may sell, assign, transfer, negotiate or grant
participations to other financial institutions in all or part of the
obligations of the Borrower

 

28

 

outstanding
under the Loan Documents, provided that any such sale, assignment, transfer,
negotiation or participation shall be in compliance with the applicable federal
and state securities laws; and provided further that any assignee or transferee
agrees to be bound by the terms and conditions of this Agreement. The Bank may,
in connection with any actual or proposed assignment or participation, disclose
to the actual or proposed assignee or participant, any information relating to
the Borrower or any of its Subsidiaries.

 

SECTION 8.07.  Effectiveness: Binding Effect.  This Agreement shall become effective when
it shall have been executed by the Borrower and the Bank and thereafter shall
be binding upon and inure to the benefit of the Borrower, the Bank and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Bank.

 

SECTION 8.08.  Governing Law.  The validity, interpretation and enforcement of this Agreement
and the other Loan Documents (except to the extent otherwise provided in any
such Loan Document) and any dispute arising out of the relationship between the
parties hereto or thereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of California (without
giving effect to principles of conflicts of law).

 

SECTION 8.09.  Dispute Resolution.  This Agreement hereby incorporates any
alternative dispute resolution agreement previously, concurrently or hereafter
executed between Borrower and Bank.

 

SECTION 8.10.  Waiver of Notices.  Borrower hereby expressly waives demand, presentment, protest and
notice of protest and notice of dishonor with respect to any and all
instruments, included in or evidencing any of the obligations, and any and all
other demands and notices of any kind or nature whatsoever with respect to the
obligations and this Agreement, except such as are expressly provided for
herein.  No notice to or demand on
Borrower which Bank may elect to give shall entitle Borrower to any other or
further notice or demand in the same, similar or other circumstances.

 

SECTION 8.11.  Entire Agreement.  This Agreement with Exhibits and Schedules and the other Loan
Documents embody the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings relating to the
subject matter hereof.  In the event of
any conflict between the provisions of this Agreement and those of any other
Loan Document, the provisions of this Agreement shall control and govern; provided
that the inclusion of supplemental rights or remedies in favor of Bank in any
other Loan Document shall not be deemed a conflict with this Agreement.

 

SECTION 8.12.  Severability of Provisions.  In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.

 

SECTION 8.13.  Execution in Counterparts.  This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which

 

29

 

when
so executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.

 

SECTION 8.14.  Further Assurances.  Without limiting in any manner any other
obligation, requirement or agreement hereunder or under any of the other Loan
Documents or otherwise, Borrower shall, at its expense and without expense to
Bank, do, execute and deliver such further acts and documents as Bank from time
to time reasonably requires for the assuring and confirming unto Bank of the
rights hereby created or intended now or hereafter so to be, or for carrying
out the intention or facilitating the performance of the terms of any Loan
Document.

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written. 

 

	
  BANK OF AMERICA, N.A.

  	
  SOUTHWEST WATER COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name: 

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title: 

  	
   

  	
   

  
	
   

  	
   

  
	
  Address:  

  	
  Address:

  
	
   

  	
   

  
	
  Bank of America

  	
  One Wilshire Building 

  
	
  675 Anton Boulevard, 2nd Floor

  	
  624 S. Grand Avenue, Suite 2900 

  
	
  Costa Mesa, California  92626

  	
  Los Angeles, California  90017

  
	
  Attention: Jamie L. Freeman

  	
  Attention: Thomas C. Tekulve 

  
	
  Title: Vice President 

  	
  Vice President and Treasurer

  
	
  Facsimile: (714) 850-6586

  	
  Facsimile: (213) 929-1888

  
										

 

30

 

SCHEDULE 5.01(f) - LITIGATION

 

None other than as reported on Form 10-Q of
Borrower for the quarter ended June 30, 2003 and Form 10-K of Borrower for
the year ended December 31, 2002.

 

31

 

SCHEDULE 5.01(i) - ENVIRONMENTAL
MATTERS

 

See Form 10-Q of Borrower for the quarter ended
June 30, 2003 and Form 10-K of Borrower for the year ended December 31, 2002.

 

32

 

SCHEDULE 6.02(d) - LIENS

 

None except as disclosed in the audited consolidated
financial statements of Borrower for the fiscal year ended 2002.

 

33

 

SCHEDULE 6.02(e) – OTHER
SECURED DEBT

 

None other than as reported on Form 10-K of
Borrower for the year ended December 31, 2002.

 

34

 

EXHIBIT
A

 

REVOLVING
NOTE

 

	
  $15,000,000

  	
   

  	
  October           ,
  2003

  

 

FOR
VALUE RECEIVED, the undersigned SOUTHWEST WATER COMPANY, a Delaware corporation
(“Borrower”) promises to pay to the order of BANK OF AMERICA, N.A. (“Bank”) at
its office at 675 Anton Boulevard, 2nd Floor, Costa Mesa, California
92626, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of Fifteen Million Dollars ($15,000,000), or so much thereof as
may be advanced and be outstanding, with interest thereon, to be computed on
each advance from the date of its disbursement (computed on the basis of a
360-day year and actual days elapsed, which results in more interest than if a
365-day year were used) at a rate per annum equal to the applicable LIBOR Rate
plus one and one-quarter percent (1.25%) or the Prime Rate minus one-quarter of
one percent (0.25%).  When interest is
determined in relation to the Prime Rate, each change in the rate of interest
hereunder shall become effective on the opening of business on the day
specified in the public announcement of a change in Bank’s Prime Rate. With
respect to each LIBOR option selected hereunder, Bank is hereby authorized to
note the date, principal amount, interest rate and applicable LIBOR Rate Term
thereto and any payments made thereon on Bank’s books and records (either
manually or by electronic entry) and/or on any schedule attached to this Note,
which notations shall be prima facie evidence of the accuracy of the
information noted.

 

A.                                   DEFINITIONS:

 

Capitalized
terms used and not otherwise defined herein shall have the meanings given such
terms in the Credit Agreement referred to below.  As used herein, the following terms shall have the meanings set
forth after each:

 

1.               “Agreement” means
that certain Credit Agreement between Borrower and Bank dated as of October 6,
2003, as amended from time to time, including, without limitation, those terms
relating to arbitration of disputes.

 

2.               “Business Day”
means any day except a Saturday, Sunday or any other day designated as a
holiday under Federal or California statute or regulation, or for amounts
bearing interest based on the LIBOR Rate, any Business Day is any day except a
Saturday, Sunday or any other day designated as a holiday under Federal or
California statute or regulation on which dealings in Dollar deposits are
conducted by and among banks in the Designated LIBOR Market.

 

3.               “Designated LIBOR
Market” means the regular established market located in London by and among
banks for the solicitation, offer and acceptance of Dollar deposits in such
banks.

 

4.               “Dollars” means
United States of America dollars.

 

5.               “LIBOR Rate” means
the interest rate determined by the following formula, rounded upward, if
necessary, to the nearest 1/100 of one percent. (All amounts in the calculation
will be determined by Bank as of the first day of the interest period.)

 

35

 

	
  LIBOR Rate =

  	
   

  	
  LIBOR Base Rate

  
	
   

  	
   

  	
  (1.00 - Reserve
  Percentage)

  

 

(a)          “LIBOR Base Rate” means,
with respect to any Revolving Loan to be made by Bank which is to bear interest
in relation to the LIBOR Rate, the interest rate per annum (rounded upward, if
necessary, to the nearest 1/100th of 1%) at which deposits in
Dollars are offered by Bank through its London Banking Center, London, Great
Britain to prime banks in the Designated LIBOR Market on the first day of the
applicable LIBOR Rate Term in an aggregate amount approximately equal to the
amount of the Revolving Loan to be made by Bank and for a period of time
comparable to the number of days in the applicable LIBOR Rate Term.  The determination of the LIBOR Base Rate by
Bank shall be conclusive in the absence of manifest error.

 

(b)  “Reserve Percentage” means, with respect to
any Revolving Loan to be made by Bank which is to bear interest in relation to
the LIBOR Rate, the maximum reserve percentage (expressed as a decimal, rounded
upward, if necessary, to the nearest 1/100 of one percent) in effect on the
date the LIBOR Base Rate for the Revolving Loan is determined (whether or not
such reserve percentage is applicable to Bank) under regulations issued from
time to time by the Federal Reserve Board for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal
reserve requirement) with respect to eurocurrency funding (currently referred
to as “eurocurrency liabilities”) having a term comparable to the LIBOR Rate
Term for such Revolving Loan.  The
determination by Bank of any applicable Reserve Percentage shall be conclusive
in the absence of manifest error.

 

6.               “LIBOR Rate
Portion” means a portion of the principal amount outstanding under this Note
which is bearing interest at a rate related to LIBOR. No LIBOR Rate Portion
shall be less than Two Hundred Fifty Thousand Dollars ($250,000).

 

7.               “LIBOR Rate Term”
means a period commencing on a Business Day and continuing for one (1) month,
two (2) months, three (3) months, six (6) months or twelve (12) months, as
designated by Borrower, during which all or a portion of the outstanding
principal balance of this Note bears interest determined in relation to Bank’s
LIBOR; provided however, that no LIBOR Rate Term shall extend beyond the
scheduled maturity date hereof. The last day of the interest period will be determined
by Bank using the Designated LIBOR Market. If any LIBOR Rate Term would end on
a day which is not a Business Day, then such LIBOR Rate Term shall be extended
to the next succeeding Business Day.

 

8.               “Prime Rate” means
the rate of interest publicly announced from time to time by the Bank as its
Prime Rate.  The Prime Rate is set by
the Bank based on various factors, including the Bank’s costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans. 
The Bank may price loans to its customers at, above or below the Prime
Rate.  Any change in the Prime Rate will
take effect at the opening of business on the day specified in the public
announcement of a change in the Bank’s Prime Rate.

 

36

 

B.                                     INTEREST:

 

1.               Payment of
Interest. Interest accrued on this Note shall be payable on the fifteenth (15th)
day of each month for the prior month or portion thereof, commencing October
15, 2003.

 

2.               Selection of
Interest Rate Options. At any time any portion of this Note bears interest
determined in relation to the LIBOR Rate, it may be continued by Borrower at
the end of the LIBOR Rate Term applicable thereto so that all or a portion
thereof bears interest determined in relation to the Prime Rate or in relation
to the LIBOR Rate for a new LIBOR Rate Term designated by Borrower. At any time
any portion of this Note bears interest determined in relation to the Prime
Rate, Borrower may convert all or a portion thereof so that it bears interest
determined in relation to the LIBOR Rate for a LIBOR Rate Term designated by
Borrower. At the time each advance is requested hereunder or Borrower wishes to
select the LIBOR option for all or a portion of the outstanding principal
balance hereof, and at the end of each LIBOR Rate Term, Borrower shall give
Bank notice specifying (a) the interest rate option selected by Borrower, (b)
the principal amount subject thereto, and (c) if the LIBOR option is selected,
the length of the applicable LIBOR Rate Term. Any such notice may be given by
telephone so long as, with respect to each LIBOR selection, such notice is
given to Bank prior to 10:00 a.m., California time, on the third Business Day
prior to the commencement of the LIBOR Rate Term and, with respect to each
Prime Rate selection, such notice is given to Bank prior to 11:00 a.m.,
California time, on the day of the requested advance. For each LIBOR option
requested hereunder, Bank will quote the applicable LIBOR Rate to Borrower at
approximately 10:00 a.m., California time, on the second Business Day prior to
the LIBOR Rate Term. If Borrower does not immediately accept the rate quoted by
Bank, any subsequent acceptance by Borrower shall be subject to a
re-determination by Bank of the applicable LIBOR Rate; provided however, that
if Borrower fails to accept any such rate by 11:00 a.m., California time, on
the Business Day such quotation is given, then the quoted rate shall expire and
Bank shall have no obligation to permit a LIBOR option to be selected on such
day. If no specific designation of interest is made at the time any advance is
requested hereunder or at the end of any LIBOR Rate Term, Borrower shall be
deemed to have made a Prime Rate interest selection for such advance or the
principal amount to which such LIBOR Rate Term applied.

 

3.               Additional LIBOR
Provisions.

 

(a)          If Bank at any time
shall determine that for any reason adequate and reasonable means do not exist
for ascertaining the LIBOR Rate, then Bank shall promptly give notice thereof
to Borrower. If such notice is given and until such notice has been withdrawn
by Bank, then (i) no new LIBOR option may be selected by Borrower, and (ii) any
portion of the outstanding principal balance hereof which bears interest determined
in relation to the LIBOR Rate, subsequent to the end of the LIBOR Rate Term
applicable thereto, shall bear interest determined in relation to the Prime
Rate.

 

(b)         If any law, treaty, rule,
regulation or determination of a court or governmental authority or any change
therein or in the interpretation or application thereof (each, a “Change in
Law”) shall make it unlawful for Bank (i) to make LIBOR options available
hereunder, or (ii) to maintain interest rates based on the LIBOR Rate, then in
the former event, any obligation of Bank to make available such unlawful LIBOR
options shall immediately be cancelled, and in the

 

37

 

latter event, any such unlawful LIBOR-based interest
rates then outstanding shall be converted, at Bank’s option, so that interest
on the portion of the outstanding principal balance subject thereto is
determined in relation to the Prime Rate; provided however, that if any such
Change in Law shall permit any LIBOR-based interest rates to remain in effect
until the expiration of the LIBOR Rate Term applicable thereto, then such
permitted LIBOR-based interest rates shall continue in effect until the
expiration of such LIBOR Rate Term. Upon the occurrence of any of the foregoing
events, Borrower shall pay to Bank immediately upon demand such amounts as may
be necessary to compensate Bank for any fines, fees, charges, penalties or
other costs incurred or payable by Bank as a result thereof and which are
attributable to any LIBOR options made available to Borrower hereunder, and any
reasonable allocation made by Bank among its operations shall be conclusive and
binding upon Borrower.

 

(c)          If any Change in Law or
compliance by Bank with any request or directive (whether or not having the force
of law) from any central bank or other governmental authority shall:

 

(i)                  subject
Bank to any tax, duty or other charge with respect to any LIBOR options, or
change the basis of taxation of payments to Bank of principal, interest, fees
or any other amount payable hereunder (except for changes in the rate of tax on
the overall net income of Bank); or

 

(ii)               impose,
modify or hold applicable any reserve, special deposit, compulsory loan or
similar requirement against assets held by, deposits or other liabilities in or
for the account of advances or loans by, or any other acquisition of funds by
any office of Bank; or

 

(iii)            impose on Bank any other condition; and the
result of any of the foregoing is to increase the cost to Bank of making,
renewing or maintaining any LIBOR options hereunder and/or to reduce any amount
receivable by Bank in connection therewith, then in any such case, Borrower
shall pay to Bank immediately upon demand such amounts as may be necessary to
compensate Bank for any additional costs incurred by Bank and/or reductions in
amounts received by Bank which are attributable to such LIBOR options. In
determining which costs incurred by Bank and/or reductions in amounts received
by Bank are attributable to any LIBOR options made available to Borrower
hereunder, any reasonable allocation made by Bank among its operations shall be
conclusive and binding upon Borrower.

 

(d)         Bank will have no
obligation to accept an election of Borrower for the LIBOR option if any of the
following described events has occurred and is continuing:

 

(i)  Dollar deposits in the principal amount, and
for periods equal to the LIBOR Rate Term, of any Revolving Loan which bears
interest in relation to the LIBOR Rate are not available in the Designated
LIBOR Market; or

 

(ii)  an Event of Default has occurred and is
continuing; or

 

(iii)
the LIBOR Rate does not accurately reflect the cost of any Revolving Loan which
bears interest in relation to the LIBOR Rate.

 

38

 

4.               Default Interest.
During the continuance of an Event of Default, the outstanding principal
balance of this Note shall bear interest until paid in full at an increased
rate per annum (computed on the basis of a 360-day year and actual days
elapsed, which results in more interest than if a 365-day year were used) equal
to two percent (2.00%) above the rate of interest from time to time applicable
to this Note (the “Default Rate”).

 

C.                                     BORROWING
AND REPAYMENT:

 

1.               Loan and Repayment.
Borrower may from time to time during the term of this Note borrow, partially
or wholly repay its outstanding borrowings, and re-borrow, subject to all of
the limitations, terms and conditions of this Note and of any document executed
in connection with or governing this Note, including the Credit Agreement;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced hereunder
by the holder hereof less the amount of principal payments made hereon by or
for Borrower, which balance may be endorsed hereon from time to time by the
holder.  The outstanding principal
balance of this Note shall be due and payable in full on the “Maturity Date”
(as defined in the Credit Agreement).

 

2.               Advances. Advances
hereunder, to the total amount of the principal sum stated above, may be made
by the holder at the oral or written request of (a) Thomas C. Tekulve, Richard
Shields, or Leslie-Ward Cline, any one acting alone, who are authorized to
request advances and direct the disposition of any advances until written
notice of the revocation of such authority is received by the holder at the
office designated above, or (b) any person, with respect to advances deposited
to the credit of any account of Borrower with the holder, which advances, when
so deposited, shall be conclusively presumed to have been made to or for the
benefit of Borrower regardless of the fact that persons other than those authorized
to request advances may have authority to draw against such account. The holder
shall have no obligation to determine whether any person requesting an advance
is or has been authorized by Borrower.

 

3.               Application of
Payments. Each payment made on this Note shall be credited first, to any
interest then due and second, to the outstanding principal balance hereof.
Unless instructed otherwise by Borrower, all payments credited to principal
shall be applied first, to the outstanding principal balance of this Note which
bears interest determined in relation to the Prime Rate, if any, and second, to
the outstanding principal balance of this Note which bears interest determined
in relation to the LIBOR Rate, with such payments applied to the oldest LIBOR
Rate Term first.

 

4.               Prepayment.

 

(a)          Prime Rate. Borrower may
prepay principal on any portion of this Note which bears interest determined in
relation to the Prime Rate at any time, in any amount and without penalty.

 

(b)         LIBOR. Each prepayment of
a LIBOR Rate Portion shall be not less than $250,000 and shall be in an
integral multiple of $100,000, and Bank shall have received notice of each such
prepayment on the date that is five (5) Business Days before the date of such

 

39

 

prepayment (which notice shall identify the date and
amount of the prepayment).  Each
prepayment of a LIBOR Rate Portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee as described below. A
“prepayment” is a payment on a date earlier than the last day of the applicable
LIBOR Rate Term. The prepayment fee shall be equal to the amount (if any) by
which:

 

(i)             the additional interest
which would have been payable during the applicable LIBOR Rate Term on the
amount prepaid had it not been prepaid, exceeds

 

(ii)          the interest which would
have been recoverable by Bank by placing the amount prepaid on deposit in the
domestic certificate of deposit market, the eurodollar deposit market, or other
appropriate money market selected by Bank for a period starting on the date on
which it was prepaid and ending on the last day of the applicable LIBOR Rate
Term.

 

Borrower acknowledges that prepayment of such amount
may result in Bank incurring additional costs, expenses and/or liabilities, and
that it is difficult to ascertain the full extent of such costs, expenses
and/or liabilities. Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum two percent (2.00%)  above
the Prime Rate in effect from time to time (computed on the basis of a 360-day
year, actual days elapsed).

 

D.                                    EVENTS
OF DEFAULT:

 

This
Note is made pursuant to and is subject to the terms and conditions of the
Credit Agreement.  Any default in the
payment or performance of any obligation under this Note, or any defined event
of default under the Credit Agreement, shall constitute an “Event of Default”
under this Note.

 

E.                                      MISCELLANEOUS:

 

1.               Remedies.  Upon the occurrence of any Event of Default,
the holder of this Note, at the holder’s option, without notice upon the
occurrence of an Event of Default pursuant to Section 7.01(g) of the
Credit Agreement, and with notice upon the occurrence of any other Event of
Default, may declare all sums of principal and interest outstanding hereunder
to be immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are expressly waived by Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Borrower shall pay to the holder immediately
upon demand the full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys’ fees (to include outside counsel fees
and all allocated costs of the holder’s in-house counsel), incurred by the
holder in connection with the enforcement of the holder’s rights and/or the
collection of any amounts which become due to the holder under this Note, and
the prosecution or defense of any action in any way related to this

 

40

 

Note, including without limitation, any action for
declaratory relief, and including any of the foregoing incurred in connection
with any bankruptcy proceeding relating to Borrower.

 

2.               Obligations Joint
and Several. Should more than one person or entity sign this Note as a
Borrower, the obligations of each such Borrower shall be joint and several.

 

3.               Governing Law. This
Note shall be governed by and construed in accordance with the laws of the
State of California, except to the extent Bank has greater rights or remedies
under Federal law, whether as a national bank or otherwise, in which case such
choice of California law shall not be deemed to deprive Bank of any such rights
and remedies as may be available under Federal law.

 

	
   

  	
  “Borrower”

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SOUTHWEST WATER COMPANY,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title: 

  	
   

  	
   

  
						

 

41

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00062-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00062-of-00352.parquet"}]]