Document:

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                                                                    EXHIBIT 10.4

                             RESIGNATION AGREEMENT

            This Resignation Agreement ("Agreement"), entered into by and
between Western Water Company, a Delaware corporation, ("Western Water"), on the
one hand, and Peter L. Jensen an individual ("Jensen"), on the other hand
(Western Water and Jensen are sometimes hereinafter referred to individually as
a "Party" and collectively as the "Parties"), is made with respect to the
following facts:

                                 R E C I T A L S

            A. Western Water and Jensen entered into an Employment Agreement
dated August 15, 1997, as amended (the "Employment Agreement").

            B. Jensen and Western Water desire to terminate the Employment
Agreement.

            C. The Parties now intend to fully and finally settle and compromise
any and all other Claims (as defined below) of any type, whether known or
unknown, arising prior to the date hereof, and to execute and deliver this
Agreement.

            NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Parties agree as follows:

                              OPERATIVE PROVISIONS

            1. Resignation and Termination. On the Effective Date, the
Employment Agreement shall be terminated and Jensen shall resign in all
capacities as an officer, employee and as a member of the Board of Directors of
Western Water by executing and delivering Exhibit A attached hereto.

            2. Consideration. Western Water and Jensen agree to the following
actions in full discharge of any and all of Western Water's obligations to
Jensen including, without limitation, any possible Claims of Jensen:

                (a) Western Water shall continue to pay to Jensen the
semi-monthly compensation of $10,606 on the 15th day and the last business day
of each month until April 15, 2000, less deductions required by law, including
without limitation FICA, State and Federal withholding, and SDI ("appropriate
withholdings").

                (b) Western Water shall cooperate with Jensen in effecting his
rights under COBRA and until April 15, 2000, Western Water shall continue to pay
all premiums for Jensen's health insurance currently being paid by Western
Water.

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                (c) On the Effective Date Western Water shall pay to Jensen an
amount of $26,406.92 in full payment of accrued vacation to which Jensen is
entitled, less appropriate withholdings. No vacation pay shall accrue in the
future.

                (d) On the Effective Date Western Water shall pay to Jensen a
lump sum amount of $106,062 as a severance payment, less appropriate
withholdings.

                (e) Jensen hereby agrees that he will act as a consultant to
Western Water until September 15, 2000 for up to ten (10) hours per month on a
non-cumulative basis in the City and County of San Diego without additional
charge, provided that Western Water shall pay all of Jensen's out-of-pocket
expenses in performing such consulting services.

                (f) On the Effective Date, Jensen shall instruct Western Water
to deduct $4,247.95 representing personal expenses charged to Western Water.

                (g) As of the Effective Date, Western Water shall vest in full
all of Jensen's outstanding Western Water stock options, but such options shall
not be otherwise changed or amended in any other respect.

                (h) On the Effective Date Jensen shall return to Western Water a
personal computer owned by Western Water presently in Jensen's possession.

                (i) In the event Jensen hereafter desires, at any time, or from
time to time, to transfer or assign any of the securities of Western Water owned
beneficially or of record by him, Western Water shall use reasonable business
practices to cooperate in such transfer or assignment as promptly as
practicable, including arranging for the issuance of such legal opinions and
securities filings as may be necessary to confirm or establish the free
transferability of Jensen's securities. Nothing herein contained shall limit or
abridge Jensen's existing rights to include Western Water securities owned by
him in any registration statement filed or to be filed by Western Water with the
Securities and Exchange Commission.

            3. Intentionally Omitted.

            4. Intentionally Omitted.

            5. Intentionally Omitted.

            6. Intentionally Omitted.

            7. Intentionally Omitted.

            8. Age Discrimination Waiver. Jensen understands and hereby agrees
that, by entering into this Agreement, he is expressly waiving any and all
Claims he may have arising under the Age Discrimination in Employment Act of
1967, as amended, in existence on or before the date hereof. Jensen expressly
acknowledges and agrees he: (a) will receive compensation

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beyond that which he was already entitled to receive before entering into this
Agreement; (b) has been represented by an attorney of his choice in negotiating
this Agreement; (c) is hereby advised in writing to consult with an attorney
before signing this Agreement; (d) was given a copy of this Agreement on October
13, 1999 and informed that he has twenty-one (21) days within which to consider
the Agreement; and (e) was informed that he has seven (7) days following the
date of execution of the Agreement in which to revoke the Agreement. By mutual
agreement Western Water and Jensen voluntarily waive the protection of the
OWBPA.

            9. Insurance and Indemnification. Western Water has provided Jensen
with a full and correct copy of its current officers and directors insurance
policy ("O&D Policy") and agrees that it will not change the O&D Policy to
exclude Jensen. Western Water further agrees that (1) if a replacement for the
O&D Policy is obtained or another such policy is obtained by Western Water ("New
Policy"), and (2) if the New Policy covers former officers and/or directors,
Western Water shall not take any action to exclude Jensen as an insured under
the New Policy. Nothing contained in this Agreement shall be interpreted or
construed or deemed to be interpreted or construed as preventing Jensen from
obtaining indemnification from Western Water if such indemnification otherwise
would be available to Jensen in accordance with Article 11 of the Bylaws of
Western Water and applicable common or statutory law.

            10. Confidential Information. Jensen acknowledges that by reason of
his position with Western Water he has been given access to Confidential
Information. "Confidential Information" means proprietary techniques and
confidential information that Western Water has developed, compiled, or owned,
or that Western Water received under conditions of confidentiality, including,
by way of example and without limitation, all information on trade secrets,
research, data, marketing plans, business plans, strategies, forecasts,
unpublished financial information, budgets, projections and information the
disclosure of which could be to the competitive disadvantage of Western Water.
Confidential Information includes not only information disclosed by Western
Water to Jensen in the course of Jensen's employment with Western Water, but
also information developed or learned by Jensen during the course of his
employment with Western Water. Jensen represents and warrants that as of the
Effective Date he will not have in his possession, nor will he have failed to
return, any Confidential Information or copies of such information, or other
documents or materials, equipment, or other property belonging to Western Water.
Jensen agrees that he shall preserve as confidential and not use any
Confidential Information or other information that has commercial value or other
utility in the business in which Western Water is engaged.

            11. Taxes. Subject in all respects to Western Water's agreement to
undertake "appropriate withholdings" Jensen shall be exclusively liable for the
payment of all federal and state taxes which may be due as a result of payments
of Western Water to Jensen.

            12. No Duress. Each of the Parties hereto acknowledges that he or it
has been advised by or has had the opportunity to consult legal counsel in
connection with the granting of the releases contained in this Agreement and
that this Agreement is entered into freely, without duress, coercion, menace or
other undue influence.

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            13. Voluntary Execution. Each of the Parties hereto: (a) voluntarily
and knowingly executes this Agreement and the Mutual General Release as
described in Section 16(c) hereof with the intent of effecting the
extinguishment of Claims; (b) has read this Agreement and understands all of its
terms; and (c) has executed this Agreement, with full knowledge of its
significance.

            14. Representations and Warranties. Each of the Parties hereto
represents and warrants that: (a) the person executing this Agreement on behalf
of such Party has the authority to execute and deliver this Agreement; (b) he or
it has taken all necessary action to authorize the execution and delivery of
this Agreement; and (c) he or it has all requisite power to consummate the
transactions contemplated by this Agreement and to perform the obligations under
this Agreement.

            15. No Admission of Liability. This Agreement is a compromise of
disputed claims, and the execution of this Agreement shall not be considered or
treated at any time or for any purpose as an admission of liability by any of
the Parties to this Agreement. No past or present wrongdoing on the part of any
of the Parties shall be implied from the negotiation or the consummation of this
Agreement.

            16. Effectiveness of Agreement and Releases.

                (a) From the date of execution hereof ("Date of Execution"),
which is October 28, 1999, until 5:00 P.M. on November 5, 1999 ("Effective
Date"), Jensen has the right to revoke his assent to this Agreement in its
entirety. The time period between the Date of Execution and the Effective Date
is hereafter referred to as the "Revocation Period."

                (b) Any revocation by Jensen of his assent to this Agreement
must be in writing and hand-delivered to Western Water in care of Troy & Gould
during the Revocation Period.

                (c) If Jensen does not revoke his assent to this Agreement, as
aforesaid, at 5:01 P.M. on the Effective Date, the following shall occur
forthwith at the offices of Troy & Gould in Los Angeles, California:

                      i) Jensen shall deliver to Western Water the following: a)
a duly executed copy of the Mutual General Release in the form attached as
Exhibit B hereto ("Mutual General Release"); b) a duly executed copy of the
letter effecting Jensen's resignation as an officer and director and the
termination of the Employment Agreement (Exhibit A); c) the direction to Western
Water regarding the sum of $4,247.95 pursuant to Section 2(f) hereof; d) the
computer pursuant to Section 2(h) hereof; and e) the "Confidential Information"
specified in Section 10 hereof.

                      ii) Western Water shall deliver to Jensen the following:
a) a duly executed copy of the Mutual General Release; b) the sum of $106,062
pursuant to Section 2(d) hereof; and c) the sum of $26,406.92 pursuant to
Section 2(c) hereof.

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            17. No Transfer of Claims. Except as otherwise provided herein, each
Party warrants and represents to the other Party that it has not transferred,
assigned, sold, hypothecated or otherwise conveyed, or purported to transfer,
assign, sell, hypothecate or otherwise convey, any of the Jensen Released Claims
or Western Water Released Claims, as the case may be, that such Party may have
against the other Party, and each Party hereby agrees to save, hold harmless,
indemnify and defend (with counsel reasonably acceptable to the indemnified
Party) the other Party from and against any and all loss, cost, fees, claims,
damages or expenses (including without limitation reasonable attorneys' fees,
costs and disbursements) in any way arising out of a breach of the foregoing
representations.

            18. Confidentiality Agreement. Except for any public announcement
mutually agreed to by the parties in writing, no public announcement concerning
the negotiation, execution and/or delivery of this Agreement or the transactions
contemplated hereby, or concerning the facts and circumstances surrounding
Jensen's cessation of employment with Western Water (the "Settlement
Information"), shall be made by any Party, and all Settlement Information shall
be deemed confidential. Either Party's disclosure of the fact that the Parties
entered into this Agreement shall not be deemed a public announcement of
Settlement Information within the meaning of this Section 18.

                 a. Non-Defamatory and Disparaging Statements. Neither Party
shall make any defamatory statements concerning the other Party.

                 b. Disclosure Provision. Notwithstanding any provision to the
contrary contained herein, each Party shall be entitled to disclose the
Settlement Information: (a) to the extent the same shall have otherwise become
publicly available (unless made publicly available only by the Party seeking to
disclose the same); (b) to their spouses, attorneys, and accountants, provided
such persons are informed of this confidentiality provision and agree to be
bound hereby; (c) as required by federal or state law, including without
limitation federal or state securities laws; (d) as required by court order,
deposition or document subpoena or otherwise in truthful statements made under
oath or penalty of perjury; or (e) as necessary to enforce this Agreement or any
provision or term of this Agreement, or defend against the alleged breach of
this Agreement or any provision or term of this Agreement.

            19. Miscellaneous.

                 a. Fees, Costs, etc.. The prevailing party in any arbitration
pursuant to Section 19(n) hereof shall be entitled to recover all costs incurred
as a result of the arbitration, including, without limitation, filing fees,
attorneys' fees, compensation paid to the Arbitrator and costs of transcripts.
Unless otherwise agreed in writing, the Arbitrator's award shall not allocate
between the parties any such costs, expenses, fees or share of the Arbitrator's
compensation.

                 b. Controlling Law. This Agreement shall be governed by,
construed and interpreted in accordance with the laws of the State of
California, without giving effect to any choice-of-law or conflicts-of-laws rule
or principle that would result in application of any

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other laws, except that issues involving indemnification pursuant to Section 9
hereof shall be governed by, construed and interpreted in accordance with the
laws of the State of Delaware, provided, however, that nothing herein contained
shall be construed to limit or abridge Jensen's rights under Article XI, Section
45, subpart (e) of the Company's By-laws.

                 c. Headings. Headings, titles and captions are for convenience
only and shall not constitute a portion of this Agreement or be used for the
interpretation thereof.

                 d. Amendment. Neither this Agreement nor any provision hereof
may be waived, modified, amended, discharged, or terminated except by an
instrument in writing signed by the Party against which the enforcement of such
writing is sought, and then only to the extent set forth in such writing.

                 e. Waiver. Any waiver of any provision or of any breach of any
provision of this Agreement must be in writing, and any waiver by any Party of
any breach of any provision of this Agreement shall not operate as or be
construed to be a waiver of any other breach of that provision or of any breach
of any other provision of this Agreement. The failure of any Party to insist
upon strict adherence to any term of the Agreement on one or more occasions
shall not be considered or construed or deemed a waiver of any provision or any
breach of any provision of this Agreement or deprive that Party of the right
thereafter to insist upon strict adherence to that term or provision or any
other term or provision of this Agreement. No delay or omission on the part of
any of the Parties in exercising any right under this Agreement shall operate as
a waiver of any such right or any other right under this Agreement.

                 f. Liberal Construction. This Agreement constitutes a fully
negotiated agreement among commercially sophisticated parties, each assisted by
legal counsel, and the terms of this Agreement shall not be construed or
interpreted for or against any Party hereto. The Parties hereby agree that
California Civil Code Section 1654 shall not apply to the terms of this
Agreement.

                 g. Entire Agreement. This Agreement constitutes the entire
understanding between the Parties with respect to the matters set forth herein
and supersedes all prior or contemporaneous understandings or agreements between
the Parties with respect to the subject matter hereof, whether oral or written.

                 h. Notices. Any notice, approval, consent, waiver or other
communication required or permitted to be given or to be served upon any of the
Parties in connection with this Agreement shall be in writing. Such notice shall
be personally served, sent by facsimile, telegram, or cable, or sent prepaid by
registered or certified mail with return receipt requested, or sent by reputable
overnight delivery service, such as Federal Express, and shall be deemed given:
(a) if personally served, when delivered to the Party to whom such notice is
addressed; (b) if given by facsimile, telegram, or cable, when sent; (c) if
given by prepaid or certified mail with return receipt requested, on the date of
execution of the return receipt; or (d) if sent by reputable overnight delivery
service, such as Federal Express, when received. Any notice given by facsimile,
telegram, or cable shall be confirmed in writing by the Party sending

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such notice, and such confirmation shall be delivered or sent by any of the
other means of delivery set forth in this Section 19, within forty-eight (48)
hours after notice was sent by facsimile, telegram or cable. Such notices shall
be addressed to the Party to whom such notice is to be given at the Party's
address set forth below or as such Party shall otherwise direct in a writing to
all other Parties delivered or sent in accordance with this Section 18.8.

       If to Western Water,
       to:                                 Western Water Company
                                           4660 La Jolla Village Drive,
                                           Suite 825
                                           San Diego, California 92122
                                           Attn:  Ronald I. Simon
                                           Fax No. (858) 535-9260

       With a copy to:                     Troy & Gould Professional Corporation
                                           1801 Century Park East, 16th Floor
                                           Los Angeles, CA 90067
                                           Attn:  William D. Gould, Esq.
                                           Fax No. (310) 201-4746

       If to Jensen, to:                   Peter L. Jensen
                                           P. O. Box 70,000
                                           San Diego, CA 92167
                                           Fax No. 619 222-3393

       With a copy to:                     Bryan Cave LLP
                                           Attn:  Gerald E. Boltz, Esq. and
                                                  Edward M. Rosenfeld, Esq.
                                           120 Broadway
                                           Santa Monica, CA 90401
                                           Fax No. 310 576-2200

                 i. Binding Effect; Assignment. Neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assignable by any
Party without the prior written consent of all other Parties, which shall not be
unreasonably withheld. Subject to the foregoing restriction, the provisions of
this Agreement shall be binding upon and inure to the benefit of all affiliates,
parent corporations, subsidiaries, assigns, successors-in-interest, personal
representatives, administrators, spouses, family members, relatives, heirs,
devisees and legatees of the Parties hereto.

                 j. Severability. If any provision of this Agreement is invalid,
illegal or unenforceable, the balance of this Agreement shall remain in full
force and effect notwithstanding any such invalidity, illegality or
unenforceability; provided, however, it is understood and agreed that the
respective rights and duties of the Parties under and pursuant to

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the Mutual General Release are unconditional; are not dependent upon future
performance, and are not subject to severance hereunder.

                 k. Good Faith and Fair Dealing. The Parties hereto acknowledge
and agree that the performances required by the provisions of this Agreement
shall be undertaken in good faith, and with all Parties dealing fairly with each
other.

                 l. No Third Party Beneficiaries. This Agreement does not
create, and shall not be construed to create, any rights enforceable by any
person, partnership, corporation, joint venture, limited liability company or
other form of organization or association of any kind, not a Party to this
Agreement.

                 m. Costs and Fees of Litigation. Except as otherwise set forth
in this Agreement, each of the Parties acknowledges and agrees that each of the
Parties shall bear his or its own attorneys' fees and costs incurred on account
of, or in any way related to or arising from, any dispute and the negotiation
and execution of this Agreement.

                 n. Arbitration. Any dispute or controversy between the Parties
in any way arising out of, related to, or connected with this Agreement or the
subject matter thereof, otherwise in any way arising out of, related to, or
connected with Jensen's employment with Western Water, shall be resolved through
final and binding arbitration in San Diego, California, pursuant to California
Civil Procedure Code Sections 1282-1284.2. The arbitration shall be before the
American Arbitration Association Employee Dispute Panel and shall be governed by
the National Rules for the Resolution of Employment Disputes promulgated by the
American Arbitration Association. In the event of such arbitration, the
prevailing party shall be entitled to recover all reasonable costs and expenses
incurred by such party in connection therewith, including attorneys' fees. The
nonprevailing party shall also be solely responsible for all costs of the
arbitration, including, but not limited to, the arbitrator's fees, court
reporter fees, and any and all other administrative costs of the arbitration,
and promptly shall reimburse the prevailing party for any portion of such costs
previously paid by the prevailing party. Any dispute as to the reasonableness of
costs and expenses shall be determined by the arbitrator.

                 o. Competition and Non Solicitation. Jensen agrees that for a
period ending September 15, 2000, Jensen shall not, directly or indirectly,
without the prior written consent of Western Water:

                      (i) solicit, entice, persuade or induce any present
employee, consultant, agent or independent contractor of Western Water or of any
of the subsidiaries or affiliates of Western Water to terminate his or her
employment with Western Water, or such subsidiary or affiliate, to become
employed by any person, firm or corporation other than Western Water, or such
subsidiary or affiliate or approach any such employee, consultant, agent or
independent contractor for any of the foregoing purposes, or authorize or assist
in the taking of any such actions by any third party;

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                      (ii) except for the provision of water treatment services
(but in no event shall such water treatment services include the sale of water)
contact, solicit or enter into business dealings with any entity listed on
Exhibit B hereto.

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<PAGE>   10

            IN WITNESS WHEREOF, this Agreement is executed as of the last date
below written.

                                       WESTERN WATER COMPANY

Dated: 10/27/99                        By:  /s/ MICHAEL PATRICK GEORGE
     ---------------------------          -------------------------------------
                                            Michael Patrick George, President

                                       "Jensen"

Dated: 10/28/99                             /s/ PETER L. JENSEN
      --------------------------       ----------------------------------------
                                            Peter L. Jensen

APPROVED AS TO FORM:

TROY & GOULD PROFESSIONAL CORPORATION
Attorneys for Western Water Company

By:    /s/ WILLIAM D. GOULD
   --------------------------------------
            William D. Gould

BRYAN CAVE LLP
Attorneys for Peter L. Jensen

By:    /s/ EDWARD M. ROSENFELD
   --------------------------------------
            Edward M. Rosenfeld

                                       10<PAGE>   1
                                                                    EXHIBIT 10.9

                                COMMERCIAL LEASE

     THIS LEASE is made and executed in duplicate this 18th day of December,
1998

     BY AND BETWEEN Martin B. & Janis S. McNair hereinafter called "Lessor,"
and Western Water Company hereinafter called "Lessee."

     WITNESSETH: That for and in consideration of the sum of $7,200.00 1) 1st
month - $3,600 2) security deposit - $3,600 to Lessor, paid by Lessee, receipt
of which is hereby acknowledged by Lessor, and for the further consideration of
the payment of the rents and the performances of the covenants contained herein
on the part of the Lessee, and in the manner hereinafter stated, Lessor leases
and lets to Lessee, and Lessee hereby leases, hires, and takes from Lessor,
upon the terms and conditions hereinafter set forth, the following described
property, and its appurtenances, situated in the City of Contra Costa, County
of Richmond, State of California, particularly described as follows:

     102 Washington St. - 2nd Floor

TERM.

     For the term of 3 years commencing on the 1st day of March, 1999 (Plus
that portion of February 1999 that the premises are available to Lessee).

RENT.

     The total rent shall be the sum of $129,600.00 (plus prorated rent for
February 1999) dollars payable monthly in advance, installments of $3,600.00
dollars, each in lawful money of the United States of America, on the 1st day
of each and every calendar month.

     This lease is made subject to the following terms and conditions:

PAYMENT OF RENT.

     1.   Lessee agrees to pay rents to Lessor at the time and in the manner
herein provided.

DEFAULT AND RE-ENTRY.

     2.   If Lessee breaches the lease and abandons the property before the end
of the term or if his right to possession is terminated by Lessor because of a
breach of the lease, Lessor shall have the remedies provided in California
Civil Code Section S1951-2.

REMOVAL OF PROPERTY.

     Should Lessee fail to pay any part of the rents herein specified, at the
times or in the manner herein provided, or fail faithfully to comply with or
perform any other of the terms, conditions, covenants and agreements of this
lease on the part of Lessee to be performed or complied with, or should Lessee
abandon the leased premises, then and in that event, Lessor, at the sole option
of Lessor may terminate this lease, and Lessor and Lessee shall have all the
rights and remedies as provided in California Civil Code, Section 1951.2.
Lessor may pursue any remedy whatsoever provided for by law, and in any event
Lessor shall be entitled to the possession of the leased premises at the lawful
termination of this lease. Lessor is hereby authorized to remove and store at
Lessee's expense any personal property which Lessee

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This document is only a general term which may be proper for use in simple
transactions and in no way acts, or is intended to act, as a substitute for the
advice of an attorney. The printer does not make any warranty, either express or
implied, as to the legal validity or the suitability of these terms in any
specific transaction.

<PAGE>   2
abandons at the leased premises upon vacating those premises. If Lessee has
breached any of the provisions of this lease and has abandoned the leased
premises, Lessor and Lessee shall have all the rights and remedies as provided
by California Civil Code, Section 1951.4, so long as this lease, and Lessee's
rights to the possession of the leased premises, are not terminated by Lessor.
The rights of Lessor under this lease shall be cumulative to all other rights
or remedies given to Lessor by law or by the terms of this lease.

USES AND USES PROHIBITED.

     3. That the lease premises shall be used, occupied and conducted
exclusively as and for: _____________________________________________
and for no other purpose; and shall be used, occupied and conducted in a
thoroughly orderly and respectable manner, without let, hindrance, annoyance,
disturbance, detriment, injury or offense to Lessor. Lessee shall not maintain
or commit, nor suffer to be maintained or committed any nuisance or waste in or
about the leased premises. Lessee shall not do or permit anything to be done in
or about the leased premises, nor bring or keep anything therein, which will in
any way affect fire or other insurance on the building or any of its contents,
or which shall in any way conflict with any law, ordinance, rule, or regulation
affecting the occupancy and use of the premises which are or may hereafter be
enacted or promulgated by any public authority.

     Lessee shall not construct, maintain or permit to be constructed or
maintained, any sign, or billboard on the roof of the building located on the
premises, nor paint, nor hang, nor permit or authorize others to paint, or
hang, any sign on the walls thereof, unless written permission to do so has
been obtained from Lessor.

ASSIGNMENT AND SUBLETTING.

     4. Lessee may assign his interest or sublet the property, but only with the
prior written consent of Lessor. Provided that Lessee may assign its interest or
sublet the property to an affiliate of Lessee without Lessor's consent. Under no
other circumstances, and without prior obtained written consent, neither this
lease nor any interest therein shall be assignable or subject to subletting.
Lessor shall not unreasonably withhold requested written consent.

     Lessee further promises and covenants that if he neglects or fails to
perform or observe any of the covenants contained in this lease and continues
this neglect or failure for ten (10) days after notice by Lessor, or if the
estate hereby created shall be taken on execution, and such execution shall not
be satisfied, cancelled or otherwise removed within thirty (30) days after
notice by Lessor, or if the Lessee shall be adjudicated bankrupt or insolvent
according to law, or if any assignment of its property shall be made for the
benefit of creditors, then Lessor may immediately terminate this lease. Lessee
covenants that in case of such termination it will indemnify Lessor against all
loss of rent which Lessor may incur by reason of such termination, during the
residue of the term above specified.

ALTERATIONS AND REPAIRS.
DAMAGE TO PREMISES.

     5. Lessee agrees that the leased premises are now in tenantable and good
order and condition and that Lessee shall keep and maintain these premises in
good and sanitary order and condition, and that no damages, alterations, or
change whatever shall be made in or about the leased premises without the
written consent of Lessor, which shall not be unreasonably withheld. Unless
otherwise provided by written agreement all alterations, improvements and
changes that may be required shall be done by or under the direction of Lessor
but at the cost of Lessee. Except for Lessee's trade fixtures, which Lessee, at
its cost, may remove, all alterations, additions, and improvements made in and
to the lease premises shall, unless otherwise provided by written agreement be
the property of Lessor and shall remain upon, and be surrendered with the
leased premises. Lessee shall notify Lessor of all damage or injury done to the
premises or property of Lessor by Lessee at the time the damage or injury is
inflicted. Lessee shall, at the termination of this lease, surrender the leased
premises to Lessor in as good order and condition as received, normal wear and
tear excepted.

DELIVERY OF POSSESSION.

     6. In the event of the inability of Lessor to deliver possession of the
leased premises at the time herein fixed for the commencement of the term of
this lease, neither Lessor nor the agent of Lessor shall be liable for any
damage caused thereby, nor shall this lease thereby become void or voidable,
but in such event Lessee shall not be liable for any rent until such time as
Lessor can deliver possession.

NOTICE OF SURRENDER.

                                     Page 2

This document is only a general term which may be proper for use in simple
transactions and in no way acts, or is intended to act, as a substitute for the
advice of an attorney. The printer does not make any warranty, either express or
implied, as to the legal validity or the suitability of these terms in any
specific transaction.
<PAGE>   3
HOLDING OVER.

     8. If Lessee holds possession of the premises after the expiration of the
term of this lease, Lessee shall become a tenant from month-to-month only upon
the terms herein specified, but at a monthly rental of $4,000.00 per month
payable monthly in advance in lawful money of the United States on the 1st day
of each month and shall continue to be such tenant until such tenancy shall be
terminated by Lessor, or Lessee by written notice of at least one month prior to
the date of the termination of such monthly tenancy of the intention to
terminate such tenancy.

DESTRUCTION OF PREMISES.

     9. If the building or the leased premises shall be destroyed by fire or
other cause or be so damaged that they become untenantable and cannot be
rendered tenantable within ninety (90) days from the date of the injury this
lease may be terminated by Lessor. In case the premises shall be so damaged as
not to require a termination of the lease as above provided, then a
proportionate allowance shall be made to Lessee for the rent hereinbefore
reserved corresponding to the time during which and to the portion of the
premises of which Lessee shall be so deprived. Lessee expressly waives the
provisions of Section 1932 and Subdivision 4 of Section 1933 of the Civil Code
of the State of California. Lessor and Lessee shall meet and confer within ten
(10) days of the date the building or leased premises are destroyed or damaged
and shall mutually agree as to whether such damage has caused said building or
premises to be untenantable, and as to whether they can be rendered tenantable
within ninety (90) days from the date of injury.

ENTRY AND INSPECTION.

     10. Management is given the right to enter into or inspect the premises
for the following purposes:

     (a) In case of emergency.

     (b) To make necessary or agreed repairs, decorations, alterations or
improvements, supply necessary or agreed services, or exhibit the unit to
prospective or actual purchasers, mortgagees, tenants, workmen or contractors.

     (c) When the tenant has abandoned or surrendered the premises.

     (d) Pursuant to court order.

     Except in cases of emergency, when the tenant has abandoned or surrendered
the premises, or if it is impracticable to do so, the Owner shall give the
tenant reasonable notice of his intent to enter and enter only during normal
business hours. Twenty-four (24) hours shall be presumed to be reasonable
notice.

SERVICE CHARGES.

     11. Lessee agrees to pay during the term hereof, all charges made against
the premises for water rates, gas, electricity, power, heat, telephone, and
garbage disposal services, and for any other commodities furnished or supplied
or used in or upon or about the premises.

ROOF.

     12. Lessor agrees to maintain the roof over the demised premises in good
order and repair and repairs to the roof shall be made by and at the expense of
Lessor.

SUBORDINATION.

     13. Lessee's interest in this property shall be subject and subordinate at
all times to the lien of any mortgage or trust deed or deeds which may now
exist upon or which may be placed upon the premises or the property of which
the premises are a part and Lessee covenants that it will execute and deliver
to Lessor or the nominee of Lessor proper subordination agreements to this
effect at any time upon the request of Lessor and without payment being made
therefor.

BREACH OF CONDITIONS.

     14. Each and every covenant and term hereof to be kept and performed by
Lessee is expressly made a condition, upon breach whereof Lessor may terminate
this lease and exercise all rights of entry and re-entry upon the leased
premises, as provided for by law.

NON-WAIVER OF BREACH.

     15. The failure or omission of Lessor to terminate this lease, for any
violation of any of its terms, conditions, or covenants shall in no way be
deemed to be a consent by Lessor to such violation, and shall in no way bar,
estop or prevent Lessor from terminating this lease thereafter, either for such
or for any subsequent violation of any such term, condition or covenant. The
acceptance of rent hereunder shall not be, or be construed to be, a waiver of
any breach of any term, covenant, or condition of this lease.

COSTS OF SUIT.

     16. If any legal action or proceeding be brought by either party to
enforce any part of this Agreement, the prevailing party shall recover, in
addition to all other relief, reasonable attorney's fees and costs.

                                     Page 3

This document is only a general term which may be proper for use in simple
transactions and in no way acts, or is intended to act, as a substitute for the
advice of an attorney. The printer does not make any warranty, either express or
implied, as to the legal validity or the suitability of these terms in any
specific transaction.

<PAGE>   4
SERVICE OF NOTICE.

     17.  Notices required under this Agreement may be served upon: Secretary,
Western Water Company, 4660 La Jolla Village Drive, #825 at San Diego,
California. Said person is authorized to accept legal service on behalf of
Lessor. Notice may be served on Lessee at the address set forth on page 1.

Security.

     18.  It is further covenanted and agreed by Lessee that nothing herein
contained and no security or guarantee which may now or hereafter be furnished
Lessor for the payment of the rent herein reserved or for the performance by
Lessee of the other terms or covenants of this lease, shall in any way be a bar
or defense to any action in unlawful detainer, or for the recovery of these
premises, or in any action which Lessor may at any time commence for breach of
any part of the terms or covenants of this lease.

LESSOR AND LESSEE DEFINED.
HEIRS, ETC., INCLUDED.

     19.  The word "Lessor" and the word "Lessee" as used herein include the
plural as well as the singular. The neuter gender when used here, shall include
the masculine and feminine.

     20.  This lease shall include and inure to and bind the heirs, executors,
administrators, successors and assigns of the respective parties hereto, but
nothing in this paragraph contained shall be construed to modify or impair in
any manner any of the provisions and restrictions of this lease relating to the
assignment of this lease or of any interest therein, or to the subletting or
underletting of the leased premises of any part thereof.

     21.  Lessee agree that this instrument contains all of the provisions of
the agreement between the parties hereto, and that no promise or agreement not
contained herein shall be binding on Lessor.

     22.  Time is the essence of this agreement.

     23.  Lessee accepts the leased premises subject to all zoning laws,
ordinances, and regulations applicable to and regulating the use of the
premises, and acknowledges that Lessor has made no representations or
warranties as to the suitability of the premises for any particular use.

     24.  Additional Provisions (Insert here and refer to paragraph 24.):

A.   Lessee responsible for:                    B: Lessor responsible for:

     1) Janitorial and interior maintenance      1) Roof and wall maintenance --
     2) Water and electrical costs                  exterior
     3) Trash pickup                             2) Building insurance - shell
     4) Insurance of contents

C.   Lessee may extend the term of the lease for an additional 24 months, from
     March 1, 2002 to February 29, 2004 at $3,900 per month, provided notice to
     extend is given to Lessor no later than December 1, 2001.

D.   Repairs and improvements reflected on attached memorandum and the
     memorandum of Zach McReynolds are the responsibility of Lessor and must be
     completed before the commencement of the lease.

     These parties have executed this lease the day and year first above
     written.

     This lease in section 8 provides for automatic renewal from month-to-month
     if Lessee remains in possession after the expiration of the term of this
     lease.

                                             WESTERN WATER COMPANY
     /s/ M.B. MCNAIR                         A DELAWARE CORPORATION
---------------------------------            ---------------------------------
        M.B. McNair                                   Lessee
        Lessor

                                             BY: RONALD I. SIMON
  /s/ Janis W. MCNAIR                        ITS: Vice President, CFO
---------------------------------           ------------------------------------
      Janis W. McNair                                 Lessee
      Lessor

---------------------------------           ------------------------------------
          Lessor                                      Lessee

---------------------------------            -----------------------------------
          Lessor                                       Lessee

                                     Page 4

This document is only a general term which may be proper for use in simple
transactions and in no way acts, or is intended to act, as a substitute for the
advice of an attorney. The printer does not make any warranty, either express or
implied, as to the legal validity or the suitability of these terms in any
specific transaction.

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