<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 1997 Commission file number 0-18677
------------------- -----------
DOMINGUEZ SERVICES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0391161
- ------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
21718 South Alameda Street, Long Beach, California 90810
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310)834-2625
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
------------------- -----------------------
None The Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $1 Par Value
---------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
Common Shares average bid price of $19.00 on March 18, 1998.
Aggregate market value $19,158,289
----------------------------------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
March 18, 1998 - 1,506,512 shares
---------------------------------
Documents incorporated by reference:
(1) Annual report to shareholders for the year ended December 31, 1997, as
to Part II, Items 5, 6, 7 and 8.
(2) Proxy statement dated April 3, 1998, as to Item 10 (part), Item 11,
Item 12, and Item 13.
(There are fourteen pages in this 10-K)<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Dominguez Services Corporation ("Company") is a holding company created in
1990 through an Agreement of Merger with Dominguez Water Company. The
Company's principal business is the ownership of all the common stock of
Dominguez Water Company. The holding company structure provides operational
and financial flexibility and allows the Company to engage in non-utility
activities. The Company has two wholly-owned subsidiaries: Dominguez Water
Company, which is involved in water supply and distribution, and DSC
Investments, which is involved in non-regulated, water-related services and
investments.
Dominguez Water Company and its operating subsidiaries (collectively referred
to as "Dominguez") are regulated by the California Public Utilities
Commission ("CPUC"). Dominguez produce and supply water for residential,
commercial, public authority, business and industrial customers. Dominguez
is comprised of its principal division, the South Bay division and its
operating subsidiaries, the Kern River Valley Water Company and the Antelope
Valley Water Company (collectively referred to as the "Subsidiaries").
The South Bay division has been providing water service for more than 86
years and is Dominguez' largest service area. The South Bay division
encompasses most of the City of Carson, one-quarter of Torrance, parts of
Compton, Long Beach, Harbor City and Los Angeles County, and serves 32,393
customer connections. Antelope Valley Water Company, with 1,235 customers,
has four distinct service areas in northern Los Angeles County. Kern River
Valley Water Company, located in Kern County around Isabella Lake, has nine
distinct service areas and 4,008 customers.
DSC Investments primary source of income is from the transfer of water rights
between third parties. Income from the transfers of water rights may
significantly vary from year to year due to demands for groundwater by major
pumpers in the West and Central Groundwater Basins. DSC Investments also
holds a twenty percent ownership in Chemical Services Company ("CSC") with an
option to acquire an additional forty percent interest through the year 2001.
CSC manufactures and distributes chlorine generators used in the water and
wastewater industry to produce safe on-site chlorine disinfectant.
2
<PAGE>
OPERATIONS
In 1997, Dominguez supplied 12,362 million gallons of water to 37,636 customers,
compared to 11,481 million gallons of water to 36,882 customers in 1996. The
South Bay division produced 11,702 million gallons of water in 1997 and 11,173
million gallons in 1996. Although Dominguez has a diversified customer base, a
substantial portion, 49% in 1997 and 46% in 1996, of sales were derived from
business and industrial usage. Furthermore, a single customer, a refinery,
accounted for 33% of these business and industrial sales in 1997, and for 32% in
1996.
WATER SUPPLY
The water supplies for Dominguez come from its own groundwater wells plus two
water wholesalers of imported water.
All service areas obtain either a portion of or all of their supply from
groundwater wells. The quantity that the South Bay division is allowed to
pump over a year's time is fixed by court adjudication. The adjudication
established distinct groundwater basins, which are managed by a
court-appointed watermaster. The groundwater management fixes the safe yield
of the basins and ensures the replenishment of the basins by utilizing
impounded storm water, treated recycled water and purchased water when
necessary. Groundwater basins have not been adjudicated in the Subsidiaries.
The South Bay division and Leona Valley service area of Antelope Valley also
purchase water from wholesalers to supplement groundwater. The South Bay
division purchases imported water from the Metropolitan Water District (MWD)
of Southern California. The Leona Valley service area purchases its imported
water from Antelope Valley - East Kern Water Agency (AVEK). Both of these
wholesale suppliers obtain water from the California State Water Project
(SWP), and MWD also obtains water from the Colorado River.
Long-term imported water supplies are dependent upon several factors.
Dominguez' future dependency on imported water will be subject to the
availability and usage of recycled water in the region as well as customer's
long-term water conservation efforts. Dominguez has and will continue to
promote long-term water conservation efforts and will advance the use of
recycled water, when available.
In November 1997, the Company entered into an agreement with West Basin
Municipal Water District ("West Basin") and ARCO Los Angeles Refinery in
Carson ("ARCO"). Under the terms of the agreement, Dominguez will sell ARCO
recycled water purchased from West Basin for the same cost of water margin
that Dominguez would otherwise have received providing ARCO with potable
water.
3
<PAGE>
The Company is expected to commit funds up to $2,000,000 by December 1999 to
construct recycled water facilities in its South Bay service area. At that
time, Dominguez will offer the recycled water to its customers. The
availability of recycled water will reduce Dominguez' demand for imported
water, the availability of which may be uncertain in the future. Reduced
imported water supplies and annual population growth could create future
drought conditions in Southern California; however , Dominguez believes that
the availability of recycled water will significantly mitigate the impact of
future droughts in the Dominguez service area.
Legislative actions continue to play a role in the long-term availability of
water for Southern California. The amount of SWP water available from
Northern California and water imported from the Colorado River may be
significantly reduced around the beginning of the next century. Future
drought conditions may require water rationing by all water agencies,
including Dominguez.
WATER QUALITY
The Company is subject to water quality regulations promulgated by the United
States Environmental Protection Agency (EPA) and the California Department of
Health Services (DHS). Both groundwater and purchased water are subject to
extensive analysis. With occasional minor exceptions, the Company meets all
current primary water standards. During 1997, the Company began using an
alternative water source to meet the needs of 239 customers in one of the
Subsidiary system in order to comply with state and federal standards for
radioactivity.
In 1997, the Company participated with many other large water companies in a
monthly water sampling data acquisition program known as the Information
Collection Rule. Data collected will be used by the EPA to establish future
drinking water standards. Under the Federal Safe Drinking Water Act, the EPA
is required to continue to establish new maximum levels for additional
chemicals. The costs of future compliance are unknown, but the Company could
be required to perform more quality testing and treatment. Management
believes that the Company resources will be sufficient to meet these
anticipated requirements.
The Company is subject to other applicable environmental regulations related
to the handling, storage and disposal of hazardous materials. The Company is
currently in compliance with all such regulations.
4
<PAGE>
REGULATORY AFFAIRS
In 1996, Dominguez filed for and received an approval to increase revenues
effective February 1, 1997, for approximately $375,000 annually, or 1.6%, to
recover the increased cost of purchased water effective January 1, 1997.
This rate increase does not increase earnings of the Company, but rather
offsets the effects of higher water production costs to Dominguez.
In 1997, Senate Bill 1268 was signed into law, requiring the CPUC to use the
standard of fair-market value when establishing the rate base value for the
acquired distribution system assets of a public water system. The CPUC has
initiated a proceeding to develop guidelines necessary to implement the law
and to investigate other regulatory issues unique to the water industry. The
Company believes that the new law will benefit the Company in its
acquisition of small water systems, and that the CPUC's proceeding will
clarify rules necessary for the Company to actively pursue public-private
partnerships.
NON-UTILITY SUBSIDIARY OPERATIONS
DSC Investments invested $350,000 in CSC on December 20, 1996 and acquired a
twenty percent equity ownership with the option to acquire an additional
forty percent through the year 2001. Under the investment agreements, the
Company is obligated to provide working cash and long-term financing for the
leasing of chlorine generators to CSC, subject to the financial condition of
CSC. The maximum loan balances available to CSC for the following calendar
years are $2,500,000 (1998), $3,000,000 (1999), $3,500,000 (2000) and
$3,500,000 (2001). As of December 31, 1997, the Company had $400,000 in
outstanding loans to CSC.
On April 26, 1996, the Company sold the remaining assets of Hydro-Metric
Service operation to a former employee in exchange for a two year note
receivable with an outstanding balance of $15,000 as of December 31, 1997.
The sale resulted in a net gain of $39,000.
During 1997, DSC Investments facilitated transfers of water right leases
between third parties, adding $438,000 to the Company's revenue. The future
income from the transfer of water right leases will depend upon the need to
pump groundwater by major industrial users and water purveyors.
5
<PAGE>
EMPLOYEE RELATIONS
As of December 31, 1997, the Company had a total of 73 employees in utility
and non-utility operations. None of the employees is represented by a labor
organization, and there has never been a work stoppage or interruption due to
a labor dispute. In general, wages, hours, and conditions of employment are
equivalent to those found in the industry. Dominguez considers its relations
with its employees to be excellent. All employees receive paid annual
vacations and sick leave. Dominguez provides and pays the cost of group
life, disability, medical and dental insurance, as well as pensions, for its
employees.
ENVIRONMENTAL MATTERS
Dominguez' operations are subject to pollution control and water quality
control as discussed in the "Water Quality" section.
Other state and local environmental regulations apply to Dominguez operations
and facilities. These regulations are primarily related to the handling,
storage and disposal of hazardous materials. Dominguez is currently in
compliance with all other state and local regulations.
6
<PAGE>
ITEM 2. PROPERTIES.
The Company's general administrative and executive offices are located at
21718 South Alameda Street in Carson, California. The Company is in the
process to sell its Alameda Street property. Concurrently, the Company has
retained a broker to locate a replacement facility within the Dominguez
service area.
The South Bay division has prior rights to lay distribution mains and for
other uses on much of the public and private lands in its service area.
Dominguez' claim of prior rights is derived from the original Spanish land
grant covering the Dominguez service area. For this reason, Dominguez,
unlike most other public utilities, generally receives compensation from the
appropriate public authority when the relocation of its facilities is
necessitated by the construction of roads or other projects. It is common
for public utilities to bear the entire cost of such relocation.
Substantially all of the property of Dominguez is subject to the lien of the
Trust Indenture dated August 1, 1954, as supplemented and amended, to Chase
Manhattan Bank and Trust Company, N.A., as Trustee, securing the two
outstanding series of Dominguez' First Mortgage Bonds.
7
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is routinely involved in condemnation proceedings and legal
actions. The Company does not believe these matters will have a material
adverse effect, if any, on its financial position or results of operations.
For prior year issues, reference is made to page 27 Note 15 of Notes to
Consolidated Financial Statements of the Annual Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
8
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) MARKET PRICE FOR COMMON SHARES
The information required by this item is incorporated herein
by reference to the page 28 "Market Information" of the Annual
Report listed in Item 14 of Part IV of this report.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON SHARES
The Nasdaq Stock Market maintenance standards require that
Nasdaq National Market companies have at least 400
shareholders of round lots. As of December 31, 1997, the
Company complied with the standard with 298 common
shareholders of record and more than 659 beneficial
shareholders, who have elected to hold their shares in street
name.
(c) DIVIDENDS DECLARED
The information required by this item is incorporated herein
by reference to the page 28 "Market Information" of the Annual
Report listed in Item 14 of Part IV of this report.
(d) DIVIDEND RESTRICTION
The information required by this item is incorporated herein
by reference to the page 22 Note 3 "Restriction on Dividends"
of the Annual Report listed in Item 14 of Part IV of this
report.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated herein by
reference to the page 16 and page 17 "Eleven Year Statistical
Review" of the Annual Report listed in Item 14 of Part IV of this
report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this item is incorporated herein by
reference to the page 12 to 15 "Management's Discussion and
Analysis" of the Annual Report listed in Item 14 of Part IV of this
report.
9
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is incorporated herein by
reference to the Annual Report listed in Item 14 of Part IV of this
report:
- Page 18, Consolidated Balance Sheets - December 31, 1997 and 1996;
- Page 19, Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995;
- Page 19, Consolidated Statements of Common Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995.
- Page 20, Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995;
- Page 21 to 27, Notes to Consolidated Financial Statements;
- Page 11, Report of Independent Public Accountants.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names and ages of all directors and executive
officers, indicating the positions and offices presently held by each.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICE
---- --- -------------------
<S> <C> <C>
Dwight C. Baum 85 Director
Richard M. Cannon 56 Director
Terrill M. Gloege 62 Director
Thomas W. Huston 36 Director
C. Bradley Olson 57 Director
Langdon Owen 67 Director
Charles W. Porter 67 Director
Debra L. Reed 41 Director
Brian J. Brady 49 Chief Executive Officer, President and
Chairman of the Board
John S. Tootle 43 Chief Financial Officer, Vice President
of Finance, Treasurer and Secretary
</TABLE>
There is no "family relationship" between any of the executive officers.
Information responding to Item 10 is included in the Company's proxy statement
for the 1998 Annual Meeting of Shareholders ("Proxy") pursuant to Regulation 14A
and is incorporated by reference herein pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION.
Information responding to Item 11 was included in the Proxy (page 11) pursuant
to Regulation 14A and is incorporated by reference herein pursuant to General
Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information responding to Item 12 was included in the Proxy (page 3) pursuant to
Regulation 14A and is incorporated by reference herein pursuant to General
Instruction G(3).
11
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information responding to Item 13 was included in the Proxy (page 13) pursuant
to Regulation 14A and is incorporated by reference herein pursuant to General
Instruction G(3). Other information is included in Note 13 of the Notes to
Consolidated Financial Statements of the Annual Report to Shareholders.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of the
report
1. LIST OF FINANCIAL STATEMENTS
The consolidated financial statements listed in
the accompanying Financial Statements and
Schedules are filed as part of this Report.
2. LIST OF FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed in the
accompanying Financial Statements and Schedules
are filed as part of this Report.
3. The exhibits listed in the accompanying Index to
Exhibits are filed as part of this Report.
10.1 Agreement with West Basin and ARCO
10.2 The Eleventh Supplemental Trust Indenture dated
December 27, 1993
10.3 The Twelfth Supplemental Trust Indenture 12 dated
December 1, 1997
23 Report of Independent Public Accountants
(b) The Company filed a Form 8-K November 19, 1997,
announcing 3-for-2 stock split effective January 2, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DOMINGUEZ SERVICES CORPORATION:
By
----------------------------------
Brian J. Brady, Chief Executive Officer
By
----------------------------------
John S. Tootle, Chief Financial
Officer, Treasurer, Secretary
By
----------------------------------
Cynthia C. Chu, Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
DIRECTORS:
-------------------------------------
B. J. Brady, Chairman Date
-------------------------------------
D. C. Baum Date
-------------------------------------
R. M. Cannon Date
-------------------------------------
T. M. Gloege Date
-------------------------------------
T. W. Huston Date
-------------------------------------
C. B. Olson Date
-------------------------------------
L. W. Owen Date
-------------------------------------
C. W. Porter Date
-------------------------------------
D. L. Reed Date
14
<PAGE>
DOMINGUEZ SERVICES CORPORATION
And Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
------ ------ ------ ------ ------ ------
ADDITION
--------
(1)
Charged to
Balance at Charged to Other (2) Balance at
Beginning Costs and Accounts - Deductions - End of
Description of Period Expenses Describe Describe Period
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year Ended
December 31, 1997 $285,385 $ 60,000 $11,713 $ 56,137 $300,961
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Year Ended
December 31, 1996 $250,140 $132,000 $11,712 $108,467 $285,385
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Year Ended
December 31, 1995 $196,361 $120,000 $ 5,490 $ 71,711 $250,140
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
</TABLE>
Notes:
(1) Receipts on accounts previously written off.
(2) Accounts receivable write off.
15
<PAGE>
CONTRACT RELATING TO
DELIVERY OF RECYCLED WATER
TO DOMINGUEZ WATER CORPORATION AND ARCO
This Contract is entered into as of November 17, 1997 by and among West
Basin Municipal Water District, a California Municipal Water District
(hereinafter "West Basin"), ARCO Products Company, a division of Atlantic
Richfield Company, a Delaware corporation (hereinafter "ARCO"), and Dominguez
Water Corporation, a California corporation (hereinafter "Dominguez").
RECITALS
A. ARCO operates a refinery in the City of Carson, California (the "ARCO
Refinery"). The ARCO Refinery has purchased potable water from Dominguez, and
has also obtained water from other sources, including pumping ground water from
wells. ARCO uses the water in its refinery cooling, process and boiler
feedwater systems.
B. West Basin encourages use of recycled water for various uses,
including industrial and irrigation uses, and intends to extend two pipelines to
an agreed to point of connection, one delivering reverse osmosis treated
recycled water ("R/O Water") and the other delivering nitrified recycled water
("Nitrified Water") to a location near the ARCO Refinery. West Basin wishes to
supply recycled water to the ARCO Refinery to meet a portion of ARCO's cooling
tower needs.
C. West Basin is willing to finance, construct, own and operate a
microfiltration/reverse osmosis and nitrification water treatment plant
("Plant") and other facilities to enable the ARCO Refinery to use a significant
quantity of recycled water.
D. West Basin is willing to sell recycled water to Dominguez for resale
to the ARCO Refinery. West Basin will sell recycled water to Dominguez.
Dominguez will sell that recycled water to ARCO.
E. Dominguez obtains potable water for delivery to ARCO from groundwater
supplies and through purchases of imported water from West Basin. ARCO's use of
recycled water will reduce, but not entirely eliminate, ARCO's reliance on
potable water delivered by
Page 1 of 20
<PAGE>
Dominguez. During the foreseeable future, ARCO will also continue to
purchase potable water from Dominguez, under such tariffs as may exist from
time to time.
F. Dominguez will finance recycled water facilities (hereinafter
"Dominguez Facilities"). The Dominguez investment in the Dominguez Facilities
is an important element of providing recycled water service to ARCO. West Basin
or ARCO will not have any obligation to finance Dominguez Facilities.
G. This Agreement includes attached Exhibits. In the event of a
conflict between the language of this Agreement and the attached Exhibits, this
Agreement shall prevail.
NOW, THEREFORE, West Basin, Dominguez, and ARCO agree as follows:
1. SCHEDULE
A. CONSTRUCTION. Each party hereto covenants and agrees to exercise its
best efforts to perform its respective promises and obligations, and to design,
construct and place into operation, such items as is its responsibility in
accordance with the time schedule attached hereto as Exhibit 1. The parties
mutually agree to cooperate and to provide reasonable support for each other in
order to minimize delay in the performance of their respective obligations.
B. ARCO OBLIGATION TO TIMELY COMPLETE REFINERY PIPING. ARCO shall
exercise its best efforts to complete construction of the Refinery Piping in
order to enable it to take delivery of treated recycled water at the Metering
Facility and use such water in the cooling towers by such time as the Plant is
completed. However, ARCO shall not be obligated to begin construction of the
Refinery Piping until after West Basin obtains a permit from the appropriate
regulatory agency for the discharge of the Plant waste water streams. West
Basin is obligated to obtain the Plant's waste water streams discharge permit
within the period specified in Exhibit 1. If the Plant is ready to commence
delivery of recycled water at the Metering Facility, and the Refinery Piping is
not complete to take such deliveries, West Basin may nonetheless declare the
Commencement Date for purposes of Section 9(A) hereby has occurred as of the day
the R/O Plant is ready and physical capable of making delivery hereunder.
However, any delay by West Basin in obtaining said permit past the period
specified in Exhibit 1 shall extend ARCO's obligation to complete construction
of the Refinery Piping on a day for day basis, and similarly extend West Basin's
ability to declare the Commencement Date for purposes of Section 9(A) on a day
for day basis.
Page 2 of 20
<PAGE>
2. PIPELINES
West Basis will design and construct an extension of its existing recycled
water pipeline system (hereinafter the "Pipeline") from its current recycled
water distribution system to serve the Plant and thence from the Plant to serve
the ARCO Refinery. Such construction is a prerequisite to delivery of recycled
water under this Agreement. Construction of the Pipeline shall be done at no
direct cost and expense to either Dominguez or ARCO, although the parties
acknowledge that West Basin will be recovering the cost of capital facilities,
including the Pipeline, through its general water rates and charges applied to
its customers, including Dominguez and ARCO. West Basin currently intends to
complete such construction of the Pipelines within 20 months from the date of
this Agreement.
3. REVERSE OSMOSIS PLANT, REFINERY PIPING AND RELATED FACILITIES
A. DESIGN RESPONSIBILITY. West Basin will design the following items or
facilities: the "Plant", the Pipeline and a piping system and appurtenances for
the disposal of waste water streams from the Plant (the "Discharge System").
ARCO will design a piping system and associated control equipment and
instrumentation within the ARCO Refinery necessary and required to permit use of
the output of the Plant in the ARCO Refinery cooling tower water system (the
"Refinery Piping"). Dominguez will specify and approve the design of the
Metering Facility described on Exhibit 3A. Dominguez will design the Dominguez
Facilities. The Plant, together with its ancillary facilities, is generally
described in the description incorporated in Exhibit 3A attached hereto. The
Plant, the Discharge System, and the Refinery Piping, along with other ancillary
facilities mentioned in Exhibit 3A are sometimes collectively referred to as
"Improvements". West Basin shall not have any obligation to pay for any
facilities not included in such Improvements.
B. PERMITTING RESPONSIBILITY. West Basin will obtain permits and
environmental approvals for design, construction and operation of the Plant,
pipelines and Discharge System. Dominguez will obtain permits and environmental
approvals for design, construction and operation of any facilities it may
construct. ARCO will obtain permits and environmental approvals for design,
construction and operation of the Refinery Piping.
Page 3 of 20
<PAGE>
C. COORDINATION PRIOR TO AND DURING CONSTRUCTION.
(1) PROJECT MANAGEMENT TEAM. West Basin, ARCO and Dominguez, through
a project management team, will coordinate design and construction of the
Improvements to: (i) maintain schedule; (ii) avoid disruption in ARCO, West
Basin, and Dominguez operations; and (iii) protect ARCO, West Basin and
Dominguez property. Exhibit 3A is the final pre-construction report, which has
been approved by West Basin and ARCO.
(2) PROGRESS REPORTS. From time to time during the design, and on a
monthly basis once construction starts, the project management team shall
deliver project progress reports to the West Basin, ARCO and Dominguez Project
Managers. The Refinery Piping progress and cost control report shall state the
actual expenditures to date and projections for future expenditures. They shall
also include reports or proposals for any scope change of the project.
(3) ADDITIONAL FACILITIES. ARCO may wish to construct additional
facilities appurtenant to, or in addition to the Refinery Piping or may wish to
substitute for equipment and materials of greater value. ARCO shall pay for the
costs of such additional facilities or substitutions.
(4) FINAL COST REPORT. After completion of construction of the
Refinery Piping, ARCO will prepare and deliver to West Basin a final written
accounting and report..
D. CONSTRUCTION.
(1) West Basin will construct the Plant, Discharge System and
Metering Facility in accordance with plans, specifications, applicable
regulations, codes and ordinances, and commonly accepted water supply industry
standards.
(2) ARCO will construct the Refinery Piping in accordance with plans,
specifications, applicable regulations, codes, and ordinances and ARCO's
engineering standards and specifications.
(3) Responsibility for any ancillary items to be constructed as part
of the Improvements, shall be as determined by the project management team.
4. OPERATOR
Page 4 of 20
<PAGE>
A. OPERATION OF IMPROVEMENTS.
(1) INITIAL OPERATOR. West Basin shall own, maintain and operate
the Plant and Discharge System. West Basin shall obtain permits necessary
and bear the cost, expense and responsibility for the disposal of the Plant's
waste water streams. West Basin may contract with Dominguez or third parties
to provide such maintenance and operation, but shall be responsible for the
work. Dominguez shall operate and maintain the Metering Facility. Parties
shall maintain the Improvements they are obligated to operate in good working
condition.
(2) MAINTENANCE AND OPERATIONS COMMITTEE. The parties shall
designate representatives to a Maintenance and Operations Committee for the
Improvements. The committee shall confer at least quarterly, or more often
as needed, for purpose of scheduling maintenance and planned shutdowns of the
Plant, the Discharge System, the Refinery Piping, or Metering Facility. The
Committee shall coordinate maintenance and operating activities and minimize
disruption of the other parties' operations.
B. DAMAGE OR DESTRUCTION OR LOSS OF PLANT AND OTHER IMPROVEMENTS.
(1) PLANT AND DISCHARGE SYSTEM. West Basin shall repair or
replace any damage to or destruction of the Plant or Discharge System arising
from West Basin's negligence or of the negligence of the operator of the
Plant or Discharge System. West Basin shall also carry insurance or provide
self insurance covering such losses. In the event of casualty or loss,
damage or destruction of the Plant or Discharge System, West Basin shall
apply any insurance proceeds received (after first consulting with ARCO)
solely for the purposes of either reducing the unamortized amount of the
Fixed Capital Charges, or for reconstructing and repairing the damaged or
destroyed portion of the Plant or Discharge System.
(2) REFINERY PIPING. ARCO shall repair or replace any damage to
or destruction of the Refinery Piping arising from ARCO's negligence. ARCO
shall also carry insurance or provide self insurance covering such losses.
In the event of casualty loss, damage or destruction of the Refinery Piping,
ARCO shall apply insurance proceeds received to reconstruct and repair the
damaged portion of the Refinery Piping System, to construct a functional
equivalent.
(3) METERING FACILITY Dominguez shall repair or replace any damage
to or destruction of the Metering Facility arising from Dominguez's negligence.
Dominguez shall also carry insurance or provide self insurance covering such
losses.
Page 5 of 20
<PAGE>
C. METERING AND CALIBRATION RIGHTS. The quantities of Plant effluent
sold and delivered hereunder, shall be determined by measurements taken by
meters installed at the Metering Facility located adjoining ARCO's property line
on 223rd Street just east of the Dominguez Channel. The meters shall be
maintained and calibrated by Dominguez in accordance with AWWA standards, and
shall be tested and calibrated at least annually. The results of such
calibrations shall be furnished to the parties. If there is a dispute about the
accuracy of any meter, a party may request that the meter be calibrated by an
independent engineer or consultant experienced in such calibrations. The
parties may have representatives present and observing at the time of
recalibration. If the meter is in error by more than five per cent (5%),
Dominguez shall pay for its recalibration. If the meter is in error by more
than eight per cent (8%), then charges paid on the basis of that meter's
readings during a period of not more than twelve months preceding the date of
the recalibration shall be adjusted to correct the erroneous billings due to
meter error. If the meter is in error by less than five per cent (5%), the
meter shall be recalibrated, but the party requesting the calibration shall pay
for the cost of the calibration.
5. PURCHASE OF OUTPUT
A. GENERAL. West Basin shall make available up to 5,100 acre-feet per
year of R/O Water and up to 900 acre-feet per year of Nitrified Water meeting
the standards and specifications set forth in Exhibit 4A hereof. ARCO shall
purchase and use a quantity of Nitrified Water equal to seventeen and one-half
percent (17.5%) of the daily use of R/O Water. At an annual production of
5,100 acre-feet of R/O water, the Nitrified Water production is approximately
900 acre-feet per year. Failure to take the obligated amount of Nitrified Water
shall not relieve ARCO of the obligation to pay Fixed Capital Charges and
variable commodity charges associated with said Nitrified Water. ARCO may, but
shall not be obligated to, purchase any output of the Plant not meeting the
standards and specifications set forth on Exhibit 4A hereof.
B. DEFICIENT QUALITY. West Basin shall immediately undertake to correct
the situation, if the Plant output contains quantities of minerals in excess of
the maximum amounts listed on Exhibit 4A, (a "water quality deficiency"). The
following remedies shall apply if West Basin is unable to correct the water
quality deficiency within 90 days after receiving notice from ARCO:
Page 6 of 20
<PAGE>
(1) COMPENSATION FOR A WATER QUALITY DEFICIENCY. ARCO may continue
to purchase the output of the Plant if the water quality deficiency is not
corrected within 90 days from the date of ARCO's notice to West Basin. However,
West Basin shall compensate ARCO to the extent ARCO can demonstrate direct
operating cost impacts as a result of a water quality deficiency. The
resulting compensation will be retroactive to the date of ARCO's notice to West
Basin and will continue until the water quality deficiency is remedied.
(2) SUSPENSION OF ALL PAYMENTS AND TERMINATION OF AGREEMENT.
If the water quality deficiency has not been corrected within a period ending 24
months from the date of ARCO's notice to West Basin, ARCO may either: (a)
continue to purchase water from the Plant with compensation from West Basin in
accordance with Subsection 5B(1); or (b) give written notice to West Basin
declaring ARCO's intent to cease to purchase the output of the Plant and to
suspend payments to West Basin. Effective upon receipt of such notice, this
Agreement shall be terminated, and ARCO shall have no further obligation to West
Basin, other than that set forth in Subsection 5B(3).
(3) WEST BASIN OPPORTUNITY TO CURE AND REINSTATE AGREEMENT FOLLOWING
TERMINATION. Notwithstanding ARCO's exercise of its option to terminate
pursuant to Subsection 5B(2) above, the Agreement may be reinstated if West
Basin can modify or alter the Plant to such configuration that the Plant can
deliver the contracted for quantities of water meeting the quality
specifications set forth on Exhibit 4A to ARCO within a period of not more than
48 months following ARCO's notice of termination. ARCO shall then be obligated
to perform its obligations under the Agreement for the remaining term of the
Agreement so long as the Plant continues to deliver water meeting the quality
and quantity specifications of this Agreement. The number of months during
which the Agreement was deemed terminated shall be added to the existing term of
the Agreement.
6. CAPITAL COSTS
A. GENERAL. West Basin shall pay for the cost of design and construction
of the Refinery Piping including permits necessary for construction up to Four
Million Eight Hundred Thousand Dollars ($4,800,000.00) plus twenty (20%)
contingency as detailed in Subsection 6B(1). West Basin represents and
warrants the Refinery Piping and Dominguez represents and warrants the Metering
Facilities placed on ARCO property are not subject to any encumbrance lien,
mortgage or security interest of any kind. Further, West Basin represents and
warrants that
Page 7 of 20
<PAGE>
it will not suffer any encumbrance, lien, mortgage or security interest of
any kind to be placed on ARCO's property.
B. REIMBURSEMENT OF ARCO FOR REFINERY PIPING.
(1) REIMBURSEMENT OF ARCO. West Basin shall reimburse ARCO for
costs incurred by ARCO to construct the Refinery Piping up to a maximum of Four
Million Eight Hundred Thousand Dollars ($4,800,00.00) plus a twenty per cent
(20%) contingency for the direct costs of designing and constructing the
Refinery Piping, as generally described in Example 3A, to distribute water to
the cooling towers within the refinery from the Metering Facility. Use of the
contingency, if necessary, will be for Improvements identified within the scope
of the project and shall be subject to approval by West Basin. West Basin's
approval shall not be unreasonably withheld. On a monthly basis, ARCO shall
submit statements to West Basin itemizing ARCO's costs incurred to design and
construct the Refinery Piping, together with such supporting data for such costs
as West Basin may reasonably request. West Basin will pay ARCO's statements
within 30 days of receipt of same.
(2) REIMBURSEMENT OF WEST BASIN. Dominguez shall reimburse West
Basin for the cost of designing and constructing the Metering Facility. Upon
completion of construction of the Metering Facility, West Basin will prepare a
final accounting of the cost of such facilities, and submit such account,
together with an invoice to Dominguez. Dominguez will pay West Basin's invoice
within 30 days of same.
C. FIXED CAPITAL CHARGES PAYMENT BY ARCO TO WEST BASIN
(1) FIXED CAPITAL CHARGES INVOICE. West Basin shall invoice ARCO on
the 10th of each month following the Commencement Date, as defined in Section
9A, for fixed capital charges (the "Fixed Capital Charges"). ARCO shall pay
such invoices on or before the 10th of the following month.
(2) FIXED CAPITAL CHARGE. The Fixed Capital Charge shall be One
Hundred Seventy Eight Thousand Dollars ($178,000.00) per month beginning upon
the Commencement Date.. If ARCO fails to timely complete the Refinery Piping
and West Basin Declares the Commencement Date as set forth in Section 1(B), ARCO
will pay West Basin the Fixed Capital Charges, as set forth herein above, until
such a time ARCO has completed Refinery Piping and began taking full delivery of
Plant output water.
Page 8 of 20
<PAGE>
(3) PRORATION OF FIXED CAPITAL CHARGES FOR QUANTITY SHORTFALL..
ARCO's obligation to pay Fixed Capital Charges shall be prorated if West
Basin is unable to deliver recycled water to the Plant in sufficient
quantities to yield an annual output of 5,100 acre feet R/O Water and 900
acre-feet of Nitrified Water (6,000 acre-feet total) or more, and such
inability to deliver recycled water lasts for more than 90 days. The
proration of Fixed Capital Charges shall be made based on actual volumes of
Plant output received by the ARCO Refinery, divided by 6,000 acre feet per
year ("AFY"). The proration clause shall not apply if ARCO decides to reduce
its take of Plant output below 6,000 AFY, and such reduction is not due to
any deficiency or shortfall in plant performance or failure to supply
recycled water. When ARCO's obligation to pay Fixed Capital Charges has been
suspended or prorated either pursuant to this Subsection 6C(4), or pursuant
to Subsection 5B(2), West Basin shall continue to accrue the Fixed Capital
Charges on its accounting records. The Fixed Capital Charge payments during
the remainder of the term of this Agreement shall be adjusted to correct the
under-collection of capital costs if the Plant deficiencies or recycled water
supply deficiencies are subsequently corrected and Plant output is restored
above 6,000 AFY, averaged over the life of the Plant to date.
(4) ADJUSTMENT TO FIXED CAPITAL CHARGES BASIN ON TECHNOLOGY OR
REGULATORY CHANGES. ARCO's obligation to pay Fixed Capital Charges under
Section 6C hereof may be reduced through the sale by ARCO of the right to
purchase recycled water on the same terms and conditions herein, if any of the
following events have occurred: (i) the ARCO Refinery cuts crude rates
significantly such that overall cooling tower makeup water requirements drops by
more than twenty percent (20%) from the level of such requirements as at the
Commencement Date and such reduction also requires a reduction in usage of Plant
effluent; (ii) Technology advances in cooling systems make cooling towers
obsolete; (iii) the Los Angeles County Sanitation District, the Southern
California Air Quality Management District, or the Environmental Protection
Agency or other responsible regulatory agency implements or imposes cooling
tower restrictions that economically can only be adhered to by reducing usage of
recycled water; (iv) Technology advances in chemical treatment or water
conservation reduce cooling tower water makeup below the Plant production
capacity; or (v) Other regulatory or environmental or technical changes occur
such that the ARCO Refinery's need for Process Water is reduced. Such a sale by
ARCO shall not relieve ARCO of the obligation to pay such Fixed Capital Charges,
if the purchaser thereof fails to make such payments unless such a sale is
consented to by West Basin. If the fixed capital charges are reduced as set
forth above, the remaining Fixed Capital Charges shall be prorated by dividing
the number of AFY of R/O Water actually delivered from the effluent of the Plant
to ARCO by 6,000 AFY.
Page 9 of 20
<PAGE>
(5) REDUCTION OF FIXED CAPITAL CHARGES. After 15 years from the
Commencement Date, ARCO may, upon one year's notice, reduce its right to
purchase recycled water and proportionately its Fixed Capital Charges to the
extent West Basin or ARCO can sell ARCO's right to purchase such water to
others, on the same terms and conditions herein. Such a sale by ARCO shall not
relieve ARCO of the obligation to pay such Fixed Capital Charges, if the
purchaser thereof fails to make such payments unless such a sale is consented to
by West Basin.
(6) CAPITAL REDUCTION CREDIT. ARCO shall receive from West Basin
annually, for the Initial Term of the Agreement, a capital reduction credit of
up to Six Hundred Twenty Five Thousand Dollars ($625,000.00) to account for the
portion of the treatment plant construction which is reserved to serve other
West Basin customers. West Basin's obligation to provide the capital reduction
credit shall be prorated if ARCO purchases less than 6,000 acre-feet of Plant
effluent in any given year. The proration of the capital reduction credit shall
be determined by dividing the number of AFY of Plant effluent actually delivered
to ARCO by 6,000.
D. PREPAYMENT AND CALCULATION OF REMAINING PORTION OF THE FIXED CAPITAL
CHARGES. ARCO may prepay the Fixed Capital Charges in accordance with this
Section 6D at any time. For purposes of calculating the remaining portion of
Fixed Capital Charges under this Agreement, the remaining portion of the Fixed
Capital Charges shall be equal to the amount shown in Exhibit 6D.
7. VARIABLE COMMODITY CHARGES
A. WEST BASIN CHARGES TO DOMINGUEZ. Dominguez will pay West Basin a
variable commodity charge and treatment surcharges, based on the quantity of
recycled water metered at the Metering Facility, and calculated using the prices
for recycled water West Basin establishes annually. The variable charges for
recycled water delivered from the Plant will be the West Basin recycled water
rate applicable throughout the West Basin service area plus a treatment
surcharge for Nitrified Water and a treatment surcharge for R/O Water. An
exemplar of West Basin's current commodity charges and treatment surcharges
effective July 1, 1997, and their tiered nature is attached as Exhibit 7B
hereto. The variable commodity charge includes all maintenance and operating
charges, including routine-in-kind membrane replacement, for the Plant. If ARCO
fails to timely complete the Refinery Piping and West Basin declares the
Commencement Date as set forth in Section 1(B), Dominguez will pay West Basin a
variable
Page 10 of 20
<PAGE>
commodity charge and treatment surcharges equivalent to a delivered quantity of
Fourteen (14) acre-feet per day of R/O Water and 2.5 acre-feet per day of
Nitrified Water until at such a time ARCO has completed the Refinery Piping and
began taking full delivery of Plant output water.
B. WEST BASIN FUTURE PRICING.
West Basin's policy is to price recycled water so that it is economical to
the customer when compared to alternate supplies and the costs of using other
water of poorer quality, including increased chemical costs and life of
equipment. To ensure recycled water remains economical, West Basin shall not
increase the effective commodity rate for recycled water sold to Dominguez, or
to any other entity selling the output of the Plant to ARCO, over the life of
the agreement on a cumulative basis by an amount greater than the increase in
the West Basin effective commodity rate for potable water from the Metropolitan
Water District of Southern California during the same preceding period. West
Basin's potable water supplier may make significant price increases in one year
and not raise the price again for a period of several years. West Basin in
turn may want to increase the charge for recycled water on a different time
schedule spreading it over several years. The "cap" provided by this Subsection
7C(2) shall only apply if ARCO takes the lesser of 6,000 AFY of Plant output, or
Plant output capacity.
C. DOMINGUEZ RESALE TO ARCO.
(1) DOMINGUEZ BILLING TO ARCO. Dominguez shall bill ARCO for Plant
output water based upon the quantity of recycled water delivered by West Basin
to the Metering Facility. If ARCO fails to timely complete the Refinery
Piping and West Basin declares the Commencement Date as set forth in Section
1(b), Dominguez shall bill ARCO a variable commodity charge and treatment
surcharges equivalent to a delivered quantity of Fourteen (14) acre-feet per day
of R/O Water and 2.5 acre-feet per day of Nitrified Water until at such time
ARCO has completed the Refinery Piping and began taking full delivery of Plant
output water. Dominguez will invoice ARCO on a monthly basis, and payment shall
be made within 19 days of receipt of invoice.
(2) DOMINGUEZ TARIFF FOR RECYCLED WATER SOLD TO ARCO. The billing
will be done pursuant to a tariff to be established by Dominguez, which will
pass through the commodity and treatment surcharge cost of the recycled water
delivered by West Basin to the Metering Facility, less capitalization costs for
Dominguez Facilities, as described in Exhibit 7D. The billing shall also
include charges for recycled water delivered to the Metering Facility,
Page 11 of 20
<PAGE>
calculated on a per acre-foot basis, sufficient to make up Dominguez's lost
margin and any difference in the borrowing cost between Dominguez and West
Basin on Dominguez Facilities. Until the PUC issues a decision on Dominguez'
request for inclusion of Dominguez Facilities in its rate base, lost margin will
be Dominguez's lost margin on sales of potable water it would have made to ARCO
but for the fact of sales of Plant output water to ARCO under this Agreement.
Dominguez will use its best efforts to establish the lost margin equal to the
difference between its potable water tariff rate and its costs of potable water
from West Basin. An exemplar of Dominguez's proposed method of billing and
adjustment for capitalization costs is attached as Exhibit 7D. When tariffs
from Dominguez's next general rate case become effective, lost margin will be
calculated in accordance with general rate making policies and procedures of the
California Public Utilities Commission at the time.
(3) WEST BASIN PRICE ADJUSTMENT TO DOMINGUEZ. West Basin's price
adjustment to Dominguez for recycled water delivered to the Metering Facility
shall equal capitalization costs for Dominguez Facilities fully amortized over
25 years using West Basin's effective total average rate of debt issued for
construction of West Basin's facilities. That adjustment is calculated by
computing what West Basin's total debt service costs on the Dominguez Facilities
would have been if Domimguez had not elected to construct such facilities. As
shown on Exhibit 7D the intent of the parties is to apply this price adjustment
only to those quantities of recycled water delivered in excess of 200 acre-feet
per month (currently estimated to be 3,600 acre feet per year).
8. EASEMENT FOR METERING FACILITIES. ARCO will provide Dominguez an
easement for the location of the Metering Facility.
9. TERM
A INITIAL TERM. The Initial Term of this Agreement shall be for a
period of 25 years commencing upon the date of the first commercial delivery to
ARCO of recycled water processed through the Plant, (the "Commencement Date") or
such earlier date as provided in Section 1(B) unless: the parties agree to
extend the Term of the Agreement; or the Term of the Agreement is extended
pursuant to Subsection 5(b)(3). Within 30 days after such first delivery, West
Basin will deliver a written notice to ARCO and Dominguez specifying the
Commencement Date. The Commencement Date shall not be later than the date the
first payment is made by ARCO. The Initial Term shall terminate upon prepayment
of all Capital Charges as provided for in Subsection 6D.
Page 12 of 20
<PAGE>
B. EARLY TERMINATION AND PAYMENT IF REFINERY CEASES OPERATIONS.
If the ARCO Refinery permanently ceases operation at any time it shall
notify West Basin of its intent to cease operations. ARCO shall either 1) pay
West Basin the remaining unamortized portion of the Fixed Capital Charges as
shown in the buyout schedule Exhibit 6D minus the salvage value of the treatment
facilities capacity rights owned by ARCO within 180 days of cessation of
Refinery operations, and the Agreement shall be terminated upon the making of
such payment, or shall 2) pay West Basin the remaining unamortized portion of
the Fixed Capital Charges as shown in the buyout schedule Exhibit 6D plus One
Hundred Dollars ($100.00) and invoke the Purchase Option for Plant capacity
rights as provided for in Subsection 13(B), within 180 days of cessation of
Refinery operations, and the Agreement shall be terminated upon the making of
such payment..
C. PREPAYMENT OF FIXED CAPITAL CHARGES. Notwithstanding any prepayment
of Fixed Capital Charges by ARCO or purchase of capacity rights the Improvements
shall continue to be operated by West Basin, for the Initial term of this
Agreement. Unless ARCO and West Basin expressly agree to the contrary,
maintenance, operation, pricing and supply of recycled water shall continue in
accordance with the terms of this Agreement.
D. OBLIGATION TO TAKE RECYCLED WATER CEASES ON TERMINATION. If this
Agreement expires or is terminated pursuant to any provision hereof, ARCO's
obligation to take recycled water shall cease effective upon the date of
termination or expiration.
10. AUDIT PROVISION
A. AUDIT OF CONSTRUCTION COSTS. ARCO shall maintain accurate records of
the cost of any construction for which it is to be reimbursed by West Basin
under this Agreement. Those records shall be maintained for at least two years
after completion of the work, and shall be available for inspection and copying
on reasonable notice during normal business hours at the offices of the party
maintaining the records.
Page 13 of 20
<PAGE>
11. ENVIRONMENTAL AND REGULATORY COMPLIANCE
West Basin as the constructor and operator of the Plant and Discharge
System shall comply with applicable environmental and other laws, rules and
regulations governing the Plant and Discharge System whether such laws relate to
design, construction, operation or maintenance of the Plant and Discharge
System. In particular, West Basin shall be responsible for obtaining, and for
complying with the terms and conditions of, any necessary permits for discharge
of Wastewater from the Plant. ARCO as constructor and operator of the Refinery
Piping shall comply with applicable environmental and other laws, rules and
regulations governing the Refinery Piping whether such laws relate to design,
construction, operation or maintenance of the Refinery Piping. Each party shall
indemnify and hold the other harmless for any breach of an obligation to comply
with the requirements of this Section 11. This obligation to comply with laws
rules and regulations shall be included in any contract with any contractor or
subcontractor of the parties which may be engaged to construct, operate or
maintain the Plant, Discharge System and Refinery Piping.
12. TITLE TO WATER
A. TITLE AND OWNERSHIP OF WATER FROM PLANT. West Basin will sell
recycled water based upon flow to the Metering Facilities. West Basin will hold
title to and risk of loss of the recycled water and effluent until it reaches
the Metering Facility.
B. TITLE AND OWNERSHIP OF WATER AT METERING FACILITY. Title to and
ownership of Plant output water will pass to Dominguez immediately upstream of
the Metering Facility. Title to and risk of loss of Plant output water will
pass to ARCO immediately downstream of the Metering Facility.
13. ARCO OPTION TO PURCHASE REFINERY PIPING AND CAPACITY RIGHTS
A. PURCHASE OPTION FOR REFINERY PIPING. At its option, ARCO may purchase
the Refinery Piping from West Basin at any time during the Initial Term or any
extended terms of this Agreement. The purchase price for the Refinery Piping
shall be the greater of (i) the unamortized portion of the Fixed Capital Charges
allocable to the Refinery Piping computed in accordance with Subsection 6D or
(ii) its depreciated book value at the time of purchase. Such
Page 14 of 20
<PAGE>
option may be exercised by ARCO's giving written notice to West Basin. West
Basin shall transfer title and ownership of the Refinery Piping to ARCO at
the option price within 90 days after receiving such written notice of
exercised of option.
B. PURCHASE OPTION FOR PLANT CAPACITY RIGHTS.
ARCO may purchase capacity rights in the Plant for 5,100 acre-feet per
year of R/O Water and 900 acre-feet per year of Nitrified Water from West Basin
at an option price of One Hundred Dollars ($100.00) at the end of the Initial
Term of this Agreement or upon prepayment of all Capital Charges as provided for
in Subsection 6(D). ARCO may exercise these purchase options by giving West
Basin written notice of exercise of option not less than 90 days prior to the
end of the Initial Term. If such notice is given, West Basin will transfer
ownership of and title to the capacity rights to ARCO effective upon expiration
of the Initial Term.
14. CHANGES IN TECHNOLOGY/BUSINESS ENVIRONMENT
A. OPPORTUNITIES TO REDUCE COSTS. The parties recognize new
opportunities may develop to better manage the Plant and on-site water systems.
The parties will work in good faith to cooperate with each other to take
advantage of these opportunities.
B. RELIEF FOR A SEVERELY DISADVANTAGED PARTY. If any party believes
changes in the business environment have put it in a severe disadvantage in
performing this Agreement, it may approach the other parties and ask for relief.
The parties will discuss such request in commercial good faith, recognizing each
party is entitled to the benefit of its bargain, but no party should suffer
extreme detriment.
15. TAXES
A. PAYMENT BY ARCO. ARCO shall pay taxes, assessments, fees or charges
applicable to the Refinery Piping.
B. PAYMENT BY WEST BASIN. West Basin shall pay taxes, assessments, fees
or charges applicable to the Plant and Discharge System.
Page 15 of 20
<PAGE>
C. INVESTMENT TAX CREDIT. At its own option, ARCO may claim the
California Manufacturers Investment Credit and the amount of such qualified cost
upon which sales or use tax has been paid or deemed paid under the regulation of
the Franchise Tax Board. West Basin does not warrant that ARCO will be found
eligible for such credits.
16.. MISCELLANEOUS
A. CHOICE OF LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of California.
B. BINDING ON SUCCESSORS AND ASSIGNS. This Agreement, and its terms,
covenants and conditions apply to and are binding upon the successors and
assigns of the parties hereto.
C. NOTICES. Notices given pursuant to the terms of this Agreement or
necessary to carry out its provisions, shall be in writing and delivered
personally to the person to whom the notice is to be given, or when deposited in
the U.S. Mail, postage prepaid, addressed to such person, or when sent by
facsimile to the phone number listed below, with a confirming copy sent by U.S.
Mail. The addresses and phone numbers of the parties for this purpose shall be:
ARCO: ARCO Products Company
Los Angeles Refinery
1801 East Sepulveda Boulevard
Carson, CA 90749-6210
Attention: Refinery Manager
Fax Number 310-816-3316
WEST BASIN MUNICIPAL WATER DISTRICT:
17140 South Avalon Boulevard, Suite 210
Carson, CA 90746-1296
Attention: General Manager
Fax Number 310-217-2414
DOMINGUEZ:
Dominguez Water Corporation
21718 South Alameda Street
Long Beach, CA 90810-0351
Attention: President
Fax Number 310-834-3308
Page 16 of 20
<PAGE>
Each party may change its address or fax number for purposes of notices under
this Agreement by giving the other parties notice of the change in writing.
D. INTEGRATION CLAUSE. There are no other written or oral agreements
between the parties concerning the subject matter hereof.
E. BENEFITS OF THIS AGREEMENT TO RESPECTIVE PARTIES. Nothing contained
in this Agreement, expressed or implied, is intended to give any person other
than West Basin, ARCO and Dominguez any right, remedy, or claim under or
pursuant hereto or thereto, and any agreement or covenant required in this
Agreement to be performed by or on behalf of West Basin, ARCO or Dominguez shall
be for the sole and exclusive benefit of the other party or parties to this
Agreement.
F. CONFIDENTIALITY. During the course of performance of this Agreement,
the parties may become aware of the business plans and operations of the other
parties to this Agreement and operating and performance data of the Plant
("Information"). To the extent permitted by law the parties and their employees
agree to keep such information confidential, and to guard it with the same
methods and concern as they guard their own confidential information. The
parties and their employees will not disclose such Information to third parties
without first obtaining the consent of the other parties to this Agreement.
Further the parties agree to use such information within their organizations
only for the purposes of performing this Agreement.
G. INDEMNIFICATION.
(1) PERSONAL INJURY AND PROPERTY DAMAGE. Each party hereto agrees to
indemnify, and save harmless and defend the other parties hereto, their
subsidiaries and affiliates their directors, officers, agents and employees from
and against losses, costs, damage, injuries, liabilities claims and demands or
causes of action of any nature whatsoever, arising or resulting from damage to
or destruction of property, or death of or injury to persons, whether they be
third persons, or the employees of the party or the party's contractors or
subcontractors, to the extent of the indemnifying party's negligence. It is the
intention of the parties hereto that liability for any such claims be
apportioned among the parties on the basis of the respective party's comparative
negligence.
(2) PATENT AND INTELLECTUAL PROPERTY INDEMNIFICATION. No party shall
use any information in the design, fabrication or construction of Improvements,
or install or use any equipment in the Improvements, which involves any
infringement of a patent or copyright or
Page 17 of 20
<PAGE>
unauthorized use of a trade secrete of another in any manner. Any party
using such infringing data or information shall hold the other parties
harmless and defend them from and against any such claim of infringement.
Further, the party so indemnifying the others shall obtain a non-infringing
right to use such information equipment or data at its own sole expense, or
shall replace the infringing information equipment or data with its
functional equivalent at no expense to the other parties.
H. INSURANCE. During the term of this Agreement each party shall
maintain and provide the following types of insurance:
(1) Worker's Compensation Insurance, including Occupational Disease,
in accordance with the laws of California and Employer's Liability Insurance in
the limit of not less than One Million Dollars ($1,000,000) per person per
accident.
(2) Commercial General Liability Insurance, including contractual
liability, insuring the indemnity agreements set forth in this Agreement and
products-completed operations coverage, with limits of not less than Five
Million Dollars ($5,000,000) applicable to bodily injury, sickness or death in
any one occurrence and Five Million Dollars ($5,000,000) for loss of or damage
to property in any one occurrence.
(3) Automobile Liability Insurance covering owned, non-owned and
hired vehicles used by the party with limits of not less than One Million
Dollars ($1,000,000) applicable to bodily injury, sickness or death of any one
person and One Million Dollars ($1,000,000) for more than one person in any one
occurrence, and Five Hundred Thousand ($500,000) for loss of or damage to
property in any one occurrence.
(4) West Basin shall self insure or provide Builder's Risk Insurance
on an "All Risk" basis insuring the Plant and Discharge System on behalf of
ARCO, West Basin, and its subcontractors in the course of construction including
all materials intended to become a part of the completed Plant and Discharge
System while in transit to the premises, while in fabrication or awaiting
transit and during mechanical testing and until West Basin accepts the Plant and
Discharge System. West Basin owned or rented construction tools and equipment
are excluded. Further ARCO shall self insure or provide Builder's Risk
Insurance on an "All Risk" basis insuring the Refinery Piping on behalf of West
Basin, ARCO and its subcontractors in the course of construction including all
materials intended to become part of the Refinery Piping while in transit to the
premises, while in fabrication or awaiting transit and during mechanical
Page 18 of 20
<PAGE>
testing and until ARCO accepts the Refinery Piping. ARCO owned or rented
construction tools and equipment are excluded.
(5) Each party hereto mutually agrees to waive all rights of recovery
against each other and all subsidiaries, affiliates, agents, employees,
invitees, servants, subcontractors, insurers, underwriters and such other
parties as each may designate whether arising from insured or self-insured loss.
Each party shall arrange for all insurance policies provided by each party with
respect to this agreement to be endorsed to waive all right of subrogation in
accordance with this provision.
(6) Each Party hereto shall each furnish Certificates of Insurance to
the other evidencing the insurance required hereunder. Each Certificate shall
provide that thirty (30) day prior written notice of cancellation shall be
provided to the Certificate Holder.
(7) Each Party hereto shall require all of its contractors and
subcontractors to obtain, maintain and keep in force during the time in which
they are engaged in performing work hereunder, similar insurance coverage
required hereunder. Each party shall require such contractors and
subcontractors to furnish acceptable evidence of such insurance. Such evidence
shall be maintained by each party and shall make such evidence available at a
convenient site for inspection and review.
I. MECHANIC'S LIENS. Each of the parties hereto covenants and agrees to
keep the land upon which any Improvements are to be constructed, and the
materials and equipment to be included in the Improvements free from any and all
claims, liens, charges or encumbrances in the nature of mechanic's, labor or
material liens or otherwise arising out of that portion of the construction or
work to be performed by the particular party, or the particular party's
contractors, agents or subcontractors.
J. DRAWINGS AND DOCUMENTS. At the close of construction, each party will
deliver to each of the other parties to this Agreement "as built" drawings of
that portion of the Improvements constructed by that party upon ARCO property.
ARCO shall deliver "as built" drawings on all items generated during the design
and construction of the Refinery Piping to West Basin.
K. FUTURE PRICING. By executing this agreement ARCO shall not prejudice
its rights to purchase recycled water at a lower price in the future. If a
change in policy by West Basin or the Dominguez Water Corporation, including
execution of future agreements with other
Page 19 of 20
<PAGE>
industrial customers would otherwise offer recycled water to such
industrial customers at a lower price, this Agreement shall be amended to
give ARCO such a lower price.
Wherefore the parties hereto have executed this Agreement of Contract
Relating to Delivery of Recycled Water to Dominguez Water Corporation and ARCO
to be effective, subject to the conditions precedent outlined above, effective
the 1st day of December, 1997.
APPROVED:
WEST BASIN MUNICIPAL WATER DISTRICT
By:
---------------------------------------
Paul D. Jones II, Acting General Manager
APPROVED AS TO FORM:
- -----------------------------------
Wayne K. Lemieux, District Counsel
ARCO PRODUCTS COMPANY,
A Division of Atlantic Richfield Company
By:
----------------------------------------
A. W. Johnson, Refinery Manager
APPROVED AS TO FORM:
By:
--------------------------------
, Counsel
DOMINGUEZ WATER CORPORATION
By:
----------------------------------------
Brian Brady, President
APPROVED AS TO FORM:
By:
--------------------------------
Page 20 of 20
<PAGE>
THIS INSTRUMENT CONSTITUTES, AMONG OTHER THINGS, AN AMENDMENT TO A SECURITY
AGREEMENT WHICH CREATED A SECURITY INTEREST IN PERSONAL PROPERTY
DOMINGUEZ WATER CORPORATION
TO
CHEMICAL TRUST COMPANY OF CALIFORNIA
TRUSTEE
ELEVENTH SUPPLEMENTAL TRUST INDENTURE
DATED AS OF DECEMBER 8, 1992
CREATING FIRST MORTGAGE SERIES J 8.86% BONDS DUE 2023
<PAGE>
THIS ELEVENTH SUPPLEMENTAL TRUST INDENTURE (the "ELEVENTH SUPPLEMENTAL
TRUST INDENTURE", is made and entered into as of the 8th day of December, 1992,
by and between DOMINGUEZ WATER CORPORATION, a corporation organized and
existing under the laws of the State of California (hereinafter called the
"CORPORATION"), party of the first part, and CHEMICAL TRUST COMPANY OF
CALIFORNIA (formerly known as Manufacturers Hanover Trust Company of
California), a corporation organized and existing under the laws of the State
of California (hereinafter called the "TRUSTEE"), party of the second part,
with reference to the following recitals:
RECITALS
WHEREAS, by that certain Trust Indenture dated as of August 1, 1954
(hereinafter referred to as the "ORIGINAL INDENTURE") between the Corporation
and Title Insurance and Trust Company (the "FORMER TRUSTEE"), which was
recorded in the Office of the County Recorder of the County of Los Angeles,
State of California, on October 8, 1954, in Book 45791, Page 1, Official
Records of said County, the Corporation created its First Mortgage Series
A 3-3/4% Bonds of 1954 (hereinafter called the "SERIES A BONDS"), and also
granted, bargained, sold, released, conveyed, confirmed, assigned,
transferred, pledged and set over unto the Former Trustee certain of its
properties, real and personal, in order, INTER ALIA, to secure the payment of
the principal of, and premium (if any) and interest on, all bonds at any time
issued and outstanding under the Original Indenture and all indentures
supplemental thereto (said Original Indenture and all indentures supplemental
thereto, including this Eleventh Supplemental Trust Indenture, being
hereinafter referred to collectively as the "INDENTURE"), all upon the terms,
conditions and trusts therein specified; and
WHEREAS, there has been issued under the Original Indenture One Million
Dollars ($1,000,000) principal amount of Series A Bonds, none of which is
outstanding on the date hereof; and
WHEREAS, by that certain First Supplemental Trust Indenture dated as of
August 1, 1956 (hereinafter referred to as the "FIRST SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was recorded
in the Office of the County Recorder of the County of Los Angeles, State of
California, on August 1, 1956, in Book 51901, Page 374, Official Records of
said County, the Corporation modified and amended certain provisions of the
Original Indenture and created its First Mortgage Series B 4% Bonds of 1976
(hereinafter called the "SERIES B BONDS"), and there has been issued under the
First Supplemental Trust Indenture Five Hundred Thousand Dollars ($500,000)
principal amount of Series B Bonds, none of which is outstanding on the date
hereof; and
<PAGE>
WHEREAS, by that certain Second Supplemental Trust Indenture dated as of
August 1, 1958 (hereinafter referred to as the "SECOND SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was recorded
in the Office of the County Recorder of the County of Los Angeles, State of
California, on August 7, 1958, in Book D-179, Page 936, Official Records of
said County, the Corporation modified and amended certain provisions of the
Original Indenture, as theretofore modified, amended and supplemented, and
created its First Mortgage Series C 5% Bonds of 1978 (hereinafter called the
"SERIES C BONDS"), and there has been issued under the Second Supplemental
Trust Indenture Seven Hundred Thousand Dollars ($700,000) principal amount of
Series C Bonds, none of which is outstanding on the date hereof; and
WHEREAS, by that certain Third Supplemental Trust Indenture dated as of
May 1, 1961 (hereinafter referred to as the "THIRD SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was recorded
in the Office of the County Recorder of the County of Los Angeles, State of
California, on August 2, 1961, in Book S-942, Page 305, Official Records of
said County, the Corporation modified and amended certain provisions of the
Original Indenture, as theretofore modified, amended and supplemented, and
created its First Mortgage Series D, 5-1/2% Bonds of 1981 (hereinafter called
the "SERIES D BONDS"), and there has been issued under the Third Supplemental
Trust Indenture Seven Hundred and Fifty Thousand Dollars ($750,000) principal
amount of Series D Bonds, none of which is outstanding on the date hereof; and
WHEREAS, by that certain Fourth Supplemental Trust Indenture dated as of
March 1, 1962 (hereinafter referred to as the "FOURTH SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was recorded
in the Office of the County Recorder of the County of Los Angeles State of
California, on May 22, 1962, in Book D-1622, Page 826, Official Records of said
County, the Corporation modified and amended certain provisions of the Original
Indenture, as theretofore modified, amended and supplemented; and
WHEREAS, by that certain Fifth Supplemental Trust Indenture dated as of
August 1, 1966 (hereinafter referred to as the "FIFTH SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was recorded
in the Office of the County Recorder of the County of Los Angeles, State of
California, on October 17, 1966, as Instrument No. 160, Official Records of
said County, the Corporation modified and amended certain provisions of the
Original Indenture, as theretofore modified, amended and supplemented, and
created its First Mortgage Series E 6-1/8% Bonds of 1986 (hereinafter called
the "SERIES E BONDS"), and there has been issued under the Fifth Supplemental
Trust Indenture One Million Two Hundred Thousand Dollars ($1,200,000) principal
amount of Series E Bonds, none of which is outstanding on the
-2-
<PAGE>
date hereof; and
WHEREAS, by that certain Sixth Supplemental Trust Indenture dated as of
May 1, 1972 (hereinafter referred to as the "SIXTH SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was recorded
in the Office of the County Recorder of the County of Los Angeles, State of
California, on July 21, 1972, as Instrument No. 856, Official Records of said
County, the Corporation modified and amended certain provisions of the Original
Indenture, as theretofore modified, amended and supplemented, and created its
First Mortgage Series F 8% Bonds of 1997 (hereinafter called the "SERIES F
BONDS"), and there has been issued under the Sixth Supplemental Trust Indenture
One Million Two Hundred Thousand Dollars ($1,200,000) principal amount of
Series F Bonds, and at the date hereof there is outstanding Eight Hundred and
Twenty-Eight Thousand Dollars ($828,000) principal amount thereof; and
WHEREAS, by that certain Seventh Supplemental Trust Indenture dated as of
November 1, 1975 (hereinafter referred to as the "SEVENTH SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was recorded
in the Office of the County Recorder of the County of Los Angeles, State of
California, on December 2, 1975 as Instrument No. 2557, Official Records of
said County, the Corporation modified and amended certain provisions of the
Original Indenture, as theretofore modified, amended and supplemented, and
created its First Mortgage Series G 10% Bonds of 1995 (hereinafter called the
"SERIES G BONDS"), and there has been issued under the Seventh Supplemental
Trust Indenture One Million Six Hundred Thousand Dollars ($1,600,000) principal
amount of Series G Bonds, and at the date hereof there is outstanding Four
Hundred Thousand Dollars ($400,000) principal amount thereof; and
WHEREAS, by that certain Eighth Supplemental Trust Indenture dated as of
August 1, 1978 (hereinafter referred to as the "EIGHTH SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was recorded
in the Office of the County Recorder of the County of Los Angeles, State of
California, on August 31, 1978 as Instrument No. 78-964382, Official Records of
said County, the Corporation modified and amended certain provisions of the
Original Indenture, as theretofore modified, amended and supplemented, and
created its First Mortgage Series H 9-3/8% Bonds of 1998 (hereinafter called
the "SERIES H BONDS"), and there has been issued under the Eighth Supplemental
Trust Indenture Two Million Dollars ($2,000,000) principal amount of Series H
Bonds, and at the date hereof there is outstanding One Million Four Hundred and
Fifty Thousand Dollars ($1,450,000) principal amount thereof; and
WHEREAS, by that certain Ninth Supplemental Trust Indenture dated as of
September 20, 1982 (hereinafter referred to as the "NINTH SUPPLEMENTAL TRUST
-3-
<PAGE>
INDENTURE"), between the Corporation and the Former Trustee, which was recorded
in the Office of the County Recorder of the County of Los Angeles, State of
California, on September 30, 1982 as Instrument No. 82-988617, Official Records
of said County, the Corporation modified and amended certain provisions of the
Original Indenture, as theretofore modified, amended and supplemented, and
created its First Mortgage Series I 16-3/4% Bonds of 1992 (hereinafter called
the "SERIES I BONDS"), and there has been issued under the Ninth Supplemental
Trust Indenture One Million Five Hundred Thousand Dollars ($1,500,000)
principal amount of Series I Bonds, none of which is outstanding on the date
hereof; and
WHEREAS, by that certain Tenth Supplemental Trust Indenture dated as of
March 9, 1990 (hereinafter referred to as the "TENTH SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Trustee, which was recorded in the
Office of the County Recorder of the County of Los Angeles, State of
California, on July 24, 1990 as Instrument No. 90-1281215, Official Records of
said County, the Corporation modified and amended certain provisions of the
Original Indenture, as theretofore modified, amended and supplemented; and
WHEREAS, the Corporation desires to issue under the Indenture a new series
of Bonds (hereinafter called the "SERIES J BONDS") secured by the Indenture, in
the principal amount of Four Million Dollars ($4,000,000), to be designated as
"FIRST MORTGAGE SERIES J BONDS OF 2023", which bonds are to mature January 1,
2023, are to bear interest at the rate of Eight and 86/100 percent (8.86%) per
annum, payable semi-annually on the first days of January and July of each
year, commencing on July 1, 1993, and are to be issued as coupon bonds of the
denomination of $100,000 each, registrable as to principal, and as registered
bonds without coupons, of the denomination of $100,000 or any multiple of
$100,000 that the Corporation may execute and deliver, in the manner set forth
in Article I of this Eleventh Supplemental Trust Indenture; and
WHEREAS, the Corporation desires to modify and amend Section 8 of Article
I of the Original Indenture, as heretofore modified, amended and supplemented,
in the manner set forth in Section 1 of Article II of this Eleventh
Supplemental Trust Indenture; and
WHEREAS, the Corporation desires to further modify and amend Subdivision
(a) of Section 16 of Article V of the Original Indenture, as heretofore
modified, amended and
-4-
<PAGE>
supplemented, in the manner set forth in Section 2 of Article II of this
Eleventh Supplemental Trust Indenture; and
WHEREAS, the Corporation desires to modify and amend Subdivision (a) of
Section 18 of Article V of the Original Indenture, as heretofore modified,
amended and supplemented, in the manner set forth in Section 3 of Article II
of this Eleventh Supplemental Trust Indenture; and
WHEREAS, the Corporation desires to modify and amend Section 1 of
Article VIII of the Original Indenture, as heretofore modified, amended and
supplemented, in the manner set forth in Section 4 of Article II of this
Eleventh Supplemental Indenture; and
WHEREAS, the Corporation desires to further amend the Original
Indenture, as heretofore modified, amended and supplemented to add a new
Article XV thereto, as set forth in Article III of this Eleventh Supplemental
Trust Indenture; and
WHEREAS, the definitive coupon Series J Bonds, the interest coupons to
be attached thereto, the endorsement for registration of coupon bond, the
registered Series J Bonds, the assignment of registered Series J Bonds, and
the trustee's certification of Series J Bonds, are to be in substantially the
following forms, respectively, with necessary or appropriate variations,
omissions and insertions as permitted or required by the Indenture:
1. FORM OF COUPON SERIES J BOND. The coupon Series J Bond is to be in
substantially the following form, with necessary or appropriate variations,
omissions and insertions as permitted or required by the Indenture:
SERIES J $100,000
NO. JC-
DOMINGUEZ WATER CORPORATION
FIRST MORTGAGE SERIES J 8.86% BONDS OF 2023
DUE JANUARY 1, 2023
DOMINGUEZ WATER CORPORATION, A CORPORATION ORGANIZED AND EXISTING
UNDER THE LAWS OF THE STATE OF CALIFORNIA (HEREINAFTER CALLED THE
"CORPORATION"), FOR VALUE RECEIVED, HEREBY PROMISES TO PAY TO THE BEARER, OR,
IF REGISTERED, TO THE REGISTERED HOLDER OF THIS BOND, ONE HUNDRED THOUSAND
DOLLARS IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA ON THE FIRST DAY OF
JANUARY, 2023, TOGETHER WITH INTEREST THEREON FROM THE DATE HEREOF, UNTIL
PAYMENT OF SAID PRINCIPAL SUM, AT THE RATE OF EIGHT AND 86/100 PERCENT
(8.86%) PER ANNUM, PAYABLE SEMIANNUALLY IN LAWFUL MONEY OF THE UNITED STATES
ON THE FIRST DAYS OF JANUARY AND JULY OF EACH YEAR, COMMENCING WITH JULY,
1993. UNTIL MATURITY OF THIS BOND, SAID INTEREST SHALL BE PAYABLE ONLY UPON
PRESENTATION AND SURRENDER OF THE INTEREST COUPONS HERETO ATTACHED AS THEY
SEVERALLY MATURE.
THE PRINCIPAL HEREOF AND THE COUPONS ATTACHED HERETO ARE PAYABLE AT
THE
-5-
<PAGE>
PRINCIPAL OFFICE OF THE CORPORATE TRUST DEPARTMENT OF CHEMICAL TRUST COMPANY
OF CALIFORNIA, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA.
THIS BOND IS ONE OF A SERIES OF COUPON BONDS AND REGISTERED BONDS
OF SERIES J OF AN AUTHORIZED ISSUE OF BONDS OF THE CORPORATION, DESIGNATED AS
ITS "FIRST MORTGAGE SERIES J 8.86% BONDS OF 2023" OR THE "SERIES J BONDS",
ALL ISSUED UNDER AND EQUALLY AND RATABLY SECURED BY THAT CERTAIN INDENTURE,
DATED AS OF AUGUST 1, 1954 AND INDENTURES SUPPLEMENTAL THERETO INCLUDING THE
ELEVENTH SUPPLEMENTAL TRUST INDENTURE, DATED AS OF DECEMBER 8, 1992 (WHICH
INSTRUMENTS ARE HEREINAFTER COLLECTIVELY CALLED THE "INDENTURE"), DULY
EXECUTED BY THE CORPORATION AND DELIVERED TO CHEMICAL TRUST COMPANY OF
CALIFORNIA, AS TRUSTEE, TO WHICH INDENTURE REFERENCE IS MADE FOR A
DESCRIPTION OF THE PROPERTY MORTGAGED, CONVEYED IN TRUST, OR PLEDGED, THE
NATURE AND EXTENT OF THE SECURITY, THE RIGHTS OF THE HOLDERS OF ALL BONDS IN
RESPECT THEREOF, AND THE TERMS AND CONDITIONS SUBJECT TO WHICH ALL BONDS
ISSUED THEREUNDER ARE SECURED AND UPON WHICH ADDITIONAL BONDS HAVING LIKE
SECURITY MAY BE ISSUED. THE SERIES J BONDS ARE LIMITED TO AN AGGREGATE
AUTHORIZED AMOUNT OF FOUR MILLION DOLLARS ($4,000,000).
THE OUTSTANDING SERIES J BONDS ARE SUBJECT TO REDEMPTION PRIOR TO
MATURITY IN WHOLE OR IN PART BY THE CORPORATION ON JANUARY 1 OF ANY YEAR
AFTER AND INCLUDING JANUARY 1, 1994 IN THE MANNER AND UPON THE NOTICE
PROVIDED IN ARTICLE IV OF THE INDENTURE, AT 100% OF THEIR PRINCIPAL AMOUNT
AND ACCRUED INTEREST TO THE DATE OF REDEMPTION, TOGETHER WITH A PREMIUM ON
SAID PRINCIPAL AMOUNT SO TO BE REDEEMED IN THE EVENT THAT SAID SERIES J BONDS
ARE REDEEMED OTHER THAN (i) THROUGH THE MANDATORY PAYMENTS MADE BY THE
CORPORATION TO THE SERIES J SINKING FUND (AS DEFINED IN SECTION 6(a) OF
ARTICLE I OF THE ELEVENTH SUPPLEMENTAL TRUST INDENTURE), (ii) PURSUANT TO THE
SERIES J BONDHOLDER'S RIGHTS TO REQUIRE REPURCHASE SET FORTH IN ARTICLE XV OF
THE ORIGINAL INDENTURE, AS HERETOFORE AND BY THE ELEVENTH SUPPLEMENTAL TRUST
INDENTURE, MODIFIED, AMENDED AND SUPPLEMENTED, AND (iii) IN THE EVENT OF THE
CONDEMNATION OF SUBSTANTIALLY ALL OF THE CORPORATION'S PROPERTY IN AN EMINENT
DOMAIN PROCEEDING OR UPON A COURT ORDERED SALE OF SUBSTANTIALLY ALL OF THE
CORPORATION'S PROPERTY (IN ANY OF WHICH EVENTS SAID BONDS ARE REDEEMABLE
WITHOUT PREMIUM). THE PREMIUM, IF ANY, SHALL BE DETERMINED AS FOLLOWS:
(1) IF THE SERIES J BONDS ARE REDEEMED ON OR PRIOR TO JANUARY 1,
2013, THE PREMIUM SHALL BE DETERMINED IN ACCORDANCE WITH THE FOLLOWING
PROCEDURE:
(a) THE AVERAGE TERM TO MATURITY THEREOF WILL BE CALCULATED
BY WEIGHING EACH REMAINING PRINCIPAL PAYMENT BY ITS TERM FROM THE
PREPAYMENT DATE;
(b) THE U.S. TREASURY YIELDS TO CONSTANT MATURITIES, AS
-6-
<PAGE>
PUBLISHED BY THE FEDERAL RESERVE, WILL BE DETERMINED FOR THE TERMS JUST
BEFORE AND JUST AFTER THE AVERAGE TERM TO MATURITY THEREOF USING THE
LATEST ONE WEEK MOVING AVERAGE ENDING THE DATE ON WHICH THE PREPAYMENT
IS MADE;
(c) A DISCOUNT RATE WILL BE CALCULATED BY ADDING 50 BASIS POINTS
TO AN INTERPOLATED RATE BETWEEN THE TWO U.S. TREASURY YIELDS FOR THE
AVERAGE TERM TO MATURITY THEREOF. IF THE ANNUAL DISCOUNT RATE IS LARGER
THAN OR EQUAL TO THE ANNUAL COUPON, THE PREMIUM WILL BE ZERO. OTHERWISE,
THE ANNUAL DISCOUNT RATE WILL BE DIVIDED BY TWO TO PRODUCE A SEMIANNUAL
DISCOUNT RATE;
(d) THE SEMIANNUAL DISCOUNT RATE WILL BE USED TO CALCULATE THE NET
PRESENT VALUE OF ALL THE REMAINING SCHEDULED INTEREST AND PRINCIPAL
PAYMENTS.
THE EXCESS OF THIS NET PRESENT VALUE OVER THE OUTSTANDING PAR AMOUNT OF THE
SERIES J BONDS BEING SO REDEEMED WILL BE THE PREMIUM.
(2) IF THE SERIES J BONDS ARE REDEEMED AT ANY TIME AFTER JANUARY
1, 2013, THE PREMIUM SHALL BE THE FOLLOWING PERCENTAGE, AS APPLICABLE, OF THE
PRINCIPAL AMOUNT SO REDEEMED:
.02749655 IF REDEEMED AFTER JANUARY 1, 2013 AND BEFORE JANUARY 1, 2014;
.02444138 IF REDEEMED ON OR AFTER JANUARY 1, 2014 AND BEFORE JANUARY 1, 2015;
.02138621 IF REDEEMED ON OR AFTER JANUARY 1, 2015 AND BEFORE JANUARY 1, 2016;
.01833103 IF REDEEMED ON OR AFTER JANUARY 1, 2016 AND BEFORE JANUARY 1, 2017;
.01527586 IF REDEEMED ON OR AFTER JANUARY 1, 2017 AND BEFORE JANUARY 1, 2018;
.01222069 IF REDEEMED ON OR AFTER JANUARY 1, 2018 AND BEFORE JANUARY 1, 2019;
.00916552 IF REDEEMED ON OR AFTER JANUARY 1, 2019 AND BEFORE JANUARY 1, 2020;
.00611034 IF REDEEMED ON OR AFTER JANUARY 1, 2020 AND BEFORE JANUARY 1, 2021;
.00305517 IF REDEEMED ON OR AFTER JANUARY 1, 2021 AND BEFORE JANUARY 1, 2022;
AND AT PAR IF REDEEMED THEREAFTER.
THE OUTSTANDING SERIES J BONDS ARE ALSO SUBJECT TO REDEMPTION BY
THE CORPORATION, AT PAR AND WITHOUT PREMIUM, IN THE EVENT OF THE CONDEMNATION
OF SUBSTANTIALLY ALL OF THE CORPORATION'S PROPERTY IN AN EMINENT DOMAIN
PROCEEDING, OR UPON A COURT ORDERED SALE OF SUBSTANTIALLY ALL OF THE
CORPORATION'S PROPERTY, THROUGH THE PROCEEDS THEREOF OR OTHERWISE. FURTHER,
THE SERIES J BONDS ARE SUBJECT TO REDEMPTION BY THE CORPORATION, AT PAR AND
WITHOUT PREMIUM, PURSUANT TO THE SERIES J BONDHOLDER'S RIGHTS TO REQUIRE
REPURCHASE SET FORTH IN ARTICLE XV OF THE ORIGINAL INDENTURE, AS HERETOFORE
AND BY THIS ELEVENTH SUPPLEMENTAL TRUST INDENTURE, MODIFIED, AMENDED AND
SUPPLEMENTED.
-7-
<PAGE>
ALL SERIES J BONDS REDEEMED BY THE CORPORATION SHALL BE SO REDEEMED
ON A PRO-RATA BASIS CALCULATED WITH REFERENCE TO THE PRINCIPAL AMOUNT OF THE
HOLDINGS THEREOF.
ALL SERIES J BONDS REDEEMED AS PROVIDED IN SAID INDENTURE SHALL BE
CANCELLED AND NOT REISSUED.
COUPON SERIES J BONDS SHALL BE FREELY EXCHANGEABLE FOR REGISTERED
SERIES J BONDS, AND REGISTERED SERIES J BONDS SHALL BE FREELY EXCHANGEABLE
FOR BOTH REGISTERED OR COUPON SERIES J BONDS, IN EITHER CASE FOR ONE OR MORE
AUTHORIZED DENOMINATIONS AND IN THE SAME AGGREGATE PRINCIPAL AMOUNT.
THIS BOND SHALL PASS BY DELIVERY UNLESS REGISTERED AS TO PRINCIPAL
IN THE NAME OF THE OWNER ON REGISTERS KEPT FOR THE PURPOSE BY CHEMICAL TRUST
COMPANY OF CALIFORNIA, OR ITS SUCCESSOR IN TRUST, SAID REGISTRY BEING NOTED
HEREON AS PROVIDED IN THE INDENTURE. AFTER SUCH REGISTRATION, NO TRANSFER
SHALL BE VALID UNLESS MADE ON SAID REGISTER BY THE REGISTERED HOLDER IN
PERSON OR BY ATTORNEY DULY AUTHORIZED AND SIMILARLY NOTED HEREON, BUT THIS
BOND MAY BE DISCHARGED FROM REGISTRY BY BEING IN LIKE MANNER TRANSFERRED TO
BEARER, AND THEREUPON TRANSFERABILITY BY DELIVERY SHALL BE RESTORED, BUT THIS
BOND MAY AGAIN AND FROM TIME-TO-TIME BE REGISTERED IN THE NAME OF THE HOLDER
OR TRANSFERRED TO BEARER AS BEFORE. SUCH REGISTRATION, HOWEVER, SHALL NOT
AFFECT THE NEGOTIABILITY OF THE COUPONS WHICH SHALL CONTINUE TO BE
TRANSFERABLE BY DELIVERY NOTWITHSTANDING THE REGISTRATION HEREOF.
IN CASE AN EVENT OF DEFAULT (AS DEFINED IN THE INDENTURE) SHALL
OCCUR, THE PRINCIPAL OF THIS BOND IF IT BE THEN OUTSTANDING MAY BE DECLARED
AND BECOME DUE AND PAYABLE AS PROVIDED IN THE INDENTURE.
AS PROVIDED IN THE INDENTURE, THE RIGHTS AND OBLIGATIONS OF THE
CORPORATION AND THE HOLDERS OF ALL BONDS ISSUED THEREUNDER, INCLUDING WITHOUT
LIMITATION, THE SERIES J BONDS, MAY BE MODIFIED OR ALTERED FROM TIME-TO-TIME
BY ANY INDENTURE OR INDENTURES SUPPLEMENTAL THERETO, EXECUTED BY THE
CORPORATION AND THE TRUSTEE AND CONSENTED TO BY THE HOLDERS OF THREE-FOURTHS
IN PRINCIPAL AMOUNT OF ALL SUCH BONDS OUTSTANDING; PROVIDED, HOWEVER, THAT NO
SUCH MODIFICATION OR ALTERATION SHALL BE MADE WHICH WOULD (i) REDUCE THE
PRINCIPAL OF, OR PREMIUM ON, OR THE RATE OF INTEREST ON ANY SUCH BONDS, (ii)
POSTPONE THE MATURITY DATE FIXED IN THE INDENTURE OR IN ANY SUCH BONDS OR
COUPONS FOR THE PAYMENT OF THE PRINCIPAL OF OR ANY INSTALLMENT OF INTEREST ON
ANY SUCH BONDS, (iii) REDUCE THE PERCENTAGE OF THE PRINCIPAL AMOUNT OF SUCH
BONDS, THE CONSENT OF THE HOLDERS OF WHICH IS REQUIRED FOR THE AUTHORIZATION
OF ANY SUCH CHANGE OR ADDITION, (iv) MODIFY WITHOUT THE CONSENT OF THE
TRUSTEE THE RIGHTS, DUTIES OR IMMUNITY OF THE TRUSTEE, (v) CREATE OR PERMIT
ANY DISCRIMINATION OR DISTINCTION BETWEEN ANY OF THE BONDS OF ANY
-8-
<PAGE>
ONE SERIES ISSUED UNDER THE INDENTURE OR, EXCEPT AS THEREIN PROVIDED OR
PERMITTED, BETWEEN BONDS OF DIFFERENT SERIES ISSUED UNDER THE INDENTURE, OR
(vi) MODIFY OR ALTER ANY OF THE TERMS AND PROVISIONS OF THE INDENTURE,
RELATING, AMONG OTHER THINGS, TO THE SINKING FUNDS OR REDEMPTION PROVISIONS
PROVIDED FOR A PARTICULAR SERIES OF BONDS.
THIS COUPON BOND, TOGETHER WITH ALL MATURED AND UNPAID AND ALL
UNMATURED COUPONS THERETO BELONGING, MAY BE EXCHANGED FOR A REGISTERED BOND
OR BONDS WITHOUT COUPONS OF THE SAME SERIES OF AUTHORIZED DENOMINATIONS, FOR
THE SAME AGGREGATE PRINCIPAL AMOUNT IN EACH CASE, AS PROVIDED IN THE
INDENTURE.
THE OFFER AND SALE OF THE BONDS WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1993 ACT") OR UNDER ANY STATE
SECURITIES LAWS AND THE BONDS ARE BEING SOLD IN RELIANCE ON EXEMPTIONS
THEREFROM; THE BONDS MAY NOT BE RESOLD OR OTHERWISE TRANSFERRED (INCLUDING,
WITHOUT LIMITATION, BY HYPOTHECATION) UNLESS SUCH RESALE OR TRANSFER IS
ITSELF REGISTERED OR EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE 1933
ACT; THE BONDS MAY NOT BE RESOLD OR OTHERWISE TRANSFERRED TO AN EMPLOYEE
BENEFIT PLAN WITHIN THE MEANING OF THE EMPLOYMENT RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED (ERISA) EXCEPT AS MAY BE EXPRESSLY PROVIDED IN THE
INDENTURE.
THIS BOND SHALL NOT BECOME VALID OR OBLIGATORY FOR ANY PURPOSE
UNLESS AND UNTIL THE TRUSTEE UNDER THE INDENTURE SHALL HAVE SIGNED THE
TRUSTEE'S CERTIFICATE ENDORSED HEREON.
-9-
<PAGE>
IN WITNESS WHEREOF, DOMINGUEZ WATER CORPORATION HAS CAUSED THIS
BOND TO BE EXECUTED IN ITS CORPORATE NAME BY ITS PRESIDENT OR VICE PRESIDENT
AND ITS CORPORATE SEAL TO BE HEREUNTO AFFIXED, ATTESTED BY ITS SECRETARY OR
ASSISTANT SECRETARY, AND THE INTEREST COUPONS HERETO ANNEXED TO BE EXECUTED
BY THE FACSIMILE SIGNATURE OF ITS SECRETARY AS OF THE 8TH DAY OF DECEMBER,
1992.
DOMINGUEZ WATER CORPORATION, A CALIFORNIA CORPORATION
BY:
-------------------------------------
C.W. PORTER, PRESIDENT
ATTEST:
- --------------------------------------------
RUBYE RITTGERS, SECRETARY
(CORPORATE SEAL)
2. FORM OF INTEREST COUPON. The interest coupon is to be in
substantially the following form, with necessary or appropriate variations,
omissions and insertions as permitted or required by the Indenture:
NO. JC- $
------ -------------
ON THE FIRST DAY OF __________, 19___ (UNLESS THE BOND
HEREINAFTER MENTIONED SHALL HAVE BEEN CALLED FOR EARLIER
REDEMPTION), UPON SURRENDER OF THIS COUPON DOMINGUEZ WATER
CORPORATION WILL PAY TO THE BEARER HEREOF, AT THE PRINCIPAL
OFFICE OF CHEMICAL TRUST COMPANY OF CALIFORNIA IN THE CITY OF
LOS ANGELES, STATE OF CALIFORNIA, ___________________________
DOLLARS ($__________) IN LAWFUL MONEY OF THE UNITED STATES,
BEING SIX MONTHS' INTEREST THEN DUE ON ITS FIRST MORTGAGE SERIES
J 8.86% BONDS OF 2023, DATED DECEMBER __, 1992, NO. JC-________.
---------------------------------
SECRETARY
-10-
<PAGE>
3. FORM OF ENDORSEMENT FOR REGISTRATION OF COUPON BOND. The endorsement
for registration of coupon bonds is to be in substantially the following form,
with necessary or appropriate variations, omissions and insertions as permitted
or required by the Indenture:
THIS BOND MAY BE REGISTERED AS TO PRINCIPAL BY THE OWNER AT THE
PRINCIPAL OFFICE OF THE CHEMICAL TRUST COMPANY OF CALIFORNIA IN THE CITY OF LOS
ANGELES, STATE OF CALIFORNIA.
NOTICE: NO WRITING ON THIS REGISTRATION FORM EXCEPT BY AN OFFICER OR
AGENT OF THE TRUSTEE.
DATE OF REGISTRY IN WHOSE NAME REGISTERED REGISTRAR
- -------------------------------- -------------------------
- -------------------------------- -------------------------
- -------------------------------- -------------------------
4. FORM OF REGISTERED SERIES J BOND. The registered Series J Bond is to
be in substantially the following form, with necessary or appropriate
variations, omissions and insertions as permitted or required by the Indenture:
SERIES J
NO. JR- $
-------- -----------
DOMINGUEZ WATER CORPORATION
REGISTERED FIRST MORTGAGE SERIES J 8.86% BONDS
OF 2023 DUE JANUARY 1, 2023
DOMINGUEZ WATER CORPORATION, A CORPORATION ORGANIZED AND EXISTING
UNDER THE LAWS OF THE STATE OF CALIFORNIA (HEREINAFTER CALLED THE
"CORPORATION"), FOR VALUE RECEIVED HEREBY PROMISES TO PAY TO________________,
OR REGISTERED ASSIGNS, ____________________________________ DOLLARS
($_________) IN LAWFUL MONEY OF THE UNITED STATES OF THE FIRST DAY OF
JANUARY, 2023, TOGETHER WITH INTEREST THEREON FROM THE DATE HEREOF AT THE
RATE OF EIGHT AND 86/100 PERCENT (8.86%) PER ANNUM, PAYABLE SEMI-ANNUALLY IN
LIKE LAWFUL MONEY ON THE FIRST DAYS OF JANUARY AND JULY IN EACH YEAR
COMMENCING WITH JULY, 1993.
THE PRINCIPAL HEREOF AND THE INTEREST ON THIS BOND ARE PAYABLE AT THE
PRINCIPAL OFFICE OF THE CHEMICAL TRUST COMPANY OF CALIFORNIA IN THE CITY OF LOS
ANGELES, STATE OF CALIFORNIA. INTEREST HEREON SHALL BE PAID ON JANUARY 1 AND
JULY 1 OF EACH YEAR TO THE REGISTERED HOLDER OF THIS BOND WHO SHALL BE SUCH AT
THE CLOSE OF
-11-
<PAGE>
BUSINESS ON THE PREVIOUS DECEMBER 24 AND JUNE 24, RESPECTIVELY.
THIS BOND IS ONE OF A SERIES OF COUPON BONDS AND REGISTERED BONDS OF
SERIES J OF AN AUTHORIZED ISSUE OF BONDS OF THE CORPORATION, DESIGNATED AS ITS
"FIRST MORTGAGE SERIES J 8.86% BONDS OF 2023" OR THE "SERIES J BONDS", ALL
ISSUED AND TO BE ISSUED UNDER AND EQUALLY AND RATABLY SECURED BY THAT CERTAIN
INDENTURE DATED AS OF AUGUST 1, 1954, AND INDENTURES SUPPLEMENTAL THERETO
INCLUDING THE ELEVENTH SUPPLEMENTAL TRUST INDENTURE DATED AS OF DECEMBER __,
1992 (WHICH INSTRUMENTS ARE HEREIN COLLECTIVELY CALLED THE "INDENTURE"), DULY
EXECUTED BY CHEMICAL TRUST COMPANY OF CALIFORNIA, AS TRUSTEE, TO WHICH
INDENTURE REFERENCE IS MADE FOR A DESCRIPTION OF THE PROPERTY MORTGAGED,
CONVEYED IN TRUST OR PLEDGED, THE NATURE AND EXTENT OF THE SECURITY, THE RIGHTS
OF THE HOLDERS OF ALL BONDS IN RESPECT THEREOF, AND THE TERMS AND CONDITIONS
SUBJECT TO WHICH ALL BONDS ISSUED THEREUNDER ARE SECURED AND UPON WHICH
ADDITIONAL BONDS HAVING LIKE SECURITY MAY BE ISSUED. THE SERIES J BONDS ARE
LIMITED TO AN AGGREGATE AUTHORIZED AMOUNT OF FOUR MILLION DOLLARS ($4,010,000).
THIS BOND IS TRANSFERABLE BY THE REGISTERED HOLDER HEREOF IN PERSON
OR BY ITS ATTORNEY DULY AUTHORIZED, AT THE OFFICE OF CHEMICAL TRUST COMPANY OF
CALIFORNIA IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, OR ITS SUCCESSORS
IN TRUST, UPON SURRENDER AND CANCELLATION OF THIS BOND, AND THEREUPON ONE OR
MORE NEW REGISTERED BONDS, WITHOUT COUPONS, OF THE SAME SERIES AND FOR THE SAME
AGGREGATE PRINCIPAL AMOUNT WILL BE ISSUED TO THE TRANSFEREE IN EXCHANGE
THEREFOR AS PROVIDED IN SAID INDENTURE AND ON PAYMENT, IF THE CORPORATION SHALL
SO REQUIRE, OF THE CHARGE THEREIN AUTHORIZED.
THIS BOND MAY BE EXCHANGED FOR ONE OR MORE COUPON BONDS OF THE SAME
SERIES OF AUTHORIZED DENOMINATIONS FOR THE SAME AGGREGATE PRINCIPAL AMOUNT WITH
ALL MATURED AND UNPAID AND ALL UNMATURED COUPONS THERETO BELONGING, IN EACH
CASE AS PROVIDED IN SAID INDENTURE.
THE OUTSTANDING BONDS OF SERIES J ARE SUBJECT TO REDEMPTION PRIOR TO
MATURITY IN PART BY THE CORPORATION ON JANUARY 1 OF ANY YEAR AFTER AND
INCLUDING JANUARY 1, 1994 IN THE MANNER AND UPON THE NOTICE PROVIDED IN ARTICLE
IV OF THE INDENTURE, AT 100% OF THEIR PRINCIPAL AMOUNT AND ACCRUED INTEREST TO
THE DATE OF REDEMPTION, TOGETHER WITH A PREMIUM ON SAID PRINCIPAL AMOUNT SO TO
BE REDEEMED IN THE EVENT THAT SAID SERIES J BONDS ARE REDEEMED OTHER THAN (i)
THROUGH THE MANDATORY PAYMENTS MADE BY THE CORPORATION TO THE SERIES J SINKING
FUND (AS DEFINED IN SECTION 6(a) OF ARTICLE I OF THE ELEVENTH SUPPLEMENTAL
TRUST INDENTURE), (ii) PURSUANT TO THE SERIES J BONDHOLDER'S RIGHTS TO REQUIRE
REPURCHASE SET FORTH IN ARTICLE XV OF THE ORIGINAL INDENTURE, AS HERETOFORE AND
BY THE ELEVENTH SUPPLEMENTAL TRUST INDENTURE, MODIFIED, AMENDED AND
SUPPLEMENTED, AND (iii) IN THE EVENT OF THE CONDEMNATION OF SUBSTANTIALLY ALL
OF THE
-12-
<PAGE>
CORPORATION'S PROPERTY IN AN EMINENT DOMAIN PROCEEDING OR UPON A COURT
ORDERED SALE OF SUBSTANTIALLY ALL OF THE CORPORATION'S PROPERTY (IN ANY OF
WHICH EVENTS SAID BONDS ARE REDEEMABLE WITHOUT PREMIUM). THE PREMIUM, IF
ANY, SHALL BE DETERMINED AS FOLLOWS:
(1) IF THE SERIES J BONDS ARE REDEEMED ON OR PRIOR TO JANUARY 1,
2013, THE PREMIUM SHALL BE DETERMINED IN ACCORDANCE WITH THE FOLLOWING
PROCEDURE:
(a) THE AVERAGE TERM TO MATURITY THEREOF WILL BE CALCULATED BY
WEIGHING EACH REMAINING PRINCIPAL PAYMENT BY ITS TERM FROM THE PREPAYMENT
DATE;
(b) THE U.S. TREASURY YIELDS TO CONSTANT MATURITIES, AS
PUBLISHED BY THE FEDERAL RESERVE, WILL BE DETERMINED FOR THE TERMS JUST
BEFORE AND JUST AFTER THE AVERAGE TERM TO MATURITY THEREOF USING THE
LATEST ONE WEEK MOVING AVERAGE ENDING THE DATE ON WHICH THE PREPAYMENT IS
MADE;
(c) A DISCOUNT RATE WILL BE CALCULATED BY ADDING 50 BASIS
POINTS TO AN INTERPOLATED RATE BETWEEN THE TWO U.S. TREASURY YIELDS FOR
THE AVERAGE TERM TO MATURITY THEREOF. IF THE ANNUAL DISCOUNT RATE IS
LARGER THAN OR EQUAL TO THE ANNUAL COUPON, THE PREMIUM WILL BE ZERO.
OTHERWISE, THE ANNUAL DISCOUNT RATE WILL BE DIVIDED BY TWO TO PRODUCE A
SEMIANNUAL DISCOUNT RATE;
(d) THE SEMIANNUAL DISCOUNT RATE WILL BE USED TO CALCULATE THE
NET PRESENT VALUE OF ALL THE REMAINING SCHEDULED INTEREST AND PRINCIPAL
PAYMENTS.
THE EXCESS OF THIS NET PRESENT VALUE OVER THE OUTSTANDING PAR AMOUNT OF THE
SERIES J BONDS BEING SO REDEEMED WILL BE THE PREMIUM.
(2) IF THE SERIES J BONDS ARE REDEEMED AT ANY TIME AFTER JANUARY 1,
2013, THE PREMIUM SHALL BE THE FOLLOWING PERCENTAGE, AS APPLICABLE, OF THE
PRINCIPAL AMOUNT SO REDEEMED:
.02749655 IF REDEEMED AFTER JANUARY 1, 2013 AND BEFORE JANUARY 1, 2014;
.02444138 IF REDEEMED ON OR AFTER JANUARY 1, 2014 AND BEFORE JANUARY 1,
2015;
.02138621 IF REDEEMED ON OR AFTER JANUARY 1, 2015 AND BEFORE JANUARY 1,
2016;
.01833103 IF REDEEMED ON OR AFTER JANUARY 1, 2016 AND BEFORE JANUARY 1,
2017;
.01527586 IF REDEEMED ON OR AFTER JANUARY 1, 2017 AND BEFORE JANUARY 1,
2018;
.01222069 IF REDEEMED ON OR AFTER JANUARY 1, 2018 AND BEFORE JANUARY 1,
2019;
.00916552 IF REDEEMED ON OR AFTER JANUARY 1, 2019 AND BEFORE JANUARY 1,
2020;
.00611034 IF REDEEMED ON OR AFTER JANUARY 1, 2020 AND BEFORE JANUARY 1,
2021;
.00305517 IF REDEEMED ON OR AFTER JANUARY 1, 2021 AND BEFORE JANUARY 1,
2022;
-13-
<PAGE>
AND AT PAR IF REDEEMED THEREAFTER.
THE OUTSTANDING SERIES J BONDS ARE ALSO SUBJECT TO REDEMPTION BY
THE CORPORATION, AT PAR AND WITHOUT PREMIUM, IN THE EVENT OF THE CONDEMNATION
OF SUBSTANTIALLY ALL OF THE CORPORATION'S PROPERTY IN AN EMINENT DOMAIN
PROCEEDING, OR UPON A COURT ORDERED SALE OF SUBSTANTIALLY ALL OF THE
CORPORATION'S PROPERTY, THROUGH THE PROCEEDS THEREOF OR OTHERWISE. FURTHER,
THE SERIES J BONDS ARE SUBJECT TO REDEMPTION BY THE CORPORATION, AT PAR AND
WITHOUT PREMIUM, PURSUANT TO THE SERIES J BONDHOLDER'S RIGHTS TO REQUIRE
REPURCHASE SET FORTH IN ARTICLE XV OF THE ORIGINAL INDENTURE, AS HERETOFORE
AND BY THIS ELEVENTH SUPPLEMENTAL TRUST INDENTURE, MODIFIED, AMENDED AND
SUPPLEMENTED.
ALL SERIES J BONDS REDEEMED BY THE CORPORATION SHALL BE SO REDEEMED
ON A PRO-RATA BASIS CALCULATED WITH REFERENCE TO THE PRINCIPAL AMOUNT OF THE
HOLDINGS THEREOF.
ALL SERIES J BONDS REDEEMED AS PROVIDED IN THE INDENTURE SHALL BE
CANCELLED AND SHALL NOT BE REISSUED. THIS BOND MAY BE PARTIALLY REDEEMED
WITHOUT PRESENTATION TO THE TRUSTEE FOR ENDORSEMENT, IF THE REQUIREMENTS SET
FORTH IN SECTION 1 OF ARTICLE IV OF THE INDENTURE ARE MET.
COUPON SERIES J BONDS SHALL BE FREELY EXCHANGEABLE FOR REGISTERED
SERIES J BONDS, AND REGISTERED SERIES J BONDS SHALL BE FREELY EXCHANGEABLE
FOR BOTH REGISTERED OR COUPON SERIES J BONDS, IN EITHER CASE FOR ONE OR MORE
AUTHORIZED DENOMINATIONS AND IN THE SAME AGGREGATE PRINCIPAL AMOUNT.
IN CASE AN EVENT OF DEFAULT (AS DEFINED IN THE INDENTURE) SHALL
OCCUR, THE PRINCIPAL OF THIS BOND IF IT BE THEN OUTSTANDING MAY BE DECLARED
AND BECOME DUE AND PAYABLE AS PROVIDED IN THE INDENTURE.
AS PROVIDED IN THE INDENTURE, THE RIGHTS AND OBLIGATIONS OF THE
CORPORATION AND THE HOLDERS OF ALL BONDS ISSUED THEREUNDER, INCLUDING WITHOUT
LIMITATION, THE SERIES J BONDS, MAY BE MODIFIED OR ALTERED FROM TIME-TO-TIME
BY ANY INDENTURE OR INDENTURES SUPPLEMENTAL THERETO, EXECUTED BY THE
CORPORATION AND THE TRUSTEE AND CONSENTED TO BY THE HOLDERS OF THREE-FOURTHS
IN PRINCIPAL AMOUNT OF ALL SUCH BONDS OUTSTANDING; PROVIDED, HOWEVER, THAT NO
SUCH MODIFICATION OR ALTERATION SHALL BE MADE WHICH WOULD (i) REDUCE THE
PRINCIPAL OF, OR PREMIUM ON, OR THE RATE OF INTEREST ON ANY SUCH BONDS, (ii)
POSTPONE THE MATURITY DATE FIXED IN THE INDENTURE OR IN ANY SUCH BONDS OR
COUPONS FOR THE PAYMENT OF THE PRINCIPAL OF OR ANY INSTALLMENT OF INTEREST ON
ANY SUCH BONDS, (iii) REDUCE THE PERCENTAGE OF THE PRINCIPAL AMOUNTS OF SUCH
BONDS, THE CONSENT OF THE HOLDERS OF WHICH IS REQUIRED FOR THE AUTHORIZATION
OF ANY SUCH CHANGE OR ADDITION, (iv)
-14-
<PAGE>
MODIFY WITHOUT THE CONSENT OF THE TRUSTEE THE RIGHTS, DUTIES OR
IMMUNITY OF THE TRUSTEE, (v) CREATE OR PERMIT ANY DISCRIMINATION OF DISTINCTION
BETWEEN ANY OF THE BONDS OF ANY ONE SERIES ISSUED UNDER THE INDENTURE OR,
EXCEPT AS THEREIN PROVIDED OR PERMITTED, BETWEEN BONDS OF DIFFERENT SERIES
ISSUED UNDER THE INDENTURE, OR (vi) MODIFY OR ALTER ANY OF THE TERMS AND
PROVISIONS OF THE INDENTURE RELATING, AMONG OTHER THINGS, TO THE SINKING FUNDS
OR REDEMPTION PROVISIONS PROVIDED FOR A PARTICULAR SERIES OF BONDS.
THE OFFER AND SALE OF THE BONDS WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1993 ACT") OR UNDER ANY STATE
SECURITIES LAWS AND THE BONDS ARE BEING SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE 1993 ACT; THE BONDS MAY NOT BE RESOLD OR
OTHERWISE TRANSFERRED (INCLUDING, WITHOUT LIMITATION, BY HYPOTHECATION) UNLESS
SUCH RESALE OR TRANSFER IS ITSELF REGISTERED OR EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT; THE BONDS MAY NOT BE RESOLD OR OTHERWISE
TRANSFERRED TO AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF THE EMPLOYMENT
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA) EXCEPT AS MAY BE
EXPRESSLY PROVIDED IN THE INDENTURE.
THIS BOND SHALL NOT BECOME VALID OR OBLIGATORY FOR ANY PURPOSE UNLESS
AND UNTIL THE TRUSTEE UNDER THE INDENTURE SHALL HAVE SIGNED THE TRUSTEE'S
CERTIFICATE ENDORSED HEREON.
-15-
<PAGE>
IN WITNESS WHEREOF, DOMINGUEZ WATER CORPORATION HAS CAUSED THIS BOND
TO BE EXECUTED IN ITS CORPORATE NAME BY ITS PRESIDENT OR VICE PRESIDENT AND ITS
CORPORATE SEAL TO BE HERETO AFFIXED, ATTESTED BY ITS SECRETARY OR ASSISTANT
SECRETARY.
DATED: DECEMBER __, 1992
DOMINGUEZ WATER CORPORATION,
A CALIFORNIA CORPORATION
BY:
-----------------------------------
C.W. PORTER, PRESIDENT
ATTEST:
- ----------------------------------
RUBYE RITTGERS, SECRETARY
(Corporate Seal)
5. FORM OF ASSIGNMENT OF REGISTERED BOND. The assignment of registered
Series J Bond is to be in substantially the following form, with necessary or
appropriate variations, omissions and insertions as permitted or required by
the Indenture:
FOR VALUE RECEIVED, THE UNDERSIGNED REGISTERED HOLDER OF THE WITHIN
BOND HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO ___________________________ THE
WITHIN BOND AND HEREBY IRREVOCABLY AUTHORIZES THE TRUSTEE THEREIN NAMED, OR ANY
SUCCESSOR TRUSTEE, TO TRANSFER THE SAME ON THE REGISTRY BOOKS KEPT FOR THAT
PURPOSE.
DATED: , 19
------------------- ----
------------------------------
IN THE PRESENCE OF:
--------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS BOND IN EVERY PARTICULAR WITHOUT ALTERATION,
ENLARGEMENT OR ANY CHANGE WHATEVER.
-16-
<PAGE>
6. FORM OF TRUSTEE'S CERTIFICATION. The Trustee's Certificate regarding
Series J Bonds is to be in substantially the following form, with necessary or
appropriate variations, omissions and insertions as permitted or required by
the Indenture:
TRUSTEE'S CERTIFICATE
IT IS HEREBY CERTIFIED THAT THIS BOND IS ONE OF THE BONDS MENTIONED
AND DESCRIBED IN THE INDENTURE HEREIN REFERRED TO.
CHEMICAL TRUST COMPANY
OF CALIFORNIA
BY: _______________________________________
(AUTHORIZED OFFICER)
WHEREAS, Section 1 of Article X of the Original Indenture provides, in
substance, that the Corporation and the Trustee may enter into indentures
supplemental thereto for the purposes, among others, of creating and setting
forth the particulars of any new series of bonds and providing the terms and
conditions of the issue of the bonds of any series not expressly provided for
in the Original Indenture; and
WHEREAS, the Board of Directors of the Corporation, at a meeting thereof
duly convened and held, has duly authorized the execution and delivery of this
Eleventh Supplemental Trust Indenture for the purpose of creating said new
series of bonds to be designated "FIRST MORTGAGE SERIES J 8.86% BONDS OF 2023,"
and of providing the particulars, terms and conditions thereof; and
WHEREAS, all things necessary to make said Four Million Dollars
($4,000,000) principal amount of Series J Bonds, when duly executed by the
Corporation and authenticated and delivered by the Trustee for issue, the
valid, binding and legal obligation of the Corporation entitled to the benefits
and security of the Indenture, and to make this Eleventh Supplemental Trust
Indenture a valid, binding and legal instrument in accordance with its terms,
have been done and performed, and the issue of the Series J Bonds, as herein
provided, has been in all respects duly authorized; and
WHEREAS, in accordance with and pursuant to Section 3 of Article XII of
the Original Indenture, the requisite consent in writing signed by the holders
of not less than three-fourths (3/4) of the principal amount of the Series F
Bonds, Series G Bonds and Series H Bonds outstanding at the date hereof (said
bonds being the only bonds outstanding under the Indenture on the date hereof),
has been heretofore received by
-17-
<PAGE>
the Corporation and filed with the Trustee, authorizing and assenting to the
execution and delivery of this Eleventh Supplemental Trust Indenture,
including the provisions hereof amending the Original Indenture, as
heretofore modified, amended and supplemented, all as hereinafter set forth.
NOW, THEREFORE, BE IT RESOLVED THAT the Corporation, in consideration
of the premises, the mutual covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and in order to (i) declare the terms and conditions upon and
subject to which the Series J Bonds will and are to be issued and secured, (ii)
create the Series J Bonds, (iii) amend the Original Indenture, as heretofore
modified, amended and supplemented and (iv) further secure the payment of the
principal of, and premium (if any) and interest on, all bonds at any time
issued and outstanding under the Indenture according to their tenor and effect,
and the performance and observance by the Corporation of all the covenants and
conditions in the Indenture and in the bonds contained (and without in any way
limiting the generality or effect of the Original Indenture or any of the
supplemental indentures thereto, but confirming the lien of the Indenture), has
executed and delivered this Eleventh Supplemental Trust Indenture.
IT IS HEREBY COVENANTED, DECLARED AND AGREED by and between the
parties hereto that certain provisions of the Original Indenture, as heretofore
modified, amended and supplemented, be further modified and amended as
hereinafter set forth, and that the Series J Bonds be issued, authenticated and
delivered upon and subject to the covenants and conditions as stated in the
Indenture, including this Eleventh Supplemental Trust Indenture; and the
Corporation, for itself and its successors, does hereby covenant and agree to
and with the Trustee and its successors in trust, for the benefit of those who
from time to time shall hold or own bonds at any time issued and outstanding
under the Indenture, including the Series J Bonds, as follows:
ARTICLE I
CREATION, AUTHENTICATION AND ISSUANCE AND PROVISIONS
RELATING TO FORM OF SERIES J BONDS
SECTION 1. There is hereby created, for issuance under the
Indenture, and to be secured thereby a series of bonds, to be designated "FIRST
MORTGAGE SERIES J, 8.86% BONDS OF 2023" (being the "SERIES J BONDS" herein
referred to) and to be in the aggregate principal amount of Four Million
Dollars ($4,000,000). No Series J Bonds in addition to said Four Million
Thousand Dollars ($4,000,000) principal amount shall be authenticated and
delivered by the Trustee except in exchange for, in lieu of, or in substitution
for, other Series J Bonds pursuant to Article I of the Indenture.
-18-
<PAGE>
SECTION 2. The coupon Series J Bonds and the registered Series J
Bonds without coupons shall bear interest from the date of issuance at the rate
of Eight and 86/100 percent (8.86%) per annum, payable semi-annually on the
first days of January and July of each year, and shall be respectively
substantially of the tenor and purport recited above. The Series J Bonds shall
mature January 1, 2023, and shall be issued as coupon bonds in the denomination
of $100,000 each, registrable as to principal, and as registered bonds without
coupons in denominations of $100,000 and any multiple of $100,000 which the
Corporation may execute and deliver. Coupon Series J Bonds and registered
Series J Bonds without coupons shall be dated as provided in Section 2 of
Article I of the Indenture. Coupon Series J Bonds shall be freely exchangeable
for registered Series J Bonds, and registered Series J Bonds shall be freely
exchangeable for both registered or coupon Series J Bonds, in either case for
one or more authorized denominations and in the same aggregate principal
amount.
SECTION 3. All coupon Series J Bonds shall be numbered JC-1 and
upward, and registered Series J Bonds shall be numbered JR-1 and upward.
SECTION 4. The Series J Bonds are subject to redemption prior to
maturity in whole or in part by the Corporation on January 1 of any year after
and including January 1, 1994 at the office of the Trustee in the City of Los
Angeles, State of California, in the manner and upon the notice provided in
Article IV of the Indenture, at 100% of the principal amount thereof and
interest accrued thereon to the date fixed for redemption, together with a
premium on said principal amount so to be redeemed in the event that said
Series J Bonds are redeemed OTHER THAN (i) through the mandatory payments made
by the corporation to the Series J Sinking Fund (as defined in Section 6(a)
below), (ii) pursuant to the Series J Bondholder's Rights to Require Repurchase
set forth in Article XV of the Original Indenture, as heretofore and by this
Eleventh Supplemental Trust Indenture, modified, amended and supplemented, and
(iii) in the event of the condemnation of substantially all of the
Corporation's property in an eminent domain proceeding or upon a court ordered
sale of substantially all of the Corporation's property (in any of which events
said bonds are redeemable without premium). The premium, if any, shall be
determined as follows:
(1) If the Series J Bonds are redeemed on or prior to January 1,
2013, the premium shall be determined in accordance with the following
procedure:
(a) The average term to maturity of the Series J Bonds thereof
will be calculated by weighing each remaining principal payment by its
term from the prepayment date;
(b) The U.S. Treasury yields to constant maturities, as
published by the Federal Reserve, will be determined for the terms just
before
-19-
<PAGE>
and just after the average term to maturity thereof using the
latest one week moving average ending the date on which the prepayment is
made;
(c) A discount rate will be calculated by adding 50 basis
points to an interpolated rate between the two U.S. Treasury yields for
the average term to maturity of the Series J Bonds. If the annual
discount rate is larger than or equal to the annual coupon of the Series J
Bonds, the premium will be zero. Otherwise, the annual discount rate will
be divided by two to produce a semiannual discount rate;
(d) The semiannual discount rate will be used to calculate the
net present value of all the remaining scheduled interest and principal
payments.
The excess of this net present value over the outstanding par amount of the
Series J Bonds being so redeemed will be the premium.
(2) If the Series J Bonds are redeemed at any time after January 1,
2013, the premium shall be the following percentage, as applicable of the
principal amount so redeemed:
.02749655 if redeemed after January 1, 2013 and before January 1, 2014;
.02444138 if redeemed on or after January 1, 2014 and before January 1,
2015;
.02138621 if redeemed on or after January 1, 2015 and before January 1,
2016;
.01833103 if redeemed on or after January 1, 2016 and before January 1,
2017;
.01527586 if redeemed on or after January 1, 2017 and before January 1,
2018;
.01222069 if redeemed on or after January 1, 2018 and before January 1,
2019;
.00916552 if redeemed on or after January 1, 2019 and before January 1,
2020;
.00611034 if redeemed on or after January 1, 2020 and before January 1,
2021;
.00305517 if redeemed on or after January 1, 2021 and before January 1,
2022;
and at par if redeemed thereafter.
The outstanding Series J Bonds are also subject to redemption by the
Corporation, at par and without premium, in the event of the condemnation of
substantially all of the Corporation's property in an eminent domain
proceeding, or upon a court ordered sale of substantially all of the
Corporation's property, through the proceeds thereof or otherwise. Further,
the Series J Bonds are subject to redemption by the Corporation, at par and
without premium, pursuant to the Series J Bondholder's Rights to Require
Repurchase set forth in Article XV of the Original Indenture, as heretofore and
by this Eleventh Supplemental Trust Indenture, modified, amended and
supplemented.
All Series J Bonds redeemed by the Corporation shall be so redeemed
on
-20-
<PAGE>
a pro-rata basis calculated with reference to the principal amount of the
holdings thereof.
All Series J Bonds redeemed as provided herein shall be cancelled and
shall not be reissued.
SECTION 5. The Corporation hereby appoints the Trustee as registrar
and its agent for the registration of Series J Bonds. The books for such
registration shall be kept at the office of the registrar and when said
registrar shall make such registration of Series J Bonds, it shall promptly
inform the Corporation by mail of such action.
SECTION 6.
(a) The Corporation covenants and agrees to create and maintain a
sinking fund for the purpose of retiring the Series J Bonds (which sinking fund
shall be designated as the "SERIES J SINKING FUND") and for such purpose, to
deposit with the Trustee, or its successor in trust, for the redemption and
retirement of Series J Bonds, on or before fifteen (15) business days (each a
"SINKING FUND PAYMENT DATE") prior to January 1, in each year, commencing on
the day fifteen (15) business days prior to January 1, 2004, an amount of money
sufficient to redeem on the following January 1 (each such day being a
"REDEMPTION DAY"), Two Hundred Thousand Dollars ($200,000) of the principal
amount of Series J Bonds plus accrued interest thereon to the date of such
Sinking Fund Payment Date.
(b) In addition to the mandatory Series J Sinking Fund payments
provided for above, the Corporation shall have the noncumulative right from
time-to-time to make optional prepayments, at par, on any Sinking Fund Payment
Date after and including January 1, 2004 in an amount up to Two Hundred
Thousand Dollars ($200,000); PROVIDED, HOWEVER, that the total optional
prepayments made by the Corporation under this provision shall not exceed
$1,000,000 in the aggregate, and all such payments shall be applied to the last
maturing installment. Any optional prepayments made by the Corporation under
this provision shall be in addition to and shall not be applied as credits
against the required Series J Sinking Fund payments.
(c) The Trustee shall at any time when there shall be in the Series
J Sinking Fund an amount of money sufficient to redeem not less than One
Thousand Dollars ($1,000) in principal amount of the Series J Bonds, use and
apply the moneys in the Series J Sinking Fund for the purpose of redeeming
Series J Bonds on the next Redemption Date in the manner and to the extent
provided in Article IV of the Indenture.
(d) Series J Bonds shall be subject to purchase, redemption or
-21-
<PAGE>
retirement from the General Sinking Fund as provided in the Indenture.
SECTION 7. Anything elsewhere contained in this Eleventh
Supplemental Trust Indenture or in the Original Indenture as heretofore
modified, amended and supplemented to the contrary notwithstanding, none of the
terms and provisions of this Article I shall be in any manner modified or
altered without the consent of the holders of all Series J Bonds then
outstanding having been first received from the holders thereof, by their votes
at a meeting of Series J bondholders called by the Trustee on such notice as
the Trustee shall deem sufficient, or by an instrument or instruments in
writing signed by all such bondholders of Series J Bonds and filed with the
Trustee.
-22-
<PAGE>
ARTICLE II
MODIFICATION AND AMENDMENT OF INDENTURE
SECTION 1. Section 8 of Article I of the Original Indenture, as
heretofore modified, amended and supplemented, is hereby further modified and
amended to read as follows:
"SECTION 8. UPON RECEIPT OF EVIDENCE SATISFACTORY TO THE
TRUSTEE OF THE LOSS, THEFT, MUTILATION OR DESTRUCTION OF ANY BOND,
AND IN THE CASE OF ANY SUCH LOSS, THEFT OR DESTRUCTION, UPON DELIVERY
OF A BOND OF INDEMNITY IN SUCH FORM AND AMOUNT AS SHALL BE REASONABLY
SATISFACTORY TO THE TRUSTEE, OR IN THE EVENT OF SUCH MUTILATION, UPON
SURRENDER AND CANCELLATION OF THE BOND, THE CORPORATION SHALL
EXECUTE, AND UPON ITS REQUEST, THE TRUSTEE SHALL AUTHENTICATE AND
DELIVER TO THE HOLDER THEREOF, A NEW BOND, OF LIKE TENOR, IN LIEU OF
SUCH LOST, STOLEN, DESTROYED OR MUTILATED BOND. IF ANY HOLDER OF A
BOND, WHICH IS AN "INSTITUTIONAL HOLDER", IS THE OWNER OF ANY SUCH
LOST, STOLEN OR DESTROYED BOND, THEN THE AFFIDAVIT OF AN AUTHORIZED
OFFICER OF SUCH OWNER, SETTING FORTH THE FACT OF LOSS, THEFT OR
DESTRUCTION AND OF ITS OWNERSHIP OF THE BOND AT THE TIME OF SUCH
LOSS, THEFT OR DESTRUCTION SHALL BE ACCEPTED AS SATISFACTORY EVIDENCE
THEREOF AND NO FURTHER INDEMNITY SHALL BE REQUIRED AS A CONDITION TO
THE EXECUTION AND DELIVERY OF A NEW BOND OTHER THAN THE WRITTEN
AGREEMENT OF SUCH OWNER TO INDEMNIFY THE CORPORATION AND THE TRUSTEE.
THE HOLDER OF THE BOND SHALL BE RESPONSIBLE FOR THE REASONABLE COSTS
AND EXPENSES ASSOCIATED WITH THE AUTHENTICATION AND DELIVERY OF THE
NEW BOND PURSUANT TO THIS SECTION 8 OF ARTICLE I. FOR PURPOSES OF
THIS SECTION 8, "INSTITUTIONAL HOLDER" SHALL MEAN A BANK AS DEFINED
IN SECTION 3(a)(2) OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), WHETHER ACTING IN ITS INDIVIDUAL OR FIDUCIARY CAPACITY; AN
INSURANCE COMPANY AS DEFINED IN SECTION 2(13) OF THE ACT; AN
INVESTMENT COMPANY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF
1940 OR A BUSINESS DEVELOPMENT COMPANY AS DEFINED IN SECTION 2(a)
(48) OF THAT ACT; A SMALL BUSINESS INVESTMENT COMPANY LICENSED BY THE
SMALL BUSINESS ADMINISTRATION; OR AN EMPLOYEE BENEFIT PLAN, INCLUDING
AN INDIVIDUAL RETIREMENT ACCOUNT, WHICH IS SUBJECT TO THE PROVISIONS
OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, IF THE
INVESTMENT DECISION IS MADE BY A PLAN FIDUCIARY, AS DEFINED IN
SECTION 3(21) OF SUCH ACT, WHICH IS EITHER A BANK, INSURANCE COMPANY,
OR REGISTERED INVESTMENT ADVISER.
SECTION 2. Subdivision (a) of Section 16 of Article V of the
Original
-23-
<PAGE>
Indenture, as heretofore modified, amended and supplemented, is hereby
further modified and amended to read as follows:
"SECTION 16. (a) THE CORPORATION COVENANTS AND AGREES THAT IT
WILL NOT DECLARE OR PAY DIVIDENDS, INCLUDING DIVIDENDS IN THE FORM
AND AMOUNTS CONTEMPLATED BY SECTION 6(b)(ii) OF ARTICLE XV HEREOF
(OTHER THAN STOCK DIVIDENDS OR DIVIDENDS OF SHARES OF STOCK OF HYDRO-
METRIC SERVICE CORPORATION) ON, OR PURCHASE, REDEEM, OR OTHERWISE
ACQUIRE, SHARES OF ITS COMMON STOCK, EXCEPT OUT OF
(i) NET INCOME (AS HEREINAFTER DEFINED IN
SUBDIVISION (B) OF THIS SECTION 16) ACCRUED SUBSEQUENT TO
DECEMBER 31, 1991, PLUS
(ii) THREE MILLION DOLLARS ($3,000,000)."
SECTION 3. Section 18(a) of Article V of the Original Indenture, as
heretofore modified, amended and supplemented, is hereby further modified and
amended to read as follows:
"(a) PERMIT ANY SUBSIDIARY TO INCUR OR GUARANTEE ANY
INDEBTEDNESS, OTHER THAN (i) INCUR "CURRENT DEBT" IN THE ORDINARY
COURSE OF THE SUBSIDIARY'S BUSINESS, (ii) INCUR INDEBTEDNESS TO THE
CORPORATION OR (iii) INCUR INDEBTEDNESS PURSUANT TO A "DWR LOAN."
FOR PURPOSES OF THIS SUBDIVISION (a) OF THIS SECTION 18 OF ARTICLE V,
"CURRENT DEBT" SHALL MEAN ANY AND ALL INDEBTEDNESS HAVING A MATURITY
DATE OF LESS THAN ONE (1) YEAR FROM ITS CREATION, AND "DWR LOAN"
SHALL MEAN A CONTRACT WITH THE STATE OF CALIFORNIA DEPARTMENT OF
WATER RESOURCES (OR ANY SUCCESSOR ENTITY) FOR LOAN(S) UNDER THE
CALIFORNIA SAFE DRINKING WATER BOND LAW OF 1976, AS THE SAME MAY BE
AMENDED FROM TIME-TO-TIME"
SECTION 4. Section 1 of Article VIII of the Original Indenture, as
heretofore modified, amended and supplemented, is hereby further modified and
amended by adding at the end thereof a new paragraph (g) to read as follows:
"(g) ANY ACCELERATION OF THE MATURITY UPON DEFAULT OF ANY
"INDEBTEDNESS" OF THE CORPORATION OR ANY SUBSIDIARY OF THE
CORPORATION WHICH IS OUTSTANDING IN AN AGGREGATE PRINCIPAL AMOUNT OF
AT LEAST $500,000 FOR BORROWED MONEY SHALL OCCUR AND BE CONTINUING;
OR ANY FAILURE OF THE CORPORATION OR ANY OF ITS SUBSIDIARIES TO PAY
ANY PRINCIPAL OF,
-24-
<PAGE>
OR PREMIUM, IF ANY, AND ACCRUED INTEREST ON ANY SUCH INDEBTEDNESS WHEN
THE SAME BECOME DUE AND PAYABLE AT FINAL MATURITY OR OTHERWISE. FOR
PURPOSES HEREOF, "INDEBTEDNESS" SHALL MEAN LIABILITY FOR MONEY BORROWED
DIRECTLY BY THE CORPORATION OR A SUBSIDIARY, AS THE CASE MAY BE,
WITHOUT GIVING EFFECT TO ANY PRINCIPLES OF CONSOLIDATION, AND ALL
INDEBTEDNESS OF OTHERS WITH RESPECT TO WHICH THE CORPORATION OR A
SUBSIDIARY, AS THE CASE MAY BE, HAS BECOME LIABLE BY WAY OF A
GUARANTEE."
ARTICLE III
COVENANTS AND AGREEMENTS RELATING
TO
SERIES J BONDS
The Original Indenture, as heretofore modified, amended and
supplemented, is hereby further amended to add the following new Article XV
immediately following Article XIV thereof:
ARTICLE XV
COVENANTS AND AGREEMENTS RELATING
TO
SERIES J BONDS
SECTION 1. RIGHTS TO REQUIRE REPURCHASE.
(a) LEVERAGE.
(i) IF AT ANY TIME THE INDEBTEDNESS OF PARENT, CALCULATED AS OF
THE LAST DAY OF EACH FISCAL QUARTER OF PARENT, EXCEEDS 60% OF THE SUM
OF (A) SHAREHOLDERS' EQUITY OF PARENT PLUS (B) INDEBTEDNESS OF
PARENT, THEN THE BONDHOLDER SHALL HAVE THE RIGHT, AT THE BONDHOLDER'S
SOLE OPTION, TO REQUIRE THE CORPORATION TO PREPAY IN WHOLE THE
AGGREGATE OUTSTANDING PRINCIPAL AMOUNT OF THE BONDHOLDER'S SERIES J
BONDS, TOGETHER WITH INTEREST THEREON TO THE DATE ON WHICH SAID BONDS
ARE PAID IN FULL AND WITHOUT ANY PREMIUM.
(ii) PARENT AND THE CORPORATION SHALL PROMPTLY AT THE END OF
EACH FISCAL QUARTER OF PARENT JOINTLY CALCULATE (A) THE INDEBTEDNESS
OF PARENT AND (B) 60% OF THE SUM OF SHAREHOLDERS' EQUITY OF PARENT
PLUS INDEBTEDNESS OF PARENT FOR PURPOSES OF THIS PARAGRAPH (a) OF
THIS SECTION 1, AND SHALL WITHIN THIRTY (30) DAYS AFTER THE END OF
EACH FISCAL QUARTER DELIVER TO THE BONDHOLDER AND THE TRUSTEE A
WRITTEN REPORT DETAILING THE DETERMINATION OF THE FOREGOING ITEMS AND
THE CALCULATIONS WITH RESPECT THERETO.
-25-
<PAGE>
(b) NON-UTILITY LINES OF BUSINESS.
(i) IF AT ANY TIME (A) THE CONSOLIDATED NON-UTILITY ASSETS OF
PARENT, CALCULATED AS OF THE LAST DAY OF EACH FISCAL QUARTER OF
PARENT, EXCEED 30% OF THE ASSETS OF PARENT AND ITS SUBSIDIARIES,
INCLUDING THE CORPORATION (SUCH EVENT BEING HEREIN REFERRED TO AS A
"NON-UTILITY EXCESS") AND SUCH NON-UTILITY EXCESS CONTINUES FOR A
PERIOD OF EIGHT (8) CONSECUTIVE FISCAL QUARTERS OF PARENT (SUCH
PERIOD BEING HEREIN REFERRED TO AS A "NON-UTILITY EXCESS PERIOD") AND
(B) THE RONA DURING THE NON-UTILITY EXCESS PERIOD, CALCULATED AS OF
THE LAST DAY OF THE NON-UTILITY EXCESS PERIOD, IS LESS THAN THE ROA
FOR THE SAME PERIOD, THEN THE BONDHOLDER SHALL HAVE THE RIGHT, AT THE
BONDHOLDER'S SOLE OPTION, TO REQUIRE THE CORPORATION TO PREPAY IN
WHOLE 50% OF THE OUTSTANDING PRINCIPAL AMOUNT OF THE BONDHOLDER'S
SERIES J BONDS, TOGETHER WITH INTEREST THEREON TO THE DATE OF SUCH
PREPAYMENT OF SAID SERIES J BONDS AND WITHOUT ANY PREMIUM; PROVIDED,
FURTHER, THAT (C) IF THE NON-UTILITY EXCESS REFERRED TO IN CLAUSE (A)
ABOVE SHALL RE-OCCUR AT ANY TIME AND CONTINUE FOR A PERIOD OF AT
LEAST FOUR (4) ADDITIONAL CONSECUTIVE FISCAL QUARTERS OF PARENT (THE
"ADDITIONAL NON-UTILITY EXCESS PERIOD") AND (D) THE RONA DURING THE
ADDITIONAL NON-UTILITY EXCESS PERIOD AND THE FOUR (4) FISCAL QUARTERS
IMMEDIATELY PRECEDING THE ADDITIONAL NON-UTILITY EXCESS PERIOD,
CALCULATED AS OF THE LAST DAY OF THE ADDITIONAL NON-UTILITY EXCESS
PERIOD, IS LESS THAN THE ROA FOR THE SAME PERIOD, THEN THE BONDHOLDER
SHALL HAVE THE RIGHT, AT THE BONDHOLDER'S SOLE OPTION, TO REQUIRE THE
CORPORATION TO PREPAY IN WHOLE THE REMAINING 50% OF THE OUTSTANDING
PRINCIPAL AMOUNT OF THE BONDHOLDER'S SERIES J BONDS, TOGETHER WITH
INTEREST THEREON TO THE DATE OF SUCH PREPAYMENT AND WITHOUT ANY
PREMIUM.
(ii) PARENT AND THE CORPORATION SHALL PROMPTLY AT THE
END OF EACH FISCAL QUARTER OF PARENT JOINTLY CALCULATE THE
NON-UTILITY ASSET RATIO AND, IN THE EVENT OF THE EXISTENCE
OF A NON-UTILITY EXCESS, RONA AND ROA, FOR PURPOSES OF THIS
PARAGRAPH (b) OF THIS SECTION 1, AND SHALL WITHIN THIRTY
(30) DAYS AFTER THE END OF EACH FISCAL QUARTER DELIVER TO
THE BONDHOLDER AND THE TRUSTEE A WRITTEN REPORT DETAILING
THE DETERMINATION OF THE FOREGOING ITEMS AND THE
CALCULATIONS WITH RESPECT THERETO.
(c) BONDHOLDER'S ELECTION TO REQUIRE REPURCHASE. IN THE EVENT THAT,
PURSUANT TO SUBSECTION (a) OR (b) OF SECTION 1 OF THIS ARTICLE XV, THE
BONDHOLDER HAS THE RIGHT TO REQUIRE THE CORPORATION TO REPURCHASE SOME OR
ALL OF THE SERIES J
-26-
<PAGE>
BONDS AND THE BONDHOLDER DESIRES TO EXERCISE ANY SUCH RIGHT, THEN THE
BONDHOLDER SHALL PROVIDE THE TRUSTEE AND THE CORPORATION WITH WRITTEN
NOTICE OF SUCH ELECTION WITHIN SIXTY (60) DAYS OF THE BONDHOLDER'S
RECEIPT OF THE WRITTEN REPORT FROM THE CORPORATION (PURSUANT TO
SUBSECTION (a) OR (b) OF SECTION 1 OF THIS ARTICLE XV, AS APPROPRIATE)
UPON WHICH THE BONDHOLDER HAS BASED ITS RIGHT TO REQUIRE REPURCHASE.
SAID NOTICE SHALL SPECIFY THE PRINCIPAL AMOUNT OF THE SERIES J BONDS TO
BE REPURCHASED. THE CORPORATION SHALL PROMPTLY DEPOSIT WITH THE
TRUSTEE THE NECESSARY FUNDS TO REPURCHASE THE SERIES J BONDS (PRINCIPAL
PLUS ACCRUED INTEREST THEREON UNTIL THE "REPURCHASE DATE") DESIGNATED
IN SUCH NOTICE AS THOSE TO BE REPURCHASED WITH INSTRUCTIONS TO THE
TRUSTEE TO USE SUCH FUNDS FOR SUCH REPURCHASE. ANY SUCH SERIES J BONDS
SHALL BE REPURCHASED WITHIN TEN (10) DAYS (THE "REPURCHASE DATE") OF
RECEIPT BY THE TRUSTEE OF THE NECESSARY FUNDS TO REPURCHASE THE SAME.
FROM AND AFTER THE REPURCHASE DATE (UNLESS THE CORPORATION SHALL FAIL
TO DEPOSIT WITH THE TRUSTEE THE NECESSARY FUNDS TO REPURCHASE THE
SERIES J BONDS AS HEREIN PROVIDED), NO FURTHER INTEREST SHALL ACCRUE
UPON ANY OF SUCH SERIES J BONDS SO TO BE REPURCHASED AND, ANYTHING IN
SUCH SERIES J BONDS OR IN ANY COUPONS PERTAINING THERETO OR IN THE
INDENTURE TO THE CONTRARY NOTWITHSTANDING, ANY COUPONS FOR INTEREST
PERTAINING TO ANY SUCH COUPON BONDS AND MATURING AFTER SAID REPURCHASE
DATE SHALL BECOME AND BE NULL AND VOID. THE SUM DUE FOR PRINCIPAL AND
PREMIUM ON EACH SUCH SERIES J BOND TO BE REPURCHASED SHALL BE PAYABLE
TO THE BEARER OF SUCH BONDS UNLESS IT SHALL HAVE BEEN REGISTERED. IF
SAID SERIES J BONDS SHALL HAVE BEEN REGISTERED AS TO PRINCIPAL ONLY,
SUCH PAYMENT SHALL BE MADE TO THE HOLDERS OF SAID BONDS REGISTERED AS
TO PRINCIPAL, OR IF THE BOND SHALL BE A REGISTERED BOND THEN SUCH
PAYMENT SHALL BE MADE TO THE REGISTERED HOLDER OF SUCH REGISTERED BOND,
BUT IN NO CASE SHALL THE CORPORATION BE REQUIRED TO MAKE PAYMENT EXCEPT
UPON THE SURRENDER TO THE TRUSTEE OF SUCH SERIES J BONDS AND OF ALL
COUPONS, IF ANY, FOR INTEREST ON THE COUPON BONDS UNMATURED AS OF THE
REPURCHASE DATE. ANY ELECTION BY THE BONDHOLDER NOT TO EXERCISE ITS
RIGHT TO REQUIRE REPURCHASE HEREUNDER SHALL NOT BE DEEMED A CONTINUING
WAIVER OR A WAIVER OF ANY FUTURE RIGHT TO REQUIRE REPURCHASE PURSUANT
TO THE TERMS HEREOF.
(d) DEFINITIONS. FOR PURPOSES OF THIS SECTION 1 OF ARTICLE XV,
NOTWITHSTANDING ANY OTHER PROVISION IN THE ORIGINAL INDENTURE, AS
HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED, THE FOLLOWING TERMS
SHALL HAVE THE MEANINGS SET FORTH BELOW:
"ASSETS" SHALL MEAN THE AGGREGATE AMOUNT OF ALL ASSETS OF ANY
PERSON AS DETERMINED ON A CONSOLIDATED BASIS, IF APPLICABLE, IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
-27-
<PAGE>
"CONSOLIDATED NET EARNINGS", WITH RESPECT TO ANY PERSON AND FOR
ANY PERIOD SHALL MEAN THE CONSOLIDATED GROSS REVENUES OF SUCH PERSON
FOR SUCH PERIOD LESS ALL OPERATING AND NON-OPERATING EXPENSES OF SUCH
PERSON FOR SUCH PERIOD, INCLUDING ALL CHARGES OF A PROPER CHARACTER
(INCLUDING CURRENT AND DEFERRED TAXES ON INCOME, PROVISION FOR TAXES
ON UNREMITTED FOREIGN EARNINGS WHICH ARE INCLUDED IN GROSS REVENUES,
AND CURRENT ADDITIONS TO RESERVES, [BUT NOT INCLUDING IN GROSS
REVENUES ANY GAINS (NET OF EXPENSES AND TAXES APPLICABLE THERETO) OR
LOSSES RESULTING FROM THE SALE, CONVERSION OR OTHER DISPOSITION OF
CAPITAL ASSETS (I.E., ASSETS OTHER THAN CURRENT ASSETS), ANY GAINS OR
LOSSES RESULTING FROM THE WRITE UP OR WRITE DOWN OF ASSETS, AS THE
CASE MAY BE, ANY EQUITY OF SUCH PERSON IN UNREMITTED EARNINGS OF ANY
CORPORATION WHICH IS NOT A SUBSIDIARY, ANY EARNINGS OF ANY PERSON
ACQUIRED BY SUCH PERSON THROUGH PURCHASE, MERGER OR CONSOLIDATION OR
OTHERWISE FOR ANY YEAR PRIOR TO THE YEAR OF ACQUISITION, OR ANY
DEFERRED CREDIT REPRESENTING THE EXCESS OF EQUITY OF ANY SUBSIDIARY
AT THE DATE OF ACQUISITION OVER THE COST OF THE INVESTMENT IN SUCH
SUBSIDIARY]; ALL DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.
"CONSOLIDATED NON-UTILITY ASSETS" SHALL MEAN THE AGGREGATE
AMOUNT OF ALL ASSETS OF THE NON-UTILITY SUBSIDIARIES AS DETERMINED ON
A CONSOLIDATED BASIS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.
"DWR LOANS" SHALL MEAN CONTRACTS WITH THE STATE OF CALIFORNIA
DEPARTMENT OF WATER RESOURCES FOR LOANS UNDER THE CALIFORNIA SAFE
DRINKING WATER BOND LAW OF 1976.
"INDEBTEDNESS OF PARENT" SHALL MEAN LIABILITY OF PARENT FOR
MONEY BORROWED DIRECTLY BY PARENT, DETERMINED WITHOUT GIVING EFFECT
TO ANY PRINCIPLES OF CONSOLIDATION, AND ALL INDEBTEDNESS OF OTHERS
WITH RESPECT TO WHICH PARENT HAS BECOME LIABLE BY WAY OF A GUARANTEE.
"NON-UTILITY ASSET RATIO" SHALL MEAN, ON ANY DATE AS OF WHICH
THE AMOUNT THERETO IS TO BE DETERMINED, THE PRODUCT OF THE
CONSOLIDATED NON-UTILITY ASSETS DIVIDED BY THE ASSETS OF THE PARENT
AND ITS SUBSIDIARIES, INCLUDING THE CORPORATION."
"NON-UTILITY SUBSIDIARY" SHALL MEAN ANY DIRECT OR INDIRECT
SUBSIDIARY OF THE PARENT WHICH IS ENGAGED, DIRECTLY OR INDIRECTLY, IN
ANY LINE OR LINES OF BUSINESS OTHER THAN PERMITTED LINES OF BUSINESS.
-28-
<PAGE>
"PERMITTED LINES OF BUSINESS" SHALL MEAN THE WATER AND UTILITY
LINES OF BUSINESS IN WHICH THE CORPORATION IS ENGAGED ON THE DATE OF
THE ISSUANCE OF THE SERIES J BONDS.
"RONA" (RETURN ON NON-UTILITY ASSETS) SHALL MEAN THE PRODUCT OF
CONSOLIDATED NET EARNINGS OF THE NON-UTILITY SUBSIDIARIES DIVIDED BY
CONSOLIDATED NON-UTILITY ASSETS.
"ROA" (RETURN ON ASSETS) SHALL MEAN THE PRODUCT OF CONSOLIDATED
NET EARNINGS OF THE CORPORATION DIVIDED BY THE ASSETS OF THE
CORPORATION.
"SHAREHOLDERS' EQUITY" SHALL MEAN, ON ANY DATE AS OF WHICH THE
AMOUNT THEREOF IS TO BE DETERMINED, THE EXCESS OF (i) THE ASSETS OF
THE PARENT, AT SUCH DATE, OVER (ii) THE TOTAL LIABILITIES OF THE
PARENT, AT SUCH DATE, IN EACH CASE AS WOULD BE REFLECTED ON A BALANCE
SHEET PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.
SECTION 2. CORPORATE EXISTENCE. EXCEPT AS OTHERWISE PERMITTED
UNDER ARTICLE IX OF THE ORIGINAL INDENTURE, AS HERETOFORE AMENDED,
MODIFIED AND SUPPLEMENTED, THE CORPORATION WILL DO OR CAUSE TO BE DONE ALL
THINGS NECESSARY TO PRESERVE AND KEEP IN FULL FORCE AND EFFECT ITS
CORPORATE EXISTENCE AND THE CORPORATE OR OTHER EXISTENCE OF EACH OF ITS
SUBSIDIARIES IN ACCORDANCE WITH THE RESPECTIVE ORGANIZATIONAL DOCUMENTS OF
THE CORPORATION AND EACH SUBSIDIARY AND THE MATERIAL RIGHTS (CHARTER AND
STATUTORY), LICENSES AND FRANCHISES OF THE CORPORATION AND EACH
SUBSIDIARY; PROVIDED, HOWEVER, THAT THE CORPORATION SHALL NOT BE REQUIRED
TO PRESERVE, WITH RESPECT TO ITSELF, ANY SUCH RIGHT, LICENSE OR FRANCHISE,
AND WITH RESPECT TO ANY SUBSIDIARY, ANY SUCH CORPORATE EXISTENCE, RIGHT,
LICENSE OR FRANCHISE, IF IN THE JUDGMENT OF THE BOARD OF DIRECTORS OF THE
CORPORATION OR SUCH SUBSIDIARY, AS THE CASE MAY BE, (i) SUCH PRESERVATION
OR EXISTENCE IS NOT DESIRABLE IN THE CONDUCT OF BUSINESS OF THE
CORPORATION OR SUCH SUBSIDIARY AND (ii) THE LOSS OF SUCH RIGHT, LICENSE OR
FRANCHISE OR THE DISSOLUTION OF SUCH SUBSIDIARY IS NOT ADVERSE IN ANY
MATERIAL RESPECT TO THE BONDHOLDER.
SECTION 3. SEC REPORTS. AT ALL TIMES WHEN PARENT IS
REQUIRED TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC")
PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED (THE "EXCHANGE ACT"), THE PARENT (AT ITS OWN
EXPENSE) SHALL FILE WITH THE SEC AND SHALL DELIVER TO THE TRUSTEE
WITHIN FIVE DAYS AFTER IT FILES THEM WITH THE SEC COPIES OF THE
ANNUAL REPORTS AND OF THE INFORMATION, DOCUMENTS AND OTHER REPORTS
(OR COPIES OF SUCH PORTIONS OF ANY OF THE FOREGOING AS
-29-
<PAGE>
THE SEC MAY BY RULES AND REGULATIONS PRESCRIBE) TO BE FILED PURSUANT TO
SECTIONS 13 OR 15(d) OF THE EXCHANGE ACT. IF THE PARENT IS NOT SUBJECT
TO THE REQUIREMENTS OF SUCH SECTION 13 OR 15(d) OF THE EXCHANGE ACT,
THE CORPORATION (AT ITS OWN EXPENSE) SHALL DELIVER TO THE TRUSTEE,
WITHIN FIVE DAYS AFTER IT WOULD HAVE BEEN REQUIRED TO FILE SUCH
INFORMATION WITH THE SEC, FINANCIAL STATEMENTS, INCLUDING ANY NOTES
THERETO AND WITH RESPECT TO ANNUAL REPORTS, AN AUDITORS' REPORT BY AN
ACCOUNTING FIRM OF ESTABLISHED NATIONAL REPUTATION, AND A "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," BOTH COMPARABLE TO THAT WHICH THE CORPORATION WOULD HAVE
BEEN REQUIRED TO INCLUDE IN SUCH ANNUAL REPORTS, INFORMATION, DOCUMENTS
OR OTHER REPORTS IF THE CORPORATION WAS SUBJECT TO THE REQUIREMENTS OF
SUCH SECTION 13 OR 15(d) OF THE EXCHANGE ACT.
SECTION 4. CONFLICTING AGREEMENTS. THE CORPORATION WILL
NOT, AND WILL NOT PERMIT ANY SUBSIDIARY TO, ENTER INTO ANY AGREEMENT
OR INSTRUMENT THAT BY ITS TERMS EXPRESSLY (a) PROHIBITS THE
CORPORATION FROM OPTIONALLY OR MANDATORILY REDEEMING THE SERIES J
BONDS IN ACCORDANCE WITH THE ORIGINAL INDENTURE, AS HERETOFORE
AMENDED, MODIFIED AND SUPPLEMENTED, OR OTHERWISE IN ACCORDANCE WITH
THE TERMS OF THE SERIES J BONDS OR (b) REQUIRES THAT THE PROCEEDS
RECEIVED FROM THE SALE OF ANY COLLATERAL BE APPLIED TO REPAY, REDEEM
OR OTHERWISE RETIRE ANY INDEBTEDNESS OF ANY PERSON OTHER THAN THE
INDEBTEDNESS REPRESENTED BY THE SERIES J BONDS; PROVIDED, HOWEVER,
THAT THE PROVISIONS OF THIS SECTION 4 OF ARTICLE XV SHALL NOT APPLY
TO DWR LOANS AND SHALL NOT APPLY TO AGREEMENTS OR INSTRUMENTS ENTERED
INTO BY ANY SUBSIDIARY, WHICH SUBSIDIARY IS ACQUIRED OR OTHERWISE
BECOMES A SUBSIDIARY FOR THE PURPOSES OF THIS ARTICLE XV SUBSEQUENT
TO THE DATE OF THE ISSUANCE OF THE SERIES J BONDS AND WHICH AGREEMENT
OR INSTRUMENT IS IN EXISTENCE AS OF THE DATE SUCH SUBSIDIARY IS
ACQUIRED OR OTHERWISE BECOMES A SUBSIDIARY FOR THE PURPOSES OF THIS
ARTICLE XV.
SECTION 5. WAIVER OF STAY, EXTENSION OR USURY LAWS. THE
CORPORATION COVENANTS (TO THE EXTENT THAT IT MAY LAWFULLY DO SO) THAT
IT WILL NOT AT ANY TIME INSIST UPON, PLEAD OR IN ANY MANNER
WHATSOEVER CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF, ANY STAY OR
EXTENSION LAW OR ANY USURY LAW OR OTHER LAW, WHICH WOULD PROHIBIT OR
FORGIVE THE CORPORATION FROM PAYING ALL OR ANY PORTION OF THE
PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE SERIES J BONDS AS
CONTEMPLATED HEREIN, WHENEVER ENACTED, NOW OR AT ANY TIME HEREAFTER
IN FORCE, OR WHICH MAY AFFECT THE COVENANTS OR THE PERFORMANCE OF THE
ORIGINAL INDENTURE, AS HERETOFORE AMENDED, MODIFIED
-30-
<PAGE>
AND SUPPLEMENTED, AND (TO THE EXTENT THAT IT MAY LAWFULLY DO SO) THE
CORPORATION HEREBY EXPRESSLY WAIVES ALL BENEFIT OR ADVANTAGE OF ANY
SUCH LAW, AND COVENANTS THAT IT WILL NOT HINDER, DELAY OR IMPEDE THE
EXECUTION OF ANY POWER HEREIN GRANTED TO THE TRUSTEE, BUT WILL SUFFER
AND PERMIT THE EXECUTION OF EVERY SUCH POWER AS THOUGH NO SUCH LAW HAD
BEEN ENACTED.
SECTION 6. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) SUBJECT TO THE PROVISIONS OF PARAGRAPHS (b) AND (c) BELOW,
THE CORPORATION SHALL NOT, AND SHALL NOT PERMIT, CAUSE OR SUFFER ANY
SUBSIDIARY TO, MAKE ANY LOANS, ADVANCES OR INVESTMENTS TO OR IN ANY
AFFILIATE OF THE CORPORATION (OTHER THAN TO OR IN A SUBSIDIARY) OR
ENTER INTO OR MATERIALLY AMEND ANY AGREEMENT RELATING TO THE SALE,
PURCHASE, LEASE, TRANSFER OR OTHER DISPOSITION OF ANY ASSETS,
PROPERTY OR SERVICES FROM OR TO ANY AFFILIATE OF THE CORPORATION
(OTHER THAN FROM OR TO A SUBSIDIARY) UNLESS (i) SUCH TRANSACTION OR
SERIES OF TRANSACTIONS IS ON TERMS THAT ARE NO LESS FAVORABLE TO THE
CORPORATION OR SUCH SUBSIDIARY, AS THE CASE MAY BE, THAN WOULD BE
AVAILABLE IN A COMPARABLE TRANSACTION WITH AN UNRELATED THIRD PARTY,
(ii) SUCH TRANSACTION RELATES TO AND IS IN FURTHERANCE OF A THEN
EXISTING LINE OF BUSINESS OF THE CORPORATION OR SUCH SUBSIDIARY, AS
THE CASE MAY BE, OR IS IN THE ORDINARY COURSE OF BUSINESS AND (iii)
WITH RESPECT TO A SINGLE TRANSACTION INVOLVING AGGREGATE PAYMENTS IN
EXCESS OF TWENTY-FIVE PERCENT (25%) OF SHAREHOLDERS' EQUITY AS OF THE
DATE THE DETERMINATION IS TO BE MADE: (1) THE BOARD OF DIRECTORS
APPROVES SUCH TRANSACTION, AND (2) THE CORPORATION RECEIVES AN
OPINION OR REPORT FROM A NATIONALLY RECOGNIZED INVESTMENT BANKING
FIRM, VALUATION FIRM, ACCOUNTING FIRM OR REAL ESTATE APPRAISAL FIRM
(A "VALUATION FIRM") THAT SUCH TRANSACTION IS FAIR TO THE CORPORATION
OR SUCH SUBSIDIARY, AS THE CASE MAY BE, FROM A FINANCIAL POINT OF
VIEW. WITH RESPECT TO ANY TRANSACTION TO WHICH CLAUSE (iii) APPLIES,
THE BOARD OF DIRECTORS OF THE CORPORATION, IN ITS DISCRETION, SHALL
SELECT THE VALUATION FIRM, TAKING INTO ACCOUNT THE NATURE OF THE
TRANSACTION AND THE ASSETS, PROPERTY OR SERVICES INVOLVED.
(b) THE RESTRICTIONS SET FORTH IN PARAGRAPH (a) ABOVE SHALL NOT
APPLY TO PAYMENTS MADE OR OTHER ARRANGEMENTS CONTEMPLATED BY THE
FOLLOWING:
(i) A TRANSACTION OR SERIES OF RELATED TRANSACTIONS
INVOLVING AGGREGATE PAYMENTS LESS THAN $50,000;
(ii) DIVIDENDS PERMITTED PURSUANT TO ARTICLE V,
SECTION 16
-31-
<PAGE>
OF THE ORIGINAL INDENTURE, AS HERETOFORE AMENDED,
MODIFIED AND SUPPLEMENTED. DIVIDENDS SHALL INCLUDE, WITHOUT
LIMITATION, THE DIFFERENCE, IF ANY, BETWEEN: (1) THE AGGREGATE
PAYMENTS WHICH THE CORPORATION OR THE SUBSIDIARY, AS THE CASE
MAY BE, WOULD RECEIVE FROM AN UNRELATED THIRD PARTY IN A
COMPARABLE TRANSACTION (AS DETERMINED IN GOOD FAITH BY THE BOARD
OF DIRECTORS; PROVIDED, HOWEVER, THAT ANY TRANSACTION INVOLVING
AGGREGATE PAYMENTS IN EXCESS OF TWENTY-FIVE PERCENT (25%) OF
SHAREHOLDERS' EQUITY AS OF THE DATE THE DETERMINATION IS TO BE
MADE, THE DETERMINATION REQUIRED BY THIS CLAUSE (1) SHALL BE
MADE BY A VALUATION FIRM) AND (2) THE AGGREGATE PAYMENTS WHICH
THE CORPORATION OR THE SUBSIDIARY, AS THE CASE MAY BE, WILL
RECEIVE IN THE TRANSACTION WITH THE AFFILIATE; OR
(iii) THE PAYMENT IN RESPECT OF PENSION FUNDING
REQUIREMENTS RELATING TO CERTAIN NONCONTRIBUTORY DEFINED BENEFIT
RETIREMENT PLANS SPONSORED BY THE CORPORATION OR AN AFFILIATE IN
WHICH EMPLOYEES OR LEASED EMPLOYEES OF THE CORPORATION ARE THEN
ACTIVELY PARTICIPATING AND ACCRUING BENEFITS CONSISTENT WITH
PAST PRACTICE.
(c) THE RESTRICTIONS SET FORTH IN PARAGRAPH (a) ABOVE SHALL NOT
APPLY TO ANY TRANSACTIONS WITH AN AFFILIATE OF THE CORPORATION OR A
SUBSIDIARY, AS THE CASE MAY BE, IF, AND AT SUCH TIME AS, THE ASSETS
OF SAID AFFILIATE ARE SUBJECT TO THE LIEN OF THE ORIGINAL INDENTURE,
AS HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED.
(d) THE PROVISIONS OF THIS SECTION SHALL BE IN ADDITION TO AND
SHALL IN NO WAY SUPERSEDE OR MODIFY SECTIONS 2 AND 3 OF ARTICLE VII,
OR ANY OTHER PROVISIONS, OF THE ORIGINAL INDENTURE, AS HERETOFORE
AMENDED, MODIFIED AND SUPPLEMENTED.
SECTION 7. RESTRICTIONS ON CAPITAL STOCK AND SUBSIDIARY
DISTRIBUTIONS. THE CORPORATION SHALL NOT, AND SHALL NOT PERMIT ANY
SUBSIDIARY TO, DIRECTLY OR INDIRECTLY, CONTINGENTLY OR OTHERWISE,
ISSUE ANY CAPITAL STOCK (OTHER THAN TO THE CORPORATION OR TO WHOLLY-
OWNED SUBSIDIARY) OR, IN THE CASE OF ANY SUBSIDIARY, TO DECLARE OR
PAY DIVIDENDS OR DISTRIBUTIONS ON, OR PURCHASE, REDEEM OR OTHERWISE
ACQUIRE OR RETIRE FOR VALUE, ANY CAPITAL STOCK OF A SUBSIDIARY (OTHER
THAN CAPITAL STOCK OWNED BY THE CORPORATION OR BY A WHOLLY-OWNED
SUBSIDIARY).
-32-
<PAGE>
SECTION 8. SALE OF STOCK AND DEBT OF SUBSIDIARIES. THE
CORPORATION SHALL NOT SELL OR OTHERWISE DISPOSE OF, OR PART WITH
CONTROL OF, ANY SHARES OF CAPITAL STOCK OR DEBT OF ANY SUBSIDIARY
EXCEPT TO ANOTHER WHOLLY-OWNED SUBSIDIARY, AND EXCEPT THAT ALL SHARES
OF CAPITAL STOCK AND DEBT OF ANY SUBSIDIARY MAY BE SOLD AS AN
ENTIRETY PROVIDED THAT AT THE TIME OF SUCH SALE, SUCH SUBSIDIARY
SHALL NOT OWN, DIRECTLY OR INDIRECTLY, ANY SHARES OF CAPITAL STOCK OR
DEBT OF ANY OTHER SUBSIDIARY (UNLESS ALL OF THE SHARES OF CAPITAL
STOCK AND DEBT OF SUCH OTHER SUBSIDIARY ARE SIMULTANEOUSLY BEING SOLD
AND SUCH SALE OTHERWISE COMPLIES WITH THE TERMS OF THE ORIGINAL
INDENTURE, AS HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED), AND (b)
SUCH SALE WOULD BE PERMITTED BY THE TERMS OF THE ORIGINAL INDENTURE,
AS HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED; PROVIDED, HOWEVER,
THAT THE PROVISIONS OF THIS SECTION 8 OF ARTICLE XV SHALL NOT APPLY
TO DWR LOANS AND SHALL NOT APPLY TO AGREEMENTS OR INSTRUMENTS ENTERED
INTO BY ANY SUBSIDIARY, WHICH SUBSIDIARY IS ACQUIRED OR OTHERWISE
BECOMES A SUBSIDIARY FOR THE PURPOSES OF THIS ARTICLE XV SUBSEQUENT
TO THE DATE OF THE ISSUANCE OF THE SERIES J BONDS AND WHICH AGREEMENT
OR INSTRUMENT IS IN EXISTENCE AS OF THE DATE SUCH SUBSIDIARY IS
ACQUIRED OR OTHERWISE BECOMES A SUBSIDIARY FOR THE PURPOSES OF THIS
ARTICLE XV.
SECTION 9. INSPECTION. THE CORPORATION WILL PERMIT THE
TRUSTEE OR THE BONDHOLDER AND THEIR REPRESENTATIVES TO VISIT AND
INSPECT, UNDER THE CORPORATION'S GUIDANCE AND AT THE SOLE AND ASSUMED
RISK OF THE VISITING PERSON, ANY OF THE PROPERTIES OF THE CORPORATION
OR ANY OF ITS AFFILIATES, TO EXAMINE ALL THEIR BOOKS OF ACCOUNT,
RECORDS AND REPORTS AND PAPERS AND TO DISCUSS THEIR RESPECTIVE
AFFAIRS, FINANCES AND ACCOUNTS WITH THEIR RESPECTIVE OFFICERS AND
INDEPENDENT ACCOUNTANTS (AND BY THIS PROVISION THE CORPORATION
AUTHORIZES SUCH ACCOUNTANTS TO DISCUSS SUCH AFFAIRS, FINANCES AND
ACCOUNTS), ALL AT SUCH REASONABLE TIMES AND AS OFTEN AS MAY
REASONABLY BE REQUESTED, UPON REASONABLE PRIOR NOTICE THEREOF TO THE
CORPORATION. ALL COSTS AND EXPENSES OF THE CORPORATION'S OFFICERS,
ACCOUNTANTS AND COUNSEL INCURRED IN CONNECTION WITH ANY SUCH VISIT,
INSPECTION, EXAMINATION OR DISCUSSION SHALL BE BORNE BY THE
CORPORATION, AND ALL COSTS AND EXPENSES INCURRED BY THE TRUSTEE OR
THE BONDHOLDER OR THEIR RESPECTIVE REPRESENTATIVES IN CONNECTION WITH
ANY SUCH VISITS, INSPECTIONS, EXAMINATIONS AND DISCUSSIONS SHALL BE
BORNE BY THE TRUSTEE OR THE BONDHOLDER, AS THE CASE MAY BE; PROVIDED,
HOWEVER, ALL COSTS AND EXPENSES INCURRED BY THE TRUSTEE OR THE
BONDHOLDER OR THEIR RESPECTIVE REPRESENTATIVES IN CONNECTION WITH ANY
SUCH VISITS, INSPECTIONS, EXAMINATIONS AND DISCUSSIONS THAT TAKE
PLACE DURING THE EXISTENCE OF A DEFAULT OR AN EVENT OF DEFAULT, SHALL
BE BORNE BY THE CORPORATION AND NOT
-33-
<PAGE>
BY THE TRUSTEE OR THE BONDHOLDER OR THEIR RESPECTIVE REPRESENTATIVES.
SECTION 10. DEFINITIONS. FOR PURPOSES OF THIS ARTICLE XV,
NOTWITHSTANDING ANY OTHER PROVISION IN THE ORIGINAL INDENTURE, AS
HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED, THE FOLLOWING TERMS
SHALL HAVE THE MEANINGS SET FORTH BELOW:
"AFFILIATE" SHALL MEAN (i) ANY PERSON DIRECTLY OR INDIRECTLY
CONTROLLING, CONTROLLED BY OR UNDER DIRECT OR INDIRECT COMMON CONTROL
WITH, THE CORPORATION OR (ii) ANY OTHER PERSON THAT OWNS, DIRECTLY OR
INDIRECTLY, FIVE PERCENT OR MORE OF ANY CLASS OR SERIES OF SUCH
PERSON'S, OR THE PARENT OF SUCH PERSON'S, CAPITAL STOCK OR ANY
OFFICER, DIRECTOR OR AFFILIATE OF ANY SUCH PERSON OR, WITH RESPECT TO
ANY OTHER NATURAL PERSON, ANY PERSON HAVING A RELATIONSHIP WITH SUCH
OTHER PERSON BY BLOOD, MARRIAGE OR ADOPTION NOT MORE REMOTE THAN
FIRST COUSIN. A PERSON SHALL BE DEEMED TO CONTROL A CORPORATION IF
SUCH PERSON POSSESSES, DIRECTLY OR INDIRECTLY, THE POWER TO DIRECT OR
CAUSE THE DIRECTION OF THE MANAGEMENT AND POLICIES OF SUCH
CORPORATION, WHETHER THROUGH THE OWNERSHIP OF VOTING SECURITIES, BY
CONTRACT OR OTHERWISE.
"BONDHOLDER" SHALL MEAN ANY OF THE HOLDER(S) OF THE SERIES J
BONDS, FROM TIME-TO-TIME.
"INDEBTEDNESS" SHALL MEAN, WITH RESPECT TO ANY PERSON, LIABILITY
OF THAT PERSON FOR MONEY BORROWED DIRECTLY BY THAT PERSON, DETERMINED
WITHOUT GIVING EFFECT TO ANY PRINCIPLES OF CONSOLIDATION, AND ALL
INDEBTEDNESS OF OTHERS WITH RESPECT TO WHICH THAT PERSON HAS BECOME
LIABLE BY WAY OF A GUARANTEE.
"PARENT" SHALL MEAN DOMINGUEZ SERVICES CORPORATION, A CALIFORNIA
CORPORATION AND THE PARENT CORPORATION OF THE CORPORATION.
"PERSON" SHALL MEAN AND INCLUDE AN INDIVIDUAL, A PARTNERSHIP, A
JOINT VENTURE, CORPORATION, A TRUST, AN UNINCORPORATED ORGANIZATION
AND A GOVERNMENT OR ANY DEPARTMENT OR AGENCY THEREOF.
"PREMISES" SHALL MEAN ALL REAL PROPERTY OWNED, LEASED OR
OTHERWISE UTILIZED BY THE CORPORATION IN THE CONDUCT OF ITS BUSINESS
OR OTHERWISE.
"SHAREHOLDERS' EQUITY" SHALL MEAN, WITH RESPECT TO ANY PERSON,
ON ANY DATE AS OF WHICH THE AMOUNT THEREOF IS TO BE DETERMINED, THE
EXCESS
-34-
<PAGE>
OF (i) THE TOTAL ASSETS OF SUCH PERSON, AT SUCH DATE, OVER
(ii) THE TOTAL LIABILITIES OF SUCH PERSON, AT SUCH DATE, IN EACH CASE
AS WOULD BE REFLECTED ON A BALANCE SHEET PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
"SUBSIDIARY" SHALL MEAN ANY CORPORATION OR ENTITY UNDER THE LAWS
OF ANY JURISDICTION, THAT AT LEAST A MAJORITY OF THE TOTAL COMBINED
VOTING POWER OF ALL CLASSES OF VOTING STOCK OF WHICH SHALL, AT THE
TIME AS OF WHICH ANY DETERMINATION IS BEING MADE, BE OWNED BY THE
CORPORATION EITHER DIRECTLY OR THROUGH OTHER SUBSIDIARIES.
ARTICLE IV
PARTICULAR COVENANTS OF THE CORPORATION
AND MISCELLANEOUS
SECTION 1. The Corporation covenants and agrees that it will cause
this Eleventh Supplemental Trust Indenture to be duly and properly filed for
record and recorded in the Office of the County Recorder of Los Angeles County
and of each county in which it has or shall acquire real property, with all
convenient speed, so that due and legal notice of its terms will be given, and
that it will be properly and legally filed and recorded and indexed, and that
an appropriate financing statement, fixture filing and other statements will be
filed in such public offices as may be necessary to establish of record the
lien of the Indenture upon the properties described herein against all persons
whomsoever.
SECTION 2. This Eleventh Supplemental Trust Indenture shall be
construed in connection with and as part of the Original Indenture, as
heretofore modified, amended and supplemented, and whenever in said Original
Indenture as heretofore modified, amended and supplemented, the words "THIS
INDENTURE" are used, they shall be construed to mean and include this Eleventh
Supplemental Indenture in addition to all other supplemental indentures.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
signed by their Presidents or Vice Presidents, respectively, and to be attested
by their Secretaries or Assistant Secretaries, respectively, as of the day and
year first above written.
DOMINGUEZ WATER CORPORATION,
a California corporation
By:
------------------------------------
Title:
---------------------------------
-35-
<PAGE>
(Corporate Seal)
Attest:
- --------------------------------
Secretary
CHEMICAL TRUST COMPANY
OF CALIFORNIA, a California corporation
By:
------------------------------
Title:
---------------------------
(Corporate Seal)
Attest:
- ------------------------------------
Secretary
-36-
<PAGE>
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On this ____ day of December, 1992, before me, the undersigned, a
Notary Public in and for the State of California, personally appeared C. W.
Porter, known to me to be the President, and Rubye Rittgers, known to me to be
the Secretary, of DOMINGUEZ WATER CORPORATION, the corporation that executed
the within instrument, known to me to be the persons who executed the within
instrument on behalf of said corporation herein named, and acknowledged to me
that said corporation executed the within instrument pursuant to its bylaws or
a resolution of its Board of Directors.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
---------------------------------
Notary Public in and for
the State of California
My Commission Expires:
-----------
(Notarial Seal)
-37-
<PAGE>
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On this ____ day of December, 1992, before me, the undersigned, a
Notary Public in and for the State of California, personally appeared
_____________, known to me to be the Assistant Vice President and Assistant
Secretary of CHEMICAL TRUST COMPANY OF CALIFORNIA, the corporation that
executed the within instrument, known to me to be the person who executed the
within instrument on behalf of said corporation herein named, and acknowledged
to me that said corporation executed the within instrument pursuant to its
bylaws or a resolution of its Board of Directors.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
---------------------------------
Notary Public in and for
the State of California
My Commission Expires:
------------
(Notarial Seal)
-38-
<PAGE>
THIS INSTRUMENT CONSTITUTES, AMONG OTHER THINGS, AN AMENDMENT TO A SECURITY
AGREEMENT WHICH CREATED A SECURITY INTEREST IN PERSONAL PROPERTY
DOMINGUEZ WATER CORPORATION
TO
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
TRUSTEE
TWELFTH SUPPLEMENTAL TRUST INDENTURE
DATED AS OF DECEMBER 1, 1997
CREATING FIRST MORTGAGE SERIES K 6.94% BONDS DUE 2012
<PAGE>
THIS TWELFTH SUPPLEMENTAL TRUST INDENTURE (the "TWELFTH
SUPPLEMENTAL TRUST INDENTURE"), is made and entered into as of the 1st day of
December, 1997, by and between DOMINGUEZ WATER CORPORATION, a corporation
organized and existing under the laws of the State of California (hereinafter
called the "CORPORATION"), and CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION (hereinafter called the "TRUSTEE"), with reference to
the following recitals:
RECITALS
WHEREAS, by that certain Trust Indenture dated as of August 1, 1954
(hereinafter referred to as the "ORIGINAL INDENTURE") between the Corporation
and Title Insurance and Trust Company (the "FORMER TRUSTEE"), which was
recorded in the Office of the County Recorder of the County of Los Angeles,
State of California, on October 8, 1954, in Book 45791, Page 1, Official
Records of said County, the Corporation created its First Mortgage Series A
3-3/4% Bonds of 1954 (hereinafter called the "SERIES A BONDS"), and also
granted, bargained, sold, released, conveyed, confirmed, assigned,
transferred, pledged and set over unto the Former Trustee certain of its
properties, real and personal, in order, INTER ALIA, to secure the payment of
the principal of, and premium (if any) and interest on, all bonds at any time
issued and outstanding under the Original Indenture and all indentures
supplemental thereto (said Original Indenture and all indentures supplemental
thereto, including this Twelfth Supplemental Trust Indenture, being
hereinafter referred to collectively as the "INDENTURE"), all upon the terms,
conditions and trusts therein specified; and
WHEREAS, there was issued under the Original Indenture One Million
Dollars ($1,000,000) principal amount of Series A Bonds, none of which is
outstanding on the date hereof; and
WHEREAS, by that certain First Supplemental Trust Indenture dated
as of August 1, 1956 (hereinafter referred to as the "FIRST SUPPLEMENTAL
TRUST INDENTURE"), between the Corporation and the Former Trustee, which was
recorded in the Office of the County
<PAGE>
Recorder of the County of Los Angeles, State of California, on August 1,
1956, in Book 51901, Page 374, Official Records of said County, the
Corporation modified and amended certain provisions of the Original Indenture
and created its First Mortgage Series B 4% Bonds of 1976 (hereinafter called
the "SERIES B BONDS"), and there was issued under the First Supplemental
Trust Indenture Five Hundred Thousand Dollars ($500,000) principal amount of
Series B Bonds, none of which is outstanding on the date hereof; and
WHEREAS, by that certain Second Supplemental Trust Indenture dated
as of August 1, 1958 (hereinafter referred to as the "SECOND SUPPLEMENTAL
TRUST INDENTURE"), between the Corporation and the Former Trustee, which was
recorded in the Office of the County Recorder of the County of Los Angeles,
State of California, on August 7, 1958, in Book D-179, Page 936, Official
Records of said County, the Corporation modified and amended certain
provisions of the Original Indenture, as theretofore modified, amended and
supplemented, and created its First Mortgage Series C 5% Bonds of 1978
(hereinafter called the "SERIES C BONDS"), and there was issued under the
Second Supplemental Trust Indenture Seven Hundred Thousand Dollars ($700,000)
principal amount of Series C Bonds, none of which is outstanding on the date
hereof; and
WHEREAS, by that certain Third Supplemental Trust Indenture dated
as of May 1, 1961 (hereinafter referred to as the "THIRD SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was
recorded in the Office of the County Recorder of the County of Los Angeles,
State of California, on August 2, 1961, in Book S-942, Page 305, Official
Records of said County, the Corporation modified and amended certain
provisions of the Original Indenture, as theretofore modified, amended and
supplemented, and created its First Mortgage Series D, 5-1/2% Bonds of 1981
(hereinafter called the "SERIES D BONDS"), and there was issued under the
Third Supplemental Trust Indenture Seven Hundred and Fifty Thousand Dollars
($750,000) principal amount of Series D Bonds, none of which is outstanding
on the date hereof; and
WHEREAS, by that certain Fourth Supplemental Trust Indenture dated
as of
-2-
<PAGE>
March 1, 1962 (hereinafter referred to as the "FOURTH SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was
recorded in the Office of the County Recorder of the County of Los Angeles
State of California, on May 22, 1962, in Book D-1622, Page 826, Official
Records of said County, the Corporation modified and amended certain
provisions of the Original Indenture, as theretofore modified, amended and
supplemented; and
WHEREAS, by that certain Fifth Supplemental Trust Indenture dated
as of August 1, 1966 (hereinafter referred to as the "FIFTH SUPPLEMENTAL
TRUST INDENTURE"), between the Corporation and the Former Trustee, which was
recorded in the Office of the County Recorder of the County of Los Angeles,
State of California, on October 17, 1966, as Instrument No. 160, Official
Records of said County, the Corporation modified and amended certain
provisions of the Original Indenture, as theretofore modified, amended and
supplemented, and created its First Mortgage Series E 6-1/8% Bonds of 1986
(hereinafter called the "SERIES E BONDS"), and there was issued under the
Fifth Supplemental Trust Indenture One Million Two Hundred Thousand Dollars
($1,200,000) principal amount of Series E Bonds, none of which is outstanding
on the date hereof; and
WHEREAS, by that certain Sixth Supplemental Trust Indenture dated
as of May 1, 1972 (hereinafter referred to as the "SIXTH SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and the Former Trustee, which was
recorded in the Office of the County Recorder of the County of Los Angeles,
State of California, on July 21, 1972, as Instrument No. 856, Official
Records of said County, the Corporation modified and amended certain
provisions of the Original Indenture, as theretofore modified, amended and
supplemented, and created its First Mortgage Series F 8% Bonds of 1997
(hereinafter called the "SERIES F BONDS"), and there was issued under the
Sixth Supplemental Trust Indenture One Million Two Hundred Thousand Dollars
($1,200,000) principal amount of Series F Bonds, none of which is outstanding
at the date hereof; and
WHEREAS, by that certain Seventh Supplemental Trust Indenture dated
as of November 1, 1975 (hereinafter referred to as the "SEVENTH SUPPLEMENTAL
TRUST
-3-
<PAGE>
INDENTURE"), between the Corporation and the Former Trustee, which was
recorded in the Office of the County Recorder of the County of Los Angeles,
State of California, on December 2, 1975 as Instrument No. 2557, Official
Records of said County, the Corporation modified and amended certain
provisions of the Original Indenture, as theretofore modified, amended and
supplemented, and created its First Mortgage Series G 10% Bonds of 1995
(hereinafter called the "SERIES G BONDS"), and there was issued under the
Seventh Supplemental Trust Indenture One Million Six Hundred Thousand Dollars
($1,600,000) principal amount of Series G Bonds, none of which is outstanding
at the date hereof; and
WHEREAS, by that certain Eighth Supplemental Trust Indenture dated
as of August 1, 1978 (hereinafter referred to as the "EIGHTH SUPPLEMENTAL
TRUST INDENTURE"), between the Corporation and the Former Trustee, which was
recorded in the Office of the County Recorder of the County of Los Angeles,
State of California, on August 31, 1978 as Instrument No. 78-964382, Official
Records of said County, the Corporation modified and amended certain
provisions of the Original Indenture, as theretofore modified, amended and
supplemented, and created its First Mortgage Series H 9-3/8% Bonds of 1998
(hereinafter called the "SERIES H BONDS"), and there was issued under the
Eighth Supplemental Trust Indenture Two Million Dollars ($2,000,000)
principal amount of Series H Bonds, none of which is outstanding at the date
hereof; and
WHEREAS, by that certain Ninth Supplemental Trust Indenture dated
as of September 20, 1982 (hereinafter referred to as the "NINTH SUPPLEMENTAL
TRUST INDENTURE"), between the Corporation and the Former Trustee, which was
recorded in the Office of the County Recorder of the County of Los Angeles,
State of California, on September 30, 1982 as Instrument No. 82-988617,
Official Records of said County, the Corporation modified and amended certain
provisions of the Original Indenture, as theretofore modified, amended and
supplemented, and created its First Mortgage Series I 16-3/4% Bonds of 1992
(hereinafter called the "SERIES I BONDS"), and there was issued under the
Ninth Supplemental Trust Indenture One Million Five Hundred Thousand Dollars
($1,500,000) principal amount of Series I Bonds, none of which is outstanding
on
-4-
<PAGE>
the date hereof; and
WHEREAS, by that certain Tenth Supplemental Trust Indenture dated
as of March 9, 1990 (hereinafter referred to as the "TENTH SUPPLEMENTAL TRUST
INDENTURE"), between the Corporation and Manufacturers Hanover Trust Company
of California as trustee, which was recorded in the Office of the County
Recorder of the County of Los Angeles, State of California, on July 24, 1990
as Instrument No. 90-1281215, Official Records of said County, the
Corporation modified and amended certain provisions of the Original
Indenture, as theretofore modified, amended and supplemented; and
WHEREAS, by that certain Eleventh Supplemental Trust Indenture
dated as of December 8, 1992 (hereinafter referred to as the "ELEVENTH
SUPPLEMENTAL TRUST INDENTURE"), between the Corporation and Chemical Trust
Company of California, as trustee, which was recorded in the Office of the
County Recorder of the County of Los Angeles, State of California, on
December 9, 1992 as Instrument No. 92-2313010, Official Records of said
County, the Corporation modified and amended certain provisions of the
Original Indenture, as theretofore modified, amended and supplemented and
created its First Mortgage Series J 8.86% Bonds of 2023 (hereinafter called
the "SERIES J BONDS"), and there has been issued under the Eleventh
Supplemental Trust Indenture Four Million Dollars ($4,000,000) principal
amount of Series J Bonds, all of which is outstanding on the date hereof; and
WHEREAS, the Corporation desires to issue under the Indenture a new
series of Bonds (hereinafter called the "SERIES K BONDS") secured by the
Indenture, in the principal amount of Five Million Dollars ($5,000,000), to
be designated as "FIRST MORTGAGE SERIES K 6.94% BONDS DUE 2012," which bonds
are to mature on December 1, 2012, are to bear interest at the rate of six
and ninety-four/100 percent (6.94%) per annum, payable semiannually in
arrears on the first days of December and June of each year, commencing on
June 1, 1998, and are to be issued as registered bonds without coupons, of
the denomination of $100,000 or any integral multiple of $100,000 that the
Corporation may execute and deliver, in the manner set forth in Article I of
this Twelfth Supplemental
-5-
<PAGE>
Trust Indenture.
WHEREAS, Registered Series K Bonds, the assignment of registered
Series K Bonds, and the Trustee's Certification of Series K Bonds, are to be
in substantially the following forms, respectively, with necessary or
appropriate variations, omissions and insertions as permitted or required by
the Indenture:
1. FORM OF REGISTERED SERIES K BONDS. The registered Series K
Bonds are to be in substantially the following form, with necessary or
appropriate variations, omissions and insertions as permitted or required by
the Indenture:
SERIES K
NO. KR-__ $____________
DOMINGUEZ WATER CORPORATION
REGISTERED FIRST MORTGAGE SERIES K 6.94% BONDS
DUE DECEMBER 1, 2012
DOMINGUEZ WATER CORPORATION, A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF CALIFORNIA (HEREINAFTER CALLED THE
"CORPORATION"), FOR VALUE RECEIVED HEREBY PROMISES TO PAY TO
___________________________________, OR REGISTERED ASSIGNS, ______________
DOLLARS ($___________) IN LAWFUL MONEY OF THE UNITED STATES ON THE FIRST DAY
OF DECEMBER, 2012, TOGETHER WITH INTEREST THEREON FROM THE DATE HEREOF AT THE
RATE OF SIX AND 94/100 PERCENT (6.94%) PER ANNUM, PAYABLE SEMI-ANNUALLY IN
ARREARS IN LIKE LAWFUL MONEY ON THE FIRST DAY OF DECEMBER AND JUNE IN EACH
YEAR COMMENCING WITH JUNE, 1998. INTEREST WILL BE COMPUTED ON THE BASIS OF A
360-DAY YEAR OF TWELVE 30-DAY MONTHS.
THE PRINCIPAL HEREOF AND THE INTEREST ON THIS BOND ARE PAYABLE
AT THE PRINCIPAL OFFICE OF CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL
-6-
<PAGE>
ASSOCIATION (HEREINAFTER CALLED THE "TRUSTEE"), WHICH PRINCIPAL OFFICE
(HEREINAFTER CALLED THE "PRINCIPAL OFFICE OF THE TRUSTEE") SHALL MEAN THE
PRINCIPAL CORPORATE TRUST OFFICE OF THE TRUSTEE DESIGNATED IN WRITING TO THE
CORPORATION AND THE REGISTERED HOLDER OF THIS BOND, WHICH PRINCIPAL OFFICE IS
CURRENTLY LOCATED AT 101 CALIFORNIA STREET, SUITE 2725, SAN FRANCISCO,
CALIFORNIA 94111. INTEREST HEREON SHALL BE PAID ON DECEMBER 1 AND JUNE 1 OF
EACH YEAR TO THE REGISTERED HOLDER OF THIS BOND WHO SHALL BE SUCH AT THE
CLOSE OF BUSINESS ON THE PREVIOUS NOVEMBER 24 AND MAY 24, RESPECTIVELY.
NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS PARAGRAPH TO THE CONTRARY,
PAYMENTS OF INTEREST DUE ON THIS BOND AND PAYMENTS OF ALL OR ANY PORTION OF
THE PRINCIPAL DUE ON THIS BOND MAY BE PAID BY AGREEMENT OF THE CORPORATION
WITH THE REGISTERED HOLDER, BY CHECK MAILED OR WIRE TRANSFER TO THE
REGISTERED OWNER WITHOUT PRESENTATION OR SURRENDER THEREOF TO THE TRUSTEE,
PROVIDED THAT SUCH AGREEMENT COMPLIES WITH SECTION 1 OF ARTICLE IV OF THE
INDENTURE.
THIS BOND IS ONE OF A SERIES OF REGISTERED BONDS OF SERIES K
OF AN AUTHORIZED ISSUE OF BONDS OF THE CORPORATION, DESIGNATED AS ITS "FIRST
MORTGAGE SERIES K 6.94% BONDS DUE 2012" OR THE "SERIES K BONDS", ALL ISSUED
AND TO BE ISSUED UNDER AND EQUALLY AND RATABLY SECURED BY THAT CERTAIN
INDENTURE DATED AS OF AUGUST 1, 1954, AND INDENTURES SUPPLEMENTAL THERETO
INCLUDING THE TWELFTH SUPPLEMENTAL TRUST INDENTURE DATED AS OF DECEMBER 1,
1997 (WHICH INSTRUMENTS ARE HEREIN COLLECTIVELY CALLED THE "INDENTURE") UNDER
WHICH THE TRUSTEE IS ACTING AS TRUSTEE, TO WHICH INDENTURE REFERENCE IS MADE
FOR A DESCRIPTION OF THE PROPERTY MORTGAGED, CONVEYED IN TRUST OR PLEDGED,
THE NATURE AND EXTENT OF THE SECURITY, THE RIGHTS OF THE HOLDERS OF ALL BONDS
IN RESPECT THEREOF, AND THE TERMS AND CONDITIONS SUBJECT TO WHICH ALL BONDS
ISSUED THEREUNDER ARE SECURED AND UPON WHICH ADDITIONAL BONDS HAVING LIKE
SECURITY MAY BE ISSUED. THE SERIES K BONDS ARE LIMITED TO AN AGGREGATE
AUTHORIZED PRINCIPAL AMOUNT OF FIVE MILLION DOLLARS ($5,000,000).
THIS BOND IS TRANSFERABLE BY THE REGISTERED HOLDER HEREOF IN
PERSON OR BY ITS ATTORNEY DULY AUTHORIZED, AT THE PRINCIPAL OFFICE OF THE
TRUSTEE, OR ITS SUCCESSORS IN TRUST, UPON SURRENDER AND CANCELLATION OF THIS
BOND, AND THEREUPON ONE OR MORE NEW REGISTERED BONDS, WITHOUT COUPONS, OF THE
SAME SERIES AND FOR THE SAME AGGREGATE PRINCIPAL AMOUNT
-7-
<PAGE>
WILL BE ISSUED TO THE TRANSFEREE IN EXCHANGE THEREFOR AS PROVIDED IN SAID
INDENTURE AND ON PAYMENT, IF THE CORPORATION SHALL SO REQUIRE, OF THE CHARGE
THEREIN AUTHORIZED.
THE OUTSTANDING SERIES K BONDS ARE SUBJECT TO REDEMPTION PRIOR
TO MATURITY IN WHOLE OR IN PART AT THE OPTION OF THE CORPORATION AT ANY TIME
IN THE MANNER AND UPON THE NOTICE PROVIDED IN ARTICLE IV OF THE INDENTURE, AT
100% OF THEIR PRINCIPAL AMOUNT AND ACCRUED INTEREST TO THE DATE OF
REDEMPTION, TOGETHER WITH A PREMIUM ON SAID PRINCIPAL AMOUNT SO TO BE
REDEEMED. ANY OPTIONAL REDEMPTION OF THE SERIES K BONDS BY THE CORPORATION
PURSUANT TO THE FOREGOING PROVISIONS OF THIS PARAGRAPH SHALL BE DEEMED TO BE
APPLIED FIRST TO THE AMOUNT OF PRINCIPAL SCHEDULED TO BE PAID ON THE MATURITY
DATE AND THEN TO THE REMAINING SCHEDULED PRINCIPAL PAYMENTS IN INVERSE
CHRONOLOGICAL ORDER. THE PREMIUM, IF ANY, SHALL BE DETERMINED BY THE
CORPORATION AND CONFIRMED BY THE REGISTERED HOLDER OF THIS BOND AND PROVIDED
IN WRITING TO THE TRUSTEE AS FOLLOWS:
(1) IF THE SERIES K BONDS ARE REDEEMED PRIOR TO DECEMBER 1,
2009, THE PREMIUM PAYABLE SHALL BE THE MAKE-WHOLE AMOUNT DETERMINED AS OF
FIVE BUSINESS DAYS PRIOR TO THE DATE OF SUCH REDEMPTION. IN CALCULATING THE
MAKE-WHOLE AMOUNT, THE FOLLOWING TERMS SHALL HAVE THE MEANINGS SET FORTH:
"MAKE-WHOLE AMOUNT" SHALL MEAN IN CONNECTION WITH ANY
REDEMPTION OF THE SERIES K BONDS THE EXCESS, IF ANY, OF (a) THE
AGGREGATE PRESENT VALUE AS OF THE DATE OF SUCH REDEMPTION OF EACH
DOLLAR OF PRINCIPAL BEING REDEEMED (TAKING INTO ACCOUNT THE
APPLICATION OF SUCH REDEMPTION REQUIRED BY THE PRECEDING PROVISIONS
OF THIS PARAGRAPH) AND THE AMOUNT OF INTEREST (EXCLUSIVE OF
INTEREST ACCRUED TO THE DATE OF REDEMPTION) THAT WOULD HAVE BEEN
PAYABLE IN RESPECT OF SUCH DOLLAR IF SUCH REDEMPTION HAD NOT BEEN
MADE, DETERMINED BY DISCOUNTING SUCH AMOUNTS ON A SEMIANNUAL BASIS
AT THE REINVESTMENT RATE FROM THE RESPECTIVE DATES ON WHICH THEY
WOULD HAVE BEEN PAYABLE, OVER (b) 100% OF THE PRINCIPAL AMOUNT OF
THE OUTSTANDING SERIES K BONDS BEING REDEEMED. IF THE REINVESTMENT
RATE IS EQUAL TO OR HIGHER THAN 6.94%, THE MAKE-WHOLE AMOUNT SHALL
BE ZERO. FOR PURPOSES OF ANY DETERMINATION OF THE MAKE-WHOLE
AMOUNT:
-8-
<PAGE>
"REINVESTMENT RATE" SHALL MEAN THE SUM OF 0.25%, PLUS THE
ARITHMETIC MEAN OF THE YIELDS FOR THE TWO COLUMNS UNDER THE
HEADING "WEEK ENDING" PUBLISHED IN THE STATISTICAL RELEASE
UNDER THE CAPTION "TREASURY CONSTANT MATURITIES" FOR THE
MATURITY (ROUNDED TO THE NEAREST MONTH) CORRESPONDING TO THE
WEIGHTED AVERAGE LIFE TO MATURITY OF THE PRINCIPAL BEING
REDEEMED (TAKING INTO ACCOUNT THE REQUIRED APPLICATION OF SUCH
REDEMPTION). IF NO MATURITY EXACTLY CORRESPONDS TO SUCH
WEIGHTED AVERAGE LIFE TO MATURITY, YIELDS FOR THE TWO
PUBLISHED MATURITIES MOST CLOSELY CORRESPONDING TO SUCH
WEIGHTED AVERAGE LIFE TO MATURITY SHALL BE CALCULATED PURSUANT
TO THE IMMEDIATELY PRECEDING SENTENCE AND THE REINVESTMENT
RATE SHALL BE INTERPOLATED OR EXTRAPOLATED FROM SUCH YIELDS ON
A STRAIGHT-LINE BASIS, ROUNDING IN EACH OF SUCH RELEVANT
PERIODS TO THE NEAREST MONTH. FOR THE PURPOSES OF CALCULATING
THE REINVESTMENT RATE, THE MOST RECENT STATISTICAL RELEASE
PUBLISHED PRIOR TO THE DATE OF DETERMINATION OF THE MAKE-WHOLE
AMOUNT SHALL BE USED.
"STATISTICAL RELEASE" SHALL MEAN THE THEN MOST RECENTLY
PUBLISHED STATISTICAL RELEASE DESIGNATED "H.15(519)" OR ANY
SUCCESSOR PUBLICATION WHICH IS PUBLISHED WEEKLY BY THE FEDERAL
RESERVE SYSTEM AND WHICH ESTABLISHES YIELDS ON ACTIVELY TRADED
UNITED STATES GOVERNMENTAL SECURITIES ADJUSTED TO CONSTANT
MATURITIES OR, IF SUCH STATISTICAL RELEASE IS NOT PUBLISHED AT
THE TIME OF ANY DETERMINATION HEREUNDER, THEN SUCH OTHER
REASONABLY COMPARABLE INDEX WHICH SHALL BE DESIGNATED BY THE
HOLDERS OF 66-2/3% IN AGGREGATE PRINCIPAL AMOUNT OF THE
OUTSTANDING SERIES K BONDS.
"WEIGHTED AVERAGE LIFE TO MATURITY" OF THE PRINCIPAL
AMOUNT OF THE SERIES K BONDS BEING REDEEMED SHALL MEAN, AS OF
THE TIME OF ANY DETERMINATION THEREOF, THE NUMBER OF YEARS
OBTAINED BY DIVIDING THE THEN REMAINING DOLLAR-YEARS OF SUCH
PRINCIPAL BY THE AGGREGATE AMOUNT OF SUCH PRINCIPAL. THE TERM
"REMAINING DOLLAR-YEARS" OF SUCH PRINCIPAL SHALL MEAN
-9-
<PAGE>
THE AMOUNT OBTAINED BY (1) MULTIPLYING (i) THE REMAINDER OF
(A) THE AMOUNT OF PRINCIPAL THAT WOULD HAVE BECOME DUE ON EACH
SCHEDULED PAYMENT DATE IF SUCH REDEMPTION HAD NOT BEEN MADE,
LESS (B) THE AMOUNT OF PRINCIPAL ON THE SERIES K BONDS
SCHEDULED TO BECOME DUE ON SUCH DATE AFTER GIVING EFFECT TO
THE SUCH REDEMPTION AND THE REQUIRED APPLICATION THEREOF, BY
(ii) THE NUMBER OF YEARS (CALCULATED TO THE NEAREST
ONE-TWELFTH) WHICH WILL ELAPSE BETWEEN THE DATE OF
DETERMINATION AND SUCH SCHEDULED PAYMENT DATE, AND (2)
TOTALLING THE PRODUCTS OBTAINED IN (1).
(2) IF THE SERIES K BONDS ARE REDEEMED AT ANY TIME ON OR
AFTER DECEMBER 1, 2009, THE PREMIUM SHALL BE THE FOLLOWING PERCENTAGE, AS
APPLICABLE, OF THE PRINCIPAL AMOUNT SO REDEEMED:
1.487% IF REDEEMED ON OR AFTER DECEMBER 1, 2009 AND BEFORE DECEMBER 1, 2010;
0.992% IF REDEEMED ON OR AFTER DECEMBER 1, 2010 AND BEFORE DECEMBER 1, 2011;
AND
0.496% IF REDEEMED ON OR AFTER DECEMBER 1, 2011 AND BEFORE DECEMBER 1, 2012.
THE OUTSTANDING SERIES K BONDS ARE SUBJECT TO MANDATORY
REDEMPTION, AT PAR AND WITHOUT PREMIUM, THROUGH THE MANDATORY PAYMENTS MADE
BY THE CORPORATION TO THE SERIES K SINKING FUND AS PROVIDED IN SECTION 6 OF
ARTICLE I OF THE TWELFTH SUPPLEMENTAL TRUST INDENTURE. THE OUTSTANDING
SERIES K BONDS ARE ALSO SUBJECT TO REDEMPTION BY THE CORPORATION, AT PAR AND
WITHOUT PREMIUM, IN THE EVENT OF THE CONDEMNATION OF SUBSTANTIALLY ALL OF THE
CORPORATION'S PROPERTY IN AN EMINENT DOMAIN PROCEEDING, OR UPON A COURT
ORDERED SALE OF SUBSTANTIALLY ALL OF THE CORPORATION'S PROPERTY, THROUGH THE
PROCEEDS THEREOF OR OTHERWISE. FURTHER, THE SERIES K BONDS ARE SUBJECT TO
REDEMPTION BY THE CORPORATION, AT PAR AND WITHOUT PREMIUM, PURSUANT TO THE
SERIES K BONDHOLDER'S RIGHTS TO REQUIRE REPURCHASE SET FORTH IN ARTICLE III
OF THE TWELFTH SUPPLEMENTAL TRUST INDENTURE.
ALL SERIES K BONDS REDEEMED BY THE CORPORATION SHALL BE SO
REDEEMED ON
-10-
<PAGE>
A PRO-RATA BASIS CALCULATED WITH REFERENCE TO THE PRINCIPAL AMOUNT OF THE
HOLDINGS THEREOF.
ALL SERIES K BONDS REDEEMED AS PROVIDED IN THE INDENTURE SHALL
BE CANCELLED AND SHALL NOT BE REISSUED.
IN CASE AN EVENT OF DEFAULT (AS DEFINED IN THE INDENTURE)
SHALL OCCUR, THE PRINCIPAL OF THIS BOND IF IT BE THEN OUTSTANDING MAY BE
DECLARED AND BECOME DUE AND PAYABLE AS PROVIDED IN THE INDENTURE.
AS PROVIDED IN THE INDENTURE, THE RIGHTS AND OBLIGATIONS OF
THE CORPORATION AND THE HOLDERS OF ALL BONDS ISSUED THEREUNDER, INCLUDING
WITHOUT LIMITATION, THE SERIES K BONDS, MAY BE MODIFIED OR ALTERED FROM
TIME-TO-TIME BY ANY INDENTURE OR INDENTURES SUPPLEMENTAL THERETO, EXECUTED BY
THE CORPORATION AND THE TRUSTEE AND CONSENTED TO BY THE HOLDERS OF
THREE-FOURTHS IN PRINCIPAL AMOUNT OF ALL SUCH BONDS OUTSTANDING; PROVIDED,
HOWEVER, THAT NO SUCH MODIFICATION OR ALTERATION SHALL BE MADE WHICH WOULD
(i) REDUCE THE PRINCIPAL OF, OR PREMIUM ON, OR THE RATE OF INTEREST ON ANY
SUCH BONDS, (ii) POSTPONE THE MATURITY DATE FIXED IN THE INDENTURE OR IN ANY
SUCH BONDS OR COUPONS FOR THE PAYMENT OF THE PRINCIPAL OF OR ANY INSTALLMENT
OF INTEREST ON ANY SUCH BONDS, (iii) REDUCE THE PERCENTAGE OF THE PRINCIPAL
AMOUNTS OF SUCH BONDS, THE CONSENT OF THE HOLDERS OF WHICH IS REQUIRED FOR
THE AUTHORIZATION OF ANY SUCH CHANGE OR ADDITION, (iv) MODIFY WITHOUT THE
CONSENT OF THE TRUSTEE THE RIGHTS, DUTIES OR IMMUNITY OF THE TRUSTEE, (v)
CREATE OR PERMIT ANY DISCRIMINATION OR DISTINCTION BETWEEN ANY OF THE BONDS
OF ANY ONE SERIES ISSUED UNDER THE INDENTURE OR, EXCEPT AS THEREIN PROVIDED
OR PERMITTED, BETWEEN BONDS OF DIFFERENT SERIES ISSUED UNDER THE INDENTURE,
OR (vi) MODIFY OR ALTER ANY OF THE TERMS AND PROVISIONS OF THE INDENTURE
RELATING, AMONG OTHER THINGS, TO THE SINKING FUNDS OR REDEMPTION PROVISIONS
PROVIDED FOR A PARTICULAR SERIES OF BONDS.
THE OFFER AND SALE OF THE BONDS WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR UNDER ANY STATE
SECURITIES LAWS AND THE BONDS ARE BEING SOLD IN RELIANCE ON EXEMPTIONS
THEREFROM; THE BONDS MAY NOT BE RESOLD OR
-11-
<PAGE>
OTHERWISE TRANSFERRED (INCLUDING, WITHOUT LIMITATION, BY HYPOTHECATION)
UNLESS SUCH RESALE OR TRANSFER IS ITSELF REGISTERED OR EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT; THE BONDS MAY NOT BE RESOLD OR
OTHERWISE TRANSFERRED TO AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF THE
EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA) EXCEPT
AS MAY BE EXPRESSLY PROVIDED IN THE INDENTURE.
THIS BOND SHALL NOT BECOME VALID OR OBLIGATORY FOR ANY PURPOSE
UNLESS AND UNTIL THE TRUSTEE UNDER THE INDENTURE SHALL HAVE SIGNED THE
TRUSTEE'S CERTIFICATE ENDORSED HEREON.
-12-
<PAGE>
IN WITNESS WHEREOF, DOMINGUEZ WATER CORPORATION HAS CAUSED
THIS BOND TO BE EXECUTED IN ITS CORPORATE NAME BY ITS PRESIDENT OR VICE
PRESIDENT AND ITS CORPORATE SEAL TO BE HERETO AFFIXED, ATTESTED BY ITS
ASSISTANT SECRETARY OR ASSISTANT SECRETARY.
DATED:
-----------------------------
DOMINGUEZ WATER CORPORATION,
A CALIFORNIA CORPORATION
BY:
-------------------------------
BRIAN J. BRADY, PRESIDENT
ATTEST:
- --------------------------
- -------------------, SECRETARY
(CORPORATE SEAL)
-13-
<PAGE>
2. FORM OF ASSIGNMENT OF REGISTERED BOND. The assignment of
registered Series K Bond is to be in substantially the following form, with
necessary or appropriate variations, omissions and insertions as permitted or
required by the Indenture:
FOR VALUE RECEIVED, THE UNDERSIGNED REGISTERED HOLDER OF THE
WITHIN BOND HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO _____________________
THE WITHIN BOND AND HEREBY IRREVOCABLY AUTHORIZES THE TRUSTEE THEREIN NAMED,
OR ANY SUCCESSOR TRUSTEE, TO TRANSFER THE SAME ON THE REGISTRY BOOKS KEPT FOR
THAT PURPOSE.
DATED: , 19
------------------ ---
------------------------
IN THE PRESENCE OF:
------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS BOND IN EVERY PARTICULAR WITHOUT ALTERATION,
ENLARGEMENT OR ANY CHANGE WHATEVER.
-14-
<PAGE>
3. FORM OF TRUSTEE'S CERTIFICATION. The Trustee's Certificate
regarding Series K Bonds is to be in substantially the following form, with
necessary or appropriate variations, omissions and insertions as permitted or
required by the Indenture:
TRUSTEE'S CERTIFICATE
IT IS HEREBY CERTIFIED THAT THIS BOND IS ONE OF THE BONDS
MENTIONED AND DESCRIBED IN THE INDENTURE HEREIN REFERRED TO.
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
BY:
---------------------------------
(AUTHORIZED OFFICER)
WHEREAS, Section 1 of Article X of the Original Indenture provides,
in substance, that the Corporation and the Trustee may enter into indentures
supplemental thereto for the purposes, among others, of creating and setting
forth the particulars of any new series of bonds and providing the terms and
conditions of the issue of the bonds of any series not expressly provided for
in the Original Indenture; and
WHEREAS, the Board of Directors of the Corporation, at a meeting
thereof duly convened and held, has duly authorized the execution and
delivery of this Twelfth Supplemental Trust Indenture for the purpose of
creating said new series of bonds to be designated "FIRST MORTGAGE SERIES K
6.94% BONDS DUE 2012," and of providing the particulars, terms and conditions
thereof; and
WHEREAS, all things necessary to make said Five Million Dollars
($5,000,000) principal amount of Series K Bonds, when duly executed by the
Corporation and authenticated and delivered by the Trustee for issue, the
valid, binding and legal obligation of the Corporation entitled to the
benefits and security of the Indenture, and to
-15-
<PAGE>
make this Twelfth Supplemental Trust Indenture a valid, binding and legal
instrument in accordance with its terms, have been done and performed, and
the issue of the Series K Bonds, as herein provided, has been in all respects
duly authorized;
NOW, THEREFORE, BE IT RESOLVED THAT the Corporation, in
consideration of the premises, the mutual covenants herein contained and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, and in order to (i) declare the terms and conditions
upon and subject to which the Series K Bonds will and are to be issued and
secured, (ii) create the Series K Bonds, and (iii) further secure the payment
of the principal of, and premium (if any) and interest on, all bonds at any
time issued and outstanding under the Indenture according to their tenor and
effect, and the performance and observance by the Corporation of all the
covenants and conditions in the Indenture and in the bonds contained (and
without in any way limiting the generality or effect of the Original
Indenture or any of the supplemental indentures thereto, but confirming the
lien of the Indenture), has executed and delivered this Twelfth Supplemental
Trust Indenture and does hereby grant, bargain, sell, release, convey,
confirm, assign, transfer, pledge and set over unto the Trustee, its
successors and assigns forever, all and singular, the properties specifically
described and mentioned or enumerated in Exhibit A attached hereto, reference
to which Exhibit for a more specific description and enumeration of the
property therein described and enumerated is hereby made and which Exhibit is
incorporated herein with the same force and effect as if the same were here
set forth.
TO HAVE AND TO HOLD in trust, nevertheless, with power of
sale, for the equal and proportionate benefit and security of all holders of
the bonds and interest obligations issued hereunder and secured by the
Indenture, and to secure the payment of such bonds and interest thereon, when
payable, in accordance with the provisions of the Indenture, and under and
subject to the provisions and conditions and for the uses therein set forth.
IT IS HEREBY COVENANTED, DECLARED AND AGREED by and
-16-
<PAGE>
between the parties hereto that the Series K Bonds be issued, authenticated
and delivered upon and subject to the covenants and conditions as stated in
the Indenture, including this Twelfth Supplemental Trust Indenture; and the
Corporation, for itself and its successors, does hereby covenant and agree to
and with the Trustee and its successors in trust, for the benefit of those
who from time to time shall hold or own any Series K Bonds at any time issued
and outstanding under the Indenture, as follows:
ARTICLE I.
CREATION, AUTHENTICATION AND ISSUANCE AND PROVISIONS
RELATING TO FORM OF SERIES K BONDS
SECTION 1. There is hereby created, for issuance under the
Indenture, and to be secured thereby a series of bonds, to be designated
"FIRST MORTGAGE SERIES K 6.94% BONDS DUE 2012" (being the "SERIES K BONDS"
herein referred to) and to be in the aggregate principal amount of Five
Million Dollars ($5,000,000). No Series K Bonds in addition to said Five
Million Thousand Dollars ($5,000,000) principal amount shall be authenticated
and delivered by the Trustee except in exchange for, in lieu of, or in
substitution for, other Series K Bonds pursuant to Article I of the Indenture.
SECTION 2. The registered Series K Bonds shall bear interest
from the date of issuance at the rate of Six and 94/100 percent (6.94%) per
annum, payable semi-annually on the first day of December and June of each
year, commencing in June, 1998 and shall be substantially of the tenor and
purport recited above. The Series K Bonds shall mature December 1, 2012, and
shall be issued as registered bonds without coupons in denominations of
$100,000 and any integral multiple of $100,000 which the Corporation may
execute and deliver. The Series K Bonds shall be dated as provided in Section
2 of Article I of the Indenture.
SECTION 3. All Series K Bonds shall be numbered KR-1 and
upward.
SECTION 4. The Series K Bonds are subject to redemption prior
to maturity
-17-
<PAGE>
in whole or in part at the option of the Corporation at any time in the
manner and upon the notice provided in Article IV of the Indenture, at 100%
of the principal amount thereof and interest accrued thereon to the date
fixed for redemption, together with a premium on said principal amount so to
be redeemed. Any optional redemption of the Series K Bonds by the Corporation
pursuant to the foregoing provisions of this Section 4 shall be deemed to be
applied first to the amount of principal scheduled to be paid on the maturity
date and then to the remaining scheduled principal payments in inverse
chronological order. The premium, if any, shall be determined by the
Corporation and confirmed by the Bondholder and provided in writing to the
Trustee as follows:
(1) If the Series K Bonds are redeemed prior to December 1,
2009, the premium payable shall be the Make-Whole Amount determined as of
five business days prior to the date of such redemption. In calculating the
Make-Whole Amount, the following terms shall have the meanings set forth:
"Make-Whole Amount" shall mean in connection with any
redemption of the Series K Bonds the excess, if any, of (a) the
aggregate present value as of the date of such redemption of each
dollar of principal being redeemed (taking into account the
application of such redemption required by the preceding provisions
of this Section 4) and the amount of interest (exclusive of
interest accrued to the date of redemption) that would have been
payable in respect of such dollar if such redemption had not been
made, determined by discounting such amounts on a semiannual basis
at the Reinvestment Rate from the respective dates on which they
would have been payable, over (b) 100% of the principal amount of
the outstanding Series K Bonds being redeemed. If the Reinvestment
Rate is equal to or higher than 6.94%, the Make-Whole Amount shall
be zero. For purposes of any determination of the Make-Whole
Amount:
"Reinvestment Rate" shall mean the sum of 0.25%, plus the
arithmetic mean of the yields for the two columns under the
heading "Week Ending" published in the Statistical Release
under the caption "Treasury
-18-
<PAGE>
Constant Maturities" for the maturity (rounded to the nearest
month) corresponding to the Weighted Average Life to
Maturityof the principal being redeemed (taking into account
the required application of such redemption). If no maturity
exactly corresponds to such Weighted Average Life to
Maturity, yields for the two published maturities most
closely corresponding to such Weighted Average Life to
Maturity shall be calculated pursuant to the immediately
preceding sentence and the Reinvestment Rate shall be
interpolated or extrapolated from such yields on a
straight-line basis, rounding in each of such relevant
periods to the nearest month. For the purposes of calculating
the Reinvestment Rate, the most recent Statistical Release
published prior to the date of determination of the
Make-Whole Amount shall be used.
"Statistical Release" shall mean the then most recently
published statistical release designated "H.15(519)" or any
successor publication which is published weekly by the
Federal Reserve System and which establishes yields on
actively traded United States Governmental Securities
adjusted to constant maturities or, if such statistical
release is not published at the time of any determination
hereunder, then such other reasonably comparable index which
shall be designated by the holders of 66-2/3% in aggregate
principal amount of the outstanding Series K Bonds.
"Weighted Average Life to Maturity" of the principal
amount of the Series K Bonds being redeemed shall mean, as of
the time of any determination thereof, the number of years
obtained by dividing the then Remaining Dollar-Years of such
principal by the aggregate amount of such principal. The
term "Remaining Dollar-Years" of such principal shall mean
the amount obtained by (1) multiplying (i) the remainder of
(A) the amount of principal that would have become due on
each scheduled payment date if such redemption had not been
made, less (B) the amount of principal on the Series K Bonds
scheduled to become due on such date after giving
-19-
<PAGE>
effect to the such redemption and the required application
thereof, by (ii) the number of years (calculated to the
nearest one-twelfth) which will elapse between the date of
determination and such scheduled payment date, and (2)
totalling the products obtained in (1).
(2) If the Series K Bonds are redeemed at any time on or
after December 1, 2009, the premium shall be the following percentage, as
applicable of the principal amount so redeemed:
1.487% if redeemed on or after December 1, 2009 and before December
1, 2010;
0.992% if redeemed on or after December 1, 2010 and before December
1, 2011; and
0.496% if redeemed on or after December 1, 2011 and before December
1, 2012.
The outstanding Series K Bonds are subject to mandatory
redemption, at par and without premium, through the mandatory payments made
by the Corporation to the Series K Sinking Fund as provided in Section 6 of
Article I of this Twelfth Supplemental Trust Indenture. The outstanding
Series K Bonds are also subject to redemption by the Corporation, at par and
without premium, in the event of the condemnation of substantially all of the
Corporation's property in an eminent domain proceeding, or upon a court
ordered sale of substantially all of the Corporation's property, through the
proceeds thereof or otherwise. Further, the Series K Bonds are subject to
redemption by the Corporation, at par and without premium, pursuant to the
Series K Bondholder's Rights to Require Repurchase set forth in Article II of
the Twelfth Supplemental Trust Indenture.
All Series K Bonds redeemed by the Corporation shall be so
redeemed on a pro-rata basis calculated with reference to the principal
amount of the holdings thereof.
All Series K Bonds redeemed as provided herein shall be
cancelled and shall not be reissued.
-20-
<PAGE>
SECTION 5. The Corporation hereby appoints the Trustee as
registrar and its agent for the registration of Series K Bonds. The books
for such registration shall be kept at the office of the registrar and when
said registrar shall make such registration of Series K Bonds, it shall
promptly inform the Corporation by mail of such action.
SECTION 6.
(a) The Corporation covenants and agrees to create and
maintain a sinking fund for the purpose of retiring the Series K Bonds (which
sinking fund shall be designated as the "SERIES K SINKING FUND") and for such
purpose, to deposit with the Trustee, or its successor in trust, for the
redemption and retirement of Series K Bonds, on or before one (1) business
day (each a "SINKING FUND PAYMENT DATE") prior to December 1, in each year
through 2011, commencing on the first business day prior to December 1, 2006,
an amount of money sufficient to redeem on the following December 1 (each
such day being a "REDEMPTION DATE"), Seven Hundred Thousand Dollars
($700,000) of the principal amount of Series K Bonds plus accrued interest
thereon to the date of such Redemption Date, and one payment of Eight Hundred
Thousand Dollars ($800,000) on December 1, 2012, plus accrued interest
thereon to the date of such final Sinking fund payment.
(b) The Trustee shall at any time when there shall be in the
Series K Sinking Fund an amount of money sufficient to redeem not less than
One Hundred Thousand Dollars ($100,000) in principal amount of the Series K
Bonds, use and apply the moneys in the Series K Sinking Fund for the purpose
of redeeming Series K Bonds on the next Redemption Date in the manner and to
the extent provided in Article IV of the Indenture.
SECTION 7. Anything elsewhere contained in this Twelfth
Supplemental Trust Indenture or in the Original Indenture as heretofore
modified, amended and supplemented to the contrary notwithstanding, none of
the terms and provisions of this
-21-
<PAGE>
Article I shall be in any manner modified or altered without the consent of
the holders of all Series K Bonds then outstanding having been first received
from the holders thereof, by their votes at a meeting of Series K bondholders
called by the Trustee on such notice as the Trustee shall deem sufficient, or
by an instrument or instruments in writing signed by all such bondholders of
Series K Bonds and filed with the Trustee.
ARTICLE II
MODIFICATION AND AMENDMENT OF INDENTURE
SECTION 1. Subdivision (a) of Section 16 of Article V of the
Original Indenture, as heretofore modified, amended and supplemented, is
hereby further modified and amended to read as follows:
"SECTION 16. (a) THE CORPORATION COVENANTS AND AGREES THAT
IT WILL NOT DECLARE OR PAY DIVIDENDS, INCLUDING DIVIDENDS IN THE
FORM AND AMOUNTS CONTEMPLATED BY SECTION 6(b)(ii) OF ARTICLE XV
HEREOF ON, OR PURCHASE, REDEEM, OR OTHERWISE ACQUIRE, SHARES OF ITS
COMMON STOCK, EXCEPT OUT OF
(i) NET INCOME (AS HEREINAFTER DEFINED IN SUBDIVISION
(b) OF THIS SECTION 16) ACCRUED SUBSEQUENT TO DECEMBER 31,
1992, PLUS
(ii) THREE MILLION DOLLARS ($3,000,000)."
ARTICLE III
COVENANTS AND AGREEMENTS RELATING
TO
SERIES K BONDS
The Original Indenture, as heretofore modified, amended and
supplemented, is hereby further amended to add the following new Article XVI
-22-
<PAGE>
immediately following Article XV thereof:
ARTICLE XVI
COVENANTS AND AGREEMENTS RELATING
TO
SERIES K BONDS
SECTION 1. RIGHTS TO REQUIRE REPURCHASE.
(a) LEVERAGE.
(i) IF AT ANY TIME THE INDEBTEDNESS OF PARENT, CALCULATED AS
OF THE LAST DAY OF EACH FISCAL QUARTER OF PARENT, EXCEEDS 60%
OF THE SUM OF (A) SHAREHOLDERS' EQUITY OF PARENT PLUS (B)
INDEBTEDNESS OF PARENT, THEN THE BONDHOLDER SHALL HAVE THE
RIGHT, AT THE BONDHOLDER'S SOLE OPTION, TO REQUIRE THE
CORPORATION TO PREPAY IN WHOLE THE AGGREGATE OUTSTANDING
PRINCIPAL AMOUNT OF THE BONDHOLDER'S SERIES K BONDS, TOGETHER
WITH INTEREST THEREON TO THE DATE ON WHICH SAID BONDS ARE
PAID IN FULL AND WITHOUT ANY PREMIUM.
(ii) PARENT AND THE CORPORATION SHALL PROMPTLY AT THE END OF
EACH FISCAL QUARTER OF PARENT JOINTLY CALCULATE (A) THE
INDEBTEDNESS OF PARENT AND (B) 60% OF THE SUM OF
SHAREHOLDERS' EQUITY OF PARENT PLUS INDEBTEDNESS OF PARENT
FOR PURPOSES OF THIS PARAGRAPH (a) OF THIS SECTION 1, AND
SHALL WITHIN THIRTY (30) DAYS AFTER THE END OF EACH FISCAL
QUARTER DELIVER TO THE BONDHOLDER AND THE TRUSTEE A WRITTEN
REPORT DETAILING THE DETERMINATION OF THE FOREGOING ITEMS AND
THE CALCULATIONS WITH RESPECT THERETO.
(b) NON-UTILITY LINES OF BUSINESS.
(i) IF AT ANY TIME (A) THE CONSOLIDATED NON-UTILITY ASSETS
OF PARENT, CALCULATED AS OF THE LAST DAY OF EACH FISCAL
QUARTER OF PARENT, EXCEED 30% OF THE ASSETS OF PARENT AND ITS
SUBSIDIARIES, INCLUDING THE CORPORATION (SUCH
-23-
<PAGE>
EVENT BEING HEREIN REFERRED TO AS A "NON-UTILITY EXCESS") AND
SUCH NON-UTILITY EXCESS CONTINUES FOR A PERIOD OF EIGHT (8)
CONSECUTIVE FISCAL QUARTERS OF PARENT (SUCH PERIOD BEING
HEREIN REFERRED TO AS A "NON-UTILITY EXCESS PERIOD") AND (B)
THE RONA DURING THE NON-UTILITY EXCESS PERIOD, CALCULATED AS
OF THE LAST DAY OF THE NON-UTILITY EXCESS PERIOD, IS LESS
THAN THE ROA FOR THE SAME PERIOD, THEN THE BONDHOLDER SHALL
HAVE THE RIGHT, AT THE BONDHOLDER'S SOLE OPTION, TO REQUIRE
THE CORPORATION TO PREPAY IN WHOLE 50% OF THE OUTSTANDING
PRINCIPAL AMOUNT OF THE BONDHOLDER'S SERIES K BONDS, TOGETHER
WITH INTEREST THEREON TO THE DATE OF SUCH PREPAYMENT OF SAID
SERIES K BONDS AND WITHOUT ANY PREMIUM; PROVIDED, FURTHER,
THAT (C) IF THE NON-UTILITY EXCESS REFERRED TO IN CLAUSE (A)
ABOVE SHALL RE-OCCUR AT ANY TIME AND CONTINUE FOR A PERIOD OF
AT LEAST FOUR (4) ADDITIONAL CONSECUTIVE FISCAL QUARTERS OF
PARENT (THE "ADDITIONAL NON-UTILITY EXCESS PERIOD") AND (D)
THE RONA DURING THE ADDITIONAL NON-UTILITY EXCESS PERIOD AND
THE FOUR (4) FISCAL QUARTERS IMMEDIATELY PRECEDING THE
ADDITIONAL NON-UTILITY EXCESS PERIOD, CALCULATED AS OF THE
LAST DAY OF THE ADDITIONAL NON-UTILITY EXCESS PERIOD, IS LESS
THAN THE ROA FOR THE SAME PERIOD, THEN THE BONDHOLDER SHALL
HAVE THE RIGHT, AT THE BONDHOLDER'S SOLE OPTION, TO REQUIRE
THE CORPORATION TO PREPAY IN WHOLE THE REMAINING 50% OF THE
OUTSTANDING PRINCIPAL AMOUNT OF THE BONDHOLDER'S SERIES K
BONDS, TOGETHER WITH INTEREST THEREON TO THE DATE OF SUCH
PREPAYMENT AND WITHOUT ANY PREMIUM.
(ii) PARENT AND THE CORPORATION SHALL PROMPTLY AT THE END OF
EACH FISCAL QUARTER OF PARENT JOINTLY CALCULATE THE
NON-UTILITY ASSET RATIO AND, IN THE EVENT OF THE EXISTENCE OF
A NON-UTILITY EXCESS, RONA AND ROA, FOR PURPOSES OF THIS
PARAGRAPH (b) OF THIS SECTION 1, AND SHALL WITHIN THIRTY (30)
DAYS AFTER THE END OF EACH FISCAL QUARTER DELIVER TO THE
BONDHOLDER AND THE TRUSTEE A WRITTEN REPORT DETAILING THE
DETERMINATION OF THE FOREGOING ITEMS AND THE CALCULATIONS
WITH RESPECT THERETO.
(c) BONDHOLDER'S ELECTION TO REQUIRE REPURCHASE. IN THE
EVENT THAT,
-24-
<PAGE>
PURSUANT TO SUBSECTION (a) OR (b) OF SECTION 1 OF THIS ARTICLE XVI,
THE BONDHOLDER HAS THE RIGHT TO REQUIRE THE CORPORATION TO
REPURCHASE SOME OR ALL OF THE SERIES K BONDS AND THE BONDHOLDER
DESIRES TO EXERCISE ANY SUCH RIGHT, THEN THE BONDHOLDER SHALL
PROVIDE THE TRUSTEE AND THE CORPORATION WITH WRITTEN NOTICE OF SUCH
ELECTION WITHIN SIXTY (60) DAYS OF THE BONDHOLDER'S RECEIPT OF THE
WRITTEN REPORT FROM THE CORPORATION (PURSUANT TO SUBSECTION (a) OR
(b) OF SECTION 1 OF THIS ARTICLE XVI, AS APPROPRIATE) UPON WHICH
THE BONDHOLDER HAS BASED ITS RIGHT TO REQUIRE REPURCHASE. SAID
NOTICE SHALL SPECIFY THE PRINCIPAL AMOUNT OF THE SERIES K BONDS TO
BE REPURCHASED. THE CORPORATION SHALL PROMPTLY DEPOSIT WITH THE
TRUSTEE THE NECESSARY FUNDS TO REPURCHASE THE SERIES K BONDS
(PRINCIPAL PLUS ACCRUED INTEREST THEREON UNTIL THE "REPURCHASE
DATE") DESIGNATED IN SUCH NOTICE AS THOSE TO BE REPURCHASED WITH
INSTRUCTIONS TO THE TRUSTEE TO USE SUCH FUNDS FOR SUCH REPURCHASE.
ANY SUCH SERIES K BONDS SHALL BE REPURCHASED WITHIN TEN (10) DAYS
(THE "REPURCHASE DATE") OF RECEIPT BY THE TRUSTEE OF THE NECESSARY
FUNDS TO REPURCHASE THE SAME. FROM AND AFTER THE REPURCHASE DATE
(UNLESS THE CORPORATION SHALL FAIL TO DEPOSIT WITH THE TRUSTEE THE
NECESSARY FUNDS TO REPURCHASE THE SERIES K BONDS AS HEREIN
PROVIDED), NO FURTHER INTEREST SHALL ACCRUE UPON ANY OF SUCH SERIES
K BONDS SO TO BE REPURCHASED AND, ANYTHING IN SUCH SERIES K BONDS
OR IN THE INDENTURE TO THE CONTRARY NOTWITHSTANDING SHALL BECOME
AND BE NULL AND VOID. THE SUM DUE FOR PRINCIPAL AND PREMIUM ON
EACH SUCH SERIES K BOND TO BE REPURCHASED SHALL BE PAYABLE TO THE
REGISTERED HOLDER OF SUCH BONDS. IN NO CASE, HOWEVER, SHALL THE
CORPORATION BE REQUIRED TO MAKE PAYMENT EXCEPT UPON THE SURRENDER
TO THE TRUSTEE OF SUCH SERIES K BONDS. ANY ELECTION BY THE
BONDHOLDER NOT TO EXERCISE ITS RIGHT TO REQUIRE REPURCHASE
HEREUNDER SHALL NOT BE DEEMED A CONTINUING WAIVER OR A WAIVER OF
ANY FUTURE RIGHT TO REQUIRE REPURCHASE PURSUANT TO THE TERMS HEREOF.
(d) DEFINITIONS. FOR PURPOSES OF THIS SECTION 1 OF ARTICLE
XVI, NOTWITHSTANDING ANY OTHER PROVISION IN THE ORIGINAL INDENTURE,
AS HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED, THE FOLLOWING
TERMS SHALL HAVE THE MEANINGS SET FORTH BELOW:
-25-
<PAGE>
"ASSETS" SHALL MEAN THE AGGREGATE AMOUNT OF ALL ASSETS OF ANY
PERSON AS DETERMINED ON A CONSOLIDATED BASIS, IF APPLICABLE, IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
"CONSOLIDATED NET EARNINGS", WITH RESPECT TO ANY PERSON AND
FOR ANY PERIOD SHALL MEAN THE CONSOLIDATED GROSS REVENUES OF SUCH
PERSON FOR SUCH PERIOD LESS ALL OPERATING AND NON-OPERATING
EXPENSES OF SUCH PERSON FOR SUCH PERIOD, INCLUDING ALL CHARGES OF A
PROPER CHARACTER (INCLUDING CURRENT AND DEFERRED TAXES ON INCOME,
PROVISION FOR TAXES ON UNREMITTED FOREIGN EARNINGS WHICH ARE
INCLUDED IN GROSS REVENUES, AND CURRENT ADDITIONS TO RESERVES,
[BUT NOT INCLUDING IN GROSS REVENUES ANY GAINS (NET OF EXPENSES AND
TAXES APPLICABLE THERETO) OR LOSSES RESULTING FROM THE SALE,
CONVERSION OR OTHER DISPOSITION OF CAPITAL ASSETS (I.E., ASSETS
OTHER THAN CURRENT ASSETS), ANY GAINS OR LOSSES RESULTING FROM THE
WRITE UP OR WRITE DOWN OF ASSETS, AS THE CASE MAY BE, ANY EQUITY OF
SUCH PERSON IN UNREMITTED EARNINGS OF ANY CORPORATION WHICH IS NOT A
SUBSIDIARY, ANY EARNINGS OF ANY PERSON ACQUIRED BY SUCH PERSON THROUGH
PURCHASE, MERGER OR CONSOLIDATION OR OTHERWISE FOR ANY YEAR PRIOR TO
THE YEAR OF ACQUISITION, OR ANY DEFERRED CREDIT REPRESENTING THE
EXCESS OF EQUITY OF ANY SUBSIDIARY AT THE DATE OF ACQUISITION OVER
THE COST OF THE INVESTMENT IN SUCH SUBSIDIARY]; ALL DETERMINED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
"CONSOLIDATED NON-UTILITY ASSETS" SHALL MEAN THE AGGREGATE
AMOUNT OF ALL ASSETS OF THE NON-UTILITY SUBSIDIARIES AS DETERMINED
ON A CONSOLIDATED BASIS IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.
"DWR LOANS" SHALL MEAN CONTRACTS WITH THE STATE OF CALIFORNIA
DEPARTMENT OF WATER RESOURCES FOR LOANS UNDER THE CALIFORNIA SAFE
DRINKING WATER BOND LAW OF 1976.
-26-
<PAGE>
"INDEBTEDNESS OF PARENT" SHALL MEAN LIABILITY OF PARENT FOR
MONEY BORROWED DIRECTLY BY PARENT, DETERMINED WITHOUT GIVING EFFECT
TO ANY PRINCIPLES OF CONSOLIDATION, AND ALL INDEBTEDNESS OF OTHERS
WITH RESPECT TO WHICH PARENT HAS BECOME LIABLE BY WAY OF A
GUARANTEE.
"NON-UTILITY ASSET RATIO" SHALL MEAN, ON ANY DATE AS OF WHICH
THE AMOUNT THERETO IS TO BE DETERMINED, THE PRODUCT OF THE
CONSOLIDATED NON-UTILITY ASSETS DIVIDED BY THE ASSETS OF THE PARENT
AND ITS SUBSIDIARIES, INCLUDING THE CORPORATION."
"NON-UTILITY SUBSIDIARY" SHALL MEAN ANY DIRECT OR INDIRECT
SUBSIDIARY OF THE PARENT WHICH IS ENGAGED, DIRECTLY OR INDIRECTLY,
IN ANY LINE OR LINES OF BUSINESS OTHER THAN PERMITTED LINES OF
BUSINESS.
"PERMITTED LINES OF BUSINESS" SHALL MEAN THE WATER AND UTILITY
LINES OF BUSINESS IN WHICH THE CORPORATION IS ENGAGED ON THE DATE
OF THE ISSUANCE OF THE SERIES K BONDS.
"RONA" (RETURN ON NON-UTILITY ASSETS) SHALL MEAN THE PRODUCT
OF CONSOLIDATED NET EARNINGS OF THE NON-UTILITY SUBSIDIARIES
DIVIDED BY CONSOLIDATED NON-UTILITY ASSETS.
"ROA" (RETURN ON ASSETS) SHALL MEAN THE PRODUCT OF
CONSOLIDATED NET EARNINGS OF THE CORPORATION DIVIDED BY THE ASSETS
OF THE CORPORATION.
"SHAREHOLDERS' EQUITY" SHALL MEAN, ON ANY DATE AS OF WHICH THE
AMOUNT THEREOF IS TO BE DETERMINED, THE EXCESS OF (i) THE ASSETS OF
THE PARENT, AT SUCH DATE, OVER (ii) THE TOTAL LIABILITIES OF THE
PARENT, AT SUCH DATE, IN EACH CASE AS WOULD BE REFLECTED ON A BALANCE
SHEET PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.
-27-
<PAGE>
SECTION 2. CORPORATE EXISTENCE. EXCEPT AS OTHERWISE
PERMITTED UNDER ARTICLE IX OF THE ORIGINAL INDENTURE, AS HERETOFORE
AMENDED, MODIFIED AND SUPPLEMENTED, THE CORPORATION WILL DO OR
CAUSE TO BE DONE ALL THINGS NECESSARY TO PRESERVE AND KEEP IN FULL
FORCE AND EFFECT ITS CORPORATE EXISTENCE AND THE CORPORATE OR OTHER
EXISTENCE OF EACH OF ITS SUBSIDIARIES IN ACCORDANCE WITH THE
RESPECTIVE ORGANIZATIONAL DOCUMENTS OF THE CORPORATION AND EACH
SUBSIDIARY AND THE MATERIAL RIGHTS (CHARTER AND STATUTORY),
LICENSES AND FRANCHISES OF THE CORPORATION AND EACH SUBSIDIARY;
PROVIDED, HOWEVER, THAT THE CORPORATION SHALL NOT BE REQUIRED TO
PRESERVE, WITH RESPECT TO ITSELF, ANY SUCH RIGHT, LICENSE OR
FRANCHISE, AND WITH RESPECT TO ANY SUBSIDIARY, ANY SUCH CORPORATE
EXISTENCE, RIGHT, LICENSE OR FRANCHISE, IF IN THE JUDGMENT OF THE
BOARD OF DIRECTORS OF THE CORPORATION OR SUCH SUBSIDIARY, AS THE
CASE MAY BE, (i) SUCH PRESERVATION OR EXISTENCE IS NOT DESIRABLE IN
THE CONDUCT OF BUSINESS OF THE CORPORATION OR SUCH SUBSIDIARY AND
(ii) THE LOSS OF SUCH RIGHT, LICENSE OR FRANCHISE OR THE
DISSOLUTION OF SUCH SUBSIDIARY IS NOT ADVERSE IN ANY MATERIAL
RESPECT TO THE BONDHOLDER.
SECTION 3. SEC REPORTS. AT ALL TIMES WHEN PARENT IS
REQUIRED TO FILE INFORMATION AND DOCUMENTS WITH THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"),
PARENT SHALL FILE ALL SUCH REQUIRED INFORMATION AND DOCUMENTS WITH
THE SEC. IF THE PARENT IS NOT SUBJECT TO THE REQUIREMENTS OF SUCH
SECTION 13 OR 15(d) OF THE EXCHANGE ACT, THE CORPORATION (AT ITS
OWN EXPENSE) SHALL DELIVER TO THE TRUSTEE, WITHIN FIVE DAYS AFTER
IT WOULD HAVE BEEN REQUIRED TO FILE SUCH INFORMATION WITH THE SEC,
FINANCIAL STATEMENTS, INCLUDING ANY NOTES THERETO AND WITH RESPECT
TO ANNUAL REPORTS, AN AUDITORS' REPORT BY AN ACCOUNTING FIRM OF
ESTABLISHED NATIONAL REPUTATION, AND A "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," BOTH
COMPARABLE TO THAT WHICH THE CORPORATION WOULD HAVE BEEN REQUIRED
TO INCLUDE IN SUCH ANNUAL REPORTS, INFORMATION, DOCUMENTS OR OTHER
REPORTS IF THE CORPORATION WAS SUBJECT TO THE REQUIREMENTS OF
SECTION 13 OR 15(d) OF THE EXCHANGE ACT.
<PAGE>
SECTION 4. CONFLICTING AGREEMENTS. THE CORPORATION WILL NOT,
AND WILL NOT PERMIT ANY SUBSIDIARY TO, ENTER INTO ANY AGREEMENT OR
INSTRUMENT THAT BY ITS TERMS EXPRESSLY (a) PROHIBITS THE CORPORATION
FROM OPTIONALLY OR MANDATORILY REDEEMING THE SERIES K BONDS IN
ACCORDANCE WITH THE ORIGINAL INDENTURE, AS HERETOFORE AMENDED,
MODIFIED AND SUPPLEMENTED, OR OTHERWISE IN ACCORDANCE WITH THE TERMS
OF THE SERIES K BONDS OR (b) REQUIRES THAT THE PROCEEDS RECEIVED FROM
THE SALE OF ANY COLLATERAL BE APPLIED TO REPAY, REDEEM OR OTHERWISE
RETIRE ANY INDEBTEDNESS OF ANY PERSON OTHER THAN THE INDEBTEDNESS
REPRESENTED BY THE SERIES K BONDS; PROVIDED, HOWEVER, THAT THE
PROVISIONS OF THIS SECTION 4 OF ARTICLE XVI SHALL NOT APPLY TO DWR
LOANS AND SHALL NOT APPLY TO AGREEMENTS OR INSTRUMENTS ENTERED INTO BY
ANY SUBSIDIARY, WHICH SUBSIDIARY IS ACQUIRED OR OTHERWISE BECOMES A
SUBSIDIARY FOR THE PURPOSES OF THIS ARTICLE XVI SUBSEQUENT TO THE DATE
OF THE ISSUANCE OF THE SERIES K BONDS AND WHICH AGREEMENT OR
INSTRUMENT IS IN EXISTENCE AS OF THE DATE SUCH SUBSIDIARY IS ACQUIRED
OR OTHERWISE BECOMES A SUBSIDIARY FOR THE PURPOSES OF THIS ARTICLE
XVI.
SECTION 5. WAIVER OF STAY, EXTENSION OR USURY LAWS. THE
CORPORATION COVENANTS (TO THE EXTENT THAT IT MAY LAWFULLY DO SO) THAT
IT WILL NOT AT ANY TIME INSIST UPON, PLEAD OR IN ANY MANNER WHATSOEVER
CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF, ANY STAY OR EXTENSION LAW
OR ANY USURY LAW OR OTHER LAW, WHICH WOULD PROHIBIT OR FORGIVE THE
CORPORATION FROM PAYING ALL OR ANY PORTION OF THE PRINCIPAL OF,
PREMIUM, IF ANY, OR INTEREST ON THE SERIES K BONDS AS CONTEMPLATED
HEREIN, WHENEVER ENACTED, NOW OR AT ANY TIME HEREAFTER IN FORCE, OR
WHICH MAY AFFECT THE COVENANTS OR THE PERFORMANCE OF THE ORIGINAL
INDENTURE, AS HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED, AND (TO
THE EXTENT THAT IT MAY LAWFULLY DO SO) THE CORPORATION HEREBY
EXPRESSLY WAIVES ALL BENEFIT OR ADVANTAGE OF ANY SUCH LAW, AND
COVENANTS THAT IT WILL NOT HINDER, DELAY OR IMPEDE THE EXECUTION OF
ANY POWER HEREIN GRANTED TO THE TRUSTEE, BUT WILL SUFFER AND PERMIT
THE EXECUTION OF
-29-
<PAGE>
EVERY SUCH POWER AS THOUGH NO SUCH LAW HAD BEEN ENACTED.
SECTION 6. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) SUBJECT TO THE PROVISIONS OF PARAGRAPHS (b) AND (c) BELOW,
THE CORPORATION SHALL NOT, AND SHALL NOT PERMIT, CAUSE OR SUFFER ANY
SUBSIDIARY TO, MAKE ANY LOANS, ADVANCES OR INVESTMENTS TO OR IN ANY
AFFILIATE OF THE CORPORATION (OTHER THAN TO OR IN A SUBSIDIARY) OR
ENTER INTO OR MATERIALLY AMEND ANY AGREEMENT RELATING TO THE SALE,
PURCHASE, LEASE, TRANSFER OR OTHER DISPOSITION OF ANY ASSETS, PROPERTY
OR SERVICES FROM OR TO ANY AFFILIATE OF THE CORPORATION (OTHER THAN
FROM OR TO A SUBSIDIARY) UNLESS (i) SUCH TRANSACTION OR SERIES OF
TRANSACTIONS IS ON TERMS THAT ARE NO LESS FAVORABLE TO THE CORPORATION
OR SUCH SUBSIDIARY, AS THE CASE MAY BE, THAN WOULD BE AVAILABLE IN A
COMPARABLE TRANSACTION WITH AN UNRELATED THIRD PARTY, (ii) SUCH
TRANSACTION RELATES TO AND IS IN FURTHERANCE OF A THEN EXISTING LINE
OF BUSINESS OF THE CORPORATION OR SUCH SUBSIDIARY, AS THE CASE MAY BE,
OR IS IN THE ORDINARY COURSE OF BUSINESS AND (iii) WITH RESPECT TO A
SINGLE TRANSACTION INVOLVING AGGREGATE PAYMENTS IN EXCESS OF
TWENTY-FIVE PERCENT (25%) OF SHAREHOLDERS' EQUITY AS OF THE DATE THE
DETERMINATION IS TO BE MADE: (1) THE BOARD OF DIRECTORS APPROVES SUCH
TRANSACTION, AND (2) THE CORPORATION RECEIVES AN OPINION OR REPORT
FROM A NATIONALLY RECOGNIZED INVESTMENT BANKING FIRM, VALUATION FIRM,
ACCOUNTING FIRM OR REAL ESTATE APPRAISAL FIRM (A "VALUATION FIRM")
THAT SUCH TRANSACTION IS FAIR TO THE CORPORATION OR SUCH SUBSIDIARY,
AS THE CASE MAY BE, FROM A FINANCIAL POINT OF VIEW. WITH RESPECT TO
ANY TRANSACTION TO WHICH CLAUSE (iii) APPLIES, THE BOARD OF DIRECTORS
OF THE CORPORATION, IN ITS DISCRETION, SHALL SELECT THE VALUATION
FIRM, TAKING INTO ACCOUNT THE NATURE OF THE TRANSACTION AND THE
ASSETS, PROPERTY OR SERVICES INVOLVED.
(b) THE RESTRICTIONS SET FORTH IN PARAGRAPH (a) ABOVE SHALL NOT
APPLY TO PAYMENTS MADE OR OTHER ARRANGEMENTS CONTEMPLATED BY THE
-30-
<PAGE>
FOLLOWING:
(i) A TRANSACTION OR SERIES OF RELATED TRANSACTIONS
INVOLVING AGGREGATE PAYMENTS LESS THAN $50,000;
(ii) DIVIDENDS PERMITTED PURSUANT TO ARTICLE V, SECTION 16
OF THE ORIGINAL INDENTURE, AS HERETOFORE AMENDED, MODIFIED AND
SUPPLEMENTED. DIVIDENDS SHALL INCLUDE, WITHOUT LIMITATION, THE
DIFFERENCE, IF ANY, BETWEEN: (1) THE AGGREGATE PAYMENTS WHICH
THE CORPORATION OR THE SUBSIDIARY, AS THE CASE MAY BE, WOULD
RECEIVE FROM AN UNRELATED THIRD PARTY IN A COMPARABLE TRANSACTION
(AS DETERMINED IN GOOD FAITH BY THE BOARD OF DIRECTORS; PROVIDED,
HOWEVER, THAT ANY TRANSACTION INVOLVING AGGREGATE PAYMENTS IN
EXCESS OF TWENTY-FIVE PERCENT (25%) OF SHAREHOLDERS' EQUITY AS OF
THE DATE THE DETERMINATION IS TO BE MADE, THE DETERMINATION
REQUIRED BY THIS CLAUSE (1) SHALL BE MADE BY A VALUATION FIRM)
AND (2) THE AGGREGATE PAYMENTS WHICH THE CORPORATION OR THE
SUBSIDIARY, AS THE CASE MAY BE, WILL RECEIVE IN THE TRANSACTION
WITH THE AFFILIATE; OR
(iii) THE PAYMENT IN RESPECT OF PENSION FUNDING
REQUIREMENTS RELATING TO CERTAIN NONCONTRIBUTORY DEFINED BENEFIT
RETIREMENT PLANS SPONSORED BY THE CORPORATION OR AN AFFILIATE IN
WHICH EMPLOYEES OR LEASED EMPLOYEES OF THE CORPORATION ARE THEN
ACTIVELY PARTICIPATING AND ACCRUING BENEFITS CONSISTENT WITH PAST
PRACTICE.
(c) THE RESTRICTIONS SET FORTH IN PARAGRAPH (a) ABOVE SHALL NOT
APPLY TO ANY TRANSACTIONS WITH AN AFFILIATE OF THE CORPORATION OR A
SUBSIDIARY, AS THE CASE MAY BE, IF, AND AT SUCH TIME AS, THE ASSETS OF
SAID AFFILIATE ARE SUBJECT TO THE LIEN OF THE ORIGINAL INDENTURE, AS
HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED.
-31-
<PAGE>
(d) THE PROVISIONS OF THIS SECTION SHALL BE IN ADDITION TO AND
SHALL IN NO WAY SUPERSEDE OR MODIFY SECTIONS 2 AND 3 OF ARTICLE VII,
OR ANY OTHER PROVISIONS, OF THE ORIGINAL INDENTURE, AS HERETOFORE
AMENDED, MODIFIED AND SUPPLEMENTED.
SECTION 7. RESTRICTIONS ON CAPITAL STOCK AND SUBSIDIARY
DISTRIBUTIONS. THE CORPORATION SHALL NOT, AND SHALL NOT PERMIT ANY
SUBSIDIARY TO, DIRECTLY OR INDIRECTLY, CONTINGENTLY OR OTHERWISE,
ISSUE ANY CAPITAL STOCK (OTHER THAN TO THE CORPORATION OR TO
WHOLLY-OWNED SUBSIDIARY) OR, IN THE CASE OF ANY SUBSIDIARY, TO DECLARE
OR PAY DIVIDENDS OR DISTRIBUTIONS ON, OR PURCHASE, REDEEM OR OTHERWISE
ACQUIRE OR RETIRE FOR VALUE, ANY CAPITAL STOCK OF A SUBSIDIARY (OTHER
THAN CAPITAL STOCK OWNED BY THE CORPORATION OR BY A WHOLLY-OWNED
SUBSIDIARY).
SECTION 8. SALE OF STOCK AND DEBT OF SUBSIDIARIES. THE
CORPORATION SHALL NOT SELL OR OTHERWISE DISPOSE OF, OR PART WITH
CONTROL OF, ANY SHARES OF CAPITAL STOCK OR DEBT OF ANY SUBSIDIARY
EXCEPT TO ANOTHER WHOLLY-OWNED SUBSIDIARY, AND EXCEPT THAT ALL SHARES
OF CAPITAL STOCK AND DEBT OF ANY SUBSIDIARY MAY BE SOLD AS AN ENTIRETY
PROVIDED THAT AT THE TIME OF SUCH SALE, SUCH SUBSIDIARY SHALL NOT OWN,
DIRECTLY OR INDIRECTLY, ANY SHARES OF CAPITAL STOCK OR DEBT OF ANY
OTHER SUBSIDIARY (UNLESS ALL OF THE SHARES OF CAPITAL STOCK AND DEBT
OF SUCH OTHER SUBSIDIARY ARE SIMULTANEOUSLY BEING SOLD AND SUCH SALE
OTHERWISE COMPLIES WITH THE TERMS OF THE ORIGINAL INDENTURE, AS
HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED), AND (b) SUCH SALE
WOULD BE PERMITTED BY THE TERMS OF THE ORIGINAL INDENTURE, AS
HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED; PROVIDED, HOWEVER, THAT
THE PROVISIONS OF THIS SECTION 8 OF ARTICLE XVI SHALL NOT APPLY TO DWR
LOANS AND SHALL NOT APPLY TO AGREEMENTS OR INSTRUMENTS ENTERED INTO BY
ANY SUBSIDIARY, WHICH SUBSIDIARY IS ACQUIRED OR OTHERWISE BECOMES A
SUBSIDIARY FOR THE PURPOSES OF THIS ARTICLE XVI SUBSEQUENT TO THE DATE
OF THE
-32-
<PAGE>
ISSUANCE OF THE SERIES K BONDS AND WHICH AGREEMENT OR INSTRUMENT IS IN
EXISTENCE AS OF THE DATE SUCH SUBSIDIARY IS ACQUIRED OR OTHERWISE
BECOMES A SUBSIDIARY FOR THE PURPOSES OF THIS ARTICLE XVI.
SECTION 9. INSPECTION. THE CORPORATION WILL PERMIT THE
TRUSTEE OR THE BONDHOLDER AND THEIR REPRESENTATIVES TO VISIT AND
INSPECT, UNDER THE CORPORATION'S GUIDANCE AND AT THE SOLE AND ASSUMED
RISK OF THE VISITING PERSON, ANY OF THE PROPERTIES OF THE CORPORATION
OR ANY OF ITS AFFILIATES, TO EXAMINE ALL THEIR BOOKS OF ACCOUNT,
RECORDS AND REPORTS AND PAPERS AND TO DISCUSS THEIR RESPECTIVE
AFFAIRS, FINANCES AND ACCOUNTS WITH THEIR RESPECTIVE OFFICERS AND
INDEPENDENT ACCOUNTANTS (AND BY THIS PROVISION THE CORPORATION
AUTHORIZES SUCH ACCOUNTANTS TO DISCUSS SUCH AFFAIRS, FINANCES AND
ACCOUNTS), ALL AT SUCH REASONABLE TIMES AND AS OFTEN AS MAY REASONABLY
BE REQUESTED, UPON REASONABLE PRIOR NOTICE THEREOF TO THE CORPORATION.
ALL COSTS AND EXPENSES OF THE CORPORATION'S OFFICERS, ACCOUNTANTS AND
COUNSEL INCURRED IN CONNECTION WITH ANY SUCH VISIT, INSPECTION,
EXAMINATION OR DISCUSSION SHALL BE BORNE BY THE CORPORATION, AND ALL
COSTS AND EXPENSES INCURRED BY THE TRUSTEE OR THE BONDHOLDER OR THEIR
RESPECTIVE REPRESENTATIVES IN CONNECTION WITH ANY SUCH VISITS,
INSPECTIONS, EXAMINATIONS AND DISCUSSIONS SHALL BE BORNE BY THE
TRUSTEE OR THE BONDHOLDER, AS THE CASE MAY BE; PROVIDED, HOWEVER, ALL
COSTS AND EXPENSES INCURRED BY THE TRUSTEE OR THE BONDHOLDER OR THEIR
RESPECTIVE REPRESENTATIVES IN CONNECTION WITH ANY SUCH VISITS,
INSPECTIONS, EXAMINATIONS AND DISCUSSIONS THAT TAKE PLACE DURING THE
EXISTENCE OF A DEFAULT OR AN EVENT OF DEFAULT, SHALL BE BORNE BY THE
CORPORATION AND NOT BY THE TRUSTEE OR THE BONDHOLDER OR THEIR
RESPECTIVE REPRESENTATIVES.
SECTION 10. DEFINITIONS. FOR PURPOSES OF THIS ARTICLE XVI,
NOTWITHSTANDING ANY OTHER PROVISION IN THE ORIGINAL INDENTURE, AS
HERETOFORE AMENDED, MODIFIED AND SUPPLEMENTED, THE FOLLOWING TERMS
SHALL HAVE THE MEANINGS SET FORTH BELOW:
-33-
<PAGE>
"AFFILIATE" SHALL MEAN (i) ANY PERSON DIRECTLY OR INDIRECTLY
CONTROLLING, CONTROLLED BY OR UNDER DIRECT OR INDIRECT COMMON CONTROL
WITH, THE CORPORATION OR (ii) ANY OTHER PERSON THAT OWNS, DIRECTLY OR
INDIRECTLY, FIVE PERCENT OR MORE OF ANY CLASS OR SERIES OF SUCH
PERSON'S, OR THE PARENT OF SUCH PERSON'S, CAPITAL STOCK OR ANY
OFFICER, DIRECTOR OR AFFILIATE OF ANY SUCH PERSON OR, WITH RESPECT TO
ANY OTHER NATURAL PERSON, ANY PERSON HAVING A RELATIONSHIP WITH SUCH
OTHER PERSON BY BLOOD, MARRIAGE OR ADOPTION NOT MORE REMOTE THAN FIRST
COUSIN. A PERSON SHALL BE DEEMED TO CONTROL A CORPORATION IF SUCH
PERSON POSSESSES, DIRECTLY OR INDIRECTLY, THE POWER TO DIRECT OR CAUSE
THE DIRECTION OF THE MANAGEMENT AND POLICIES OF SUCH CORPORATION,
WHETHER THROUGH THE OWNERSHIP OF VOTING SECURITIES, BY CONTRACT OR
OTHERWISE.
"BONDHOLDER" SHALL MEAN ANY OF THE HOLDER(S) OF THE SERIES K
BONDS, FROM TIME-TO-TIME.
"INDEBTEDNESS" SHALL MEAN, WITH RESPECT TO ANY PERSON, LIABILITY
OF THAT PERSON FOR MONEY BORROWED DIRECTLY BY THAT PERSON, DETERMINED
WITHOUT GIVING EFFECT TO ANY PRINCIPLES OF CONSOLIDATION, AND ALL
INDEBTEDNESS OF OTHERS WITH RESPECT TO WHICH THAT PERSON HAS BECOME
LIABLE BY WAY OF A GUARANTEE.
"PARENT" SHALL MEAN DOMINGUEZ SERVICES CORPORATION, A CALIFORNIA
CORPORATION, AND THE PARENT CORPORATION OF THE CORPORATION.
"PERSON" SHALL MEAN AND INCLUDE AN INDIVIDUAL, A PARTNERSHIP, A
JOINT VENTURE, CORPORATION, A TRUST, AN UNINCORPORATED ORGANIZATION
AND A GOVERNMENT OR ANY DEPARTMENT OR AGENCY THEREOF.
"PREMISES" SHALL MEAN ALL REAL PROPERTY OWNED, LEASED OR
OTHERWISE UTILIZED BY THE CORPORATION IN THE CONDUCT OF ITS BUSINESS
OR OTHERWISE.
-34-
<PAGE>
"SHAREHOLDERS' EQUITY" SHALL MEAN, WITH RESPECT TO ANY PERSON, ON
ANY DATE AS OF WHICH THE AMOUNT THEREOF IS TO BE DETERMINED, THE
EXCESS OF (i) THE TOTAL ASSETS OF SUCH PERSON, AT SUCH DATE, OVER (ii)
THE TOTAL LIABILITIES OF SUCH PERSON, AT SUCH DATE, IN EACH CASE AS
WOULD BE REFLECTED ON A BALANCE SHEET PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
"SUBSIDIARY" SHALL MEAN ANY CORPORATION OR ENTITY UNDER THE LAWS
OF ANY JURISDICTION, THAT AT LEAST A MAJORITY OF THE TOTAL COMBINED
VOTING POWER OF ALL CLASSES OF VOTING STOCK OF WHICH SHALL, AT THE
TIME AS OF WHICH ANY DETERMINATION IS BEING MADE, BE OWNED BY THE
CORPORATION EITHER DIRECTLY OR THROUGH OTHER SUBSIDIARIES.
ARTICLE IV
PARTICULAR COVENANTS OF THE CORPORATION
AND MISCELLANEOUS
SECTION 1. The Corporation covenants and agrees that it will
cause this Twelfth Supplemental Trust Indenture to be duly and properly filed
for record and recorded in the Office of the County Recorder of Los Angeles
County and of each county in which it has or shall acquire real property,
with all convenient speed, so that due and legal notice of its terms will be
given, and that it will be properly and legally filed and recorded and
indexed, and that an appropriate financing statement, fixture filing and
other statements will be filed in such public offices as may be necessary to
establish of record the lien of the Indenture upon the properties described
herein against all persons whomsoever.
SECTION 2. This Twelfth Supplemental Trust Indenture shall be
construed in connection with and as part of the Original Indenture, as
heretofore modified, amended and supplemented, and whenever in said Original
Indenture as heretofore modified,
-35-
<PAGE>
amended and supplemented, the words "THIS INDENTURE" are used, they shall be
construed to mean and include this Twelfth Supplemental Trust Indenture in
addition to all other supplemental indentures.
IN WITNESS WHEREOF, the parties hereto have caused their names
to be signed by their Presidents or Vice Presidents, respectively, as of the
day and year first above written.
DOMINGUEZ WATER CORPORATION,
a California corporation
-------------------------------
Brian J. Brady, President
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
By:
-------------------------------
Title:
---------------------------
-36-
<PAGE>
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On _______________________, 1997, before me,___________________,
Notary Public, personally appeared Brian J. Brady, proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------
Signature of Notary
-37-
<PAGE>
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN FRANCISCO)
On ____________________, 1997, before me, ___________________,
Notary Public, personally appeared _____________ and _______________, proved
to me on the basis of satisfactory evidence to be the persons whose names are
subscribed to the within instrument and acknowledged to me that they executed
the same in their authorized capacities, and that by their signatures on the
instrument the persons, or the entity upon behalf of which the persons acted,
executed the instrument.
WITNESS my hand and official seal.
------------------------------
Signature of Notary
-38-
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Dominguez Services Corporation
Long Beach, California
We have audited the accompanying consolidated balance sheets of Dominguez
Services Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, common shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Dominguez Services
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 5, 1998
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation of the Company's
consolidated financial statements and related information appearing in this
annual report. Management believes that the consolidated financial statements
fairly reflect the form and substance of transactions and that the financial
statements reasonably present the Company's financial position and results of
operations in conformity with generally accepted accounting principles.
Management also has included in the Company's financial statements amounts that
are based on estimates and judgments which it believes are reasonable under the
circumstances.
The independent public accountants audit the Company's consolidated
financial statements in accordance with generally accepted auditing standards
and provide an objective, independent review of the fairness of reported
operating results and financial position.
The Board of Directors of the Company has an Audit Committee composed of
three non-management Directors. The Committee meets periodically with financial
management and the independent public accountants to review accounting, control,
auditing and financial reporting matters.
DOMINGUEZ SERVICES CORPORATION
/s/ John S. Tootle
John S. Tootle
Chief Financial Officer
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements beginning on page 18 and with the
Eleven Year Statistical Review on page 16. Dominguez Services Corporation (the
"Company") has two wholly-owned subsidiaries: Dominguez Water Company
("Dominguez"), which is involved in water supply and distribution, and DSC
Investments, which is involved in non-regulated, water-related services and
investments.
Dominguez and its operating subsidiaries are regulated by the California
Public Utilities Commission (the "CPUC") and, as such, they must obtain CPUC
approval to increase water rates to recover increases in operating expenses and
for authorization to include reinvested capital in rate base. Most variations in
revenues are due to weather conditions and the water usage of major industrial
customers.
Dominguez is comprised of its principal division, the South Bay, and its
operating subsidiaries, the Kern River Valley Water Company and the Antelope
Valley Water Company. The South Bay has been providing water service for more
than 86 years to its customers. Today, the South Bay serves 32,393 customers in
a 35 square mile area including most of Carson, one-quarter of Torrance, and
parts of Compton, Long Beach, Los Angeles County, and Harbor City. The Kern
River Valley Water Company and the Antelope Valley Water Company (collectively
referred to as the "Subsidiaries") provide water service to 4,008 and 1,235
customers, respectively.
In November 1997, the Company executed an agreement to acquire the
assets of the Lucerne Water Company located in Lake County of Northern
California with 1,242 customers. In January 1998, the Company finalized the
asset purchase agreement with the Rancho Del Paradiso & Armstrong Valley
Water Companies located in Sonoma County of Northern California with 370
total customers. Dominguez expects to acquire and begin operating these
systems in the first half of 1998.
DSC Investments is primarily engaged in the transfer of water rights
between third parties and has a twenty percent ownership interest in Chemical
Services Company ("CSC") with an option to acquire an additional 40% through the
year 2001. Income from the transfers of water rights may significantly vary from
year to year due to demands for groundwater by major pumpers in the West and
Central Groundwater Basins. CSC manufactures and distributes chlorine generators
used in the water and wastewater industry to produce safe on-site chlorine
disinfectant.
LIQUIDITY AND CAPITAL RESOURCES
The Company's continuing operations provided sufficient cash to cover
operating expenses, interest and dividends. In 1997, Dominguez and its
Subsidiaries invested $3,580,000 in utility plant improvements. Approximately
$517,000 was contributed or advanced by developers. In 1997, the Subsidiaries
received an additional $463,000 in low interest loans from the Department of
Water Resources. Low interest loans are available only to the Subsidiaries to
finance capital improvements needed to meet water quality and supply standards.
In December 1997, Dominguez issued $5,000,000 Series K Bonds under its
trust indenture dated August 1, 1954, with a coupon interest rate of 6.94%, due
in 2012. The proceeds from the sale were used to repay the outstanding balance
of short-term borrowings which totaled $3,000,000. Short-term borrowings were
incurred due to the retirement of the Series F and H Bonds in 1997, as well as
for funding capital expenditures. The remainder of the Series K proceeds will be
used to fund future capital expenditures.
The Company has available $4,470,000 under a revolving credit facility
with Bank of America. As of December 31, 1997, there were no short-term
borrowings under the facility.
Under its investment agreements with CSC, the Company is obligated to
provide working cash and long-term financing for the leasing of chlorine
generators, subject to the financial condition of CSC. As of December 31, 1997,
the Company had a working cash loan outstanding with CSC for $400,000.
The Company's 1998 capital budget is $6,168,000. Budgeted improvements
include $1,747,000 for supplies and storage, a $2,000,000 investment in
connection with the relocation of headquarters to accommodate a regional
recycled water plant, and $565,000 for pipeline replacements. The Company will
fund budgeted improvements from earnings available for reinvestment, funds
remaining from the issuance of the Series K Bonds, and short-term borrowings, if
necessary.
In November 1997, the Company entered into an agreement with West Basin
Municipal Water District ("West Basin") and ARCO. Under the terms of the
agreement, Dominguez will sell ARCO recycled water purchased from West Basin for
the same cost of water margin that Dominguez would otherwise have received
providing ARCO with potable water. The Company is expected to
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
MANAGEMENT'S DISCUSSION AND ANALYSIS
commit funds up to $2,000,000 by December 1999 to construct recycled water
facilities in its South Bay service area.
REGULATORY AFFAIRS
In 1996, Dominguez filed for and received approval to increase revenues
effective February 1, 1997, for approximately $375,000 annually, or 1.6%, to
recover the increased cost of purchased water effective January 1, 1997. This
rate increase does not increase earnings of the Company but rather offsets the
effects of higher water production costs to Dominguez.
In 1997, Senate Bill 1268 was signed into law, requiring the CPUC to use
the standard of fair-market value when establishing the rate base value for the
acquired distribution system assets of a public water system. The CPUC has
initiated a proceeding to develop guidelines necessary to implement the law and
to investigate other regulatory issues unique to the water industry. The Company
believes that the new law will benefit the Company in its acquisition of small
water systems, and that the CPUC's proceeding will clarify rules necessary for
the Company to actively pursue public-private partnerships.
ENVIRONMENTAL MATTERS
The Company is subject to water quality regulations promulgated by the
United States Environmental Protection Agency (EPA) and the California
Department of Health Services (DHS). Both groundwater and purchased water are
subject to extensive analysis. With occasional minor exceptions, the Company
meets all current primary water standards. One of the Subsidiary water systems
exceeded the state and Federal standard for radioactivity. The Company has
ceased using this water source and is providing customers with an alternative
source.
In 1997, the Company participated with many other large water companies
in a monthly water sampling data acquisition program known as the Information
Collection Rule. Data collected will be used by the EPA to establish future
drinking water standards. Under the Federal Safe Drinking Water Act, the EPA is
required to continue to establish new maximum levels for additional chemicals.
The costs of future compliance are unknown, but the Company could be required to
perform more quality testing and treatment. Management believes that Company
resources will be sufficient to meet these anticipated requirements.
The Company is subject to other applicable environmental regulations
related to the handling, storage and disposal of hazardous materials. The
Company is currently in compliance with all such regulations.
WATER SUPPLY
The water supplies for Dominguez come from its own groundwater wells plus
two wholesalers of imported water.
All service areas obtain either a portion of or all of their supply from
groundwater wells. The quantity that the South Bay division is allowed to pump
over a year's time is fixed by court adjudication. The adjudication established
distinct groundwater basins which are managed by a court appointed watermaster.
The groundwater management fixes the safe yield of the basins and ensures the
replenishment of the basins by utilizing impounded storm water, treated recycled
water and purchased water when necessary. Groundwater basins have not been
adjudicated in the Subsidiaries.
The South Bay division and Leona Valley service area of Antelope Valley
purchase water from wholesalers to supplement groundwater. The South Bay
division purchases imported water from the Metropolitan Water District (MWD) of
Southern California. The Leona Valley service area purchases its imported water
from Antelope Valley - East Kern Water Agency (AVEK). Both of these wholesale
suppliers obtain water from the California State Water Project (SWP), and MWD
also obtains water from the Colorado River.
Long-term imported water supplies are dependent upon several factors.
Dominguez' future dependency on imported water will be subject to the
availability and usage of recycled water in the region as well as customer's
long-term water conservation efforts. Dominguez has and will continue to promote
long-term water conservation efforts and will advance the use of recycled water,
when available.
Dominguez anticipates that recycled water will be available from West
Basin by December 1999. At that time, Dominguez will offer the recycled water
(that is priced lower than potable water) to its customers. The availability of
recycled water will reduce Dominguez' demand for imported water, the
availability of which may be uncertain in the future. Reduced imported water
supplies and annual population growth could create future drought conditions in
Southern California; how-
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
MANAGEMENT'S DISCUSSION AND ANALYSIS
ever, Dominguez believes that the availability of recycled water will
significantly mitigate the impact of future droughts in the Dominguez service
area.
Legislative actions continue to play a role in the long-term
availability of water for Southern California. The amount of SWP water
available from Northern California and water imported from the Colorado River
may be significantly reduced around the beginning of the next century. Future
drought conditions may require water rationing by all water agencies,
including Dominguez.
ACCOUNTING STANDARDS
The Company currently applies accounting standards that recognize the
economic effects of rate regulation and record regulatory assets and liabilities
related to water distribution operations. If rate recovery of water-related
costs becomes unlikely or uncertain, whether due to competition or regulatory
action, these accounting standards may no longer apply. This change could result
in the write-off of costs in an amount that could be material. However, based on
a current evaluation of the various factors and conditions that are expected to
affect future cost recovery, management believes that its regulatory assets are
probable of future recovery.
During 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 129 "Disclosure of Information about Capital Structure."
The Company's stock option plan has authorized up to 75,000 options for future
grants. As of December 31, 1997, 25,800 options were granted at an average
exercise price of $16.33. None of the options are exercisable as of December 31,
1997.
In 1997, the Company implemented SFAS No. 128 "Earnings Per Share," which
required a change in the method for calculating basic and diluted earnings per
share. The adoption of this standard did not result in a restatement of
previously reported earnings per share.
YEAR 2000
The Company has reviewed its computer systems, and at December 31, 1997,
all systems are year 2000 compliant.
RESULTS OF OPERATIONS 1997 COMPARED TO 1996
Operating revenue totaled $26,818,000 for 1997, an increase of
$2,113,000, or 8.6%, over the $24,705,000 recorded for 1996. The increased
revenue is due to higher sales to industrial customers and higher rates in the
South Bay to cover the higher cost of imported water. Industrial sales increased
by $1,419,000, or 13.8%.
Operating expenses before taxes increased by $1,907,000, or 9.2%,
primarily due to an increase in the cost of water. Additional water was
purchased from West Basin to cover the increased water sales. The overall margin
on water sales decreased from 52% to 47% due to additional water purchased.
Operations and maintenance costs decreased by $476,000, or 6.3%.
Other income increased by $108,000, or 24%, due to increased activity in
the transfer of water right leases.
Interest costs increased by $99,000, or 15%, due to additional borrowings
for capital improvements during 1997.
Net income increased $40,000, or 2%, due to the reasons mentioned above.
Earnings per share on common equity increased from $1.31 to $1.34. The Company
raised its annual dividend to common shareholders to $.87 in 1997 from $.83 in
1996, an increase of 4.8%.
Effective January 2, 1998, the Company split its common stock
three-for-two for shareholders of record on December 15, 1997. The Company paid
cash in lieu of issuing fractional shares based on the closing price as of
December 15, 1997. The par value of the common stock remained unchanged.
Financial data in this report is adjusted to reflect the change.
RESULTS OF OPERATIONS 1996 COMPARED TO 1995
Operating revenue totaled $24,705,000 for 1996, a decrease of $781,000,
or 3%, from the $25,486,000 recorded for 1995. The decreased revenues are due to
lower sales to industrial customers, which were partially offset by higher
residential sales. Industrial sales dropped by $1,480,000, or 18%. Total
residential sales were up by $982,000, or 6%.
Operating expenses before taxes decreased by $631,000, or 2.9%, a
combination of lower water costs and higher operation and maintenance costs. In
1996, water costs decreased as the South Bay division was able to purchase less
imported water from West Basin due to increased pumping of its
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
MANAGEMENT'S DISCUSSION AND ANALYSIS
wells. The overall margin on water sales improved from 49% to 52% due to
fewer water sales to large industrial customers at a lower tariff water rate.
Operations and maintenance costs increased by $538,000, or 7.7%, due
primarily to increases in consulting costs.
Other income increased by $310,000. Income from the transfer of water
right leases increased by $243,000 for the year. Sale of Hydro-Metric
resulted in a gain of $39,000.
Interest costs decreased by $24,000, or 3.6%, due to the retirement of
the Series G bonds in 1995.
Net income increased $28,000, or 1.5%, due to improved margins on water
sales and other income. Earnings per share on common equity increased from $1.29
to $1.31 for the reasons stated above. The Company raised its annual dividend to
common shareholders from $0.77 in 1995 to $0.83 in 1996, an increase of 7.8%.
RESULTS OF OPERATIONS 1995 COMPARED TO 1994
Operating revenues totaled $25,486,000 for 1995, an increase of
$1,917,000, or 8.1%, over the $23,569,000 recorded for 1994. The increased
revenues are due to higher water rates and increased water sales. The higher
water rates resulted from the pass-through of increases in water production
costs to our South Bay customers. Higher water sales in all divisions resulted
in an increase of 300 million gallons, or 2.4%, over the prior year. Higher
water sales were due primarily to increased usage by industrial customers.
Operating expenses before taxes increased by $1,957,000, or 10.1%,
largely due to a $2,031,000, or 18.3%, increase in the cost of water. Higher
water costs are due primarily to increased costs of purchased water and higher
water sales. Operations and maintenance costs decreased by $103,000, or 1.4%,
due mostly to the reversal of accrued litigation costs.
Other income decreased by $109,000, or 40.7%, due to less income from the
transfer of water right leases.
Interest costs decreased by $31,000, or 4.3%, due to the retirement of
the Series G bonds in 1995.
Net income increased $21,000, or 1.0%, due to higher water sales and
lower expenses as previously stated. Earnings per share on common equity
increased from $1.28 to $1.29. The Company raised its annual dividend to common
shareholders from $0.73 in 1994 to $0.77 in 1995, an increase of 5.4%.
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
ELEVEN YEAR STATISTICAL REVIEW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS: (DOLLARS IN THOUSANDS)
Operating revenue $ 26,818 $ 24,705 $ 25,486 $ 23,569
Operating expenses (before taxes) 22,652 20,745 21,376 19,419
Income taxes 1,385 1,314 1,177 1,340
Other taxes 552 448 455 432
Other expense 40 33 7 29
Other income (590) (475) (165) (297)
Interest cost 758 659 683 714
Net income 2,021 1,981 1,953 1,932
Dividends paid 1,306 1,247 1,170 1,110
Reinvested in the business 715 734 783 822
PER COMMON SHARE DATA:*
Earnings-Basic and diluted $ 1.34 $ 1.31 $ 1.29 $ 1.28
Dividends $ 0.87 $ 0.83 $ 0.77 $ 0.73
Payout percentage 64.68% 63.00% 60.00% 57.50%
Book value $ 10.85 $ 10.37 $ 9.89 $ 9.35
Return on common equity (average) 12.60% 13.00% 13.40% 14.10%
Number shares outstanding 1,506,512 1,506,512 1,506,512 1,506,512
Year end market price $ 21.50 $ 15.00 $ 12.33 $ 11.17
Market to book ratio at year-end 198.2% 144.6% 124.7% 119.4%
BALANCE SHEET DATA: (DOLLARS IN THOUSANDS)
Gross utility plant $ 63,510 $ 60,069 $ 57,271 $ 55,406
Net utility plant 46,020 43,544 41,358 40,022
Non-utility plant 110 49 67 67
Total Assets 51,661 46,875 45,295 44,652
CAPITALIZATION: (DOLLARS IN THOUSANDS)
Long-term debt $ 11,194 $ 7,036 $ 7,273 $ 7,326
Preferred stock - - 98 98
Common equity 16,341 15,626 14,896 14,092
Total capitalization 27,535 22,662 22,267 21,516
Interim debt - 800 - -
CAPITALIZATION RATIOS:
Long-term debt 40.65% 31.00% 32.70% 34.00%
Preferred stock - - 0.40% 0.50%
Common equity 59.35% 69.00% 66.90% 65.50%
Total 100.00% 100.00% 100.00% 100.00%
OTHER UTILITY STATISTICS:
Customers at year end 37,636 36,882 36,739 36,371
Average revenue per customer $ 638.37 $ 650.92 $ 665.70 $ 619.90
Water sales (millions of gallons) 12,362 11,481 12,371 12,071
Utility employees 73 77 78 76
</TABLE>
*ADJUSTED TO REFLECT 3-FOR-2 STOCK SPLIT EFFECTED JANUARY 1998.
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Operating revenue $ 22,193 $ 21,813 $ 18,706 $ 19,139 $ 20,359 $ 19,409 $ 17,423
Operating expenses (before taxes) 18,139 18,327 15,677 15,869 16,855 16,054 14,117
Income taxes 1,243 1,031 807 1,087 1,110 1,050 1,042
Other taxes 406 397 323 321 330 320 302
Other expense 20 17 32 41 18 51 65
Other income (353) (85) (73) (186) (38) (64) (275)
Interest cost 732 586 606 633 577 569 649
Net income 2,006 1,540 1,334 1,374 1,507 1,429 1,523
Dividends paid 1,070 1,009 989 965 940 884 827
Reinvested in the business 936 531 345 409 567 545 696
PER COMMON SHARE DATA:*
Earnings-Basic and diluted $ 1.33 $ 1.02 $ 0.88 $ 0.91 $ 0.98 $ 0.95 $ 1.01
Dividends $ 0.71 $ 0.67 $ 0.65 $ 0.64 $ 0.61 $ 0.57 $ 0.53
Payout percentage 53.50% 65.40% 74.20% 70.10% 62.60% 60.60% 53.00%
Book value $ 8.82 $ 8.19 $ 7.85 $ 7.60 $ 7.32 $ 6.72 $ 6.35
Return on common equity (average) 15.60% 12.80% 11.40% 12.20% 14.00% 14.50% 16.50%
Number shares outstanding 1,506,512 1,506,512 1,506,512 1,497,555 1,497,555 1,469,430 1,469,430
Year end market price $ 14.00 $ 10.83 $ 10.00 $ 9.50 $ 9.83 $ 10.00 $ 10.33
Market to book ratio at year-end 158.7% 132.2% 127.4% 125.0% 134.3% 148.8% 162.6%
BALANCE SHEET DATA: (DOLLARS IN THOUSANDS)
Gross utility plant $ 52,260 $ 51,037 $ 50,161 $ 46,710 $ 45,205 $ 41,536 $ 39,475
Net utility plant 37,977 37,511 33,793 31,713 31,233 28,714 27,170
Non-utility plant 51 105 105 104 101 93 87
Total Assets 42,662 40,275 39,596 37,477 36,513 33,516 31,242
CAPITALIZATION: (DOLLARS IN THOUSANDS)
Long-term debt $ 7,493 $ 7,657 $ 3,829 $ 3,766 $ 4,059 $ 4,583 $ 5,062
Preferred stock 98 98 98 126 142 784 810
Common equity 13,284 12,348 11,817 11,383 10,968 9,877 9,329
Total capitalization 20,875 20,103 15,744 15,275 15,169 15,244 15,201
Interim debt - - 3,375 2,725 950 - 1,150
CAPITALIZATION RATIOS:
Long-term debt 35.90% 38.10% 24.30% 24.70% 26.80% 30.10% 33.30%
Preferred stock 0.50% 0.50% 0.60% 0.80% 0.90% 5.10% 5.30%
Common equity 63.60% 61.40% 75.10% 74.50% 72.30% 64.80% 61.40%
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
OTHER UTILITY STATISTICS:
Customers at year end 36,107 36,043 35,949 34,444 34,189 32,765 32,403
Average revenue per customer $ 561.27 $ 481.35 $ 423.35 $ 490.32 $ 501.95 $ 520.58 $ 488.80
Water sales (millions of gallons) 11,359 11,731 10,906 12,957 13,339 13,237 11,794
Utility employees 75 69 71 64 56 51 51
</TABLE>
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Property, plant and equipment (Note 1)
Utility plant $ 61,571 $ 59,016
Non-utility plant 110 49
------------------------
61,681 59,065
Less: accumulated depreciation 22,257 21,080
------------------------
39,424 37,985
Land and land rights 544 487
Water rights and other intangible assets 140 139
Construction work in progress 1,255 427
------------------------
Total property, plant and equipment 41,363 39,038
Cash and cash equivalents including restricted cash of $503 in 1997 and
$499 in 1996 (Note 1) 2,154 711
Accounts receivable
Customers, less an allowance for doubtful accounts of $301 in 1997
and $285 in 1996 2,098 1,629
Unbilled revenues 973 909
Other 324 179
Materials and supplies, at average cost 39 46
Prepayments and other 772 777
Production cost balancing account (Note 1) 272 320
Deferred tax assets (Notes 1 & 9) 530 426
------------------------
Total current assets 7,162 4,997
Notes receivable 122 130
Investment in and loan to Chemical Services Company (Note 10) 750 350
Prepaid taxes and others (Note 1) 1,190 1,357
Deferred charges, less accumulated amortization of $58 in 1997 and $97 in 1996 (Note 1) 235 165
Income tax related deferred charges (Notes 1 & 9) 839 838
------------------------
Total Assets $ 51,661 $ 46,875
------------------------
------------------------
CAPITALIZATION AND LIABILITIES:
Common shareholders' equity
Common shares: (Note 14)
Par value $1
Authorized: 4,000,000 shares
Issued: 1,506,512 shares $ 1,506 $ 1,506
Paid-in capital (Note 14) 2,006 2,006
Retained earnings (Note 3) 12,829 12,114
------------------------
Total common shareholders' equity 16,341 15,626
Long-term debt (Note 4) 11,194 7,036
------------------------
Total capitalization 27,535 22,662
Current maturities of long-term debt (Note 4) 64 849
Accounts payable 3,156 2,260
Interim debt (Note 5) - 800
Current portion of advances for construction (Note 6) 187 169
Accrued interest - 60
Other accrued expenses 1,405 1,208
Income taxes (Notes 1 & 9) 134 236
------------------------
Total current liabilities 4,946 5,582
Advances for construction (Note 6) 5,329 5,236
Contributions in aid of construction (Note 7) 6,118 6,076
Deferred income taxes (Notes 1 & 9) 3,813 3,617
Unamortized investment tax credit (Note 1) 277 287
Accrued pension cost (Note 8) 999 959
Deferred credits 2,644 2,456
------------------------
Total Capitalization and Liabilities $ 51,661 $ 46,875
------------------------
------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
CONSOLIDATED STATEMENTS OF INCOME AND COMMON SHAREHOLDERS' EQUITY
<TABLE>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME
Operating revenue $ 26,818 $ 24,705 $ 25,486
-----------------------------------
Operating expenses:
Purchased water 10,235 7,797 11,204
Other production costs 4,030 4,119 1,913
Operations 6,060 6,469 6,006
Maintenance 986 1,053 978
Depreciation 1,341 1,307 1,275
Taxes:
Property 298 289 277
Other 254 159 179
Income taxes (Notes 1 & 9) 1,385 1,314 1,177
-----------------------------------
Total operating expenses 24,589 22,507 23,009
-----------------------------------
Operating income 2,229 2,198 2,477
Other income (expense):
Interest and amortization of debt expense (758) (659) (683)
Water rights 438 338 95
Other 112 104 64
-----------------------------------
Net income $ 2,021 $ 1,981 $ 1,953
-----------------------------------
-----------------------------------
Earnings per common share - basic and diluted $ 1.34 $ 1.31 $ 1.29
-----------------------------------
-----------------------------------
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Common shares (Note 14) $ 1,506 $ 1,506 $ 1,506
-----------------------------------
Paid-in-capital: (Note 14)
Beginning balance 2,006 2,010 1,989
Redemption of preferred stock - (4) -
Purchase of Lakeland Water Company - - 21
-----------------------------------
Ending balance 2,006 2,006 2,010
-----------------------------------
Retained Earnings:
Beginning balance 12,114 11,380 10,597
Net income 2,021 1,981 1,953
Cash dividends
Preferred stock, Class A $1.25 per share - (1) (5)
Common stock:
1997 - $0.87 per share (1,306) - -
1996 - $0.83 per share - (1,246) -
1995 - $0.77 per share - - (1,165)
-----------------------------------
Ending balance 12,829 12,114 11,380
-----------------------------------
Total common shareholders' equity $ 16,341 $ 15,626 $ 14,896
-----------------------------------
-----------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,021 $ 1,981 $ 1,953
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,355 1,321 1,291
Deferred income taxes and investment tax credits 186 207 134
Change in assets and liabilities:
Customer receivable, net (469) (106) 102
Other receivable (145) 367 341
Materials and supplies 7 48 7
Notes receivable 8 7 6
Income tax related deferred charges (1) 308 (51)
Accounts payable 896 (767) 244
Income taxes (102) 102 (114)
Accrued pension cost 40 (155) (209)
Other, net 344 150 (627)
---------------------------------
Net cash provided by operating activities 4,140 3,463 3,077
---------------------------------
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,580) (3,490) (2,622)
Purchase of Chemical Services Company - (350) -
Purchase of subsidiaries (312) - -
---------------------------------
Net cash (used for) investing activities (3,892) (3,840) (2,622)
---------------------------------
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from advances for construction 347 219 287
Proceeds from contributions in aid of construction 170 301 178
Repayment of advances for construction (189) (182) (197)
Issuance of First Mortgage Bond 5,000 - -
Repayment of long-term debt (2,090) (283) (291)
Working cash loan to Chemical Services Company (400) - -
Proceeds from the Department of Water Resources loans 463 814 -
Preferred stock redemption - (98) -
Proceeds from and (repayment of) interim debt (800) 800 -
Dividends paid (1,306) (1,247) (1,170)
---------------------------------
Net cash provided by (used for) financing activities 1,195 324 (1,193)
---------------------------------
---------------------------------
Net increase (decrease) in cash 1,443 (53) (738)
Cash at beginning of year 711 764 1,502
---------------------------------
Cash at end of year $ 2,154 $ 711 $ 764
---------------------------------
---------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Dominguez
Services Corporation (the "Company"), Dominguez Water Company ("Dominguez") and
its subsidiaries thereof. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities. These principles also require disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
The Company and its subsidiaries operate in the water services industry.
All significant intercompany transactions have been eliminated. The
subsidiaries maintain their accounts in accordance with the uniform system of
accounts prescribed by the California Public Utilities Commission (CPUC).
REVENUES:
Water service revenues are recognized on an accrual basis. The unbilled
revenue accrual is based on estimated usage from the latest meter reading to the
end of the accounting period.
PROPERTY, PLANT AND EQUIPMENT:
Utility plant is carried at historical cost with subsequent additions at
cost or donor's basis, which approximates cost, less cost of retirements, sales
and abandonments. Water rights are stated at the nominal amount of $1 plus
purchased water rights at cost and past expenditures in connection with
litigation in defense thereof. Depreciation of utility plant for financial
statement purposes is computed using the CPUC remaining life accrual method.
Under this method, composite straight-line depreciation rates are determined by
periodic estimates of average remaining life of all utility plant assets. Costs
of abandonment and salvages are charged or credited to accumulated depreciation.
The effective composite depreciation rate was 2.9% in 1997 and 1996. Costs of
maintenance and repairs are charged to operations; renewals and betterments are
generally capitalized in the property accounts.
PREPAID TAXES AND OTHERS:
During 1987 through 1996, contributions in aid of construction and
advances for construction were taxable for Federal and state income tax
purposes. The Company has paid these taxes and recorded deferred taxes in these
consolidated financial statements. These taxes will be recovered over the tax
life of the assets for contributions and the life of the contracts for advances.
DEFERRED CHARGES:
Debt expense on bonds is being amortized based on the percentage of the
principal amount outstanding over the term of the debt.
PRODUCTION COST BALANCING ACCOUNT:
The Company records over or undercollections of production costs when
incurred in its books of accounts and financial statements based on the
regulatory treatment afforded these costs. As of December 31, 1997 and 1996, the
balancing account reflected an undercollection of $272,000 and $320,000,
respectively.
INVESTMENTS:
The Company assumes all investments with maturities of three months or
less to be cash equivalents. Investments in entities that are 50% or less owned
are accounted for by the equity method.
INCOME TAXES:
The Company provides deferred income taxes for certain transactions which
are recognized for income tax purposes in a period different from that in which
they are reported in the financial statements.
Investment Tax Credits (ITC) have been deferred and are being amortized
as reductions to income tax expense proportionately over the lives of the
properties giving rise to the credits.
REGULATORY ASSETS:
The Company currently applies accounting standards that recognize the
economic effects of rate regulation and record regulatory assets and liabilities
related to water distribution operations. If rate recovery of water-related
costs becomes unlikely or uncertain, whether due to competition or regulatory
action, these accounting standards may no longer apply. This change could result
in the write-off of costs in an amount that could be material. However, based on
a current evaluation of the various factors and conditions that are expected to
affect future cost recovery, management believes that its regulatory assets are
probable of future recovery.
RESTRICTED CASH:
Restricted cash represents surcharge proceeds plus interest earned, which
is restricted to the payment of principal and interest on the California Safe
Drinking Water Bonds.
RECLASSIFICATIONS:
The 1997 and 1996 consolidated financial statements include certain
reclassifications necessary to conform to current year presentation.
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2
CAPITAL STRUCTURE
During 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 129 "Disclosure of Information about Capital Structure."
The Company's stock option plan has authorized up to 75,000 options for future
grants. As of December 31, 1997, 25,800 options were granted at an average
exercise price of $16.33. None of the options are exercisable as of December 31,
1997.
NOTE 3
RESTRICTIONS ON DIVIDENDS
Under the terms of its long-term debt agreements, Dominguez is limited in
its payment of dividends (other than stock dividends) on all classes of stock to
the net income accrued subsequent to December 31, 1992, plus the sum of
$3,000,000. The approximate unrestricted earnings available for dividend
payments amounted to $6,976,000 as of December 31, 1997. The Company's available
dividends to its shareholders are substantially dependent on the availability of
dividends from Dominguez to the Company.
NOTE 4
LONG-TERM DEBT
Under a trust indenture dated August 1, 1954, and twelve supplemental
indentures, the Company pledged substantially all its property, water rights,
and materials and supplies as collateral under the bonds. At December 31, 1997
and 1996, long-term debt outstanding was:
<TABLE>
<CAPTION>
CARRYING AMOUNT (DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
First Mortgage Bonds:
Series F, 8% due 1997 $ - $ 756
Series H, 9.375% due 1998 - 1,290
Series J, 8.86% due 2022 4,000 4,000
Series K, 6.94% due 2012 5,000 -
--------------------
Total First Mortgage Bonds $ 9,000 $ 6,046
--------------------
Small Business Administration Loan:
4% - due 2000 $ 26 $ 39
--------------------
Department of Water Resources Loan:
Under the California Safe Drinking
Water Bond Act of 1976
7.4% - due 2020 $ 471 $ 478
7.4% - due 2011 286 304
7.4% - due 2013 198 204
3.0% - due 2032 790 547
3.4% - due 2027 487 267
--------------------
Total Bonds & Notes $ 11,258 $ 7,885
Less: Current Maturities 64 849
--------------------
Total Long Term Debt $ 11,194 $ 7,036
--------------------
--------------------
</TABLE>
Aggregate maturities for the five years commencing with 1998 are
approximately $64,000 (1998), $66,000 (1999), $65,000 (2000), $62,000
(2001) and $65,000 (2002).
NOTE 5
INTERIM DEBT
The Company maintained an available line of credit of $4,470,000 in 1997
and $3,000,000 in 1996 with Bank of America. As of December 31, 1997, there were
no borrowings outstanding. At the end of 1996, $800,000 was outstanding. The
Company intends to renew the line of credit, which expires in June 1998.
Borrowing bears interest at the preference lending rate.
NOTE 6
ADVANCES FOR CONSTRUCTION
Advances for construction of main extensions are primarily refundable to
depositors over a 20 or 40 year period. Refund amounts under the 20-year
contracts are based on annual revenues from the extension. Balances at the end
of the contract period are refunded in five equal annual installments. Beginning
in June 1982, contracts provided for full refund at a 2-1/2% rate per year for
40 years. Estimated refunds for 1998 for all main extension contracts are
$187,000.
NOTE 7
CONTRIBUTIONS IN AID OF CONSTRUCTION
Contributions in aid of construction are donations or contributions in
cash, services or property from governmental agencies or individuals for the
purpose of constructing utility facilities. Depreciation applicable to such
plants is charged to the contributions in aid account rather than to
depreciation expense.
The charges continue until the cost applicable to such properties has
been fully depreciated or the asset has been retired.
<TABLE>
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Beginning Balance $ 6,076 $ 6,056
Add net contributions during the year 232 236
Deduct depreciation for the year charged
on plant acquired through donations (190) (216)
--------------------
Ending Balance $ 6,118 $ 6,076
--------------------
--------------------
</TABLE>
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8
EMPLOYEE BENEFITS
PENSION PLAN:
The Company provides a qualified defined benefit plan for all its
full-time employees. Benefits under this plan reflect the employee's
compensation, years of service and age at retirement. Funding is based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under
the Employee Retirement Income Security Act of 1974, as amended.
Pension costs are determined in accordance with SFAS No. 87, including
the use of the projected unit credit actuarial cost method. For rate making
purposes, the Company recovers pension expense based on the method in place
prior to SFAS No. 87.
The components of the 1997, 1996 and 1995 provisions are summarized as
below:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Service cost
(including expense) $ 433 $ 501 $ 498
Interest cost 676 638 574
Actual return on assets (1,472) (1,164) (1,111)
Amortization of unrecognized
net asset (58) (58) (58)
Unrecognized net gain 608 446 498
--------------------------------
Net pension cost $ 187 $ 363 $ 401
--------------------------------
--------------------------------
</TABLE>
The obligations for pension benefits and the amount recognized in the
Consolidated Balance Sheets are reconciled as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Plan assets, at fair value,
invested in stocks and bonds $ 11,726 $ 10,503
Actuarial present value of projected
benefit obligation (10,155) (9,015)
--------------------
Plan assets in excess of projected
benefit obligation $ 1,571 $ 1,488
Unrecognized prior service cost 172 186
Unrecognized net asset (233) (292)
Unrecognized net gain (2,509) (2,341)
--------------------
Accrued pension cost $ (999) $ (959)
--------------------
--------------------
Discount rate 7.50% 7.50%
Rate of compensation increase 4.50% 4.50%
Expected return on assets 7.50% 7.50%
</TABLE>
The accumulated benefit obligation of $8,693,000 at December 31, 1997,
including vested benefits of $7,983,000, represents the present value of future
pension benefit payments and is based on the Plan's benefit formulas without
considering expected future salary increases. The projected benefit obligation
considers future salary increases.
POST-RETIREMENT BENEFITS
OTHER THAN PENSIONS:
The Company charges the costs associated with its post-retirement
benefits other than pensions to expense during the employees' years of service.
The Company is amortizing its $588,000 transition obligation related to prior
service over 20 years.
The Company provides health care benefits for retired employees until
both the employee and his/her spouse have reached 65 years of age. Health care
benefits are subject to deductibles, co-payment provisions and other
limitations. The Company funds the plan up to tax-deductible limits, in
accordance with rate-making practices. Differences between expense determined
under the new standard and amounts authorized for rate recovery are not expected
to be material and are charged to earnings.
The components of post-retirement benefits other than pensions expense
were:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned $ 35 $ 39 $ 39
Interest cost 40 47 45
Actual return on assets (47) (52) (1)
Amortization of losses from
prior periods (18) (5) (6)
Amortization of transition obligation 28 28 28
Deferred gain (loss) 15 30 (15)
--------------------------
Total $ 53 $ 87 $ 90
--------------------------
--------------------------
</TABLE>
The assumed rate of future increases in the per-capita cost of health
care benefits is 6.5%. Increasing the health care cost trend rate by one
percentage point would increase the accumulated obligation as of December 31,
1997, from $654,000 to $725,000, a $71,000 increase, and annual aggregate
service and interest costs from $75,000 to $89,000, a $14,000 increase. The
actuarial assumptions used were discount rates of 7.25% at December 31, 1997,
and 7.5% at January 1, 1997, and an expected long-term rate of return on plan
assets of 7.25% and 7.5% respectively.
The Company also offers its employees a 401(k) plan. Employees make all
contributions under the plan.
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK-BASED COMPENSATION PLANS:
The Company's 1997 Stock Incentive Plan ("the Plan") was adopted by the
Board on February 25, 1997, and contains provisions for four types of awards:
(i) stock options to purchase shares of the Company's common stock, (ii) payment
of awards earned under the Company's Annual Incentive Plan (AIP) in shares of
stock, (iii) issuance of restricted stock, and (iv) payment of dividend
equivalents which, at the discretion of the Committee, may be granted in
conjunction with stock options or restricted stock awards to provide cash
payments prior to the time the option is exercised or the shares are vested.
SFAS No. 123 "Accounting for Stock-Based Compensation," if fully adopted,
changes the methods for recognition of cost on plans similar to those of the
Company. Adoption of the accounting requirements under SFAS No. 123 is optional,
however, pro forma disclosures as if the Company had adopted the cost
recognition method are required. Had compensation cost for stock options awarded
under this plan been determined consistent with SFAS No. 123, the Company's net
income and earnings per share would have reflected the following pro forma
amounts:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Net Income
As Reported $ 2,021 $ 1,981
Pro Forma 2,018 N/A
Earnings Per Share, Basic and Diluted:
As Reported $ 1.34 $ 1.31
Pro Forma 1.34 1.31
</TABLE>
The Company may grant up to 75,000 options under the Plan. The Company
has granted 25,800 through December 31, 1997. The options are issued at fair
market value with exercise prices equal to the Company's stock price at the date
of grant. Options vest over a four-year period; are exercisable in whole or in
installments; and expire ten years from date of grant.
A summary of the status of the Company's stock option plan at December
31, 1997 and changes during the year then ended is presented in the table and
narrative below:
<TABLE>
<CAPTION>
WTD AVG
SHARES EX PRICE
- --------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year - n/a
Granted 25,800 $ 16.33
Exercised - n/a
Forfeited/Expired - n/a
Outstanding at end of year 25,800 $ 16.33
Exercisable at end of year - n/a
Weighted average fair value of
options granted $ 1.52
</TABLE>
AMOUNT SHOWN REFLECTS THE 3-FOR-2 STOCK SPLIT EFFECTED JANUARY 1998.
All of the options outstanding at December 31, 1997, have an exercise
price of $16.33 and a weighted average remaining contractual life of 9.48 years.
None of the options are exercisable as of December 31, 1997.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes pricing model with the following assumptions used for
the grants in fiscal 1997: weighted average risk-free interest rate of 6.59%;
weighted average volatility of 17.82%; expected life of 10 years; and a weighted
average dividend yield of 7.34%.
NOTE 9
INCOME TAXES
The Company utilizes SFAS No. 109 "Accounting for Income Taxes," which
requires the recognition of deferred taxes for all temporary differences
between book and tax income.
CURRENT AND DEFERRED TAXES:
Income tax expense includes the current tax liability from operations and
the change in deferred income taxes during the year. Investment tax credits are
amortized over the life of related properties.
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net accumulated deferred income tax liabilities
were:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Pension plan $ 447 $ 450
Other 724 615
--------------------
Total deferred tax assets $ 1,171 $ 1,065
--------------------
Deferred tax liabilities:
Depreciation $ 3,284 $ 3,031
Property-related 1,200 1,250
Other (30) (25)
--------------------
Total deferred tax liabilities $ 4,454 $ 4,256
--------------------
Net accumulated deferred income taxes $ 3,283 $ 3,191
Classification of accumulated deferred
income taxes:
Included in current assets 530 426
--------------------
Included in deferred taxes $ 3,813 $ 3,617
--------------------
--------------------
</TABLE>
The current and deferred components of income tax expense were:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes:
Current Federal $ 814 $ 887 $ 842
Current state 266 276 271
Investment tax credit (10) (12) (12)
--------------------------------
Total current taxes $ 1,070 $ 1,151 $ 1,101
--------------------------------
--------------------------------
Deferred income taxes:
Depreciation $ 296 $ 282 $ 267
Contributions and advances - (156) (158)
Pension plan - - -
Other 19 37 (33)
--------------------------------
Total deferred taxes $ 315 $ 163 $ 76
--------------------------------
--------------------------------
</TABLE>
A reconciliation of the federal statutory income tax rate to the
effective rate is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Expected income tax expense 34% 34% 34%
State income taxes 5% 6% 6%
Abandonments - (1%) (2%)
Other 2% 1% -
--------------------------
Total 41% 40% 38%
--------------------------
--------------------------
</TABLE>
The Company has no net operating loss carryforward at December 31, 1997.
NOTE 10
NEW BUSINESS AND DISPOSITIONS
BUSINESS INVESTMENTS:
On December 20, 1996, DSC Investments, the non-regulated subsidiary of
the Company, invested $350,000 in Chemical Services Company ("CSC") and acquired
a 20% equity ownership interest with the option to acquire an additional 40%
over the next 5 years. Under its investment agreements with CSC, the Company is
obligated to provide working cash and long-term financing for the leasing of
chlorine generators to CSC subject to the financial condition of CSC. The
maximum loan balances for the following calendar years are $2,500,000 (1998),
$3,000,000 (1999), $3,500,000 (2000) and $3,500,000 (2001). As of December 31,
1997, the Company had $400,000 in outstanding loans to CSC.
In December 1997, the Company entered into an agreement with West Basin
Municipal Water District ("West Basin") and ARCO. Under the terms of the
agreement, Dominguez will sell ARCO recycled water purchased from West Basin for
the same cost of water margin that Dominguez would otherwise have received
providing ARCO with potable water. The Company is expected to commit funds up to
$2,000,000 by December 1999 to construct recycled water facilities in its South
Bay service area.
ACQUISITIONS:
In 1997, the Company acquired water systems in the Kern River Valley
Water Area as follows:
In June, the Company purchased the assets of the Countrywood Water
Company, a mutual water system, serving 97 customers. In October, the Company
purchased the assets of the Southlake Water Company, an investor-owned water
system, serving 509 customers. In December, the Company purchased the assets of
the Quail Valley Mutual Water Company, a mutual water system, serving 54
customers. Also in December, the Company purchased the assets of the Juniper
Hills Mutual Water Corporation, a mutual water system, serving 41 customers.
All acquisitions completed in 1997 were accounted for using the purchase
method of accounting.
SALE OF BUSINESS:
On April 26, 1996, the Company sold to a former employee the remaining
assets of Hydro-Metric Services in exchange for a two-year note receivable with
an outstanding balance of $15,000 as of December 31, 1997. The sale resulted in
a gain of $39,000.
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11
BUSINESS RISKS AND CONCENTRATION
OF SALES
Forty-six percent of the Company's water supply comes from its own
groundwater wells, and fifty-four percent comes from wholesalers of imported
water. The long term availability of imported water supplies are dependent upon
several factors. Drought conditions throughout the state, increases in
population, tightening of water quality standards and legislation may reduce
water supplies. At this time, the Company does not anticipate any constraints
on its imported water supplies due primarily to above-average precipitation in
prior years. The Company is taking steps to reduce its dependence on imported
water supplies, including working with the West Basin to bring recycled water
into its South Bay service area. The Company continues to drill new wells in
order to enable it to utilize its total adjudicated groundwater rights.
The Company's utility operations are engaged in supplying water to the
public. The Company's utility operations are subject to regulation by various
government agencies. The water quality is regulated by the United States
Environmental Protection Agency (EPA) and the California Department of Health
Services (DHS). Both groundwater and purchased water are subject to extensive
analysis. With occasional minor exceptions, the Company meets all current
primary water standards. One of Dominguez' subsidiary water systems exceeded the
state and Federal standard for radioactivity. The subsidiary has ceased using
this water source and is providing customers with an alternative source.
The Company is required to provide service to customers within its
defined service territories. Although the Company has a diversified base of
residential, business-industrial and public authority customers, a substantial
portion, 49% in 1997 and 46% in 1996, of water sales are attributable to
business-industrial usage. One single refinery was responsible for 33% of this
business-industrial consumption in 1997, and for 32% in 1996.
Sales for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Residential-Multi Family $ 11,964 $ 11,566
Business-Industrial 11,698 10,279
Public Authority 1,537 1,486
All Other 1,619 1,374
--------------------
Total $ 26,818 $ 24,705
--------------------
--------------------
</TABLE>
NOTE 12
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for:
Interest, net $ 774 $ 824 $ 501
Income taxes $ 1,000 $ 1,095 $ 1,270
</TABLE>
NOTE 13
RELATED PARTY TRANSACTIONS
The Company annually refunds a portion of revenue received from several
water mains for which Watson Land Company, Carson Estate Company and Dominguez
Properties advanced the construction funds to the Company. The refunds to Watson
Land Company were $16,175 in 1997 and $15,442 for 1996. The refunds to Carson
Estate Company were $1,110 for 1997 and $1,110 for 1996. The refunds to
Dominguez Properties were $6,176 for 1997 and $6,176 for 1996.
The Company also leases sites used for wells from Watson Land Company,
Carson Estate Company and Dominguez Properties. The rental costs for Watson Land
Company were $39,517 in 1997 and $38,778 for 1996. The rental costs for Carson
Estate Company were $18,580 for 1997 and $13,500 for 1996. The rental costs for
Dominguez Properties were $4,174 for 1997 and $2,901 for 1996.
The Company provides water service to these entities to the extent that
they have property within the division.
Dominguez purchases chlorine generation equipment and supplies from CSC.
As previously mentioned, the Company owns a 20% equity interest in CSC. In 1997,
purchases from CSC totaled approximately $733,000.
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14
SUBSEQUENT EVENTS
On November 20, 1997, the Company signed an agreement to purchase the
assets of the Lucerne Water Company, an investor-owned water system, serving
1,242 customers in exchange for 42,092 shares of the Company's common stock.
This acquisition is awaiting the approval of the CPUC.
On January 22, 1998, the Company signed an agreement to purchase the
assets of the Rancho Del Paradiso & Armstrong Valley Water Companies,
investor-owned water systems, servicing 60 and 310 customers, respectively, in
exchange for 12,375 shares of the Company's common stock.
Effective January 2, 1998, the Company split its common stock
"three-for-two" for shareholders of record on December 15, 1997. The Company
paid cash in lieu of issuing fractional shares based on the closing price as of
December 15, 1997. The par value of the common stock remained unchanged. Share
information and the capital accounts in the consolidated financial statements
have been retroactively restated to reflect the change. This restatement has
resulted in the transfer of $502,000 from paid-in-capital to common shares
equity as of the earliest period presented.
NOTE 15
COMMITMENTS AND CONTINGENCIES
In 1996, the Company's insurance carrier settled the remaining lawsuit
filed in the California Superior Court that arose from the shooting death of an
employee by another employee in January 1994. All legal costs accrued in
anticipation of litigation have been reversed. The terms of the settlements had
no material adverse financial impact on the Company.
Under the terms of the signed agreement between the Company, ARCO Los
Angeles Refinery, and West Basin, the Company is expected to commit funds up to
$2,000,000 to construct recycled water system facilities. This agreement was
signed by all parties in 1997. The funds will be expended when recycled water
service is available to ARCO, which is tentatively scheduled for the end of
1999.
NOTE 16
EARNINGS PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings per Share." The
adoption of this standard did not result in a restatement of previously reported
earnings per share. The following table reconciles basic and diluted earnings
per share calculations. Shares in the table below have been restated to reflect
the Company's stock split in January 1998 (See Note 14).
<TABLE>
<CAPTION>
INCOME PER-SHARE
(DOLLARS IN THOUSANDS) SHARES AMOUNT
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income available to
common shareholders $ 2,021 1,506,512 $ 1.34
Options issued to executives 361 --------
--------------------- --------
Diluted Earnings Per Share
Net income available to
common shareholders $ 2,021 1,506,873 $ 1.34
--------------------------------
--------------------------------
</TABLE>
<PAGE>
DOMINGUEZ SERVICES CORPORATION ~ 1997 ANNUAL REPORT
..........................................................................
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
--
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
BASIC & DILUTED
OPERATING REVENUE NET INCOME EARNINGS
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) PER SHARE
1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 5,168 $ 5,225 $ 283 $ 270 $ .19 $ .18
Second Quarter 7,001 6,356 527 535 .35 .35
Third Quarter 8,171 7,404 809 787 .53 .52
Fourth Quarter 6,478 5,720 402 389 .27 .26
-----------------------------------------------------------------------------
Total $ 26,818 $ 24,705 $ 2,021 $ 1,981 $ 1.34 $ 1.31
-----------------------------------------------------------------------------
</TABLE>
MARKET INFORMATION (UNAUDITED)
MARKET FOR THE REGISTRANT'S
COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol "DOMZ." There were 298 common
shareholders of record as of December 31, 1997, as well as 659 common
shareholders held in street name.
Quarterly dividends have been paid since 1964. We cannot predict future
actions of the Board of Directors, but at the present time, there is no change
contemplated in the Company's dividend policy. The following table sets forth
the high and low common stock prices and dividends paid for 1997 and 1996, as
obtained from the National Association of Securities Dealers, Inc., 1735 K
Street Northwest, Washington, D.C. 20006. All figures have been adjusted for a
3-for-2 stock split effected January 2, 1998.
<TABLE>
<CAPTION>
1997 HIGH LOW DIVIDEND
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 16.333 15.000 .2175
Second Quarter 17.333 15.667 .2175
Third Quarter 17.667 15.333 .2175
Fourth Quarter 21.500 17.000 .2175
<CAPTION>
1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 12.667 11.500 .2075
Second Quarter 15.167 12.000 .2075
Third Quarter 15.667 13.667 .2075
Fourth Quarter 15.667 14.833 .2075
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Dominguez Services Corporation
Long Beach, California
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements included in the 1997 Annual Report to
Shareholders of Dominguez Services Corporation, incorporated by reference in
this Form 10-K, and have issued our report thereon dated March 5, 1998. Our
audits of the consolidated financial statements were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The supplemental schedule listed in Part IV of this Form 10-K is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission rules, and is not part of
the basic consolidated financial statements. This supplemental schedule has
been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 5, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED INCOME STATEMENT FOR THE PERIOD
ENDING DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,154,229
<SECURITIES> 0
<RECEIVABLES> 3,069,975
<ALLOWANCES> (300,961)
<INVENTORY> 39,244
<CURRENT-ASSETS> 7,162,239
<PP&E> 62,364,698
<DEPRECIATION> 22,256,863
<TOTAL-ASSETS> 51,660,555
<CURRENT-LIABILITIES> 4,945,283
<BONDS> 11,194,407
0
0
<COMMON> 1,506,512
<OTHER-SE> 14,835,479
<TOTAL-LIABILITY-AND-EQUITY> 51,660,555
<SALES> 25,199,410
<TOTAL-REVENUES> 26,818,178
<CGS> 14,264,829
<TOTAL-COSTS> 21,310,455
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 98,713
<INTEREST-EXPENSE> 758,896
<INCOME-PRETAX> 3,406,149
<INCOME-TAX> 1,384,968
<INCOME-CONTINUING> 2,001,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,021,181
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1996
<CASH> 1,101,747 985,864 706,138 708,817
<SECURITIES> 0 0 0 0
<RECEIVABLES> 2,956,250 3,765,533 3,375,097 2,823,570
<ALLOWANCES> (304,181) (330,836) (343,457) (285,385)
<INVENTORY> 46,385 46,385 42,062 46,385
<CURRENT-ASSETS> 5,906,257 7,472,834 6,921,231 5,004,365
<PP&E> 60,552,512 61,168,316 62,328,116 60,079,551
<DEPRECIATION> 21,504,376 21,910,752 22,321,061 21,079,569
<TOTAL-ASSETS> 47,852,562 49,620,778 49,820,824 46,874,799
<CURRENT-LIABILITIES> 6,863,721 9,571,167 8,657,885 5,137,365
<BONDS> 5,212,000 5,825,503 6,239,455 5,212,000
0 0 0 0
0 0 0 0
<COMMON> 1,506,512 1,506,512 1,506,512 1,506,512
<OTHER-SE> 14,076,531 14,277,417 14,759,533 14,119,933
<TOTAL-LIABILITY-AND-EQUITY> 47,852,562 49,620,778 49,820,824 46,874,799
<SALES> 4,844,457 11,226,426 18,830,951 23,331,018
<TOTAL-REVENUES> 5,168,027 12,168,935 20,339,562 24,704,786
<CGS> 2,226,882 5,584,585 10,699,579 11,915,671
<TOTAL-COSTS> 4,172,624 9,618,623 15,920,946 19,437,920
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 46,480 67,442 100,420 153,960
<INTEREST-EXPENSE> 185,137 399,523 593,685 659,264
<INCOME-PRETAX> 472,734 1,353,778 2,704,418 3,295,267
<INCOME-TAX> 189,770 543,500 1,085,605 1,313,969
<INCOME-CONTINUING> 282,964 810,278 1,618,813 1,981,298
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 282,964 810,278 1,618,813 1,981,298
<EPS-PRIMARY> .19 .54 1.07 1.31
<EPS-DILUTED> .19 .54 1.07 1.31
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1995
<CASH> 1,121,452 70,666 1,802,829 751,606
<SECURITIES> 0 0 0 0
<RECEIVABLES> 2,398,788 3,254,719 3,422,664 2,721,698
<ALLOWANCES> (263,861) (256,883) (262,135) (250,140)
<INVENTORY> 85,724 70,635 70,894 94,171
<CURRENT-ASSETS> 4,909,476 5,439,564 7,147,748 5,272,443
<PP&E> 58,355,592 59,307,393 60,139,901 57,385,861
<DEPRECIATION> 20,709,083 21,031,075 21,417,210 20,312,058
<TOTAL-ASSETS> 45,165,077 46,335,274 48,035,915 45,294,758
<CURRENT-LIABILITIES> 4,600,078 5,325,650 6,339,357 4,900,070
<BONDS> 6,023,000 6,005,000 5,988,000 7,273,335
0 0 0 0
0 0 0 0
<COMMON> 1,506,512 1,506,512 1,506,512 1,506,512
<OTHER-SE> 13,343,168 13,566,846 14,059,320 13,390,150
<TOTAL-LIABILITY-AND-EQUITY> 45,165,077 46,335,274 48,035,915 45,294,758
<SALES> 5,030,381 10,970,172 17,949,833 23,779,740
<TOTAL-REVENUES> 5,225,268 11,581,189 18,985,561 25,486,322
<CGS> 1,615,230 3,748,330 6,247,752 13,116,905
<TOTAL-COSTS> 4,244,114 9,172,059 14,760,425 20,101,015
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 48,545 49,648 94,083 155,206
<INTEREST-EXPENSE> 172,024 344,803 516,808 683,133
<INCOME-PRETAX> 451,821 1,345,599 2,660,206 3,129,940
<INCOME-TAX> 181,352 540,097 1,067,753 1,177,432
<INCOME-CONTINUING> 270,469 805,502 1,592,453 1,952,508
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 270,469 805,502 1,592,453 1,952,508
<EPS-PRIMARY> .18 .53 1.05 1.29
<EPS-DILUTED> .18 .53 1.05 1.29
</TABLE>
