<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the transition period from________________ to________________
Commission file number: 0-8176
[LOGO OF SOUTHWEST WATER COMPANY]
SOUTHWEST WATER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1840947
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
225 NORTH BARRANCA AVENUE, SUITE 200
WEST COVINA, CALIFORNIA 91791-1605
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(818) 915-1551
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. On October 31, 1996, there
were 2,601,589 common shares outstanding.
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SOUTHWEST WATER COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
Part I. Financial Information:
- ------- ----------------------
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Income -
Three and nine months ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
Part II. Other Information:
- -------- ------------------
Item 1. Legal Proceedings 11-12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,114 $ 784
Customers' accounts receivable, net 9,347 7,785
Other current assets 2,332 2,528
-------- --------
12,793 11,097
Property, Plant and Equipment:
Utility property, plant and equipment - at cost 116,009 106,280
Contract operations property, plant and equipment - at cost 6,330 6,273
-------- --------
122,339 112,553
Less accumulated depreciation and amortization 34,093 32,286
-------- --------
88,246 80,267
Other Assets
Investments (Note 8) 3,695 805
Other 5,228 5,287
-------- --------
8,923 6,092
-------- --------
$109,962 $ 97,456
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt and bank notes payable $ 16,386 $ 9,075
Accounts payable 2,327 2,269
Other current liabilities 7,629 7,019
-------- --------
26,342 18,363
Other Liabilities and Deferred Credits:
Long-term debt 19,600 19,600
Advances for construction 8,125 8,200
Contributions in aid of construction 19,547 16,380
Deferred income taxes 3,875 3,238
Other liabilities and deferred credits 2,474 2,429
-------- --------
Total Liabilities and Deferred Credits 79,963 68,210
Stockholders' Equity:
Cumulative preferred stock 517 519
Common stock 26 26
Paid-in capital 18,947 18,715
Retained earnings 10,551 10,045
Unamortized value of restricted stock issued (42) (59)
-------- --------
Total Stockholders' Equity 29,999 29,246
-------- --------
$109,962 $ 97,456
======== ========
</TABLE>
See accompanying notes.
3
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SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues $18,476 $16,848 $49,903 $41,467
Operating Expenses:
Direct operating expenses 13,918 12,584 38,348 31,609
Selling, general and administrative 2,449 2,321 7,430 6,761
------- ------- ------- -------
16,367 14,905 45,778 38,370
------- ------- ------- -------
Operating Income 2,109 1,943 4,125 3,097
Other Income (Expense):
Interest expense (720) (589) (2,074) (1,746)
Interest income 25 12 72 56
Gain on sale of land - - - 84
Other 78 24 125 31
------- ------- ------- -------
(617) (553) (1,877) (1,575)
------- ------- ------- -------
Income Before Income Taxes 1,492 1,390 2,248 1,522
Provision for income taxes 626 584 944 639
------- ------- ------- -------
Net Income 866 806 1,304 883
Dividends on preferred shares (6) (7) (20) (21)
------- ------- ------- -------
Net Income Available For Common Shares $ 860 $ 799 $ 1,284 $ 862
======= ======= ======= =======
Earnings Per Common Share (Note 5) $ 0.33 $ 0.31 $ 0.49 $ 0.34
======= ======= ======= =======
Cash Dividends Per Common Share (Note 5) $ 0.10 $ 0.095 $ 0.30 $ 0.285
======= ======= ======= =======
Weighted-Average Outstanding
Common Shares (Note 5) 2,595 2,566 2,589 2,555
======= ======= ======= =======
</TABLE>
See accompanying notes.
4
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SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1996 1995
------- ------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES, NET $ 4,079 $ 1,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (8,256) (6,237)
Investment in Windermere Utility Company (3,000) -
------- -------
Net cash used in investing activities (11,256) (6,237)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of short-term debt 7,311 5,439
Contributions in aid of construction 881 546
Net proceeds from dividend reinvestment and
employee stock purchase plans 208 174
Additions to advances for construction 140 339
Dividends paid (783) (750)
Payments on advances for construction (250) (224)
Payments on long-term debt - (900)
------- -------
Net cash provided by financing activities 7,507 4,624
------- -------
Net increase (decrease) in cash and cash equivalents 330 (321)
Cash and cash equivalents at beginning of year 784 828
------- -------
Cash and cash equivalents at end of quarter $ 1,114 $ 507
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,986 $ 2,110
Income taxes $ 671 $ 189
Non-cash contributions in aid of construction
conveyed to Company by developers $ 2,595 $ 1,004
Depreciation and amortization $ 2,930 $ 2,831
</TABLE>
See accompanying notes.
5
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SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. Southwest Water Company (the Company) and its subsidiaries provide water
management services through contract and utility operations. The unaudited
consolidated condensed financial statements reflect all adjustments which,
in the opinion of the Company's management, are necessary to present fairly
the financial position of the Company as of September 30, 1996, and the
Company's results of operations for the three and nine months ended
September 30, 1996. All such adjustments are of a normal recurring nature.
Certain reclassifications have been made to the 1995 financial statements
to conform to the 1996 presentation.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These consolidated
condensed financial statements should be read in conjunction with the
financial statements and related notes contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
3. The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results to be expected for the
full year. Utility operations revenues usually peak during the second and
third quarters of each year. The Company's contract operations business can
also be seasonal in nature. Heavy rainfall during a quarter may reduce
contract operations revenue since it hampers the Company's ability to
perform billable work such as pipeline maintenance, manhole rehabilitation
and other outdoor services.
4. For the three and nine months ended September 30, 1996 and 1995, the
computations of earnings per common share, after recognition of dividend
requirements on preferred shares, have been calculated using the weighted-
average number of outstanding common shares since the aggregate dilution
from all common equivalent shares is less than three percent of earnings
per common share outstanding.
5. The 1995 earnings per common share, cash dividends per common share and
weighted-average outstanding common shares have been restated to reflect a
5% stock dividend granted to stockholders of record on January 2, 1996.
6. Effective January 1, 1996, the Company was subject to Statement of
Financial Accounting Standard No. 121 (SFAS No. 121) "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
Under SFAS No. 121, the Company is required to review the impairment of
long-lived assets, including regulatory assets, as well as costs excluded
from rate base by regulators. The Company expects that implementing SFAS
No. 121 will not have a material impact on its results of operations or
financial condition.
7. As of December 31, 1995, the Company adopted Statement of Financial
Accounting Standard No. 123 (SFAS No. 123) "Accounting for Stock-Based
Compensation." The related pro forma disclosures were presented in the
notes to the Company's consolidated financial statements for 1995.
8. In June 1996, the Company acquired an interest in Windermere Utility
Company (Windermere) for an investment of $3,000,000. The investment
agreement provides the majority shareholder the option to acquire the
Company's interest prior to June 1998 at an agreed upon price. If the
majority shareholder does not exercise its option, the Company has the
right to acquire 100% of Windermere for an agreed upon price. It is the
majority shareholder's intent to acquire the Company's interest. The
Company also executed a consulting agreement with Windermere and an
additional agreement by which the Company may receive an annual payment
based on Windermere's financial performance.
6
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
Liquidity and capital resources of the Company are influenced primarily by
construction expenditures at Suburban Water Systems (Suburban) for the
replacement and renovation of existing water utility facilities and by
construction expenditures for new water and wastewater utility facilities at New
Mexico Utilities, Inc. (NMUI). To a lesser extent, liquidity is influenced by
the Company's continuing investment in ECO Resources Inc. (ECO).
At September 30, 1996, the Company had cash and cash equivalent balances
totaling $1,114,000. The Company has four lines of credit from three commercial
banks, including a $6,000,000 one year credit facility obtained in August 1996.
As of September 30, 1996, the Company had a total line of credit capacity of
$16,000,000, and unused lines of credit of $3,514,000. During the first nine
months of 1996, the Company borrowed a net $7,311,000 on its lines of credit in
order to fund construction at its utility operations and to make an investment
in Windermere. Two of the lines of credit were renewed in 1996 and expire in
1997. The two remaining lines of credit expire in 1997 and are expected to be
renewed in the normal course of business. The Company also had a $3,000,000
term loan which was paid in full at maturity on October 30, 1996.
The Company's additions to property, plant and equipment were $10,851,000 for
the nine months ended September 30, 1996, representing an increase of $3,610,000
over the same period in 1995. This increase relates primarily to utility plant
additions both at NMUI in response to increased residential and commercial
construction and at Suburban for new and refurbishing existing utility plant.
To help fund the plant additions, developers made cash contributions in aid of
construction (CIAC) totaling $881,000. In addition, $2,595,000 was received
from developers through non-cash CIAC. The Company anticipates that its funding
of construction projects will decrease during the next three months with short-
term borrowing anticipated to meet construction requirements.
Capital expenditures at NMUI are expected to decrease approximately $3,700,000
in 1997 due to the completion of major projects in 1996. Developer CIAC
received will also decrease accordingly. Suburban's 1997 capital expenditures
are expected to increase approximately $1,100,000 over 1996 levels, due to the
construction of additional new utility plant and the refurbishment of existing
utility plant. Short-term borrowing is anticipated by the Company in 1997 for
capital expenditures not funded by operations or CIAC.
The Company completed long-term First Mortgage Bond financing negotiations and
made private placements during the third quarter of 1996. In October 1996,
Suburban received $8,000,000 of bond proceeds, and NMUI will receive $4,000,000
of bond proceeds in November 1996. Both financing arrangements have a 10-year
maturity period with semi-annual interest only payments required. Proceeds will
be used to repay a portion of short-term debt and fund ongoing construction
requirements at the utilities. Following the bond financings, the Company has
remaining borrowing capacity under its First Mortgage Bond Indentures of
approximately $19,689,000. The amount of additional borrowing available to the
Company under the lines of credit currently in place is limited by financial
covenants that restrict additional borrowing at September 30, 1996 to a maximum
of $7,600,000.
The Company anticipates that its available short term borrowing capacity and its
cash flow generated from operations are sufficient to fund its activities for
the next 12 months. If additional cash were needed, the Company would consider
alternative sources including long-term financing. The amount and timing of any
future long-term financing will depend on various factors, including the
timeliness and adequacy of rate increases, the availability of capital, and the
Company's ability to meet interest and fixed charge coverage
7
<PAGE>
requirements. Regulatory approval is required for any long-term financing by
Suburban and NMUI. If the Company were unable to renew its existing lines of
credit or obtain additional long-term financing, capital spending would be
reduced or delayed until new financing arrangements were secured. Such
financing arrangements could include seeking equity financing through a private
placement or a public offering.
REGULATORY AFFAIRS AND INFLATION:
Regulation:
- -----------
The rates and operations of the Company's utilities are regulated by the
California Public Utilities Commission (CPUC) and the New Mexico Public Utility
Commission (NMPUC). The rates allowed are intended to provide the utilities an
opportunity to earn a reasonable return on common equity. The Company
anticipates that future construction expenditures and increased direct operating
expenses will require periodic requests for rate increases.
In December 1995, Suburban and the CPUC staff negotiated a rate increase of
4.25% ($1.1 million), with two additional increases for inflation in 1997 and
1998. Final CPUC approval was received on April 19, 1996, with the new rates
effective April 24, 1996. The rate increase authorizes Suburban to earn a 10%
return on common equity.
1995 Tax Legislation:
- ---------------------
The Water Utility Infrastructure Improvement Act of 1995 was passed by the
California legislature and signed by the governor on August 10, 1995. This law
provides that water utilities that sold excess real property and invested the
net proceeds of the sale in its utility plant within an eight-year period are
not required to allocate any gains to ratepayers. Any net proceeds not invested
in utility plant during the eight-year period must be allocated to ratepayers.
The legislation applies to land sales occurring after December 31, 1995.
1996 Tax Legislation:
- ---------------------
From 1990 through 1995, Suburban recorded pretax gains on land sales of four
parcels of excess real property totaling $1,690,000. The allocation of the
gains have not been ruled on by the CPUC with regards to allocation between
ratepayers and shareholders. On September 26, 1996, Senate Bill 1099 was passed
by the California legislature and signed by the governor. This law, effective
on January 1, 1997, is identical to the Water Utility Infrastructure Improvement
Act of 1995, and applies to real property sold before January 1, 1996, such as
Suburban's land sales. Since the proceeds of the four land sales were invested
in utility plant, the gains should not be subject to allocation to the
ratepayers.
On August 20, 1996, legislation was enacted that changed the federal tax
treatment of CIAC. Since 1986, water utilities have been required to include
CIAC in taxable income for federal tax purposes at the time of receipt and to
depreciate the related plant. The new law repealed the requirement to include
CIAC as taxable income and pay taxes at the time of receipt and also eliminated
the depreciation deduction. The law is effective for CIAC received after June
12, 1996.
To help fund the repeal of the income tax on CIAC, the legislation also changed
the depreciation method and useful life for most water utility property. The
old rules allowed a 150% declining balance depreciation method over a 20-year
period; the new rules require straight line depreciation over a 25-year period.
The net impact of the repeal of the income tax on CIAC combined with the change
in depreciation calculations should impact NMUI's cash flow favorably, since
high levels of CIAC are expected in its fast growing service area. The effect
on earnings at Suburban is not expected to be significant, however, cash flow
could be negatively affected by the legislation. Until the Internal Revenue
Service completes its final regulations and the states of California and New
Mexico complete changes, if any, to their tax regulations,
8
<PAGE>
the full impact of this tax change is not known at this time. The Company does
not believe that these tax law changes will have an adverse impact on its
ability to fund its ongoing operations and capital needs.
Regulatory Developments:
- ------------------------
The California legislature has held hearings discussing the CPUC's organization
and operation. Among other options, the CPUC has proposed consideration of
performance-based rate making, which provides incentives for utilities to
operate more efficiently and improve productivity, and is intended to reduce
regulatory burden and promote efficiency among utilities. Ratepayers and
stockholders would both likely benefit from improved productivity. Legislative
and CPUC developments are closely monitored by the Company and by the various
water industry associations in which the Company actively participates. Whether
such legislative or CPUC developments will be enacted, or, if enacted, what the
terms of such developments would be, are not known by the Company. Therefore,
management cannot predict the impact of final legislative or CPUC developments
on the Company's financial condition or results of operations.
Contract Operations:
- --------------------
The operations of ECO are not regulated. ECO's long-term water and wastewater
service contracts typically include annual inflation adjustments. Most
contracts with municipal utility districts are short-term contracts and do not
generally include inflation adjustments. Changes in prices are negotiated on a
contract by contract basis.
ENVIRONMENTAL AFFAIRS:
The Company's operations are subject to water and wastewater pollution
prevention standards and water and wastewater quality regulations of the United
States Environmental Protection Agency (EPA) and various state regulatory
agencies. The EPA and state regulatory agencies continue to promulgate new
regulations mandated by the Federal Water Pollution Control Act, the Safe
Drinking Water Act (as reenacted in 1996), and the Resource Conservation and
Recovery Act. To date, the Company has not experienced any material adverse
effects upon its operations resulting from compliance with governmental
regulations. Costs associated with the testing of the Company's water supplies
have, however, increased and are expected to increase further as the regulatory
agencies adopt additional monitoring requirements. The Company believes that
future incremental costs of complying with governmental regulations, including
capital expenditures, if any, will be recoverable through increased rates and
contract operations revenues. However, there is no assurance that recovery of
such costs will be allowed.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
- --------------------------------------------------------------------
SEPTEMBER 30, 1995
- ------------------
Earnings per common share increased from $.31 in 1995 to $.33 in 1996.
Operating income increased $166,000, or 9%, and, as a percentage of operating
revenues, remained the same in 1996 and 1995. Operating income at the utilities
remained primarily unchanged. ECO's operating loss decreased by $56,000
compared to 1995. Parent company expenses decreased $83,000 primarily due to
the reduction in outside consulting services.
Operating revenues
- ------------------
Operating revenues increased $1,628,000, or 10%. Water utility revenues
increased $750,000 due to warmer weather in comparison to 1995 resulting in a
3.5% increase in water consumption by Suburban's customers and a 2% increase in
water consumption by NMUI's customers. Suburban also benefited from a rate
increase authorized in April 1996. NMUI added 149 new water customers in the
third quarter of 1996,
9
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which also contributed to the increase. ECO's revenues increased $878,000
primarily as a result of revenues from additional work outside the scope of its
contracts.
Direct operating expenses
- -------------------------
Direct operating expenses increased $1,334,000 or 11%. As a percentage of
operating revenues, these expenses were 75% in both 1996 and 1995. Water utility
direct operating expenses increased $624,000, which reflects the increase in
water consumption by Suburban and NMUI customers along with increases in
purchased water from outside sources to meet customer demand. ECO's direct
operating expenses increased $710,000, resulting primarily from higher expenses
associated with additional work outside the scope of contracts.
Selling, general and administrative
- -----------------------------------
Selling, general and administrative expenses increased $128,000 or 6%. As a
percentage of operating revenues, these expenses decreased from 14% in 1995 to
13% in 1996. Selling, general and administrative expenses at Suburban and NMUI
increased $99,000, due primarily to higher payroll expenses. ECO's selling,
general and administrative expenses increased $112,000 due primarily to
increased marketing and payroll expenses. As discussed above, general and
administrative expenses of the parent company decreased $83,000.
Other income and expense
- ------------------------
Interest expense increased $131,000 primarily due to higher line of credit
balances. Other income increased by $54,000 primarily due to consulting fees
received from Windermere.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
- ------------------------------------------------------------------
SEPTEMBER 30, 1995
- ------------------
Earnings per common share increased from $.34 in 1995 to $.49 in 1996. Results
for the first nine months of 1995 included a net gain of $50,000, or $.02 per
common share, from the sale of surplus land owned by Suburban in the first
quarter of 1995, and a net gain of $105,000 ($175,000 on a pretax basis) from
the recovery of disputed property tax assessments by Suburban in the second
quarter of 1995.
Operating income increased $1,028,000, or $33%, and, as a percentage of
operating revenues, increased from 7% in 1995 to 8% in 1996. Operating income at
the utilities increased $603,000 due primarily to increased water consumption
and the effects of a rate increase in the second quarter of 1996. NMUI's
customer base growth also contributed to the increase. ECO's operating loss
decreased by $798,000 compared to 1995, due primarily to additional work outside
the scope of contracts, new contracts, and cost containment. Parent company
expenses increased $373,000 primarily due to additional corporate reserves
offset partially by a reduction in outside consulting fees.
Operating revenues
- ------------------
Operating revenues increased $8,436,000 or 20%. Water utility revenues
increased $2,532,000 due to warmer weather resulting in an increase in water
consumption by customers at Suburban and NMUI. Suburban also benefited from a
water rate increase. NMUI added 587 new water customers in the first nine
months of 1996. ECO's revenues increased $5,904,000, primarily as a result of
revenues from additional work outside the scope of contracts and the benefit of
new contracts entered into in 1995.
Direct operating expenses
- -------------------------
Direct operating expenses increased $6,739,000 or 21%. As a percentage of
operating revenues, these expenses were 77% in 1996 and 76% in 1995, with the
one percent increase due primarily to purchases of water from outside sources to
meet increased customer demand. Water utility direct operating expenses
10
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increased $1,661,000, primarily reflecting the increase in water costs needed to
meet increased consumption by Suburban and NMUI customers. ECO's direct
operating expenses increased $5,078,000, resulting primarily from higher
expenses associated with additional work outside the scope of contracts and new
contracts.
Selling, general and administrative
- -----------------------------------
Selling, general and administrative expenses increased $669,000 or 10%. As a
percentage of operating revenues, these expenses decreased from 16% in 1995 to
15% in 1996. Selling, general and administrative expenses at the utilities
increased $268,000 primarily due to the impact of the tax assessment recovery in
1995 noted earlier. ECO's selling, general and administrative expenses
increased $28,000. As discussed above, general and administrative expenses of
the parent company increased $373,000.
Other income and expense
- ------------------------
Interest expense increased $328,000 primarily due to higher line of credit
balances. Other income increased $94,000 primarily due to consulting fees
received from Windermere.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
In September 1995, Suburban, the Company, and several unrelated parties were
served with a complaint by a former employee of Suburban who worked for Suburban
in the 1950's. The plaintiff claimed he was exposed to asbestos fibers during
his employment and, as a result of such exposure, he contracted mesothelioma.
Suburban and the Company denied all allegations in their response to the
complaint. In late 1995, the former employee died and in 1996, the former
employee's widow and children filed a wrongful death action against Suburban and
the Company. This complaint alleges the same facts as the first complaint, plus
the death of the former employee. The two actions have been consolidated.
The plaintiffs claim the defendants are responsible on the basis of negligence,
breach of warranty and strict liability. Both actions seek unspecified general
damages and burial expenses. The Company has made written demands for defense
and indemnity against all general liability and workers' compensation carriers
who provided coverage during the last 30 years. Two workers' compensation
carriers have acknowledged Suburban's written demands for defense and indemnity
against all general liability but have not accepted responsibility for defense
or indemnity. One general liability carrier has agreed, on a very limited
basis, to accept defense and indemnity obligations under the liability policies
it issued. Suburban and the Company are continuing discussions with other
general liability carriers concerning their acceptance of defense and indemnity
obligations.
Certain defendants who were alleged to be suppliers of asbestos cement pipe to
Suburban have been dismissed on the basis that they were not suppliers to
Suburban. The alleged manufacturer defendant may not be reachable in these
actions due to certain rulings made in a bankruptcy proceeding. As a result,
Suburban and the Company may be the only remaining defendants in the actions.
The plaintiffs have initiated discovery with responses due in November 1996.
Suburban and the Company maintain that they have no responsibility for the death
of the former employee and intend to contest these claims vigorously.
As described in the Company's 1995 Form 10-K Report, Suburban was a defendant
and cross-defendant in two actions filed in March 1994 and June 1994 in the
Superior Court of Los Angeles County arising from a slope failure in 1992 in a
hilly residential development in West Covina, California. These actions were
settled during the second quarter of 1996 for $150,000. Suburban's share of the
settlement payment was $32,000, and Suburban's insurance carrier agreed to fund
any payment in excess of Suburban's deductible.
11
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There have been no other significant changes in the various litigation matters
described in the Company's 1995 Form 10-K Report.
The Company is the subject of certain litigation arising from the ordinary
course of operations. The Company believes the ultimate resolution of such
matters will not materially affect its consolidated financial condition, results
of operations or cash flow.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits furnished pursuant to Item 601 of Regulation S-K
4.7 Third Amendment and Supplement to Indenture of Mortgage dated
October 9, 1996, between Suburban Water Systems and First Trust
of California, N.A., filed herewith.
4.8 Second Amendment and Supplement to Indenture of Mortgage dated
October 21, 1996, between New Mexico Utilities, Inc. and Sunwest
Bank of Albuquerque, N.A., filed herewith.
10.13 Credit Agreement dated June 30, 1996 between Suburban Water
Systems and Wells Fargo Bank, N.A., filed herewith.
10.14 Credit Agreement dated August 29, 1996 between Registrant and
Mellon Bank, N.A., filed herewith.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
September 30, 1996.
12
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SIGNATURES
Pursuant to the requirements 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.
SOUTHWEST WATER COMPANY
-----------------------
(Registrant)
Dated: November 4, 1996 /s/ PETER J. MOERBEEK
- ----------------------- ---------------------
Peter J. Moerbeek, Vice President Finance and
Chief Financial Officer
13
<PAGE>
EXHIBIT 4.7
RECORDING REQUESTED BY, AND
WHEN RECORDED, MAIL TO:
James W. Daniels, Esq.
Latham & Watkins
650 Town Center Drive, Suite 2000
Costa Mesa, California 92626
INSTRUCTIONS TO COUNTY RECORDER:
Index this instrument as an
Amendment to Mortgage.
- -------------------------------------------------------------------------------
SUBURBAN WATER SYSTEMS
TO
FIRST TRUST OF CALIFORNIA,
NATIONAL ASSOCIATION,
TRUSTEE
- -------------------------------------------------------------------------------
THIRD AMENDMENT AND SUPPLEMENT TO
INDENTURE OF MORTGAGE DATED OCTOBER 1, 1986
[This instrument is an amendment to an Indenture which is a mortgage
of both real and personal property, including chattels, and also
constitutes, among other things, a security agreement creating a
security interest in personal property. Such Indenture contains
after-acquired property provisions.]
<PAGE>
THIS THIRD AMENDMENT AND SUPPLEMENT TO INDENTURE OF MORTGAGE AND DEED OF
TRUST DATED OCTOBER 1, 1986 (the "Third Amendment"), is made and entered into as
of October 9, 1996, by and between SUBURBAN WATER SYSTEMS, a California
-
corporation formerly known as Southwest Suburban Water (herein, the "Company"),
and FIRST TRUST OF CALIFORNIA, National Association, a national banking
association, as trustee (herein, the "Trustee"), with respect to the following:
RECITALS
--------
A. The Company and the Trustee are parties to a certain Indenture of
Mortgage and Deed of Trust dated October 1, 1986 (the "Original Indenture"),
which Original Indenture was recorded on November 17, 1986, as Instrument No.
86-1574184 in the Official Records of the County of Los Angeles, State of
California, and was recorded on November 17, 1986, as Instrument No. 86-563570
in the Official Records of the County of Orange, State of California.
B. The Original Indenture was amended pursuant to that certain First
Amendment and Supplement to Indenture of Mortgage and Deed of Trust Dated
October 1, 1986 (the "First Amendment"), dated as of February 7, 1990, and
recorded on April 12, 1990, as Instrument No. 90-694089 in the Official Records
of the County of Los Angeles, State of California, and was recorded on May 8,
1990, as Instrument No. 90-241742 in the Official Records of the County of
Orange, State of California and further amended pursuant to that certain Second
Amendment and Supplement to Indenture of Mortgage Dated October 1, 1986 (the
"Second Amendment"), dated as of January 24, 1992, and recorded on February 14,
1992, as Instrument No. 92-260829 in the Official Records of the County of Los
Angeles, State of California, and was recorded on February 14, 1992, as
Instrument No. 92-091620 in the official records of the County of Orange, State
of California. The Original Indenture, as amended and supplemented by the First
Amendment and the Second Amendment, is hereinafter referred to as the "Existing
Indenture," and the Existing Indenture as amended and supplemented by this Third
Amendment is hereinafter referred to as the "Indenture."
C. The Company has requested that the Trustee enter into this Third
Amendment setting forth the terms and conditions of the issuance of certain
Bonds in the aggregate principal amount of $8,000,000, which Bonds shall be
issued as "Series C" under and pursuant to the Indenture.
D. The Company has duly authorized the creation, execution and delivery
of the Series C Bonds, and all things have been done which are necessary to make
the Series C Bonds, when executed by the Company and authenticated and delivered
by the Trustee under the Indenture and duly issued by the Company, the valid and
binding obligations of the Company, and to constitute the Indenture a valid
mortgage and deed of trust and a security agreement and contract for the
security of the Bonds (including, without limitation, the Series C Bonds), in
accordance with the terms of the Bonds and the Indenture. In addition, all other
instruments and actions required pursuant to law and pursuant to the
requirements of the Existing Indenture for the Trustee to execute and deliver
this Third Amendment have been duly delivered or taken.
2
<PAGE>
AMENDMENT
---------
IN CONSIDERATION OF the foregoing recitals and pursuant to the authority
granted under Section 13.01 of the Indenture [Supplemental Indentures Without
-------------------------------
Consent of Bondholders], the Company and the Trustee agree that the Existing
- ----------------------
Indenture shall be amended in the following respects:
1. DEFINITIONS. All terms used in this Third Amendment with initial
-----------
capital letters and not defined herein shall have the meanings given in the
Existing Indenture.
2. ORIGINAL ISSUANCE OF SERIES C BONDS. There is hereby added to the
-----------------------------------
Existing Indenture a new Article, to be entitled Article XVII and which shall
read in its entirety as follows:
"ARTICLE XVII
"TERM AND ISSUE OF SERIES C BONDS
--------------------------------
"SECTION 17.01. SPECIFIC TITLE, TERMS AND FORMS.
-------------------------------
"There shall be a third series of Bonds entitled
"`First Mortgage Bonds,
"Series C 7.61%, Due October 20, 2006'
(herein called the "Series C Bonds"). The forms thereof shall be substantially
as set forth in Article II with such insertions, omissions, substitutions and
variations as may be determined by the officers executing the same as evidenced
by their execution thereof to reflect the applicable terms of the Series C Bonds
established by this Article. The precise form of the Series C Bonds shall be as
set forth in an exhibit to the Bond Purchase Agreement (the "Purchase
Agreement") pursuant to which the Series C Bonds are sold and the Trustee is
authorized to refer to such Purchase Agreement when any Series C Bonds are
presented to the Trustee for authentication.
"The Stated Maturity of the Series C Bonds shall be October 20, 2006 and
the aggregate principal amount thereof which may be authenticated and delivered
and Outstanding is limited to $8,000,000.
"The Series C Bonds may be issued only as registered Bonds in denominations
of $1,000 and any multiple thereof. The Series C Bonds shall bear interest from
the later of the initial issuance of the Series C Bonds or the most recent
Interest Payment Date to which interest has been paid or duly provided for. The
Series C Bonds shall bear interest payable semi-annually on April 20 and October
20 of each year (the Interest Payment Dates of the Series C Bonds), at the rate
of 7.61% per annum until the principal thereof shall be paid or
3
<PAGE>
duly provided for; PROVIDED that interest on any overdue principal, overdue
--------
Redemption Price, and (to the extent permitted by applicable law) overdue
interest, shall accrue at a rate equal to the lesser of (a) the highest rate
allowed by applicable law or (b) 8.61% per annum. Interest shall be computed on
the basis of a 360-day year of twelve 30-day months. In no event shall the
interest payable on any Series C Bonds (including any interest on overdue
interest or any overdue Redemption Price) exceed the maximum amount which the
Holder thereof may legally collect under the then applicable usury law. In the
event that it is hereafter determined by a court of competent jurisdiction that
the interest payable under any Series C Bond (including any interest on any
overdue Redemption Price or overdue interest) is in excess of the amount which
the Holder thereof may legally collect under the then applicable usury law, then
(i) all interest actually paid (including any interest on any overdue interest
or overdue Redemption Price) in excess of the maximum amount legally collectible
by such Holder shall be applied to the payment of principal of such Series C
Bond or, if all principal shall previously have been paid, promptly repaid by
such Holder to the Company, and (ii) interest on such Series C Bond (including
any interest on overdue interest or any overdue Redemption Price) subsequent to
the date of such determination shall be reduced to the maximum amount which it
is determined that the Holder may collect under the then applicable usury law.
"Notwithstanding the provisions of Section 5.05 [Deposit of Redemption
---------------------
Price] the principal and the Redemption Price of, and the interest on, the
- -----
Series C Bonds shall be payable by crediting, before 12:00 noon, New York time,
by federal funds bank wire transfer, the account of each Bondholder of the
Series C Bonds in any bank in the United States as may be designated in a
written notice to the Company by such Bondholder, or in such other manner as may
be directed, or to such other address in the United States as may be designated,
in writing by such Bondholder. The addresses on Annex 1 to the Purchase
Agreement with respect to the initial purchasers of the Series C Bonds shall be
deemed to constitute notice, direction or designation (as appropriate) to the
Company with respect to direct payments to such purchasers as aforesaid. With
regard to any Series C Bond, the bank designated pursuant to this paragraph with
respect to such Series C Bond shall be the Place of Payment in respect of such
Series C Bond.
"The Regular Record Date referred to in Section 2.10 [Payment of Interest
-------------------
on Bonds: Interest Rights Preserved] for the payment of the interest payable on
- -----------------------------------
the Series C Bonds, and punctually paid or duly provided for, on any Interest
Payment Date shall be the 15th day (whether or not a Business Day) of the
calendar month next preceding such Interest Payment Date.
"If any payment due on, or with respect to, any Series C Bonds shall fall
due on a day other than a Business Day, then such payment shall be made on the
first Business Day following the day on which such payment shall have so fallen
due; PROVIDED that if all or any portion of such payment shall consist of a
--------
payment of interest, for purposes of calculating such interest, such payment
shall not be deemed to have been originally due on such first following Business
Day, and such interest shall accrue and be payable only to the Interest Payment
Date.
4
<PAGE>
"SECTION 17.02. EXCHANGEABILITY.
---------------
"Subject to Section 2.08 [Registration, Transfer and Exchange], all Series
-----------------------------------
C Bonds shall be fully interchangeable, and, upon surrender at the office or
agency of the Company in a Place of Payment therefor, shall be exchangeable for
other Series C Bonds of a different authorized denomination or denominations, as
requested by the Holder surrendering the same. The Company will execute, and the
Trustee shall authenticate and deliver, Series C Bonds whenever the same are
required for any such exchange.
"SECTION 17.03. REDEMPTION.
----------
"A. The Series C Bonds are subject to redemption, in whole or in part,
before their Stated Maturity in the following events and in the manner provided
in Article V [Redemption of Bonds]:
-------------------
"(1) at any time after issuance, at the option of the Company
evidenced by a Board Resolution, at a Redemption Price equal to 100% of the
principal amount of the Series C Bonds to be redeemed, together with the Make-
Whole Amount at such time (as shall be calculated by the Company and specified
to the Trustee two (2) business days prior to the date of Redemption) and
interest accrued to the Redemption Date, on a Redemption Date specified by the
Company in compliance with Section 5.02 [Election to Redeem; Notice to Trustee];
-------------------------------------
and
"(2) from moneys received by the Trustee as a result of a major
casualty or condemnation as provided in Articles VII [Possession and Release of
-------------------------
Property] and VIII [Application of Trust Moneys], at a Redemption Price equal to
- -------- ---------------------------
100% of the principal amount of Bonds to be redeemed, together with interest
accrued to the Redemption Date, and on a Redemption Date that is the first date
for which notice of redemption can be given by the Trustee as provided in
Article V [Redemption of Bonds]. For purposes of this Section 17.03 a "major"
-------------------
casualty or condemnation is one in which either or both of (i) the compensation
for, or proceeds of sale of, any part of the Trust Estate Taken by Eminent
Domain, or (ii) the proceeds of insurance upon any part of the Trust Estate, is
equal to or greater than $15,000,000.
"B. Notwithstanding the last sentence of the first paragraph of Section
5.04 [Notice of Redemption] and the first sentence of the second paragraph of
--------------------
Section 1.04 [Notices to Bondholders; Waiver], the giving of notice of
------------------------------
redemption to each Holder of a Series C Bond, as provided in Section 5.04, shall
be a condition precedent to the Company's right to redeem Series C Bonds in
accordance with the foregoing clauses A(1) and A(2) of this Section 17.03.
"C. Notwithstanding the provisions of Section 5.03 [Selection by Trustee
--------------------
of Bonds To Be Redeemed], if there is more than one Holder of the Series C
- -----------------------
Bonds, the aggregate principal amount of each required or optional partial
redemption of the Series C Bonds shall be allocated in units of $100,000 or
multiples thereof among the Holders of the Series C Bonds at the time
Outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts of the Series C Bonds then Outstanding held by each such
Holder of Series C Bonds,
5
<PAGE>
with adjustments, to the extent practicable, to equalize for any prior
redemptions not in such proportion. For the purpose of this Section 17.03 only,
any Series C Bonds reacquired by the Company shall be deemed to be outstanding
and the Company shall be deemed to be the Holder thereof.
"D. Notwithstanding the second sentence of Section 5.06 [Bonds Payable on
----------------
Redemption Date] or the provisions of Section 5.07 [Bonds Redeemed in Part], no
- --------------- ----------------------
Holder of any Series C Bonds shall be required to surrender such Bond to any
Person, or to file, or cause to be filed, with the Trustee any agreement or
certificate required by Section 5.07, prior to receiving any payment thereon or
in respect thereof; PROVIDED, HOWEVER, that upon payment of the principal or
-------- -------
Redemption Price and interest on and all other amounts in respect of such Series
C Bond, the Holder thereof shall promptly thereafter surrender such Series C
Bond to the Company. Any such Series C Bond so surrendered shall be cancelled
and shall not be reissued, and no new Series C Bond shall be issued in lieu of
such surrendered Series C Bond.
"E. The Series C Bonds may be redeemed from Trust Moneys, as provided in
Section 8.04 [Retirement of Bonds], or from moneys received by the Trustee as a
-------------------
result of casualty or condemnation, as provided in Articles VII [Possession and
--------------
Release of Property] and VIII [Application of Trust Moneys], but only at the
- ------------------- ---------------------------
time, in the manner and at the Redemption Price specified in clauses (A)(1) and
(A)(2) of this Section 17.03. If the Series C Bonds, or any other Bonds having
the benefit of a redemption provision substantially identical to that contained
in Section 17.03A(2), shall be redeemed under Section 17.03A(2), then said
Series C Bonds shall be redeemed pro rata with the Series A Bonds, Series B
Bonds and any other Bonds having the benefit of a redemption provision
substantially identical to that contained in Section 17.03A(2), in proportion,
as nearly as practicable, to the respective unpaid principal amounts of all such
Bonds Outstanding on the Redemption Date.
"SECTION 17.04. PAYMENT OF OPTIONAL REDEMPTION PRICE.
------------------------------------
"If the giving of notice of optional redemption shall have been completed
as required in Article V [Redemption of Bonds], the Series C Bonds or portions
-------------------
of such Series C Bonds specified in such notice shall become due and payable on
the Redemption Date at the applicable Redemption Price set forth in Section
17.03. On and after the Redemption Date (unless the Company shall default in
the payment of such Bonds on the Redemption Date) interest on the Series C Bonds
or the portions of the Series C Bonds so called for redemption shall cease to
accrue.
"If any Holder of any Series C Bond which is redeemed in part only shall
present such Bond to the Company, the Company shall execute and the Trustee
shall authenticate and deliver to such Holder, at the expense of the Company, a
new Series C Bond or Bonds in aggregate principal amount equal to the unredeemed
portion of the Series C Bond so presented.
6
<PAGE>
"SECTION 17.05. AUTHENTICATION AND DELIVERY.
---------------------------
"Upon the execution and delivery of this Third Amendment, the Company shall
execute and deliver to the Trustee, and the Trustee shall authenticate, the
Series C Bonds and deliver them to the purchasers thereof as instructed by the
Company.
"Prior to the delivery by the Trustee of the Series C Bonds there shall be
filed with the Trustee original executed counterparts of this Third Amendment,
the Purchase Agreement, the Title Policies or commitments for issuance thereof
and evidence of recording of this Third Amendment in the land records of Los
Angeles and Orange Counties, California."
3. CERTAIN AMENDMENTS TO DEFINITIONS.
---------------------------------
(a) Make-Whole Amount Definitions. Section 1.01 [Definitions] of the
----------------------------- -----------
Existing Indenture is hereby amended by restating certain of the
definitions added to the Original Indenture by means of the Second
Amendment. Each of the following definitions is amended to read, in their
respective entireties, as follows:
"`Make-Whole Amount' means, at any time, with respect to any
-----------------
prepayment of Series B Bonds being redeemed pursuant to Section 16.03A(1)
or the maturity of which has been accelerated, or any prepayment of Series
C Bonds being redeemed pursuant to Section 17.03A(l) or the maturity of
which has been accelerated, the excess, if any, of (a) the aggregate
present value as of the date of such prepayment of each dollar of principal
being prepaid and the amount of interest (exclusive of interest accrued to
the date of prepayment) that would have been payable in respect of such
dollar of principal if such prepayment had not been made, determined by
discounting such amounts at the Reinvestment Rate at such time from the
respective dates on which they would have been payable; over (b) 100% of
the principal amount of the Outstanding Series B or Series C Bonds, as
applicable, being prepaid or being accelerated. If the Reinvestment Rate is
equal to or higher than 9.09% in the case of the Series B Bonds, or 7.61%
in the case of the Series C Bonds, as applicable, the Make-Whole Amount
shall be zero."
"`Remaining Dollar-Years' of any principal amount of Series B Bonds or
----------------------
Series C Bonds, as applicable, at any time shall mean the amount obtained
by (a) multiplying, for each scheduled payment date, (i) the remainder of
(1) the aggregate amount of principal amount of the Series B Bonds or
Series C Bonds, as applicable, that would have become due on such scheduled
payment date if such prepayment or acceleration had not been made; minus
-----
(2) the aggregate amount of principal on the Series B Bonds or Series C
Bonds, as applicable, scheduled to become due on such date after giving
effect to such prepayment or acceleration; 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 (b) totalling the
products obtained in (a)."
7
<PAGE>
"`Statistical Release' means, at any time, 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 government
securities adjusted to constant maturities or, if such statistical release
is not published at the time of any determination hereunder, then such
other reasonably comparable index which shall be designated by the Holders
of 66-2/3% in aggregate principal amount of the Series B Bonds or Series C
Bonds, as applicable, then Outstanding."
"`Weighted Average Life to Maturity' of the principal amount of Series
---------------------------------
B Bonds or Series C Bonds, as applicable, being prepaid or accelerated
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 amount by the aggregate amount of such principal."
(b) Section 1.01 Definition of Place of Payment. The definition of
-------------------------------------------
"Place of Payment" added to Section 1.01 [Definitions] of the Original Indenture
-----------
by the Second Amendment is hereby amended to read, in its entirety, as follows:
"`Place of Payment' means, (a) when used with respect to the Series A
----------------
Bonds (except as provided in clause (d) below), the place for payment of the
principal and interest upon the Series A Bonds designated in Section 3.01; (b)
when used with respect to the Series B Bonds (except as provided in clause (d)
below), the place for payment of the principal, Make-Whole Amount, if any, and
interest upon the Series B Bonds designated in Section 16.01; (c) when used with
respect to the Series C bonds (except as provided in clause (d) below), the
place for payment of the principal, Make-Whole Amount, if any, and interest upon
the Series C Bonds designated in Section 17.01; and (d) with respect to any
exchange of Series A Bonds pursuant to Section 3.02 [Exchangeability], with
---------------
respect to any exchange of Series B Bonds pursuant to Section 16.02
[Exchangeability], with respect to any exchange of Series C Bonds pursuant to
---------------
Section 17.02 [Exchangeability] and with respect to Bonds of any other series
---------------
means a city or any political subdivision thereof in which the Company is by
this Indenture required to maintain an office or agency for the payment of the
principal of or interest on the Bonds of such series."
(c) Section 1.01 Definition of Permitted Encumbrances. Clause (1) of
-------------------------------------------------
the definition of "Permitted Encumbrances" contained in Section 1.01
[Definitions] of the Original Indenture, as previously amended and restated by
- ------------
the Second Supplement, is hereby amended to read, in its entirety, as follows:
"(1) (a) as to the property specifically described in Granting Clause
First and Exhibit 'A' as of February 20, 1992, all matters shown as exceptions
to the Title Policies; and (b) as to all other property, restrictions,
exceptions, reservations, conditions, limitations, interests or other matters
which either (i) (A) fall into one of the categories in (2)-(10) of this
definition and (B) do not materially detract from the value of the property
affected thereby and do not materially impair the use of such
8
<PAGE>
property for purposes for which it is held by the Company or (ii) are approved
by the Holders of 66 2/3% or more in aggregate principal amount of Bonds of each
Series then Outstanding;"
(d) Section 4.02(B) Requested Use of Bondable Capacity. The following
--------------------------------------------------
passages of the Original Indenture are amended as follows:
(i) The Phrase "seventy percent (70%)" appearing in clause (2)(f)
of Section 4.02B of the Existing Indenture is amended to read "sixty-six and
two-thirds percent (66 2/3%)"; and
(ii) The phrase "seventy percent (70%)" appearing in the
instructions between item 6 and item 7 in the form of Summary Certificate of
Bondable Capacity contained in Section 4.02B of the Existing Indenture is
amended to read "sixty-six and two-thirds percent (66 2/3%)."
(e) Section 4.02 Bondable Property Definition. The definition of
-----------------------------------------
"Bondable Property" contained in Section 4.02A [Issuance of Additional Bonds (or
--------------------------------
Withdrawal of Cash) Upon Basis of Bondable Capacity] of the Existing Indenture
- ---------------------------------------------------
is hereby amended and restated in its entirety to read as follows:
"Bondable Property means all Property Additions, and all property
owned by the Company on the Cut-Off Date which would constitute Property
Additions if acquired after that date, but Bondable Property shall not
include any Excepted Property. To the extent the Company at any time has or
acquires any property subject to any lien not permitted by this Indenture,
interpreted in accordance with this Section 4.02, the Company shall not
include any such property as "Bondable Property" or as a "Property
Addition," or otherwise as property of the Company, in any calculation of
Bondable Capacity during such time as such lien remains on such property;
provided however, that compliance with the terms of this definition of
Bondable Property shall not excuse, cure or waive the occurrence of any
Default or Event of Default continuing at such time by virtue of the
existence of such lien."
(f) Section 4.02 Property Additions Definition. The definition of
------------------------------------------
"Property Additions" contained in Section 4.02A [Issuance of Additional Bonds
----------------------------
(or Withdrawal of Cash) Upon Basis of Bondable Capacity] of the Existing
- -------------------------------------------------------
Indenture is hereby amended restating subsection "(8)" and adding a new
subsection "(9)" thereof, such subsections "(8)" and "(9)" to read, in their
entireties, as follows:
"(8) Any plant or system or other property in which the Company shall
acquire only a leasehold interest or, unless the same shall be movable
physical personal property which the Company has the right to remove, any
betterments, extensions or improvements or additions of, upon or to any
plant or system or other property in which the Company shall own only a
leasehold interest; or"
9
<PAGE>
"(9) Any property acquired or held by the Company at any time subject
to any lien not permitted by the Indenture during such time as such lien
remains on such property."
4. REPLACEMENT OF MUTILATED, DESTROYED, LOST AND STOLEN BONDS. The
----------------------------------------------------------
proviso in lines 5 through 7 of the first paragraph of Section 2.09 [Mutilated,
----------
Destroyed, Lost and Stolen Bonds] of the Existing Indenture is hereby amended to
- --------------------------------
add thereto the words "or Series C Bond" immediately after the words "Series B
Bond."
5. NOTICE OF REDEMPTION OF SERIES A BONDS.
--------------------------------------
(a) Section 3.03E. Section 3.03E of the Original Indenture, as
-------------
previously amended and restated by the Second Amendment, is hereby amended and
restated to read, in its entirety, as follows:
"E. The Series A Bonds may be redeemed from Trust Moneys, as
provided in Section 8.04 [Retirement of Bonds], or from moneys received by the
-------------------
Trustee as a result of casualty or condemnation, as provided in Articles VII
[Possession and Release of Property] and VIII [Application of Trust Moneys], but
---------------------------------- ---------------------------
only at the time, in the manner and at the Redemption Price specified in clauses
(A)(1) and (3) of this Section 3.03. If the Series A Bonds, or any other Bonds
having the benefit of a redemption provision substantially identical to that
contained in Section 3.03A(3), shall be redeemed under Section 3.03A(3), then
said Series A Bonds shall be redeemed pro rata with the Series B Bonds, the
Series C Bonds and any other Bonds having the benefit of a redemption provision
substantially identical to that contained in Section 3.03A(3) in proportion, as
nearly as practicable, to the respective unpaid principal amounts of all such
Bonds Outstanding on the Redemption Date."
6. COVENANTS. In consideration of and in connection with the issuance of
---------
the Series C Bonds, the Company makes the following additional covenants in
favor of the Series C Bondholders (but not the Series A Bondholders, the Series
B Bondholders or the Bondholders of any subsequent series of Bonds, if any):
(a) Dividend Covenant. Section 6.14 [Payment of Dividends] of the
----------------- --------------------
Existing Indenture is hereby amended by adding the following to the end of the
first paragraph thereof:
"In addition to the foregoing, for so long as any of the Series C
Bonds are Outstanding the Company will not declare or make or incur any
liability to make any Distribution in respect of the common stock of the
Company if, immediately after giving effect to the proposed Distribution,
the aggregate amount of Distributions in respect of its common stock made
during the period subsequent to June 30, 1991 would exceed: the sum of (a)
$4,000,000, plus (b) 95% of the aggregate Net Income (or 100% of Net Income
if Net Income shall be a deficit) accrued subsequent to June 30, 1991."
10
<PAGE>
(b) Financial Reports to Series C Bondholders. Article VI [Covenants]
----------------------------------------- ---------
of the Existing Indenture is hereby amended by adding thereto a new Section, to
be entitled Section 6.16 and to read in its entirety as follows:
"SECTION 6.16. FINANCIAL REPORTS TO SERIES C BONDHOLDERS.
"For so long as any of the Series C Bonds are Outstanding, the Company
shall furnish to each of the Series C Bondholders at their addresses for notices
pursuant to Section 1.04 [Notices to Bondholders; Waiver] all financial
------------------------------
statements and information, notices, reports and other information required
pursuant to, and otherwise comply with each of, the provisions of Section 4.1
(together with any successor provision, and as such provision or successor
provision may be amended from time to time) of the Purchase Agreement pursuant
to which the Series C Bonds were originally sold, which provisions are
incorporated by reference herein, mutatis mutandis, with the same effect as if
----------------
set forth herein."
7. POWERS EXERCISABLE NOTWITHSTANDING DEFAULT.
------------------------------------------
(a) Section 7.04. Section 7.04 [Powers Exercisable Notwithstanding
------------ ----------------------------------
Default] of the Original Indenture, as previously amended and restated by the
- -------
Second Amendment, is hereby amended to read, in its entirety, as follows:
"While in possession of all or substantially all of the Trust Estate
(other than any cash and securities constituting part of the Trust Estate
and deposited with the Trustee), the Company may exercise the powers
conferred upon it in the Sections of this Article even though it is
prohibited from doing so while a Default exists as provided therein, if (i)
the Holders of not less than 66-2/3% in principal amount of the Series A
Bonds then Outstanding, (ii) the Holders of not less than 66-2/3% in
principal amount of the Series B Bonds then Outstanding, (iii) the Holders
of not less than 66-2/3% in principal amount of the Series C Bonds then
outstanding and (iv) the Holders of not less than 66-2/3% in principal
amount of all other Bonds then Outstanding (as a group), in each case by
Act of such Bondholders, shall consent to such action, in which event none
of the instruments required to be furnished to the Trustee under any of
such Sections as a condition to the exercise of such powers need state that
no Default exists as provided therein."
(b) Section 8.07. Section 8.07 [Powers Exercisable Notwithstanding
------------ ----------------------------------
Default] of the Original Indenture, as previously amended and restated by the
- -------
Second Amendment, is hereby amended to read, in its entirety, as follows:
"While in possession of all or substantially all of the Trust Estate
(other than any cash and securities constituting part of the Trust Estate
and deposited with the Trustee), the Company may do any of the things
enumerated in Sections 8.02 [Withdrawal on Basis of Bondable Capacity] to
----------------------------------------
8.06 [Amounts Under $100,000], inclusive, which it is prohibited from doing
----------------------
while a Default exists as provided therein, if (i) the Holders of not less
than 66-2/3% in principal amount of the Series A Bonds
11
<PAGE>
then Outstanding, (ii) the Holders of not less than 66-2/3% in principal
amount of the Series B Bonds then Outstanding, (iii) the Holders of not
less than 66-2/3% in principal amount of the Series C Bonds then
Outstanding, and (iv) the Holders of not less than 66-2/3% in principal
amount of all other Bonds then Outstanding (as a group), in each case by
Act of such Bondholders, shall consent to such action, in which event any
Certificate filed under any of said Sections shall omit any statement to
the effect that no Default exists as provided thereunder."
8. EVENTS OF DEFAULT. Section 9.01 [Events of Default] of the Existing
----------------- -----------------
Indenture is hereby amended by adding thereto a new subsection 9.01 D, to read
in its entirety as follows:
"D. `Event of Default' with respect to the Series C Bonds only means any
one of the events specified in clause A of this Section 9.01 or any one of the
following events (whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
"(1) Principal or Premium Payments -- the Company fails to make any
-----------------------------
payment of principal or Make-Whole Amount on any Series C Bond when such payment
is due;
"(2) Interest Payments -- the Company fails to make any payment of
-----------------
interest on any Series C Bond within 5 days after the date such payment is due;
"(3) Particular Covenant Defaults -- the Company fails to perform or
----------------------------
observe any covenant contained in Section 6.06, Section 6.09, Section 6.14, the
last sentence of Section 6.12 or Article XII;
"(4) Other Defaults - the Company fails to comply with any other
--------------
provision of this Indenture or the Purchase Agreement pursuant to which the
Series C Bonds were sold, and such failure continues for more than 30 days after
such failure shall first become known to any officer of the Company;
"(5) Warranties or Representations -- any warranty, representation or
-----------------------------
other statement by the Company or by Southwest Water Company, a Delaware
corporation, contained in this Indenture, the Purchase Agreement pursuant to
which the Series C Bonds were sold or in any instrument or certificate furnished
by the Company in compliance with this Indenture or the Purchase Agreement
pursuant to which the Series C Bonds were sold is false or misleading in any
material respect;
"(6) Default on Indebtedness -- the Company fails to make any payment
-----------------------
due on any indebtedness for borrowed money (including, without limitation, Bonds
of any other series) in an amount aggregating in excess of $1,000,000, or any
event shall occur or any conditions shall exist in respect of any such
indebtedness of the Company, or under any agreement securing or relating to such
indebtedness, the effect of which is (i) to cause (or
12
<PAGE>
permit any Holder of such indebtedness or a trustee to cause) such indebtedness,
or a portion thereof, to become due prior to its stated maturity or prior to its
regularly scheduled date or dates of payment or (ii) to permit a trustee to
elect a majority of the directors on the Board of Directors of the Company; and
"(7) Undischarged Final Judgments - a final judgment or judgments for
----------------------------
the payment of money aggregating in excess of $100,000 is or are outstanding
against the Company and any one of such judgments has been outstanding for more
than thirty (30) days from the date of its entry and has not been discharged in
full or stayed."
9. CONDEMNATION OF ENTIRE TRUST ESTATE. The parenthetical phrase in
-----------------------------------
lines 5 and 6 of Section 8.10 [Condemnation of Entire Trust Estate] of the
-----------------------------------
Original Indenture is hereby amended and restated in its entirety to read as
follows:
"(other than the Series A Bonds, which shall only be redeemable pursuant to
Section 3.03 [Redemption], the Series B Bonds, which shall only be redeemable
----------
pursuant to Section 16.03 [Redemption] and the Series C Bonds, which shall only
----------
be redeemable pursuant to Section 17.03 [Redemption])"
----------
10. NOTICE OF DEFAULTS. The proviso set forth in lines 7 through 14 of
------------------
Section 10.02 [Notice of Defaults] of the Original Indenture is hereby amended
------------------
to add the words "or Series C Bonds" immediately after the words "Series B
Bonds." The proviso set forth in the last four lines of Section 10.02 [Notice of
---------
Defaults] of the Original Indenture is hereby amended and restated to read in
- --------
its entirety as follows:
"PROVIDED, FURTHER, that in the case of any Default with respect to the
Series A Bonds, Series B Bonds or Series C Bonds, the Trustee shall give written
notice thereof to the Holders of, respectively, the Series A Bonds, Series B
Bonds and Series C Bonds, as their names and addresses appear in the Bond
Register, promptly after the Trustee has actual knowledge of such Default."
11. SUPPLEMENTAL INDENTURES WITH CONSENT OF BONDHOLDERS. The proviso in
---------------------------------------------------
lines 4 through 7 of the second to last paragraph of Section 13.02 [Supplemental
------------
Indentures with the Consent of Bondholders] of the Original Indenture is hereby
- ------------------------------------------
amended and restated in its entirety to read as follows:
";PROVIDED, HOWEVER, that the Trustee shall not at any time make any such
-------- -------
determination with respect to the Series A Bonds, Series B Bonds or Series C
Bonds, respectively, without the prior written consent of the Holders of a
majority in principal amount of, respectively, the Series A Bonds, Series B
Bonds or Series C Bonds, as the case may be, Outstanding at such time."
12. EFFECTIVE DATE. As used herein, the Effective Date of this Third
--------------
Amendment shall be that date upon which an executed and acknowledged counterpart
of this Third Amendment is recorded in the Office of the County Recorder of Los
Angeles County, California.
13
<PAGE>
13. INDENTURE IN EFFECT. The Company and the Trustee agree and
-------------------
acknowledge that the Existing Indenture, as amended and supplemented by this
Third Amendment, remains in full force and effect in accordance with its terms.
14. COMPANY COVENANT TO PAY TRUSTEE FEES. By its signature hereto, the
------------------------------------
Company covenants and agrees to pay the reasonable fees and costs of the Trustee
incurred or charged in connection with the review and execution of this Third
Amendment and all other instruments described in Recital D to this Third
Amendment.
15. COUNTERPARTS AND INCLUSIONS IN INDENTURE. This Third Amendment may be
----------------------------------------
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute a single instrument. Upon
recordation of this Third Amendment in the office of the County Recorder of Los
Angeles County, California, this Third Amendment shall be and become a part of
the Indenture and shall be construed as a part thereof. By its signature
hereto, the Trustee authorizes the Company to record executed and acknowledged
counterparts of this Third Amendment in the Offices of the County Recorders of
Los Angeles and Orange Counties, California.
16. SEPARABILITY CLAUSE. In case any provision in this Third Amendment
-------------------
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions, and of the other provisions of the
Indenture, shall not in any way be affected or impaired thereby.
17. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and
Supplement to Indenture of Mortgage and Deed of Trust Dated October 1, 1986, to
be duly executed, with the Company's corporate seal to be hereunto affixed and
attested, all as of the day and year first above written.
SUBURBAN WATER SYSTEMS,
Mortgagor
(Seal)
By /s/ MICHAEL O. QUINN
---------------------------------------
Title: President
-----------------------------------
By /s/ DANIEL N. EVANS
---------------------------------------
Title: V. P. Finance & CFO
-----------------------------------
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION,
as Trustee Mortgagee
By /s/ MARY LEE
---------------------------------------
Authorized Officer
15
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On October 14, 1996, before me, Stephanie M. Curry, Notary Public,
personally appeared Michael O. Quinn personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity on
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ STEPHANIE M. CURRY
-----------------------------------
Notary Public
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On October 14, 1996, before me, Stephanie M. Curry, Notary Public,
personally appeared Daniel N. Evans personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity on
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ STEPHANIE M. CURRY
----------------------------------
Notary Public
16
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On October 15, 1996, before me, Alicia M. Estrada, Notary Public,
personally appeared Mary Lee personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity on
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ ALICIA M. ESTRADA
----------------------------------
Notary Public
17
<PAGE>
EXHIBIT 4.8
RECORDING REQUESTED BY, AND
WHEN RECORDED, MAIL TO:
James W. Daniels, Esq.
Latham & Watkins
650 Town Center Drive, Suite 2000
Costa Mesa, California 92626
INSTRUCTIONS TO COUNTY RECORDER:
Index this instrument as: (i) a
Mortgage; (ii) a Fixture Filing; and
(iii) a Deed of Trust.
- -------------------------------------------------------------------------------
NEW MEXICO UTILITIES, INC.
(formerly Paradise Community Services, Inc.)
TO
SUNWEST BANK OF ALBUQUERQUE, NATIONAL ASSOCIATION
TRUSTEE
- -------------------------------------------------------------------------------
SECOND AMENDMENT AND SUPPLEMENT TO
INDENTURE OF MORTGAGE DATED FEBRUARY 14, 1992
[The Indenture to which this instrument is a supplement is a
mortgage of both real and personal property, including
chattels, and also constitutes, among other things, a
Security Agreement creating a security interest in personal
property. Such Indenture contains after-acquired property
provisions. Such Indenture also contains an Agreement, in
Section 9.04 thereof, by which New Mexico Utilities, Inc., as
trustor, agrees to subject the real estate
<PAGE>
subject thereto to the terms of the Deed of Trust Act 48-10-1
to 48-10-21 NMSA 1978.]
2
<PAGE>
THIS SECOND AMENDMENT AND SUPPLEMENT TO INDENTURE OF MORTGAGE AND DEED OF
TRUST DATED FEBRUARY 14, 1992 (the "Second Amendment"), is made and entered into
as of October 21, 1996, by and between NEW MEXICO UTILITIES, INC., a New Mexico
corporation formerly known as Paradise Community Services, Inc. (herein, the
"Company"), and SUNWEST BANK OF ALBUQUERQUE, NATIONAL ASSOCIATION, a national
banking association (herein, the "Trustee"), with respect to the following:
RECITALS
--------
A. The Company and the Trustee are parties to a certain Indenture of
Mortgage and Deed of Trust dated February 14, 1992 (the "Original Indenture"),
which Original Indenture was filed on March 31, 1992, as Document No. 92-222404,
recorded in Book 92-5, Pages 9251 to 9380 in the Records of the County of
Bernalillo, State of New Mexico.
B. The Original Indenture was amended pursuant to that certain First
Supplement to Indenture of Mortgage dated February 14, 1992 (the "First
Amendment") dated May 15, 1992 and filed on July 8, 1992 as Document No. 92-
68584, recorded in Book 92-16, Pages 1502-1508 in the Records of the County of
Bernalillo, State of New Mexico. The Original Indenture, as amended by the
First Amendment, is hereinafter referred to as the "Existing Indenture," and the
Existing Indenture as amended and supplemented by this Second Amendment is
hereinafter referred to as the "Indenture."
C. The Company has requested that the Trustee enter into this Second
Amendment setting forth the terms and conditions of the issuance of certain
Bonds in the aggregate principal amount of $4,000,000, which Bonds shall be
issued as "Series B" under and pursuant to the Indenture.
D. The Company has duly authorized the creation, execution and delivery
of the Series B Bonds, and all things have been done which are necessary to make
the Series B Bonds, when executed by the Company and authenticated and delivered
by the Trustee under the Indenture and duly issued by the Company, the valid and
binding obligations of the Company, and to constitute the Indenture a valid
mortgage and deed of trust and a security agreement and contract for the
security of the Bonds (including, without limitation, the Series B Bonds), in
accordance with the terms of the Bonds and the Indenture. In addition, all
other instruments and actions required pursuant to law and pursuant to the
requirements of the Existing Indenture for the Trustee to execute and deliver
this Second Amendment have been duly delivered or taken.
AMENDMENT
---------
IN CONSIDERATION OF the foregoing recitals and pursuant to the authority
granted under Section 13.01 of the Indenture [Supplemental Indentures Without
-------------------------------
Consent of Bondholders], the Company and the Trustee agree that the Existing
- ----------------------
Indenture shall be amended in the following respects:
3
<PAGE>
1. DEFINITIONS. All terms used in this Second Amendment with initial
-----------
capital letters and not defined herein shall have the meanings given to them in
the Existing Indenture.
2. GRANT OF REAL PROPERTY.
----------------------
(a) By its signature hereto, and to secure the payment of the
principal of (and premium, if any) and interest on the Outstanding Secured
Bonds, and the performance of the covenants therein and in the Indenture
contained, the Company by these presents does grant, bargain, convey, assign,
transfer, mortgage, pledge, set over and confirm to the Trustee, IN TRUST, WITH
POWER OF SALE, all of the real property located in the County of Bernalillo,
State of New Mexico, and more particularly described on Exhibit "1" to this
Second Amendment as if set forth in this grant in full, together with all
buildings, structures, improvements and other appurtenances situated thereon or
therein.
(b) Exhibit "A" to the Original Indenture is hereby amended to add
thereto those certain real properties described on Exhibit "1" to this Second
Amendment.
3. ORIGINAL ISSUANCE OF SERIES B BONDS. There is hereby added to the
-----------------------------------
Existing Indenture a new Article, to be entitled Article XVI and which shall
read in its entirety as follows:
"ARTICLE XVI
"TERMS AND ISSUE OF SERIES B BONDS
---------------------------------
"SECTION 16.01. SPECIFIC TITLE, TERMS AND FORMS.
-------------------------------
"There shall be a second series of Bonds entitled
"`First Mortgage Bonds,
"Series B 7.64%, Due November 7, 2006'
"(herein called the "Series B Bonds"). The form thereof shall be substantially
as set forth in Article II with such insertions, omissions, substitutions and
variations as may be determined by the officers executing the same as evidenced
by their execution thereof to reflect the applicable terms of the Series B Bonds
established by this Article. The precise form of the Series B Bonds shall be as
set forth in an exhibit to the Bond Purchase Agreement (the "Purchase
Agreement") pursuant to which the Series B Bonds are sold and the Trustee is
authorized to refer to such Purchase Agreement when any Series B Bonds are
presented to the Trustee for authentication.
"The Stated Maturity of the Series B Bonds shall be November 7, 2006, and
the aggregate principal amount thereof which may be authenticated and delivered
and Outstanding is limited to $4,000,000.
4
<PAGE>
"The Series B Bonds may be issued only as registered Bonds in denominations
of $1,000 and any multiple thereof. The Series B Bonds shall bear interest from
the later of the initial issuance of the Series B Bonds or the most recent
Interest Payment Date to which interest has been paid or duly provided for. The
Series B Bonds shall bear interest payable semi-annually on May 10 and November
10 of each year (the Interest Payment Dates of the Series B Bonds), at the rate
of 7.64% per annum until the principal thereof shall be paid or duly provided
for; PROVIDED that interest on any overdue principal, overdue Redemption Price,
--------
and (to the extent permitted by applicable law) overdue interest, shall accrue
at a rate equal to the lesser of (a) the highest rate allowed by applicable law
or (b) 8.64% per annum. Interest shall be computed on the basis of a 360-day
year of twelve 30-day months. In no event shall the interest payable on any
Series B Bonds (including any interest on overdue interest or any overdue
Redemption Price) exceed the maximum amount which the Holder thereof may legally
collect under the then applicable usury law. In the event that it is hereafter
determined by a court of competent jurisdiction that the interest payable under
any Series B Bond (including any interest on any overdue Redemption Price or
overdue interest) is in excess of the amount which the Holder thereof may
legally collect under the then applicable usury law, then (i) all interest
actually paid (including any interest on overdue interest or any overdue
Redemption Price) in excess of the maximum amount legally collectible by such
Holder shall be applied to the payment of principal of such Series B Bond or, if
all principal shall previously have been paid, promptly repaid by such Holder to
the Company, and (ii) interest on such Series B Bond (including any interest on
overdue interest or any overdue Redemption Price) subsequent to the date of such
determination shall be reduced to the maximum amount which it is determined that
the Holder may collect under the then applicable usury law.
"Notwithstanding the provisions of Section 5.05 [Deposit of Redemption
---------------------
Price] the principal and the Redemption Price of, and the interest on, the
- -----
Series B Bonds shall be payable by crediting, before 12:00 noon, New York time,
by federal funds bank wire transfer, the account of each Bondholder of the
Series B Bonds in any bank in the United States as may be designated in a
written notice to the Company by such Bondholder, or in such other manner as may
be directed, or to such other address in the United States as may be designated,
in writing by such Bondholder. The addresses on Annex 1 to the Purchase
Agreement with respect to the initial purchasers of the Series B Bonds shall be
deemed to constitute notice, direction or designation (as appropriate) to the
Company with respect to direct payments to such purchasers as aforesaid. With
regard to any Series B Bond, the bank designated pursuant to this paragraph with
respect to such Series B Bond shall be the Place of Payment in respect of such
Series B Bond.
"The Regular Record Date referred to in Section 2.10 [Payment of Interest
-------------------
on Bonds; Interest Rights Preserved] for the payment of the interest payable on
- -----------------------------------
the Series B Bonds, and punctually paid or duly provided for, on any Interest
Payment Date shall be the 15th day (whether or not a Business Day) of the
calendar month next preceding such Interest Payment Date.
5
<PAGE>
"If any payment due on, or with respect to, any Series B Bonds shall fall
due on a day other than a Business Day, then such payment shall be made on the
first Business Day following the day on which such payment shall have so fallen
due; PROVIDED that if all or any portion of such payment shall consist of a
--------
payment of interest, for purposes of calculating such interest, such payment
shall not be deemed to have been originally due on such first following Business
Day, and such interest shall accrue and be payable only to the Interest Payment
Date.
"SECTION 16.02. EXCHANGEABILITY.
---------------
"Subject to Section 2.08 [Registration, Transfer and Exchange], all Series
-----------------------------------
B Bonds shall be fully interchangeable, and, upon surrender at the office or
agency of the Company in a Place of Payment therefor and delivery by the Company
to the Bond Registrar, shall be exchangeable for other Series B Bonds of a
different authorized denomination or denominations, as requested by the Holder
surrendering the same. The Company will execute, and the Trustee shall
authenticate and deliver, Series B Bonds whenever the same are required for any
such exchange.
"SECTION 16.03. REDEMPTION.
----------
"A. The Series B Bonds are subject to redemption, in whole or in part,
before their Stated Maturity in the following events and in the manner provided
in Article V [Redemption of Bonds]:
-------------------
"(1) At any time after issuance, at the option of the Company
evidenced by a Board Resolution, at a Redemption Price equal to 100% of the
principal amount of the Series B Bonds to be redeemed, together with the Make-
Whole Amount at such time (as shall be calculated by the Company, specified to
the Trustee four (4) business days prior to the date of Redemption and approved
by 66 2/3% or more of the Holders of the Series B Bonds) and interest accrued to
the Redemption Date, on a Redemption Date specified by the Company in compliance
with Section 5.02 [Election to Redeem; Notice to Trustee]. For the purpose of
-------------------------------------
the approval right set forth in the foregoing parenthetical, the Trustee shall
furnish to the Holders of the Series B Bonds, along with the redemption payments
pursuant to this clause (1), a copy of the Company's calculation of the Make-
Whole Amount. Any Series B Bondholder who disagrees with such calculation shall
notify the Company and the Trustee in writing within thirty (30) days after
receipt of such calculation. In the event of any such notice of disagreement,
the Company and the Series B Bondholders shall in good faith attempt to agree
upon the Make-Whole Amount. Upon any such agreement, the Company shall pay to
the Holders of the Series B Bonds any additional amount due. In the event of a
notice of disagreement as to which the Company and the Holders of the Series B
Bonds are unable to reach agreement as to the Make-Whole Amount, the Trustee and
the Holders of the Series B Bonds shall retain all rights and remedies provided
to them pursuant to this Indenture or at law to collect any additional amount
determined to be due to the Holders of the Series B Bonds. If no Holder of
Series B Bonds provides a notice of disagreement within the time herein
6
<PAGE>
provided, the calculation by the Company of the Make-Whole Amount shall be final
and conclusive upon the Company, the Trustee and all Holders of the Series B
Bonds.
"(2) From Major Event Proceeds, at a Redemption Price equal to 100% of
the principal amount of Bonds to be redeemed, together with interest accrued to
the Redemption Date, and on a Redemption Date that is the first date for which
notice of redemption can be given by the Trustee as provided in Article V
[Redemption of Bonds]. Provided that such redemption may only be made if the
-------------------
Series B Bonds are redeemed pro rata with all other Outstanding Bonds of
whatever series.
"B. Notwithstanding the last sentence of the first paragraph of Section
5.04 [Notice of Redemption] and the first sentence of the second paragraph of
--------------------
Section 1.04 [Notices to Bondholders; Waiver], the giving of notice of
------------------------------
redemption to each Holder of a Series B Bond, as provided in Section 5.04, shall
be a condition precedent to the Company's right to redeem Series B Bonds in
accordance with the foregoing clauses A(1) and A(2) of this Section 16.03.
"C. Notwithstanding the provisions of Section 5.03 [Selection by Trustee
--------------------
of Bonds To Be Redeemed], if there is more than one Holder of the Series B
- -----------------------
Bonds, the aggregate principal amount of each required or optional partial
redemption of the Series B Bonds shall be allocated in units of $10,000 or
multiples thereof among the Holders of the Series B Bonds at the time
Outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts of the Series B Bonds then Outstanding held by each such
Holder of Series B Bonds, with adjustments, to the extent practicable, to
equalize for any prior redemptions not in such proportion. For the purpose of
this Section 16.03 only, any Series B Bonds reacquired by the Company shall be
deemed to be Outstanding and the Company shall be deemed to be the Holder
thereof. Provided, however, that no redemption may be made with respect to any
Series B Bond in an amount less than $10,000.00 or multiples thereof.
"D. Notwithstanding the second sentence of Section 5.06 [Bonds Payable on
----------------
Redemption Date] or the provisions of Section 5.07 [Bonds Redeemed in Part], no
- --------------- ----------------------
Holder of any Series B Bonds shall be required to surrender such Bond to any
Person, or to file, or cause to be filed, with the Trustee any agreement or
certificate required by Section 5.07, prior to receiving any payment thereon or
in respect thereof; PROVIDED, HOWEVER, that upon payment of the principal or
-------- -------
Redemption Price and interest on and all other amounts in respect of such Series
B Bond, the Bonds redeemed shall be deemed automatically cancelled, and the
Holder thereof shall promptly thereafter surrender such Series B Bond to the
Company and the Company shall deliver such redeemed Bonds to the Bond Registrar
for cancellation. Any such Series B Bond so surrendered shall be cancelled and
shall not be reissued, and no new Series B Bond shall be issued in lieu of such
surrendered Series B Bond.
"E. The Series B Bonds may be redeemed from Trust Moneys, as provided in
Section 8.04 [Retirement of Bonds], or from moneys received by the Trustee as a
-------------------
result of casualty or condemnation, as provided in Articles VII [Possession and
--------------
Release of Property] and VIII [Application of Trust Moneys], but only at the
- ------------------- ---------------------------
time, in the manner and at the Redemption Price specified in clauses (A)(1) and
(2) of this Section 16.03. If the Series B
7
<PAGE>
Bonds, or any other Bonds having the benefit of a redemption provision
substantially identical to that contained in Section 16.03A(2), shall be
redeemed under Section 16.03A(2), then said Series B Bonds shall be redeemed pro
rata with the Series A Bonds and any other Bonds having the benefit of a
redemption provision substantially identical to that contained in Section
16.03A(2), in proportion, as nearly as practicable, to the respective unpaid
principal amounts of all such Bonds Outstanding on the Redemption Date. All
prorations pursuant to this subsection E. and subsection C. above shall be in
accordance with a proration schedule included in a Company Request provided to
the Trustee.
"SECTION 16.04. PAYMENT OF OPTIONAL REDEMPTION PRICE.
------------------------------------
"If the giving of notice of optional redemption shall have been completed
as required in Article V [Redemption of Bonds], the Series B Bonds or portions
-------------------
of such Series B Bonds specified in such notice shall become due and payable on
the Redemption Date at the applicable Redemption Price set forth in Section
16.03. On and after the Redemption Date (unless the Company shall default in
the payment of such Bonds on the Redemption Date) interest on the Series B Bonds
or the portions of the Series B Bonds so called for redemption shall cease to
accrue.
"If any Holder of any Series B Bond which is redeemed in part only shall
present such Bond to the Company, the Company shall execute and the Trustee
shall authenticate and deliver to such Holder, at the expense of the Company, a
new Series B Bond or Bonds in aggregate principal amount equal to the unredeemed
portion of the Series B Bond so presented. As provided in Section 16.03D
[Redemption] the Holders of Series B Bonds shall not be obligated to present
---------- ---
partially redeemed Series B Bonds to the Company for notation or issuance of a
new Series B Bond.
"SECTION 16.05. AUTHENTICATION AND DELIVERY.
---------------------------
"Upon the execution and delivery of this Second Amendment, the Company
shall execute and deliver to the Trustee, and the Trustee shall authenticate,
the Series B Bonds and deliver them to the purchasers thereof as instructed by
the Company.
"Prior to the delivery by the Trustee of the Series B Bonds there shall be
filed with the Trustee original executed counterparts of this Second Amendment,
the Purchase Agreement, the Title Policies or commitments for issuance thereof,
evidence of recording of this Second Amendment in the land records of Bernalillo
County, New Mexico and all other documents required by the Indenture as a
condition to the issuance of the Series B Bonds."
4. CERTAIN AMENDMENTS TO DEFINITIONS.
---------------------------------
(a) Make-Whole Amount Definitions. Section 1.01 [Definitions] of the
----------------------------- -----------
Original Indenture is hereby amended by amending and restating each of the
following definitions appearing on pages 14 and 15 which currently relate only
to the Series A Bonds to
8
<PAGE>
make them applicable to both the Series A Bonds and the Series B Bonds and to
retitle such definitions, as follows:
"`Make-Whole Amount' means, at any time, with respect to any
-----------------
prepayment of Series A Bonds being redeemed pursuant to Section 3.03(A)(1)
or the maturity of which has been accelerated, and with respect to any
prepayment of Series B Bonds being redeemed pursuant to Section 16.03A(l) or
the maturity of which has been accelerated, the excess, if any, of (a) the
aggregate present value as of the date of such prepayment, of each dollar of
principal being prepaid and the amount of interest (exclusive of interest
accrued to the date of prepayment) that would have been payable in respect
of such dollar of principal if such prepayment had not been made, determined
by discounting such amounts at the Reinvestment Rate at such time from the
respective dates on which they would have been payable; over (b) 100% of the
principal amount of the Outstanding Series A Bonds or Outstanding Series B
Bonds, as applicable, being prepaid or being accelerated. If the
Reinvestment Rate is equal to or higher than 8.86%, in the case of the
Series A Bonds, or 7.64% in the case of the Series B Bonds, the Make-Whole
Amount shall be zero."
"`Reinvestment Rate' means, at any time, the sum of (a) one-half
-----------------
percent (.50%), plus (b) the yield for United States government securities
having a maturity (rounded to the nearest month) corresponding to the
Weighted Average Life to Maturity of the principal then being prepaid or
accelerated as reported on page "USD" of the Bloomberg Financial Markets
Services Screen (or, if not available, any other nationally recognized
trading screen reporting on-line intraday trading in United States
government securities) at 11:00 A.M. (Chicago time) on the fourth business
day prior to the date of such prepayment or acceleration, or in the event
that no such nationally recognized trading screen reporting on-line intraday
trading in United States government securities is available, the arithmetic
mean of the yields under the respective headings "This Week" and "Last Week"
published in the Statistical Release at such time 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 prepaid. If no maturity exactly corresponds to such Weighted
Average Life to Maturity, yields for the published maturity next longer than
the Series A or Series B, as applicable, Weighted Average Life to Maturity
and for the published maturity next shorter than the Series A or Series B,
as applicable, Weighted Average Life to Maturity shall be calculated
pursuant to the immediately preceding sentence and the Reinvestment Rate
shall be interpolated from such yields on a straight-line basis, rounding in
each of such relevant periods to the nearest month. For the purposes of
calculating the Series A or Series B, as applicable, Reinvestment Rate, the
most recent Series A or Series B, as applicable, Statistical Release
published prior to the date of determination of the Make-Whole Amount shall
be used."
"`Remaining Dollar-Years' of any principal amount of Series A Bonds or
----------------------
Series B Bonds at any time shall mean the amount obtained by (a)
multiplying, for each scheduled payment date, (i) the remainder of (1) the
aggregate amount of principal
9
<PAGE>
amount of the Series A Bonds or Series B Bonds, as applicable, that would
have become due on such scheduled payment date if such prepayment or
acceleration had not been made; minus (2) the aggregate amount of principal
on the Series A Bonds or Series B Bonds, as applicable, scheduled to become
due on such date after giving effect to such prepayment or acceleration; 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 (b) totalling the products obtained in (a)."
"`Statistical Release' means, at any time, 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 government
securities adjusted to constant maturities or, if such statistical release
is not published at the time of any determination hereunder, then such other
reasonably comparable index which shall be designated by the Holders of 66-
2/3% in aggregate principal amount of the Series A Bonds or Series B Bonds,
as applicable, then Outstanding."
"`Weighted Average Life to Maturity' of the principal amount of
---------------------------------
Series A Bonds or Series B Bonds being prepaid or accelerated shall mean, as
of the time of any determination thereof, the number of years obtained by
dividing the then Series A or Series B Remaining Dollar-Years of such
principal amount by the aggregate amount of such principal."
(b) Amendments to Certain Section 1.01 Definitions. The definitions
----------------------------------------------
of "Place of Payment," "Prior Lien" and "Title Policies" contained in Section
1.01 [Definitions] of the Original Indenture are hereby amended to read, in
their entireties, as follows:
"`Place of Payment' means, (a) when used with respect to the Series A
----------------
Bonds (except as provided in clause (c) below), the place for payment of the
principal and interest upon the Series A Bonds designated in Section 3.01;
(b) when used with respect to the Series B Bonds (except as provided in
clause (c) below), the place for payment of the principal, Make-Whole
Amount, if any, and interest upon the Series B Bonds designated in Section
16.01; and (c) with respect to any exchange of Series A Bonds pursuant to
Section 3.02 [Exchangeability], with respect to any exchange of Series B
---------------
Bonds pursuant to Section 16.02 [Exchangeability] and with respect to Bonds
---------------
of any other series means a city or any political subdivision thereof in
which the Company is by this Indenture required to maintain an office or
agency for the payment of the principal of or interest on the Bonds of such
series."
"'Prior Lien' means, (a) with respect to property described in Granting
----------
Clause First and Exhibit A this Indenture and granted to the Trustee on the
date of this Indenture, the matters shown as exceptions to title in the
Title Policies issued on or in respect of the date of this Indenture; (b)
with respect to property described in or in an exhibit to any Supplement to
this Indenture which subjects additional property to the Lien of this
Indenture, the matters shown as exceptions to title in the Title Policies
10
<PAGE>
issued on or with respect to such additional property; (c) property taxes
and assessments, but only to the extent that, by law, the lien securing such
items ranks prior to the lien of this Indenture; (d) any matters hereafter
subordinated to in writing by the Trustee upon obtaining the consents of all
of the Bondholders; (e) liens described in subsection A of Section 6.06
[Limitation on Liens; Payment of Taxes]; (f) liens described in clause (a)
-------------------------------------
of subsection C of Section 6.06 [Limitation on Liens; Payment of Taxes]; (g)
-------------------------------------
any lien modifying, renewing, extending or replacing solely a lien or liens
described in clause (e) of this definition, the incurrence of which complies
with subsection B of Section 6.06 [Limitation on Liens; Payment of Taxes];
-------------------------------------
and (h) the lien permitted by Section 10.07 [Compensation and
----------------
Reimbursement]."
-------------
"'Title Policies' means one or more ALTA extended coverage
--------------
Bondholder's Policies of Title Insurance or endorsements to an existing
Title Policy, which shall be delivered by the Company to the Trustee with
respect to each of the properties described in Granting Clause First (other
than the Excepted Property) and Exhibit "A," and any properties brought
within the lien of this Indenture by recording of a Supplemental Indenture,
and required by this Indenture to be covered by a Title Policy in order to
qualify as a Bondable Addition, which Title Policies and/or endorsements
shall insure the lien of this Indenture subject only to Permitted
Encumbrances, Prior Liens and Restricted Third Party Encumbrances permitted
by the provisions of Section 6.06D [Limitations on Liens; Payment of Taxes]
--------------------------------------
and which shall, at all times, provide for an aggregate amount of insurance
coverage equal to (or greater than) the aggregate principal amount of Bonds
Outstanding at such time plus costs of defense as allowed by the Title
Polices."
(c) Section 1.01 Definition of Permitted Encumbrances. Clause (1) of
-------------------------------------------------
the definition of "Permitted Encumbrances" contained in Section 1.01
[Definitions] of the Original Indenture is hereby amended to read, in its
- ------------
entirety, as follows:
"(1) (a) as to the property specifically described in Granting
Clause First and Exhibit 'A' as of February 20, 1992, all matters shown as
exceptions to the Title Policies, other than Restricted Third Party
Encumbrances; and (b) as to all other property, restrictions, exceptions,
reservations, conditions, limitations, interests or other matters which
either (i) (A) fall into one of the categories in (2)-(9) of this
definition and (B) do not materially detract from the value of the property
affected thereby and do not materially impair the use of such property for
purposes for which it is held by the Company or (ii) are approved by the
Holders of 66 2/3% or more in aggregate principal amount of Bonds of each
Series then Outstanding;"
5. REGISTRATION, TRANSFER AND EXCHANGE.
-----------------------------------
(a) Section 2.08. The last paragraph of Section 2.08 [Registration,
------------ -------------
Transfer and Exchange] of the Original Indenture is hereby amended to read, in
- ---------------------
its entirety, as follows:
11
<PAGE>
"The Company shall not be required (i) to issue, transfer or exchange
any Bond of any series (other than a Series A Bond or Series B Bond) during
a period beginning at the opening of business 15 days before the day of the
first mailing of a notice of redemption of Bonds of such series under
Section 5.04 [Notice of Redemption] and ending at the close of business on
--------------------
the day of such publication or mailing, or (ii) to transfer or exchange any
Bond (other than a Series A Bond or Series B Bond) so selected for
redemption in whole or in part, or (iii) to exchange any Bond (other than a
Series A Bond or Series B Bond) during a period beginning at the opening of
business on any Regular Record Date for such series and ending at the close
of business on the relevant Interest Payment Date therefor. If and to the
extent so provided with respect to the Bonds of any particular series, the
Company shall, at the option of the Holder of a Bond of any series as to
which the Company shall have delivered a notice of redemption under Section
5.04 [Notice of Redemption], be required to transfer or exchange any such
--------------------
Bond which has been selected in whole or in part for redemption upon
surrender thereof at the office or agency of the Company in a Place of
Payment therefor, PROVIDED that the Trustee may make such arrangements as it
deems appropriate for notation on each new Bond issued in exchange for or
upon the transfer of the Bond so selected for redemption of an appropriate
legend to the effect that such new Bond has been so selected for
redemption."
(b) Section 2.10. The term "15 days" appearing in Section 2.10A
------------
[Payment of Interest on Bonds; Interest Rights Preserved] shall be amended to
-------------------------------------------------------
read "four (4) days."
6. REPLACEMENT OF MUTILATED, DESTROYED, LOST AND STOLEN BONDS. The
----------------------------------------------------------
proviso in lines 6 through 9 of the first paragraph of Section 2.09 [Mutilated,
----------
Destroyed, Lost and Stolen Bonds] of the Original Indenture is hereby amended to
- --------------------------------
add thereto the words "or Series B Bond" immediately after the words "Series A
Bond."
7. NOTICE OF REDEMPTION OF SERIES A BONDS.
--------------------------------------
(a) Section 3.03E. Section 3.03E of the Original Indenture is hereby
-------------
amended to read, in its entirety, as follows:
"E. The Series A Bonds may be redeemed from Trust Moneys, as
provided in Section 8.04 [Retirement of Bonds], or from moneys received by
-------------------
the Trustee as a result of casualty or condemnation, as provided in
Articles VII [Possession and Release of Property] and VIII [Application of
---------------------------------- --------------
Trust Moneys], but only at the time, in the manner and at the Redemption
------------
Price specified in clauses (A)(1) and (2) of this Section 3.03. If the
Series B Bonds, or any other Bonds having the benefit of a redemption
provision substantially identical to that contained in Section 3.03A(2),
shall be redeemed under Section 3.03A(2), then said Series A Bonds shall be
redeemed pro rata with the Series B Bonds and any other Bonds having the
benefit of a redemption provision substantially identical to that contained
in Section 3.03A(2) in proportion, as nearly as practicable, to the
respective unpaid principal amounts of all such Bonds Outstanding on the
Redemption Date."
12
<PAGE>
8. COVENANTS. In consideration of and in connection with the issuance of
---------
the Series B Bonds, the Company makes the following additional covenant in favor
of the Series B Bondholders (but not the Series A Bondholders or the Bondholders
of any subsequent series of Bonds, if any):
(a) Financial Reports to Series B Bondholders. Article VI [Covenants]
----------------------------------------- ---------
of the Original Indenture is hereby amended by adding thereto a new Section, to
be entitled Section 6.15 and to read in its entirety as follows:
"SECTION 6.15. FINANCIAL REPORTS TO SERIES B BONDHOLDERS.
"For so long as any of the Series B Bonds are Outstanding, the Company
shall furnish to each of the Series B Bondholders at their addresses for notices
pursuant to Section 1.04 [Notices to Bondholders; Waiver] all financial
------------------------------
statements and information, notices, reports and other information required
pursuant to, and otherwise comply with each of, the provisions of Section 4.1
(together with any successor provision, and as such provision or successor
provision may be amended from time to time) of the Purchase Agreement pursuant
to which the Series B Bonds were originally sold, which provisions are
incorporated by reference herein, mutatis mutandis, with the same effect as if
----------------
set forth herein."
9. EVENTS OF DEFAULT. Section 9.01 [Events of Default] of the Original
----------------- -----------------
Indenture is hereby amended by adding thereto a new subsection 9.01 B, to read,
in its entirety, as follows:
"B. 'Event of Default' with respect to the Series B Bonds only means any
one of the events specified in Sections (1), (2), (3), (4), (5), (8), (9) and
(10) of clause A of this Section 9.01 or any one of the following events
(whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
"(1) Principal or Premium Payments -- the Company fails to make any
-----------------------------
payment of principal, Make-Whole Amount or other premium on any Series B Bond
when such payment is due;
"(2) Other Defaults - the Company fails to comply with any other
--------------
provision of this Indenture or the Purchase Agreement pursuant to which the
Series B Bonds were sold, and such failure continues for more than 30 days after
such failure shall first become known to any officer of the Company;
"(3) Warranties or Representations -- any warranty, representation or
-----------------------------
other statement by the Company or by Southwest Water Company, a Delaware
corporation, contained in this Indenture, the Purchase Agreement pursuant to
which the Series B Bonds were sold or in any instrument or certificate furnished
by the Company in compliance with this
13
<PAGE>
Indenture or the Purchase Agreement pursuant to which the Series B Bonds were
sold is false or misleading in any material respect."
10. CONDEMNATION OF ENTIRE TRUST ESTATE. The first sentence of Section
-----------------------------------
8.10 [Condemnation of Entire Trust Estate] of the Original Indenture is hereby
-----------------------------------
amended to add thereto immediately after the words "Outstanding Secured Bonds"
the parenthetical phrase:
"(other than the Series A Bonds, which shall only be redeemable pursuant to
Section 3.03 [Redemption] and the Series B Bonds, which shall only be redeemable
----------
pursuant to Section 16.03 [Redemption])."
----------
11. ACCELERATION OF MATURITY. The first paragraph of Section 9.02
------------------------
[Acceleration of Maturity; Rescission and Annulment] of the Original Indenture
- ---------------------------------------------------
is hereby amended and restated to read, in its entirety, as follows:
"If an Event of Default occurs and is continuing with respect to
any series of Bonds, in the case of an Event of Default specified in any of
clauses (3) through (10), inclusive, of Section 9.01A [Events of Default],
-----------------
upon written request of the Holders of not less than 50% in principal
amount of the Bonds Outstanding of such series, the Trustee shall declare
the principal of and interest on all the Bonds of such series to be due and
payable immediately, by a notice in writing to the Company, and upon any
such declaration the Company will pay to the Holders of the Bonds of such
series the whole amount then due and payable on such Bonds for interest and
principal, and Series A Make-Whole Amount, Series B Make-Whole Amount or
other premium, if any, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel. In the case of an Event of Default
specified in either clause (1) or clause (2) of Section 9.01A [Events of
---------
Default], all principal, interest and Series A Make-Whole Amount, Series B
-------
Make-Whole Amount or other premium, if any, shall become immediately due
and payable, ipso facto, without any further action on the part of the
---- -----
Trustee or any Holder."
12. INCIDENTS OF SALE. Section 9.05A [Incidents of Sale] of the Original
----------------- -----------------
Indenture is hereby amended and restated to read, in its entirety, as follows:
"A. The principal of, Series A Make-Whole Amount, Series B Make-Whole
Amount or other premium, if any, and accrued interest on all Outstanding
Secured Bonds, if not previously due, shall at once become and be
immediately due and payable."
13. NOTICE OF DEFAULTS. The proviso set forth in lines 9 through 18 of
------------------
Section 10.02 [Notice of Defaults] of the Original Indenture is hereby amended
------------------
to add the words "or Series B Bonds" immediately after the words "Series A
Bonds." The proviso set forth in the last six lines of Section 10.02 [Notice of
---------
Defaults] of the Existing Indenture is hereby amended and restated to read in
- --------
its entirety as follows:
14
<PAGE>
"PROVIDED, FURTHER, that in the case of any Default with respect to the
Series A Bonds or Series B Bonds, the Trustee shall give written notice thereof
to the Holders of, respectively, the Series A Bonds and Series B Bonds, as their
names and addresses appear in the Bond Register, promptly after the Trustee has
actual knowledge of such Default."
14. SUPPLEMENTAL INDENTURES WITH CONSENT OF BONDHOLDERS. The proviso in
---------------------------------------------------
lines 5 through 9 of the second to last paragraph of Section 13.02 [Supplemental
------------
Indentures with the Consent of Bondholders] of the Original Indenture is hereby
- ------------------------------------------
amended and restated to read, in its entirety, as follows:
"; PROVIDED, HOWEVER, that the Trustee shall not at any time make any such
-------- -------
determination with respect to the Series A Bonds or Series B Bonds,
respectively, without the prior written consent of the Holders of at least 66
2/3% in principal amount of, respectively, the Series A Bonds or Series B Bonds,
as the case may be, Outstanding at such time."
15. APPLICATION OF MONEY COLLECTED. Section 9.07 [Application of Money
------------------------------ --------------------
Collected] of the Original Indenture is hereby amended and restated by deleting
- ---------
the existing subsection "C" thereof in its entirety, and by adding a new
subsection "C" and a subsection "D" thereof, such subsections "C" and "D" to
read as follows:
"C. Third: To the payment of all other amounts then due and unpaid upon
the Outstanding Secured Bonds, for Make-Whole Amount or other premium, if any,
and all other amounts then due and owing in respect of such Outstanding Secured
Bonds, whether pursuant to this Indenture, a Purchase Agreement or otherwise, in
respect of which or for the benefit of which such money has been collected, with
interest (to the extent that such interest has been collected by the Trustee or
a sum sufficient therefor has been collected and payment thereof is legally
enforceable) at the respective rate or rates prescribed therefor in the Bonds of
the several series, on overdue Make-Whole Amount or other premium, if any,
interest and other such obligations; and in the case such proceeds shall be
insufficient to pay in full the whole amount so due and unpaid upon such Bonds,
then to the payment of such premium, interest on overdue obligations and other
obligations, without any preference or priority, ratably according to the
aggregate amount so due; and
"D. Fourth: To the payment of the remainder, if any, to the Company or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct."
16. NOTICES.
-------
(a) Section 1.03B [Notices, etc., to Trustee and Company] of the
-------------------------------------
Original Indenture is hereby amended and restated in its entirety to read as
follows:
"B. The Company by the Trustee or by any Bondholder shall be
sufficient for every purpose hereunder if in writing and delivered (i) by
overnight courier, or (ii) sent by facsimile transmission, acknowledgement
received, with a copy
15
<PAGE>
sent by first-class mail, and, in each case, delivery charges prepaid to
the Company addressed to it at:
"c/o Southwest Water Company
225 North Barrana Avenue, Suite 200
West Covina, California 91791-1605
Attn: Chief Financial Officer
with a copy to:
New Mexico Utilities, Inc.
4700 Irving Boulevard N.W., Suite 201
Albuquerque, New Mexico 87114
Attn: Vice President Finance
or at any other address previously furnished in writing to the Trustee by
the Company.
(b) Section 1.13(b) of the Original Indenture is hereby amended to
read, in its entirety, as follows:
Trustor: New Mexico Utilities, Inc.
c/o Southwest Water Company
225 North Barrana Avenue, Suite 200
West Covina, California 91791-1605
Attn: Chief Financial Officer
17. MISCELLANEOUS CORRECTIONS. The following provisions of the Original
-------------------------
Indenture are corrected as follows:
(a) The reference in the fourth line of Section 6.06 [Limitations on
--------------
Liens; Payment of Taxes] to "clauses (a), (b), (c) and (g)" shall be amended to
- -----------------------
read "clauses (a), (b), (c), (d) and (h)."
(b) The reference in the second line of Section 7.01D [Possession by
-------------
Company; Disposition Without Release] to "clause (7)" shall be amended to read
- ------------------------------------
"clause (6)."
(c) The phrase "or Section 9.01(B)(1)" appearing in the sixth and
seventh lines of Section 9.02B [Acceleration of Maturity; Rescission and
----------------------------------------
Annulment] shall be deleted.
- ---------
(d) The phrase "60 days" appearing in the first line of Section 10.02
[Notice of Defaults] shall be amended to read "twenty (20) days."
------------------
16
<PAGE>
18. EFFECTIVE DATE. As used herein, the Effective Date of this Second
--------------
Amendment shall be that date upon which an executed and acknowledged counterpart
of this Second Amendment is recorded in the Office of the County Recorder of
Bernalillo County, New Mexico.
19. INDENTURE IN EFFECT. The Company and the Trustee agree and
-------------------
acknowledge that the Existing Indenture, as amended and supplemented by this
Second Amendment, remains in full force and effect in accordance with its terms.
20. COMPANY COVENANT TO PAY TRUSTEE FEES. By its signature hereto, the
------------------------------------
Company covenants and agrees to pay the reasonable fees and costs of the Trustee
incurred or charged in connection with the review and execution of this Second
Amendment and all other instruments described in Recital D to this Second
Amendment.
21. COUNTERPARTS AND INCLUSIONS IN INDENTURE. This Second Amendment may
----------------------------------------
be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute a single instrument. Upon
recordation of this Second Amendment in the Office of the County Recorder of
Bernalillo County, New Mexico, this Second Amendment shall be and become a part
of the Indenture and shall be construed as a part thereof. By its signature
hereto, the Trustee authorizes the Company to record executed and acknowledged
counterparts of this Second Amendment in the Office of the County Recorder of
Bernalillo County, New Mexico.
22. SEPARABILITY CLAUSE. In case any provision in this Second Amendment
-------------------
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions, and of the other provisions of the
Indenture, shall not in any way be affected or impaired thereby.
23. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW MEXICO.
24. COMPANY FISCAL YEAR. Notwithstanding anything contained in the
-------------------
Indenture, it is understood and acknowledged that the fiscal year of the Company
is currently the calendar year (i.e., from January 1 through December 31).
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
and Supplement to Indenture of Mortgage and Deed of Trust Dated February 14,
1992, to be duly executed, with the Company's corporate seal to be hereunto
affixed and attested, all as of the day and year first above written.
NEW MEXICO UTILITIES, INC.
Mortgagor
(Seal)
By /s/ ROBERT SWARTWOUT
-----------------------------------------
Title: President
-------------------------------------
By /s/ WILLIAM C. JASURA
-----------------------------------------
William C. Jasura
Title: Vice President of Finance
-------------------------------------
SUNWEST BANK OF ALBUQUERQUE,
NATIONAL ASSOCIATION
Mortgagee
By /s/ ELIZABETH DEAN
-----------------------------------------
Authorized Officer
18
<PAGE>
STATE OF NEW MEXICO )
) ss.
COUNTY OF BERNALILLO )
On October 31, 1996, before me, Aimee Hallenbeck, Notary Public,
personally appeared Robert L. Swartwout personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity on
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ AIMEE HALLENBECK
--------------------------------------
Notary Public
STATE OF NEW MEXICO )
) ss.
COUNTY OF BERNALILLO )
On October 31, 1996, before me, Aimee Hallenbeck, Notary Public,
personally appeared William C. Jasura personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity on
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ AIMEE HALLENBECK
--------------------------------------
Notary Public
19
<PAGE>
STATE OF NEW MEXICO )
) ss.
COUNTY OF BERNALILLO )
The foregoing instrument was acknowledged before me on November 1,
1996 by Elizabeth Dean, Vice President and Trust Officer of Sunwest Bank of
Albuquerque, N.A., a national banking association.
/s/ BONNIE J. PAISLEY
---------------------------------------
Notary Public
My commission expires:
10/22/99
- --------------------------
20
<PAGE>
EXHIBIT "1"
ADDITIONS TO REAL PROPERTY
<PAGE>
EXHIBIT "1" TO SECOND AMENDMENT AND
SUPPLEMENT TO INDENTURE OF MORTGAGE DATED
FEBRUARY 14, 1992
--------------------------------------
The following real property, all located in Bernalillo County, New
Mexico, is added to the real property described on Exhibit "A" to and is
subjected to the lien of the Indenture pursuant to paragraph 2 of the First
Amendment and Supplement to Indenture of Mortgage Dated February 14, 1992:
94. Easement dated February 10, 1992, filed February 18, 1992, as Document
No. 92-13845, recorded in Book 92-3, pages 9329-9333, records of
Bernalillo County, New Mexico
95. Easement dated May 1, 1992, filed May 4, 1992, as Document No. 92-41821,
recorded in Book 92-10, pages 6185-6188, records of Bernalillo County,
New Mexico.
96. Easement dated August 17, 1992, filed August 19, 1992, as Document
No. 92-82892, recorded in Book 92-19, pages 3632-3635, records of
Bernalillo County, New Mexico.
97. Easement dated November 23, 1993, filed December 6, 1993, as Document
No. 93-137902, recorded in Book 93-95, pages 0244-0250, records of
Bernalillo County, New Mexico.
98. Easement dated September 2, 1993, filed September 14, 1993, as
Document No.93-100988, recorded in Book 93-25, pages 3440-3442, records
of Bernalillo County, New Mexico.
99. Easement dated November 23, 1993, filed December 15, 1993, as Document
No.93-141955, recorded in Book 93-36, pages 956-961, records of
Bernalillo County, New Mexico.
100. Easement dated January 11, 1994, filed January 14, 1994, as Document No.
94-006805, recorded in Book 94-2, pages 5142-5144, records of Bernalillo
County, New Mexico.
101. Easement dated January 11, 1994, filed January 14, 1994, as Document No.
94-006804, recorded in Book 94-2, pages 5139-5141, records of Bernalillo
County, New Mexico.
102. Easement dated April 22, 1994, filed April 27, 1994 as Document
No. 94-054532, recorded in Book 94-13, pages 5310-5320, records of
Bernalillo County, New Mexico.
103. Easement dated March 14, 1994, filed April 27, 1994, as Document
No. 94-054535, recorded in Book 94-13, pages 5339-5342, records of
Bernalillo County, New Mexico.
<PAGE>
104. Easement dated April 4, 1994, filed April 27, 1994, as Document
No. 94-054533, recorded in Book 94-13, pages 5321-5323, records of
Bernalillo County, New Mexico.
105. Easement dated May 3, 1994, filed May 20, 1994, as Document No.
94-067131, recorded in Book 94-16, pages 2249-2252, records of Bernalillo
County, New Mexico.
106. Easement dated May 5, 1994, filed May 20, 1994, as Document No.
94-067130, recorded in Book 94-16, pages 2246-2248, records of Bernalillo
County, New Mexico.
107. Easement dated November 7, 1994, filed November 10, 1994, as Document
No. 94-134556, recorded in Book 94-31, pages 3856-3859, records of
Bernalillo County, New Mexico.
108. Easement dated August 9, 1994, filed August 11, 1994, as Document
No. 94-100644, recorded in Book 94-23, pages 7125-7128, records of
Bernalillo County, New Mexico.
109. Easement dated August 8, 1994, filed August 11, 1994, as Document
No. 94-100643, recorded in Book 94-23, pages 7121-7124, records of
Bernalillo County, New Mexico.
110. Easement dated November 29, 1994, filed January 5, 1995, as Document
No. 95-001389, recorded in Book 95-1, pages 2894-2900, records of
Bernalillo County, New Mexico.
111. Easement dated May 31, 1995, filed June 5, 1995, as Document No.
95-055309, recorded in Book 95-13, pages 5139-5144, records of Bernalillo
County, New Mexico.
112. Easement dated February 22, 1995, filed February 23, 1995, as Document
No. 95-018486, recorded in Book 95-5, pages 1198-1203, records of
Bernalillo County, New Mexico.
113. Easement dated January 31, 1995, filed February 23, 1995, as Document
No. 95-018488, recorded in Book 95-5, pages 1209-1212, records of
Bernalillo County, New Mexico.
114. Easement dated January 31, 1995, filed February 23, 1995, as Document
No. 95-018489, recorded in Book 95-5, pages 1213-1216, records of
Bernalillo County, New Mexico.
115. Easement dated February 8, 1995, filed February 23, 1995, as Document
No. 95-018487, recorded in Book 95-5, pages 1204-1208, records of
Bernalillo County, New Mexico.
EXHIBIT "1"
Page 2 or 4
<PAGE>
116. Easement dated January 31, 1995, filed March 10, 1995, as Document
No. 95-024710, recorded in Book 95-6, pages 4491-4494, records of
Bernalillo County, New Mexico.
117. Easement dated March 1, 1995, filed March 10, 1995, as Document
No. 95-024711, recorded in Book 95-6, pages 4411-4499, records of
Bernalillo County, New Mexico.
118. Easement dated March 23, 1995, filed March 24, 1995, as Document
No. 95-029598, recorded in Book 95-7, pages 5913-5916, records of
Bernalillo County, New Mexico.
119. Easement dated April 3, 1995, filed May 1, 1995, as Document No.
95-042609, recorded in Book 95-10, pages 5757-5762, records of Bernalillo
County, New Mexico.
120. Easement dated May 2, 1995, filed June 22, 1995, as Document No.
95-061976, recorded in Book 95-14, pages 9896-9900, records of Bernalillo
County, New Mexico.
121. Easement dated June 19, 1995, filed June 22, 1995, as Document No.
95-061975, recorded in Book 95-14, pages 9892-9895, records of Bernalillo
County, New Mexico.
122. Easement dated June 1, 1995, filed September 1, 1995, as Document
No. 95-089337, recorded in Book 95-21, pages 3963-3965, records of
Bernalillo County, New Mexico.
123. Easement dated August 10, 1995, filed September 1, 1995, as Document
No. 95-089336, recorded in Book 95-21, pages 3959-3962, records of
Bernalillo County, New Mexico.
124. Easement dated July 12, 1995, filed September 1, 1995, as Document
No. 95-089330, recorded in Book 95-21, pages 3880-3883, records of
Bernalillo County, New Mexico.
125. Easement dated July 6, 1995, filed September 1, 1995, as Document
No. 95-089329, recorded in Book 95-21, pages 3877-3879, records of
Bernalillo County, New Mexico.
126. Easement dated September 5, 1995, filed September 13, 1995, as Document
No. 95-093178, recorded in Book 95-22, pages 2736-2740, records of
Bernalillo County, New Mexico.
127. Easement dated September 28, 1995, filed October 30, 1995, as Document
No. 95-111074, recorded in Book 95-26, pages 3818-3826, records of
Bernalillo County, New Mexico.
EXHIBIT "1"
Page 3 or 4
<PAGE>
128. Easement dated January 16, 1996, filed January 17, 1996, as Document
No. 96-005897, recorded in Book 96-2, pages 2719-2721, records of
Bernalillo County, New Mexico.
129. Easement dated January 3, 1995, filed February 13, 1996, as Document
No. 96-016398, recorded in Book 96-4, pages 6089-6094, records of
Bernalillo County, New Mexico.
130. Easement dated January 3, 1996, filed February 13, 1996, as Document
No. 96-016399, recorded in Book 96-4, pages 6095-6098, records of
Bernalillo County, New Mexico.
131. Easement dated March 21, 1996, filed April 23, 1996, as Document
No. 96-044996, recorded in Book 96-11, pages 4715-4720, records of
Bernalillo County, New Mexico.
132. Easement dated March 21, 1996, filed April 23, 1996, as Document
No. 96-044997, recorded in Book 96-11, pages 4721-4728, records of
Bernalillo County, New Mexico.
133. Easement dated May 13, 1996, filed June 24, 1996, as Document No.
96-069307, recorded in Book 96-17, pages 4143-4151, records of Bernalillo
County, New Mexico.
EXHIBIT "1"
Page 4 of 4
<PAGE>
EXHIBIT 10.13
CREDIT AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of June 30, 1996, by and
between SUBURBAN WATER SYSTEMS, a California corporation ("Borrower"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
-------
Borrower has requested from Bank the credit accommodations described below
(each, a "Credit" and collectively, the "Credits"), and Bank has agreed to
provide the Credits to Borrower on the terms and conditions contained herein;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
---------
THE CREDITS
-----------
SECTION 1.1. LINE OF CREDIT A.
(a) Line of Credit A. Subject to the terms and conditions of this
----------------
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including December 1, 1996, not to exceed at any time the aggregate
principal amount of Four Million Dollars ($4,000,000.00) ("Line of Credit A");
provided, however, that at no time shall the outstanding principal balance of
the Line of Credit A, when combined with the outstanding principal balance of
the $6,000,000.00 revolving line of credit provided by Bank to Southwest Water
Company, a Delaware corporation ("Southwest") pursuant to that certain Credit
Agreement between Southwest and Bank dated as of December 2, 1992, as amended
("Southwest/Wells Fargo Credit Agreement") (said $6,000,000.00 line of credit
provided by Bank to Southwest pursuant to the Southwest/Wells Fargo Credit
Agreement, as same may be modified, extended and renewed from time to time, may
be referred to as the "Southwest/Wells Fargo Line of
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<PAGE>
Credit"), exceed SIX MILLION DOLLARS ($6,000,000.00) in the aggregate. The
proceeds of the initial advance under Line of Credit A shall be used to fund a
loan by Borrower to Southwest which will be used by Southwest to repay
indebtedness of Southwest to Bank under the Southwest/Wells Fargo Line of
Credit. After the initial advance, proceeds of advances under Line of Credit A
shall be used for Borrower's working capital requirements. Borrower's
obligation to repay advances under Line of Credit A shall be evidenced by a
promissory note substantially in the form of Exhibit A attached hereto ("Line of
Credit A Note"), all terms of which are incorporated herein by this reference.
(b) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of Line of Credit A borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in Line of Credit A Note; provided however, that
the total outstanding borrowings under Line of Credit A shall not at any time
exceed the maximum principal amount available thereunder, as set forth above.
SECTION 1.2. LINE OF CREDIT B.
(a) Line of Credit B. Subject to the terms and conditions of this
----------------
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including June 30, 1997, not to exceed at any time the aggregate
principal amount of Four Million Dollars ($4,000,000.00) ("Line of Credit B");
provided, however, that at no time shall the outstanding principal balance of
the Line of Credit B, when combined with the outstanding principal balance of
the $6,000,000.00 revolving commitment provided by Bank to Southwest pursuant to
that certain Credit Agreement between Southwest and Bank (which is referred to
therein as "First Interstate Bank of California") dated as of December 22, 1992,
as amended ("Southwest/First Interstate Credit Agreement") (said $6,000,000.00
revolving commitment provided by Bank to Southwest pursuant to the
Southwest/First Interstate Credit Agreement, as same may be modified, extended
and renewed from time to time, may be referred to as the "Southwest/First
Interstate
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<PAGE>
Line of Credit"), exceed SIX MILLION DOLLARS ($6,000,000.00) in the aggregate.
The proceeds of the initial advance under Line of Credit B shall be used to fund
a loan by Borrower to Southwest which will be used by Southwest to repay
indebtedness of Southwest to Bank under the Southwest/First Interstate Line of
Credit. After the initial advance, proceeds of advances under Line of Credit B
shall be used for Borrower's working capital requirements. Borrower's
obligation to repay advances under Line of Credit B shall be evidenced by a
promissory note substantially in the form of Exhibit B attached hereto ("Line of
Credit B Note"), all terms of which are incorporated herein by this reference.
(b) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of Line of Credit B borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in Line of Credit B Note; provided however, that
the total outstanding borrowings under Line of Credit B shall not at any time
exceed the maximum principal amount available thereunder, as set forth above.
SECTION 1.3. INTEREST/FEES.
(a) Interest. The outstanding principal balances of Line of Credit A and
--------
Line of Credit B shall bear interest at the rates of interest set forth in the
Line of Credit A Note and the Line of Credit B Note, respectively.
(b) Computation and Payment. Interest shall be computed on the basis of a
-----------------------
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit A Note and the Line of Credit B Note
(collectively, "Notes").
(c) Commitment Fee. Borrower shall pay to Bank a non-refundable
--------------
commitment fee for Line of Credit A and Line of Credit B equal to $1,500.00,
which fee shall be due and payable in full on the date Borrower executes this
Agreement.
(d) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one-
---------------------
half percent (.50%) per annum (computed on the basis of a 360-day year, actual
days elapsed) on the average daily unused amount of Line of Credit A, which fee
shall be
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<PAGE>
calculated on a quarterly basis by Bank and shall be due and payable by Borrower
in arrears within thirty (30) days after each billing is sent by Bank.
SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all interest and fees due under each Credit by charging Borrower's demand
deposit account number 4919-041608 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
SECTION 1.5. GUARANTY. All indebtedness of Borrower to Bank shall be
guaranteed by Southwest in the principal amount of EIGHT MILLION DOLLARS
($8,000,000.00), as evidenced by and subject to the terms of a continuing
guaranty in form and substance satisfactory to Bank.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of California, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower. Southwest owns one hundred
percent (100%) of the stock of Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and
each other document, contract and instrument required hereby or at any
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<PAGE>
time hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents and Borrower's use of the proceeds of the
Credits do not violate any provision of any law or regulation, or contravene any
provision of the Articles of Incorporation or By-Laws of Borrower, or result in
any breach of or default under any contract, obligation, indenture or other
instrument to which Borrower is a party or by which Borrower may be bound. The
execution, delivery and performance by Southwest of its guaranty hereunder do
not violate any provision of any law or regulation, or contravene any provision
of the Articles of Incorporation or By-Laws of Southwest, or result in any
breach of or default under any contract, obligation, indenture or other
instrument to which Southwest is a party or by which Southwest may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated May 31,1996, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and
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<PAGE>
(c) has been prepared in accordance with generally accepted accounting
principles consistently applied. Since the date of such financial statement
there has been no material adverse change in the financial condition of
Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or
otherwise encumbered any of its assets or properties except in favor of Bank or
as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, franchises and licenses required and rights to all
trademarks, trade names, patents, and fictitious names, if any, necessary to
enable it to conduct the business in which it is now engaged in compliance with
applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated, in any material respect, any provision of any defined benefit employee
pension plan (as defined in ERISA) maintained or contributed to by Borrower
(each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is
continuing with respect to any Plan maintained by Borrower; Borrower has met its
minimum funding requirements under ERISA with respect to each Plan; and each
Plan will be able to fulfill its benefit obligations as they come due in
accordance with the Plan documents.
-6-
<PAGE>
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable Federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, the Federal Toxic Substances Control Act and the California Health and
Safety Code, as any of the same may be amended, modified or supplemented from
time to time. None of the operations of Borrower is the subject of any Federal
or state investigation evaluating whether any remedial action involving a
material expenditure is needed to respond to a release of any toxic or hazardous
waste or substance into the environment. Borrower has no material contingent
liability in connection with any release of any toxic or hazardous waste or
substance into the environment.
SECTION 2.12. APPROVALS. All required registrations with, or consents or
approvals of, or notices to or other action by, any governmental authority or
agency or other person or entity with respect to the execution, delivery and
performance by Borrower of this Agreement and the use of the proceeds of the
Credits have been made, given or taken as the case may be. All required
registrations with, or consents or approvals of, or notices to or other action
by, any governmental authority or agency or other person or entity with respect
to the execution, delivery and performance by Southwest of its guaranty
hereunder have been made, given or taken as the case may be.
-7-
<PAGE>
ARTICLE III
-----------
CONDITIONS
----------
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
------------------------
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
-------------
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes.
(ii) Corporation Resolution: Borrowing.
(iii) Certificates of Incumbency from Borrower and Southwest.
(iv) Continuing Guaranty from Southwest.
(v) Corporate Resolution Authorizing Guaranty from Southwest.
(vi) Letter of understanding between Bank, Borrower and Southwest confirming
that borrowings by Southwest under the Southwest/Wells Fargo Line of
Credit and the Southwest/First Interstate Line of Credit are restricted
in accordance with Sections 1.1 and 1.2 herein.
(vii) Such other documents as Bank may require under any other Section of
this Agreement.
(c) Legal Opinion. Bank shall have received, from counsel to Borrower
-------------
acceptable to Bank, a legal opinion in form and substance satisfactory to Bank.
(d) Approval Documents. Borrower shall have delivered to Bank such
------------------
documents as Bank may require to assure Bank that Borrower has the right, power
and authority to enter into this Agreement and the other Loan Documents and to
perform all obligations of Borrower hereunder and thereunder.
(e) Financial Condition. There shall have been no material adverse change,
-------------------
as determined by Bank, in the financial condition or business of Borrower or any
guarantor hereunder, nor any material decline, as determined by Bank, in the
market value of a substantial or material portion of the assets of Borrower or
any guarantor hereunder.
-8-
<PAGE>
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and in
----------
each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents which
-------------
may be required in connection with such extension of credit.
ARTICLE IV
----------
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the
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<PAGE>
amount by which the outstanding principal balance of any of the Credits at any
time exceeds any limitation on borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 60 days after and as of the end of each fiscal quarter,
a financial statement of Borrower, prepared by Borrower, to include balance
sheet and income statement;
(b) not later than 120 days after and as of the end of each fiscal year, an
audited consolidated financial statement of Southwest, prepared by a certified
public accountant acceptable to Bank, to include balance sheet, income
statement, statement of cash flows and a statement of retained earnings,
together with such consolidating information as Bank may reasonably require;
(c) not later than 60 days after and as of the end of each quarter, a
financial statement of Southwest, prepared by Southwest, to include balance
sheet and income statement;
(d) contemporaneously with each quarterly financial statement of Southwest
required hereby, a certificate of the chief financial officer of Southwest that
said financial statements are accurate;
(e) contemporaneously with each quarterly financial statement of Borrower
required hereby and with each annual consolidated financial statement of
Southwest required hereby, a certificate of the chief financial officer of
Borrower that said financial statements are accurate and that there exists no
Event of Default nor any condition, act or event which with the giving of notice
or the passage of time would constitute an
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<PAGE>
Event of Default, together with a calculation of Total Debt and Bondable
Capacity as those terms are defined in section 4.8(c);
(f) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation Federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's reasonable satisfaction, for eventual payment
thereof in the event Borrower is obligated to make such payment.
SECTION 4.8. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied
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<PAGE>
and used consistently with prior practices (except to the extent modified by the
definitions herein) , with compliance determined commencing with Borrower's
financial statements for the period ending May 31, 1996:
(a) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end.
(b) EBITDA Coverage Ratio not less than 1.5 to 1.0 as of each fiscal year
end, with "EBITDA" defined as net profit before tax plus interest expense (net
of capitalized interest expense), depreciation expense and amortization expense,
and with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of
total interest expense plus the prior period current maturity of long-term debt
and the prior period current maturity of subordinated debt.
(c) Total Debt not greater than Bondable Capacity ($32,693,000 at June 30,
1996) calculated as of the end of each quarter, with "Total Debt" defined as
bank debt plus bonds issued under that certain Indenture of Mortgage and Deed of
Trust dated October 1, 1986, as supplemented and amended by the first Amendment
and Supplement to Indenture of Mortgage and Deed of Trust dated February 7, 1990
("First Amendment") and the Second Amendment and Supplement to Indenture of
Mortgage and Deed of Trust dated January 24, 1992, and as to be further
supplemented by a Third Amendment and Supplement to Indenture of Mortgage and
Deed of Trust by Borrower and Bank of America, as Trustee, for the purpose of
creating the Series C Bonds (collectively, "Indenture"). "Bondable Capacity" is
defined as a dollar amount equal to the sum of:
(i) the Adjusted Amount of Bondable Property; plus
(ii) Trust Moneys; plus
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(iii) the Amount of Property Additions not previously included in any
Summary Certificate of Bondable Capacity; less
(iv) the amount of Retirements not previously included in any Summary
Certificate of Bondable Capacity; less
(v) $3,250,000 as provided in the First Amendment.
All capitalized terms used in this section 4.8(c) shall have the meanings given
to them in the Indenture in effect on the date hereof, unless otherwise defined
herein.
SECTION 4.9. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower in excess of $500,000.00.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; (d) any termination or cancellation
of any insurance policy which Borrower is required to maintain, or any uninsured
or partially uninsured loss through liability or property damage, or through
fire, theft or any other cause affecting Borrower's property in excess of an
aggregate of $250,000; or (e) the commencement of any legal, judicial or
administrative proceeding which seeks a determination that Borrower is
unauthorized to perform any obligation under this Agreement or any of the other
Loan Documents.
SECTION 4.11. APPROVALS. Obtain all consents and approvals from any
governmental authority or agency or other person or entity as may be required
for Borrower to perform its obligations hereunder.
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<PAGE>
ARTICLE V
---------
NEGATIVE COVENANTS
------------------
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits
except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except for (a) the liabilities of Borrower to
Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to
Bank in writing prior to, the date hereof, and (c) the $8,000,000 of Series C
First Mortgage Bonds on the terms heretofore submitted by Borrower to Bank.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity, except for acquisitions of
assets which do not include stock, partnership interests or limited liability
memberships, and which do not involve acquired assets with a value (based on the
consideration paid therefor) in excesss of $250,000.00 in the aggregate for all
such acquisitions during any fiscal year; nor sell, lease, transfer or otherwise
dispose of all or a substantial or material portion of Borrower's assets except
in the ordinary course of its business.
-14-
<PAGE>
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except for (a) any
of the foregoing in favor of Bank, and (b) any of the foregoing existing as of
and disclosed to Bank in writing prior to the date hereof.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity, except for (a) any of the foregoing
existing as of, and disclosed to Bank in writing prior to, the date hereof, and
(b) advances by Borrower to Southwest in the ordinary course of business so long
as outstanding advances by Borrower to Southwest do not exceed $3,000,000.00 in
the aggregate at any time; provided, however, that for the purpose of
calculating the $3,000,000.00 of permitted outstanding advances to Southwest,
the outstanding balances of the loans to Southwest which are funded by the
initial advance under each Credit hereunder (collectively, "Initial Southwest
Loans") shall be excluded.
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding, except
for dividends allowed by the terms of the Indenture.
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except for (a) any of the foregoing in
favor of Bank, and (b) any of the foregoing which is existing as of, and
disclosed to Bank in writing prior to, the date hereof, and (c) the lien on real
property created by the Indenture.
SECTION 5.8. PARTNERSHIPS. Become a general partner in any partnership
or a joint venturer in any joint venture.
-15-
<PAGE>
ARTICLE VI
----------
EVENTS OF DEFAULT
-----------------
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay within three (3) days of the date when due
any principal, interest, fees or other amounts payable under any of the Loan
Documents.
(b) Any financial statement or certificate furnished to Bank in connection
with, or any representation or warranty made by Borrower or any other party
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of thirty (30) days from its occurrence, except that in
the case of defaults which by their nature can be cured under the following
sections of this Agreement, such defaults shall continue for a period of thirty
(30) days from the date Bank gives Borrower written notice thereof: Borrower's
failure to maintain adequate books and records in accordance with generally
accepted accounting principles as required by Section 4.2; Borrower's delivery
of financial statements to Bank under Section 4.3 which are not in form or
detail satisfactory to Bank; Borrower's failure to maintain insurance in
accordance with Section 4.5; Borrower's failure to maintain its properties in
accordance with Section 4.6; and Borrower's failure to make a provision to
Bank's satisfaction for payment of a disputed obligation in accordance with
Section 4.7.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower or any guarantor
hereunder has
-16-
<PAGE>
incurred any debt or other liability to any person or entity, including Bank,
including without limitation the occurrence of any event of default under the
Southwest/Wells Fargo Credit Agreement or the Southwest/First Interstate Credit
Agreement; provided however, that in the case of a default under the terms of
indebtedness to a person or entity other than Bank, any cure period applicable
to such default has expired, and such indebtedness is in excess of $500,000 in
the aggregate for all such uncured defaults by Borrower and any guarantor
combined.
(e) The filing of a notice of judgment lien against Borrower or any
guarantor hereunder; or the recording of any abstract of judgment against
Borrower or any guarantor hereunder in any county in which Borrower or such
guarantor has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any guarantor hereunder; or the entry of a judgment
against Borrower or any guarantor hereunder; provided, however, that such
judgments, judgment liens, levies, writs, executions and other process involve
judgments or claims in excess of $100,000 in the aggregate for Borrower and any
guarantor combined, and such judgments or claims, as the case may be, are not
insured against pending appeal in a manner reasonably satisfactory to Bank
(which insurance may consist of a bond or other insurance coverage as long as it
is reasonably satisfactory to Bank), or satisfied within twenty (20) days after
the creation thereof or at least five (5) days prior to the date on which any
assets could be lawfully sold in satisfaction thereof.
(f) Borrower or any guarantor hereunder shall become insolvent, or shall
suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property (except that as set
forth below with respect to an involuntary petition or proceeding pursuant to
the Bankruptcy Code as defined below or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors, as long
as such petition or proceeding is opposed, Borrower shall have sixty (60) days
from its commencement to have such petition or proceeding
-17-
<PAGE>
dismissed), or shall generally fail to pay its debts as they become due, or
shall make a general assignment for the benefit of creditors; Borrower or any
guarantor hereunder shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("Bankruptcy Code"), or under
any state or Federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to the Bankruptcy
Code or any other applicable state or Federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower or any guarantor hereunder and such involuntary petition or proceeding
is unopposed or is not dismissed within sixty (60) days of its commencement (it
is acknowledged that in accordance with Section 3.2(a) herein, Bank would have
no obligation to make new advances to Borrower during such time period), or
Borrower or any guarantor hereunder shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or such guarantor shall be adjudicated a bankrupt, or an
order for relief shall be entered against Borrower or any guarantor hereunder by
any court of competent jurisdiction under the Bankruptcy Code or any other
applicable state or Federal law relating to bankruptcy, reorganization or other
relief for debtors.
(g) There shall exist or occur any event or condition which Bank in good
faith believes materially impairs, or is substantially likely to materially
impair, the prospect of payment or performance by Borrower of its obligations
under any of the Loan Documents; provided, however, that the existence or
occurrence of any such event or condition shall not constitute an Event of
Default under this paragraph (g) unless Borrower fails to cure such event or
condition within forty-five (45) days of written notice from Bank to Borrower of
the existence thereof.
(h) The dissolution or liquidation of Borrower or any guarantor hereunder;
or Borrower or any such guarantor, or any of their directors, stockholders or
members,
-18-
<PAGE>
shall take action seeking to effect the dissolution or liquidation of Borrower
or such guarantor.
(i) Any change in ownership of Borrower during the term of this Agreement.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by Borrower; (b)
the obligation, if any, of Bank to extend any further credit under any of the
Loan Documents shall immediately cease and terminate; and (c) Bank shall have
all rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to any or all
security for any of the Credits and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law. All rights, powers and
remedies of Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default
-19-
<PAGE>
under any of the Loan Documents must be in writing and shall be effective only
to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: SUBURBAN WATER SYSTEMS
1211 E. Center Court Dr.
Covina, CA 91724
Attn: Chief Financial Officer
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
FLAIR INDUSTRIAL PARK REGIONAL
COMMERCIAL BANKING OFFICE
9000 Flair Drive, Suite 100
El Monte, CA 91731
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), incurred by
Bank in connection with the following (except that in the case of (b) below,
only Bank's reasonable attorneys' fees, to include outside counsel fees and
allocated costs of Bank's in-house counsel, shall be reimbursed by Borrower):
(a) the negotiation and preparation of this Agreement and the other Loan
Documents, (b) Bank's continued administration hereof and thereof, (c) the
preparation of any amendments and waivers hereto and thereto, (d) the
enforcement of Bank's rights and/or the collection of any
-20-
<PAGE>
amounts which become due to Bank under any of the Loan Documents, and (e) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding relating to Borrower.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter
acquire relating to any of the Credits, Borrower or its business, any guarantor
hereunder or the business of such guarantor, or any collateral required
hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to the Credits and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only by a written instrument executed by
each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with this Agreement or any other of the Loan Documents to
which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
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<PAGE>
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, whether made before the
-----------
institution of any judicial proceeding or not more than 30 days after service of
a complaint, third party complaint, cross-claim, counterclaim or any answer
thereto or any amendment to any of the above, any Dispute shall be resolved by
binding arbitration (except as set forth in (e) below) in accordance with the
terms of this Agreement. A "Dispute" shall mean any action, dispute, claim or
controversy of any kind, whether in contract or tort, statutory or common law,
legal or equitable, now existing or hereafter arising under or in connection
with, or in any way pertaining to, any of the Loan Documents, or any past,
present or future extensions of credit and other activities, transactions or
obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who
fails or refuses to submit to arbitration following a lawful demand by any other
party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
-22-
<PAGE>
(b) Governing Rules. Arbitration proceedings shall be administered by the
---------------
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in the County of
Los Angeles, State of California, selected by the AAA or other administrator.
If there is any inconsistency between the terms hereof and any such rules, the
terms and procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. (S)91 or any similar
applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall
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<PAGE>
resolve all Disputes in accordance with the substantive law of the state of
California, (ii) may grant any remedy or relief that a court of the state of
California could order or grant within the scope hereof and such ancillary
relief as is necessary to make effective any award, and (iii) shall have the
power to award recovery of all costs and fees, to impose sanctions and to take
such other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil
Procedure or other applicable law. Any Dispute in which the amount in
controversy is $5,000,000 or less shall be decided by a single arbitrator who
shall not render an award of greater than $5,000,000 (including damages, costs,
fees and expenses). By submission to a single arbitrator, each party expressly
waives any right or claim to recover more than $5,000,000. Any Dispute in which
the amount in controversy exceeds $5,000,000 shall be decided by majority vote
of a panel of three arbitrators; provided however, that all three arbitrators
must actively participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
---------------
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (A) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (B) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (C) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (1) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (2) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court
-24-
<PAGE>
determines the award is supported by substantial evidence and not based on legal
error under the substantive law of the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding anything
--------------------------------------------
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
-------------
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall
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<PAGE>
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Loan Documents or any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
SUBURBAN WATER SYSTEMS NATIONAL ASSOCIATION
By: /s/ PETER J. MOERBEEK By: /s/ COTTY WALLACE
------------------------------------ -----------------------------
Vice President
Title: Secretary
---------------------------------
By: /s/ DANIEL N. EVANS
------------------------------------
Title: Vice President Finance & CFO
---------------------------------
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<PAGE>
EXHIBIT 10.14
CREDIT AGREEMENT
SOUTHWEST WATER COMPANY
AND
MELLON BANK, N.A.
AUGUST 29, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C> <C>
ARTICLE I DEFINITIONS............................................ 1
SECTION 1.01. Defined Terms.......................................... 1
SECTION 1.02. Other Definitional Provisions.......................... 6
ARTICLE II THE CREDIT............................................. 7
SECTION 2.01. The Revolving Loans.................................... 7
(a) The Revolving Commitment......................... 7
(b) Making the Revolving Loans....................... 7
(c) Reduction of the Revolving Commitment............ 7
(d) Revolving Note................................... 8
SECTION 2.02. Repayment.............................................. 8
(a) Mandatory Repayments............................. 8
(b) Optional Prepayment.............................. 8
SECTION 2.03. Interest Rate and Payment Dates........................ 8
(a) Payment.......................................... 8
(b) Interest Rate.................................... 9
(c) Rate Periods..................................... 9
(d) Interest After Maturity.......................... 9
(e) Selection, Conversion or Renewal of Rate Options. 9
(f) Prime Rate Fallback.............................. 10
SECTION 2.04. Commitment Fee......................................... 10
ARTICLE III GENERAL PROVISIONS CONCERNING THE
LOANS.................................................. 10
SECTION 3.01. Use of Proceeds........................................ 10
SECTION 3.02. Computation of Interest and Fees....................... 10
(a) Calculations..................................... 11
(b) Determination by Bank............................ 11
SECTION 3.03. Payments............................................... 11
SECTION 3.04. Payment on Non-Business Days........................... 11
SECTION 3.05. Reduced Return......................................... 11
SECTION 3.06. Indemnities and Losses................................. 11
(a) Indemnities...................................... 11
(b) Funding Losses................................... 12
SECTION 3.07. Funding Sources........................................ 12
SECTION 3.08. Requirements of Law.................................... 13
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IV CONDITIONS OF LENDING.................................. 13
SECTION 4.01. Conditions Precedent to Initial Loans.................. 13
SECTION 4.02. Conditions Precedent to Each Borrowing................. 14
ARTICLE V REPRESENTATIONS AND WARRANTIES......................... 15
SECTION 5.01. Representations and Warranties......................... 15
(a) Organization..................................... 15
(b) Authorization; No Conflict....................... 15
(c) Governmental Consents............................ 15
(d) Validity......................................... 16
(e) Financial Condition.............................. 16
(f) Litigation....................................... 16
(g) Employee Benefit Plans........................... 16
(h) Disclosure....................................... 16
(i) Environmental Matters............................ 17
(j) Employee Matters................................. 17
(k) Solvency......................................... 17
(l) Title to Properties.............................. 17
(m) Tax Returns...................................... 18
(n) Compliance with Other Agreements and
Applicable Laws.................................. 18
ARTICLE VI COVENANTS.............................................. 18
SECTION 6.01. Affirmative Covenants.................................. 18
(a) Financial Information............................ 18
(b) Notices and Information.......................... 19
(c) Corporate Existence, Etc......................... 20
(d) Payment of Taxes and Claims...................... 21
(e) Maintenance of Properties; Insurance............. 21
(f) Inspection....................................... 21
(g) Compliance with Laws Etc......................... 21
(h) Hazardous Waste Studies.......................... 21
SECTION 6.02. Negative Covenants..................................... 22
(a) Leverage Ratio................................... 22
(b) Consolidated Tangible Net Worth.................. 22
(c) Consolidated Net Profit.......................... 22
(d) Liens Etc........................................ 22
(e) Debt............................................. 22
(f) Consolidation, Merger or Dissolution............. 23
(h) Loans, Investments, Secondary Liabilities........ 23
(i) Asset Sales...................................... 23
(j) Hostile Tender Offers............................ 24
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
(k) Distributions................................... 24
(l) Transactions with Affiliates.................... 24
(m) Books and Records and Inspections............... 24
(n) Restructure..................................... 24
ARTICLE VII EVENTS OF DEFAULT...................................... 24
SECTION 7.01. Events of Default...................................... 24
ARTICLE VIII MISCELLANEOUS.......................................... 27
SECTION 8.01. Amendments, Etc........................................ 27
SECTION 8.02. Notices, Etc........................................... 27
SECTION 8.03. Right of Setoff: Security Interest in Deposit
Accounts............................................... 28
SECTION 8.04. No Waiver; Remedies.................................... 28
SECTION 8.05. Costs and Expenses..................................... 28
SECTION 8.06. Participations......................................... 28
SECTION 8.07. Effectiveness: Binding Effect.......................... 29
SECTION 8.08. Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver............................. 29
SECTION 8.09. Waiver of Notices...................................... 30
SECTION 8.10. Waiver of Counterclaims................................ 30
SECTION 8.11. Entire Agreement....................................... 30
SECTION 8.12. Separability of Provisions............................. 30
SECTION 8.13. Execution in Counterparts.............................. 30
Schedules
- ---------
5.01(f) Ligitation
5.01(i) Environmental Matters
6.02(d) Liens
Exhibits
- --------
A - Form of Note
B - Form of Legal Opinion
</TABLE>
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<PAGE>
CREDIT AGREEMENT
This Credit Agreement dated as of August 29, 1996 is entered into among
SOUTHWEST WATER COMPANY, a Delaware corporation (the "Borrower") and MELLON
--------
BANK, N.A. (the "Bank"). The Borrower and the Bank agree as follows:
----
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
-------------
terms have the following meanings:
"Agreement": This Credit Agreement, as amended, supplemented or modified
---------
from time to time.
"Bank": As set forth in the introductory paragraph of this Agreement.
----
"Borrower": As set forth in the introductory paragraph of this Agreement.
--------
"Borrowing": As defined in Section 2.01.
---------
"Business Day": Any day on which the Bank is open for business at the
------------
location where the Note is payable unless otherwise stated.
"Capital Leases": As applied to any Person, any lease of any property
--------------
(whether real, personal or mixed) by that Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of that Person.
"Change of Control": Shall be deemed to have occurred at such times as: (a)
-----------------
a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Act of 1934), becomes the "beneficial owner" (as defined in Rule 13d-
3 under the Securities Exchange Act of 1934), directly or indirectly, of more
than thirty percent (30%) of the total voting power of all classes of stock then
outstanding of Borrower normally entitled to vote in the election of directors;
or (b) the Borrower shall fail to own directly one hundred percent (100%) or
more of the issued and outstanding common stock of Suburban, NMUI or ECO or
shall lose voting control of Suburban's, NMUI's or ECO's issued and outstanding
common stock.
"Commitment": The Bank's obligation to make Loans to the Borrower pursuant
----------
to Article II in the amount or amounts referred to therein.
1
<PAGE>
"Consolidated Liabilities": At any date of determination, the total
------------------------
liabilities of the Borrower and its Subsidiaries on a consolidated basis
determined in accordance with GAAP (including, without limitation, (1) any
balance sheet liability with respect to a Pension Plan recognized pursuant to
Financial Accounting Standards Board Statements 87 or 88 and (2) any withdrawal
liability under Section 4201 of ERISA with respect to a withdrawal from a
Multiemployer Plan, as such liability may be set forth in a notice of withdrawal
liability under Section 4219 (and as adjusted from time to time subsequent to
the date of such notice)).
"Consolidated Tangible Net Worth": At any date of determination, the sum of
-------------------------------
the capital stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of the Borrower and its consolidated Subsidiaries
minus (i) treasury stock, (ii) intangible assets (including, without limitation,
- -----
franchises, patents, patent applications, trademarks, brand names, goodwill,
purchased contracts, water rights and deferred charges (including unamortized
debt discount and expense and organization costs) and research and development
expenses) and (iii) receivables, advances, loans and all other amounts due from
employees, officers, shareholders and/or affiliates, on a consolidated basis
determined in conformity with GAAP.
"Debt": As applied to any Person, (i) all indebtedness for borrowed money,
----
(ii) that portion of obligations with respect to Capital Leases which is
properly classified as a liability on a balance sheet in conformity with GAAP,
(iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, (iv) any obligation
owed for all or any part of the deferred purchase price of property or services
which purchase price is (y) due more than six months from the date of incurrence
of the obligation in respect thereof, or (z) evidenced by a note or similar
written instrument and (v) all indebtedness secured by any Lien on any property
or asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is non-recourse to the
credit of that person.
"Distribution": With respect to any Person shall mean that such Person has
------------
declared or paid any dividend or returned any capital to, its stockholders or
equity holders as such or authorized or made any other distribution, payment or
delivery of property or cash to its stockholders or equity holders as such, or
redeemed, retired, purchased, or otherwise acquired, directly or indirectly, for
consideration, any shares of any class of its capital stock or equity interests
(or any options, warrants or rights issued by such Person with respect to its
capital stock or equity interests), or set aside any funds for any of the
foregoing purposes, or shall have permitted any of its Subsidiaries to purchase
or otherwise acquire for a consideration any shares of any class of the capital
stock or any equity interests of such Person (or any options, warrants or rights
issued by such Person with respect to its capital stock or equity interests).
Without limiting the foregoing, "Distributions" with respect to any Person shall
also include all payments made or required to be made by such Person with
respect to any stock appreciation rights plans, equity incentive or the setting
aside of any funds for the foregoing purposes.
2
<PAGE>
"Dollars and $": Dollars in lawful currency of the United States of
-------------
America.
"ECO": ECO Resources, Inc., a Texas corporation.
---
"Employee Benefit Plan": Any Pension Plan, any employee welfare benefit
---------------------
plan, or any other employee benefit plan which is described in Section 3(3) of
ERISA and which is maintained for employees of the Borrower or any ERISA
Affiliate of the Borrower.
"ERISA": The Employee Retirement Income Security Act of 1974, as amended to
-----
the date hereof and from time to time hereafter.
"ERISA Affiliate": As applied to any Person, any trade or business (whether
---------------
or not incorporated) which is a member of a group of which that Person is a
member and which is under common control within the meaning of Section 414(b)
and (c) of the Internal Revenue Code.
"GAAP": Generally accepted accounting principles set forth in the opinions
----
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting profession
or any public commission having regulatory responsibility over the Borrower or
any Subsidiary.
"Interest Rate Options": Has the meaning set forth in Section 2.03(b)
---------------------
hereof.
"Internal Revenue Code": The Internal Revenue Code of 1986, as amended to
---------------------
the date hereof and from time to time hereafter and any successor statute.
"Lien": Any lien, mortgage, deed of trust, pledge, security interest,
----
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest).
"Libor Rate": For any day for any proposed or existing Rate Segment
----------
corresponding to a Rate Period shall mean the rate per annum determined by Bank
to be the rate per annum obtained by dividing (the resulting quotient to be
rounded upward to the nearest 1/16 of 1%) (A) the rate of interest (which shall
be the same for each day in such Rate Period) estimated in good faith by Bank in
accordance with its usual procedures (which determination shall be conclusive)
to be the average of the rates per annum for deposits in United States dollars
offered to major money center banks in the London interbank market at
approximately 11:00 a.m., London time, two London Business Days prior to the
first day of such Rate Period for delivery on the first day of such Rate Period
in amounts comparable to such Rate Segment (or, if there are no such comparable
amounts actively traded, the smallest
3
<PAGE>
amounts actively traded) and have maturities comparable to such Rate Period by
(B) a number equal to 1.00 minus the Libor Rate Reserve Percentage for such day.
The "Libor Rate" may also be expressed by the following formula:
----------
[average of rates offered to major]
[money banks in the London inter-]
Libor Rate = [bank market estimated by the Bank]
-----------------------------------------------
[1.00 - Libor Rate Reserve Percentage]
"Libor Rate Reserve Percentage": For any day shall mean the percentage
-----------------------------
(rounded upward to the nearest 1/16 of 1%), as determined in good faith by Bank
(which determination shall be conclusive) as representing for such day the
maximum effective reserve requirement (including, without limitation,
supplemental, marginal and emergency requirements ) for member banks of the
Federal Reserve System with respect to eurocurrency funding (currently referred
to as "Eurocurrency Liabilities") of any maturity. Each Libor Rate shall be
------------------------
adjusted automatically as of the effective date of any change in the Libor Rate
Reserve Percentage.
"Loans": Loans made to the Borrower pursuant to Section 2.01.
-----
"Loan Documents": This Agreement, the Note(s) and each security agreement,
--------------
deed of trust, mortgage, guarantee and other document, required by the Bank in
connection with this Agreement and/or the credit extended hereunder.
"London Business Day": A day for dealing in deposits in United States
-------------------
dollars by and among banks in the London interbank market.
"Maturity Date": July 15, 1997.
-------------
"Multiemployer Plan": A "multiemployer plan" as defined in Section
------------------
4001(a)(3) of ERISA which is maintained for employees of the Borrower or any
ERISA Affiliate of the Borrower.
"Note" and "Notes": The Revolving Note(s).
---- -----
"NMUI": New Mexico Utilities, Inc., a New Mexico corporation.
----
"Pension Plan": Any employee plan which is subject to Section 412 of the
------------
Internal Revenue Code and which is maintained for employees of the Borrower or
any ERISA Affiliate of the Borrower, other than a Multiemployer Plan.
"Person": An individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
4
<PAGE>
"Portion": "Prime Rate Portion" shall mean at any time the part, including
------- ------------------
the whole, of the unpaid principal amount of the Note bearing interest at such
time under the Prime Rate Option, in accordance with the first sentence of
Section 2.03(d) hereof, or in accordance with Section 2.03(f) hereof. "Libor
-----
Rate Portion" shall mean at any time, the part, including the whole, of the
- ------------
unpaid principal amount of the Note bearing interest at such time under the
Libor Rate Option or in accordance with the second sentence of Section 2.03(d)
hereof.
"Potential Event of Default": A condition or event which, after notice or
--------------------------
lapse of time or both, would constitute an Event of Default if that condition or
event were not cured or removed within any applicable grace or cure period.
"Prime Rate": The interest rate per annum announced from time to time by
----------
Bank as its Prime Rate. The Prime Rate may be greater or less than other
interest rates charged by Bank to other borrowers and is not solely based or
dependent upon the interest rate which Bank may charge any particular borrower
or class of borrowers. Information concerning the Prime Rate may be obtained
from the Bank.
"Rate Period": As defined in Section 2.03(c).
-----------
"Rate Segment": Of the Libor Rate Portion at any time shall mean the entire
------------
principal amount of such Portion to which at such time there is applicable a
particular Rate Period beginning on a particular day and ending on another
particular day. (By definition, each Portion is at all times composed of an
integral number of discrete Rate Segments, each corresponding to a particular
Rate Period, and the sum of the principal amounts of all Rate Segments of a
particular Portion at any time equals the principal amount of such Portion at
such time).
"Regulation G, T, U and X": Regulations G, T, U and X, respectively,
------------------------
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time, and any successors thereto.
"Revolving Commitment": The amount of $6,000,000 as such amount may be
--------------------
reduced pursuant to Section 2.01(c).
"Revolving Loans": As defined in Section 2.01(a).
---------------
"Revolving Note": As defined in Section 2.01(d).
--------------
"S.E.C.": The United States Securities and Exchange Commission and any
------
successor institution or body which performs the functions or substantially all
of the functions thereof.
"Solvent": When used with respect to any Person that as of the date as to
-------
which the Person's solvency is to be measured:
5
<PAGE>
(i) the fair saleable value of its assets is in excess of the total
amount of its liabilities (including contingent liabilities) as they
become absolute and matured;
(ii) it has sufficient capital to conduct its business; and
(iii) it is able to meet its debts as they mature.
"Standard Notice": An irrevocable notice provided to the Bank on a Business
---------------
Day which is:
(i) at least one Business Day in advance in the case of selection of,
conversion to or renewal of the Prime Rate Option or prepayment of
any Prime Rate Portion; and
(ii) at least three London Business Days in advance in the case of
selection of, conversion to or renewal of the Libor Rate Option or
prepayment of any Libor Rate Portion.
Standard Notice must be provided no later than 12:00 p.m., Los Angeles time, on
the last day permitted for such notice.
"Subsidiary": A corporation of which shares of stock having ordinary voting
----------
power (other than stock having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation are at the time owned, directly, or indirectly through one or
more intermediaries, or both, by the Borrower.
"Suburban": Suburban Water Systems, a California corporation.
--------
"Termination Event": (i) a "Reportable Event" described in Section 4043 of
----------------- ----------------
ERISA and the regulations issued thereunder (other than a "Reportable Event" not
subject to the provision for 30-day notice to the Pension Benefit Guaranty
Corporation under such regulations) with respect to any Pension Plan, or (ii)
the withdrawal of the Borrower or any of its ERISA Affiliates from a Pension
Plan during a plan year in which it was a "substantial employer" as defined in
--------------------
Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to
terminate a Pension Plan or the treatment of a Pension Plan amendment as a
termination under Section 4041 of ERISA, or (iv) the institution of proceedings
to terminate a Pension Plan by the Pension Benefit Guaranty Corporation under
Section 4042 of ERISA, or (v) any other event or condition which might
constitute grounds under ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan under Section 4042 of ERISA, or (vi) the
imposition of a lien with respect to any Pension Plan pursuant to Section 412(n)
of the Internal Revenue Code.
6
<PAGE>
SECTION 1.02. Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Agreement shall have the defined meanings when
used in the Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other document
made or delivered pursuant hereto, accounting terms not defined in subsection
1.01, and accounting terms partly defined in subsection 1.01 to the extent not
defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement, and section, subsection, schedule
and exhibit references are to this Agreement unless otherwise specified.
(d) So long as the Borrower does not have any Subsidiaries, references to a
Subsidiary or Subsidiaries in this Agreement shall be deemed to be deleted.
ARTICLE II
THE CREDIT
SECTION 2.01. The Revolving Loans.
-------------------
(a) The Revolving Commitment. The Bank agrees, on the terms and conditions
------------------------
hereinafter set forth, to make loans ("Revolving Loans") to the Borrower from
---------------
time to time during the period from the date hereof to and including the
Maturity Date in an aggregate amount not to exceed the Revolving Commitment, as
such amount may be reduced pursuant to Section 2.01(c). Each borrowing under
this Section (a "Borrowing") shall be in a minimum amount of $1.00; provided
---------
that every selection of, conversion to or renewal of the Libor Rate Option shall
be in a minimum principal amount of $250,000 or an integral multiple of $50,000
above such amount. Within the limits of the Revolving Commitment and prior to
the Maturity Date, the Borrower may borrow, repay pursuant to Section 2.02(b)
and reborrow under this Section.
(b) Making the Revolving Loans. The Borrower may borrow under the
--------------------------
Revolving Commitment on any Business Day, provided that the Borrower shall give
the Bank Standard Notice specifying (i) the amount of the proposed Borrowing and
(ii) the requested date of the Borrowing. Upon satisfaction of the applicable
conditions set forth in Article IV, the proceeds of all such Loans will then be
made available to the Borrower by the Bank by crediting the account of the
Borrower on the books of the Bank, or as otherwise directed by the Borrower.
7
<PAGE>
The Standard Notice may be given in writing (including facsimile
transmission) signed by one (1) authorized officer or orally, but if the
Standard Notice is provided orally, Borrower shall same day confirm the oral
Standard Notice in writing (including facsimile transmission) no later than 2:00
p.m., Los Angeles time, and any conflict regarding a written or oral notice and
the Bank's books and records applicable to the same Borrowing shall be
conclusively determined by the Bank's books and records. The Bank shall not
incur any liability to the Borrower in acting upon any oral or written notice of
Borrowing which the Bank believes in good faith to have been given by a Person
duly authorized to borrow on behalf of the Borrower.
(c) Reduction of the Revolving Commitment. The Borrower shall have the
-------------------------------------
right, upon at least two Business Days' notice to the Bank, to terminate in
whole or reduce in part the unused portion of the Revolving Commitment, without
premium or penalty, provided that each partial reduction shall be in the
aggregate amount of $100,000 or an integral multiple thereof and that such
reduction shall not reduce the Revolving Commitment to an amount less than the
amount outstanding hereunder on the effective date of the reduction. Such notice
shall be irrevocable and such reduction shall not be reinstated.
(d) Revolving Note. The Loans made by the Bank pursuant hereto shall be
--------------
evidenced by a promissory note of the Borrower, substantially in the form of
Exhibit A, with any appropriate insertions (the "Revolving Note"), payable to
- --------- --------------
the order of the Bank and representing the obligation of the Borrower to pay the
aggregate unpaid principal amount of all Revolving Loans made by the Bank, with
interest thereon as prescribed in Section 2.03. The Bank is hereby authorized to
record in its books and records and on any schedule annexed to the Revolving
Note, the date and amount of each Revolving Loan made by the Bank, and the date
and amount of each payment of principal thereof, and in the case of Libor Rate
Option Loans, the Libor Rate, the Libor Rate Portion, and the Rate Period with
respect thereto, and any such recordation shall constitute prima facie evidence
----- -----
of the accuracy of the information so recorded; provided that failure by the
Bank to effect such recordation shall not affect the Borrower's obligations
hereunder. Prior to the transfer of a Revolving Note, the Bank shall record
such information on any schedule annexed to and forming a part of such Revolving
Note.
SECTION 2.02. Repayment.
---------
(a) Mandatory Repayments. The aggregate principal amount of the Revolving
--------------------
Loans outstanding on the Maturity Date, together with accrued interest thereon,
shall be due and payable in full on the Maturity Date. If at any time the
aggregate outstanding Borrowings exceed the Revolving Commitment then in effect,
the Borrower shall immediately repay the excess to the Bank without penalty or
premium.
(b) Optional Prepayment. Borrower shall have the right at its option from
-------------------
time to time to prepay the Prime Rate Portion in whole or in part without
penalty or premium. Borrower shall have no right to prepay any part of the
Libor Rate Portion at any time without the prior written consent of Bank except
that Borrower may prepay any part of
8
<PAGE>
any Rate Segment at the expiration of the Rate Period corresponding to such Rate
Segment. Prepayments shall be made by giving the Bank Standard Notice thereof
(which shall be irrevocable), specifying the date, and amount and type of
prepayment, and upon such date the amount so specified, accrued interest
thereon, and any amounts payable under Section 3.06(b) hereof shall be due and
payable.
SECTION 2.03. Interest Rate and Payment Dates.
-------------------------------
(a) Payment. The principal balance of the Note shall be paid in accordance
-------
with the terms set forth in the Note. Accrued interest on the Prime Rate
Portion shall be due and payable on the last day of each month commencing on
August 31, 1996. Interest on each Rate Segment of the Libor Rate Portion which
has a Rate Period equal to or less than three months shall be due and payable on
the last day of the corresponding Rate Period. Interest on each Rate Segment of
the Libor Rate Portion which has a Rate Period greater than three months shall
be due and payable on the third and sixth month anniversary date of the first
day of the corresponding Rate Period, if any, and on the last day of the
corresponding Rate Period. After maturity of any part of a Note (by
acceleration or otherwise), interest on such part of the Note shall be due and
payable ON DEMAND.
(b) Interest Rate. The unpaid principal amount of the Note shall bear
-------------
interest for each day until due on one or more bases selected by Borrower from
among the interest rate options (the "Interest Rate Options") set forth below.
---------------------
Borrower understands and agrees: (i) that Bank may in its sole discretion from
time to time determine that the right of Borrower to select, convert to or renew
the Prime Rate Option or the Libor Rate Option is not available and (ii) that
subject to the provisions hereof Borrower may select any number of Options to
apply simultaneously to different parts of the unpaid principal amount of the
Note and may select any number of Rate Segments to apply simultaneously to
different parts of the Libor Rate Portion.
Available Interest Rate Options
-------------------------------
Prime Rate Option: A rate per annum for each day equal to the Prime Rate.
- -----------------
Libor Rate Option: A rate per annum for each day equal to the Libor Rate for
- -----------------
such day plus one and one-half (1.5) percentage points.
(c) Rate Periods. At any time when Borrower selects, converts to or renews
------------
the Libor Rate Option, Borrower shall fix a period (the "Rate Period") which
-----------
shall be one, two, three or six months, which shall be acceptable to Bank in
Bank's sole discretion, during which the Libor Rate Option shall apply to the
corresponding Rate Segment; provided, that Borrower may not elect a Rate Period
--------
which will end after the Maturity Date. Bank's right to payment of principal
and interest under the Note shall in no way be affected by the fact that one or
more Rate Periods may be in effect.
9
<PAGE>
Interest Rate Options shall be selected in a manner which shall ensure
that Borrower shall be able to make scheduled payments of principal under the
Note without incurring liability under Section 3.06(b) below; provided, however,
-------- -------
that in the event that Borrower prepays any Rate Segment bearing interest under
the Libor Rate Portion in order to make a scheduled payment of principal under
the Note, Borrower shall indemnify the Bank as provided in Section 3.06(b)
below.
(d) Interest After Maturity. After the principal amount of any part of the
-----------------------
Prime Rate Portion shall have become due and payable, such amount shall bear
interest for each day until paid (before and after judgment) at a rate per annum
(based on a year of 360 days and actual days elapsed) which for each day shall
be the greater of (a) two (2) percentage points above the Prime Rate Option on
the day such amount become due, and (b) two (2) percentage points above the
Prime Rate Option, such interest rate to change automatically from time to time
effective as of the effective date of each change in the Prime Rate. After the
principal amount of any part of the Libor Rate Portion shall have become due and
payable, such amount shall bear interest for each day until paid (before and
after judgment) (a) until the end of the applicable then current Rate Period at
a rate per annum two (2) percentage points above the Libor Rate Option otherwise
applicable to such part, and (b) thereafter in accordance with the previous
sentence.
(e) Selection, Conversion or Renewal of Rate Options. Subject to the other
------------------------------------------------
provisions hereof, Borrower may select any Interest Rate Option to apply to the
borrowings evidenced by the Note. Subject to the other provisions hereof,
Borrower may convert any part of the unpaid principal amount of the Note from
either Interest Rate Option to the other Interest Rate Option: (a) at any time
with respect to the conversion from the Prime Rate Option to the Libor Rate
Option and (b) at the expiration of any Rate Period with respect to conversion
from or renewals of the Libor Rate Option as to the Rate Segment corresponding
to such expiring Rate Period. Whenever Borrower desires to select, convert or
renew the Libor Rate Option, Borrower shall give Bank Standard Notice thereof
(which shall be irrevocable), specifying the date, amount and type of the
proposed new Rate Option. If such notice has been duly given, and if Bank in
its sole discretion approves the proposed selection, conversion or renewal, on
and after the date specified in such notice, interest shall be calculated upon
the unpaid principal amount of the Note taking into account such selection,
conversion or renewal.
(f) Prime Rate Fallback. If any Rate Period expires, any part of the Rate
-------------------
Segment corresponding to such Rate Period which has not been converted or
renewed in accordance with Section 2.03(e) hereof automatically shall be
converted to the Prime Rate Option. If Borrower fails to select, or if Bank
fails to approve an Interest Rate Option to apply to the borrowings evidenced by
the Note, such borrowings shall be deemed to be at the Prime Rate Option. If at
any time the Bank shall have determined in good faith (which determination shall
be conclusive) that the accrual of interest at the Libor Rate Option has been
made unascertainable, impractical or unlawful by compliance by the Bank in good
faith with any law (including common law), constitution, statute, treaty,
regulation, rule, ordinance, order, injunction, writ, decree or award of any
government or political subdivision or any
10
<PAGE>
agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic, or administration thereof by any official
body charged with the interpretation or administration thereof or with any
request or directive of any such authority, the outstanding principal amount of
the Note subject to the Libor Rate Option shall accrue interest at the Prime
Rate Option and the Borrower shall not have the right to select the Libor Rate
Option.
SECTION 2.04. Commitment Fee. Borrower shall pay to Bank a fee for the
--------------
Revolving Commitment equal to one-half of one percent (0.5%) per annum of the
daily unused balance of the Revolving Commitment, calculated on a calendar
quarter basis, which fee shall be due and payable by Borrower to Bank, or
debited to Borrower's account with Bank, if so maintained, not later than ten
(10) days after billing is sent by Bank.
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS
SECTION 3.01. Use of Proceeds. The proceeds of the Loans hereunder shall
---------------
be used by the Borrower (i) for general corporate purposes and working capital
of the Borrower and its Subsidiaries, (ii) to finance capital additions to the
water utility and other operations of the Borrower and its Subsidiaries and
(iii) to prepay existing Debt.
SECTION 3.02. Computation of Interest and Fees.
--------------------------------
(a) Calculations. Interest in respect of the Prime Rate Option Loans shall
------------
be calculated on the basis of a 360 day year for the actual days elapsed. Any
change in the interest rate on a Prime Rate Loan resulting from a change in the
Prime Rate shall become effective as of the opening of business on the day on
which such change in the Prime Rate shall become effective. Interest in respect
of the Libor Rate Option Loans, and any fees payable hereunder, shall be
calculated on the basis of a 360 day year for the actual days elapsed.
(b) Determination by Bank. Each determination of an interest rate or fee
---------------------
by the Bank pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower in the absence of manifest error.
SECTION 3.03. Payments. The Borrower shall make each payment of
--------
principal, interest and fees hereunder and under the Notes, without setoff or
counterclaim, not later than 12:00 p.m. (Los Angeles time) on the day when due
in lawful money of the United States of America to the Bank at the office of the
Bank designated in writing in immediately available funds.
SECTION 3.04. Payment on Non-Business Days. Whenever any payment to be
----------------------------
made hereunder or under the Notes shall be stated to be due on a day which is
not a Business Day, such payment may be made on the next succeeding Business
Day, and
11
<PAGE>
with respect to payments of principal, interest thereon shall be payable at the
then applicable rate during such extension.
SECTION 3.05. Reduced Return. If the Bank shall have determined that any
--------------
applicable law, regulation, rule or regulatory requirement generally applicable
to banks located in California and Pennsylvania (collectively in this Section
3.05 "Requirement") regarding capital adequacy, or any change therein, or any
-----------
change in the interpretation or administration thereof by any United States
federal or state governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Bank with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Bank's capital as a consequence of its Commitment and obligations hereunder to a
level below that which would have been achieved but for such Requirement, change
or compliance (taking into consideration the Bank's policies with respect to
capital adequacy) by an amount deemed by the Bank to be material (which amount
shall be determined by the Bank's reasonable allocation of the aggregate of such
reductions resulting from such events), then from time to time, within five (5)
Business Days after demand by the Bank, the Borrower shall pay to the Bank such
additional amount or amounts as will compensate the Bank for such reduction.
The Bank does not presently have knowledge of any new Requirement or any pending
change in any existing Requirement which would result in such additional amounts
being owed.
SECTION 3.06. Indemnities and Losses.
----------------------
(a) Indemnities. Whether or not the transactions contemplated hereby shall
-----------
be consummated, the Borrower agrees to indemnify, pay and hold the Bank, and the
shareholders, officers, directors, employees and agents of the Bank
("Indemnified Person"), harmless from and against any and all claims,
-------------------
liabilities, losses, damages, costs and expenses (whether or not any of the
foregoing Indemnified Persons is a party to any litigation), including, without
limitation, reasonable attorneys' fees and costs (including, without limitation,
the reasonable estimate of the allocated cost of in-house legal counsel and
staff) and costs of investigation, document production, attendance at a
deposition, or other discovery, prior to the assumption of defense by the
Borrower, with respect to or arising out of any proposed acquisition by the
Borrower or any of its Subsidiaries of any Person or any securities (including a
self-tender), this Agreement or any use of proceeds hereunder, or any claim,
demand, action or cause of action being asserted against the Borrower or any of
its Subsidiaries (collectively, the "Indemnified Liabilities"), provided that
-----------------------
the Borrower shall have no obligation hereunder with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of any such
Indemnified Persons. If any claim is made, or any action, suit or proceeding is
brought, against any Indemnified Person pursuant to this Section, the
Indemnified Person shall notify the Borrower within thirty (30) days of the Bank
being notified in writing of any such claim or the commencement of such action,
suit or proceeding, and the Borrower will assume the defense of such action,
suit or proceeding, employing counsel selected by Borrower's insurance carrier,
or selected by the Borrower and reasonably satisfactory to the Indemnified
Person, and pay the fees and expenses of such
12
<PAGE>
counsel. This covenant shall survive termination of this Agreement and payment
of the outstanding Notes for a period of six (6) years.
(b) Funding Losses. The Borrower agrees to indemnify the Bank and to hold
--------------
the Bank harmless from any loss or expense including, but not limited to, any
such loss or expense arising from interest or fees payable by the Bank to
lenders of funds obtained by it in order to maintain its Libor Rate Option Loans
hereunder, which the Bank may sustain or incur as a consequence of (i) payment,
prepayment or conversion of any part of any Rate Segment of the Libor Rate
Portion on a day other than the last day of the corresponding Rate Period
(whether or not any such payment is pursuant to demand by Bank under the Note
and whether or not any such payment, prepayment or conversion is consented to by
Bank, unless Bank shall have expressly waived such indemnity in writing); (ii)
default by the Borrower in making a conversion or continuation after the
Borrower has given a notice thereof, (iii) default by the Borrower in making any
payment after the Borrower has given a notice of payment, (iv) attempt by
Borrower to revoke in whole or part any irrevocable notice given pursuant to
Section 2.03(e) hereof; or (v) breach of or default by any obligor in the
performance or observance of any covenant or condition in the Note, any separate
security, guarantee or suretyship agreement between Bank and any obligor, or any
other document executed and delivered to Bank by any obligor in connection with
the indebtedness evidenced by the Note. If Bank sustains any such loss or
expense, it shall from time to time notify Borrower of the amount determined in
good faith by Bank (which determination shall be conclusive) to be necessary to
indemnify Bank for such loss or expense. Such amount shall be due and payable
by Borrower within five (5) Business Days after demand. This covenant shall
survive termination of this Agreement and payment of the outstanding Notes.
SECTION 3.07. Funding Sources. Nothing in this Agreement shall be deemed
---------------
to obligate the Bank to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by the Bank that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
SECTION 3.08. Requirements of Law. In the event that any law, regulation
-------------------
or directive generally applicable to banks located in California or Pennsylvania
or any change therein or in the interpretation or application thereof or
compliance by the Bank with any request or directive (whether or not having the
force of law) from any United States federal or state central bank or other
governmental authority, agency or instrumentality:
(a) does or shall impose, modify or hold applicable any reserve, assessment
rate, special deposit, compulsory loan or other requirement (collectively in
this Section 3.08 "Requirements") against assets held by, or deposits or other
------------
liabilities in or for the account of, advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of the Bank which
are not otherwise included in the determination of any Libor Rate at the last
Borrowing, conversion or continuation date of a Loan;
(b) does or shall impose, modify or hold applicable any of the Requirements
against Commitments to extend credit;
13
<PAGE>
(c) does or shall impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost to the Bank of
making, renewing or maintaining its Revolving Commitment, or the Libor Rate
Option Loans or to reduce any amount receivable thereunder (which increase or
reduction shall be determined by the Bank's reasonable allocation of the
aggregate of such cost increases or reduced amounts receivable resulting from
such events), then, in any such case, the Borrower shall pay to the Bank, within
five (5) Business Days of its demand, any additional amounts necessary to
compensate the Bank for such additional cost or reduced amount receivable as
determined by the Bank with respect to Sections 3.05 and 3.08 of this Agreement.
If the Bank becomes entitled to claim any additional amounts pursuant to this
Section, it shall notify the Borrower of the event by reason of which it has
become so entitled. Such notice shall contain a statement incorporating the
calculation as to any additional amounts payable pursuant to the foregoing
sentence, and such statement submitted by the Bank to the Borrower shall be
conclusive in the absence of manifest error. The Bank does not presently have
knowledge of any new Requirement or any pending change in any existing
Requirement which would result in such additional amounts being owed. To the
extent that the Bank recovers under either Section 3.05 or Section 3.08 of this
Agreement, the Bank shall not be entitled to duplicative recovery under the
other of Sections 3.05 or 3.08.
ARTICLE IV
CONDITIONS OF LENDING
SECTION 4.01. Conditions Precedent to Initial Loans. The obligation of
-------------------------------------
the Bank to make its initial Loan is subject to the conditions precedent that:
(a) The Bank shall have received on or before the day of the initial
Borrowing the following, each dated prior to or as of such day, in form and
substance satisfactory to the Bank:
(i) The Note(s) issued by the Borrower to the order of the Bank;
(ii) Copies of the Articles, Certificate of Incorporation, partnership
agreement or other organizational document of the Borrower, certified as of a
recent date by the Secretary of State of its state of formation or
incorporation;
(iii) Copies of the Bylaws, if any, of the Borrower, certified by the
Secretary or an Assistant Secretary of the Borrower;
(iv) Copies of resolutions of the Board of Directors or other
authorizing documents of the Borrower, in form and substance satisfactory to the
Bank, approving the Loan Documents and the Borrowings hereunder;
14
<PAGE>
(v) An incumbency certificate executed by the Secretary or an
Assistant Secretary of the Borrower or equivalent document, certifying the names
and signatures of the officers of the Borrower or other Persons authorized to
sign the Loan Documents and the other documents to be delivered hereunder;
(vi) Executed copies of all Loan Documents;
(vii) Opinion from Borrower's counsel substantially in the form of
Exhibit B hereto;
(b) The Bank shall have completed its due diligence review of the Borrower,
and the scope and results thereof shall be satisfactory to Bank in its
discretion;
(c) All information previously furnished by Borrower to Bank shall be true
and correct in all material respects;
(d) All fees required to be paid at closing shall have been paid; and
(e) All corporate and legal proceedings and all instruments and documents in
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in content, form and substance to the Bank and its
counsel, and the Bank and such counsel shall have received any and all further
information and documents which the Bank or such counsel may reasonably have
requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities.
SECTION 4.02. Conditions Precedent to Each Borrowing. The obligation of
--------------------------------------
the Bank to make a Loan on the occasion of each Borrowing (including the initial
Borrowing) shall be subject to the further conditions precedent that on the date
of such Borrowing (a) the following statements shall be true and the Bank shall
have received the notice required by Section 2.01(b), which notice shall be
deemed to be a certification by the Borrower that:
(i) The representations and warranties contained in Section 5.01
are correct on and as of the date of such Borrowing as though made
on and as of such date,
(ii) No event has occurred and is continuing, or would result from
such Borrowing, which constitutes an Event of Default or Potential
Event of Default; and
(iii) Nothing shall have occurred and the Bank shall not have
become aware of any fact or condition not previously known, which
the Bank shall
15
<PAGE>
determine has, or could reasonably be expected to have, a material
adverse effect on the rights or remedies of the Bank, or on the
ability of the Borrower to perform its obligations to the Bank or
which has, or could reasonably be expected to have, a materially
adverse effect on the performance, business, property, assets,
condition (financial or otherwise) or prospects of Borrower and
its Subsidiaries taken as a whole; and
(iv) All Loan Documents are in full force and effect,
and (b) the Bank shall have received such other approvals, opinions or documents
as the Bank may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties. The Borrower represents and
------------------------------
warrants as follows:
(a) Organization. The Borrower and each of its Subsidiaries is duly
------------
organized, validly existing and in good standing under the laws of the state of
its incorporation. The Borrower and each of its Subsidiaries is also duly
authorized, qualified and licensed in all applicable jurisdictions, and under
all applicable laws, regulations, ordinances or orders of public authorities, to
carry on its business in the locations and in the manner presently conducted;
except that ECO is not yet qualified in the State of New Mexico.
(b) Authorization; No Conflict. The execution, delivery and performance by
--------------------------
the Borrower of the Loan Documents, and the making of Borrowings hereunder, are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) the Borrower's charter, by-
laws or other organizational document or (ii) any law or regulation (including
Regulations G, T, U and X) binding on or affecting the Borrower or its
properties, and will not constitute an event of default under any material
agreement to which Borrower is a party or by which its assets or properties may
be bound.
(c) Governmental Consents. No authorization or approval or other action
---------------------
by, and no notice to or filing with, any governmental authority or regulatory
body (except routine reports required pursuant to the Securities Exchange Act of
1934, as amended (if such act is applicable to the Borrower), which reports will
be made in the ordinary course of business) is required for the due execution,
delivery and performance by the Borrower of the Loan Documents.
16
<PAGE>
(d) Validity. The Loan Documents are the binding obligations of the
--------
Borrower or other executing Person, if any, enforceable in accordance with their
respective terms; except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors' rights.
(e) Financial Condition. The balance sheets of the Borrower and its
-------------------
consolidated Subsidiaries as at December 31, 1995 and June 30, 1996, and the
related consolidated statements of income and changes in common stockholders'
equity of the Borrower and its consolidated Subsidiaries for the fiscal year and
fiscal three months then ended, copies of which have been furnished to the Bank,
fairly present the financial condition of the Borrower and its consolidated
Subsidiaries as at such dates and the results of the operations of the Borrower
and its consolidated Subsidiaries for the respective periods ended on such
dates, all in accordance with GAAP, consistently applied, and since June 30,
1996 there has been no material adverse change in the business, operations,
properties, assets or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole.
(f) Litigation. Except as set forth in the Form 10-K dated December 31,
----------
1995, and on Schedule 5.01(f) hereto, there is no known pending or threatened
action or proceeding affecting the Borrower or any of its Subsidiaries before
any court, governmental agency or arbitrator, which may materially adversely
affect the consolidated financial condition or operations of the Borrower or
which may have a material adverse effect on the Borrower's ability to perform
its obligations under the Loan Documents, having regard for its other financial
obligations.
(g) Employee Benefit Plans. The Borrower and each of its ERISA Affiliates
----------------------
is in compliance in all material respects with any applicable provisions of
ERISA and the regulations and published interpretations thereunder with respect
to all Employee Benefit Plans. No Termination Event has occurred with respect
to any Pension Plan. The excess of the actuarial present value of all benefit
liabilities under all Pension Plans (excluding in such computation Pension Plans
with assets greater than benefit liabilities) over the fair market value of the
assets allocable to such benefit liabilities are not greater than five percent
(5%) of Consolidated Tangible Net Worth. For purposes of the preceding
sentence, the term "benefit liabilities" shall have the meaning specified in
Section 4001 of ERISA.
(h) Disclosure. No representation or warranty of the Borrower contained in
----------
this Agreement or any other document, certificate or written statement furnished
to the Bank by or on behalf of the Borrower for use in connection with the
transactions contemplated by this Agreement contains any known untrue statement
of a material fact or omits to state a known material fact (known to the
Borrower in the case of any document not furnished by it) necessary in order to
make the statements contained herein or therein not misleading. There is no fact
known to the Borrower (other than matters of a general economic nature) which
materially adversely affects the business, operations, property, assets or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole,
17
<PAGE>
which has not been disclosed herein or in such other documents, certificates and
statements furnished to the Bank for use in connection with the transactions
contemplated hereby.
(i) Environmental Matters. Except as set forth in Schedule 5.01(i) hereto,
--------------------- ----------------
neither the Borrower nor any Subsidiary, nor any of their respective officers,
employees, representatives or agents, nor, to the best of their knowledge, any
other person, has treated, stored, processed, discharged, spilled, or otherwise
----------
disposed of any substance defined as hazardous or toxic by any applicable
federal, state or local law, rule, regulation, order or directive, or any waste
or by-product thereof, at any real property or any other facility owned, leased
or used by the Borrower or any Subsidiary, in violation of any applicable
statutes, regulations, ordinances or directives of any governmental authority or
court, which violations may result in liability to the Borrower or any
Subsidiary or any of their respective officers, employees, representatives,
agents or shareholders in an amount exceeding $500,000 for all such violations;
and the unresolved violations set forth in said Schedule 5.01(i) will not result
in liability to the Borrower or any Subsidiary or any of their respective
officers, employees, representatives, agents or shareholders in an amount
exceeding $500, 000 for all such unresolved violations. Except as set forth in
said Schedule, no employee or other person has made a claim or demand against
the Borrower or any Subsidiary based on alleged damage to health caused by any
such hazardous or toxic substance or by any waste or by-product thereof; and the
unsatisfied claims or demands against the Borrower or any Subsidiary set forth
in said Schedule 5.01(i) will not result in uninsured liability to the Borrower
or any Subsidiary or any of their respective officers, employees,
representatives, agents or shareholders in an amount exceeding $250,000 in
excess of reserves on the books of the Borrower for all such unsatisfied claims
or demands. Except as set forth in said Schedule 5.01(i), neither the Borrower
nor any Subsidiary has been charged by any governmental authority with
improperly using, handling, storing, discharging or disposing of any such
hazardous or toxic substance or waste or by-product thereof or with causing or
permitting any pollution of any body of water; and the outstanding related
charges set forth in said Schedule 5.01(i) will not result in liability to the
Borrower or any Subsidiary or any of their respective officers, employees,
representatives, agents or shareholders in an amount exceeding $500,000 for all
such outstanding charges.
(j) Employee Matters. There is no known strike or work stoppage in
----------------
existence or threatened involving the Borrower or its Subsidiaries that may
materially adversely affect the consolidated financial condition or operations
of the Borrower or that may have a material adverse effect on the Borrower's
ability to perform its obligations under the Loan Documents, having regard for
its other financial obligations.
(k) Solvency. Borrower and each of its Subsidiaries is Solvent.
--------
(l) Title to Properties. Borrower and each of its Subsidiaries has good
-------------------
and marketable title to or interests in all of its properties and assets subject
to no liens, mortgages, pledges, security interests, encumbrances or charges of
any kind, except those granted to Bank and such others as are permitted under
Section 6.02(d) hereof.
18
<PAGE>
(m) Tax Returns. Borrower and each of its Subsidiaries has filed, or
-----------
caused to be filed, in a timely manner all tax returns, reports and declarations
which are required to be filed by it (without requests for extension except as
previously disclosed in writing to Bank). All information in such tax returns,
reports and declarations is complete and accurate in all material respects.
Borrower and each of its Subsidiaries has paid or caused to be paid all taxes
due and payable or claimed due and payable in any assessment received by it,
except taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower or its
Subsidiary and with respect to which adequate reserves have been set aside on
its books. Adequate provision has been made for the payment of all accrued and
unpaid Federal, State, county, local, foreign and other taxes whether or not yet
due and payable and whether or not disputed.
(n) Compliance with Other Agreements and Applicable Laws. Neither Borrower
----------------------------------------------------
nor any of its Subsidiaries is in default in any material respect under, or in
violation in any material respect of any of the terms of, any agreement,
contract, instrument, lease or other commitment (including, but not limited to
any such agreement involving the debts or investments of Borrower or liens upon
its assets) to which it is a party or by which it or any of its assets are bound
and Borrower and each of its Subsidiaries is in compliance in all material
respects with all applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders of any foreign, Federal, State or local
governmental authority.
ARTICLE VI
COVENANTS
SECTION 6.01. Affirmative Covenants. So long as any Note shall remain
---------------------
unpaid or the Bank shall have any Commitment hereunder, the Borrower will,
unless the Bank shall otherwise consent in writing:
(a) Financial Information. Furnish to the Bank:
---------------------
(i) as soon as available, but in any event within 120 days after the
end of each fiscal year of the Borrower, (1) a copy of the Borrower's annual
report to shareholders containing the consolidated balance sheets of itself and
its consolidated Subsidiaries as at the end of each fiscal year and the related
consolidated statements of income and changes in common stockholders' equity (or
comparable statement) employed in the business and changes in financial position
and cash flow for such year, setting forth in each case in comparative form the
figures for the previous year, accompanied by an unqualified report and opinion
thereon of independent certified public accountants acceptable to the Bank and,
if prepared, such accountants' letter to management, and (2) a copy of the
Borrower prepared consolidating financial statements prepared in connection with
each of the statements provided in subpart (1) above;
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<PAGE>
(ii) as soon as available, but in any event within forty-five (45) days
after the end of each fiscal quarter, the Borrower's unaudited consolidated and
consolidating balance sheets of itself and its consolidated Subsidiaries as at
the end of such period and the related unaudited consolidated and consolidating
statements of income and changes in common stockholders' equity (or comparable
statement) and changes in financial position and cash flow for such period and
year to date, setting forth in each case in comparative form the figures as at
the end of the previous fiscal year as to the balance sheet and the figures for
the previous corresponding period as to the other statements, certified by a
duly authorized officer of the Borrower as being fairly stated in all material
respects subject to year end adjustments; all such financial statements to be
complete and correct in all material respects and to be prepared in reasonable
detail acceptable to the Bank and in accordance with GAAP applied consistently
throughout the periods reflected therein (except as approved by such accountants
and disclosed therein); and
(iii) as soon as available, copies of all reports which the Borrower sends
to any of its security holders, and copies of all reports and registration
statements which the Borrower or any Subsidiary files with the S.E.C. or any
national securities exchange; and
(iv) (a) together with each delivery of financial statements of Borrower
and its Subsidiaries pursuant to subdivision (i) above, a certificate, executed
by the Borrower's chairman of the board (if an officer) or its president or one
of its vice presidents or by its chief financial officer stating that the
signers have reviewed the terms of this Agreement and have made, or caused to be
made under their supervision, a review in reasonable detail of the transactions
and condition of Borrower and its Subsidiaries during the accounting period
covered by such financial statements and that such review has not disclosed the
existence during or at the end of such accounting period, and that the signers
do not have knowledge of the existence as at the date of such certificate, of
any condition or event that constitutes an Event of Default or Potential Event
of Default, or, if any such condition or event existed or exists, specifying the
nature and period of existence thereof and what action Borrower has taken, is
taking and proposes to take with respect thereto; and (b) together with each
delivery of financial statements of Borrower and its Subsidiaries pursuant to
subdivision (i) and (ii) above, a certificate demonstrating in reasonable detail
compliance during and at the end of the applicable accounting periods with the
restrictions contained in Section 6.02 hereof;
20
<PAGE>
(b) Notices and Information. Deliver to the Bank:
-----------------------
(i) promptly upon any officer of the Borrower obtaining knowledge (a)
of any condition or event which constitutes an Event of Default or Potential
Event of Default, (b) that any Person has given any notice to the Borrower or
any Subsidiary of the Borrower or taken any other action with respect to a
claimed default or event or condition of the type referred to in Section
7.01(e), (c) of the institution of any litigation involving an alleged liability
(including possible forfeiture of property) of the Borrower or any of its
Subsidiaries equal to or greater than $500,000 which is not, except for
deductibles and self insurance reserves, fully covered by insurance maintained
by Borrower or any adverse determination in any litigation involving a potential
liability of the Borrower or any of its Subsidiaries equal to or greater than
$500,000 which is not, except for deductibles and self insurance reserves, fully
covered by insurance maintained by Borrower or (d) of a material adverse change
in the business, operations, properties, assets or condition (financial or
otherwise) of the Borrower and its Subsidiaries, taken as a whole, an officers'
certificate specifying the nature and period of existence of any such condition
or event, or specifying the notice given or action taken by such holder or
Person and the nature of such claimed default, Event of Default, Potential Event
of Default, event or condition, and what action the Borrower has taken, is
taking and proposes to take with respect thereto;
(ii) promptly upon becoming aware of the occurrence of any (a)
Termination Event, or (b) non-exempt "prohibited transaction", as such term is
defined in Section 4975 of the Internal Revenue Code or a transaction prohibited
by Section 406 of ERISA, in connection with any Employee Benefit Plan or any
trust created thereunder, a written notice specifying the nature thereof, what
action the Borrower has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the Internal Revenue
Service, the Department of Labor, or the Pension Benefit Guaranty Corporation
with respect thereto;
(iii) with reasonable promptness copies of (a) all notices received by
the Borrower or any of its ERISA Affiliates of the Pension Benefit Guaranty
Corporation's intent to terminate any Pension Plan or to have a trustee
appointed to administer any Pension Plan and (b) all notices received by the
Borrower or any of its ERISA Affiliates from a Multiemployer Plan sponsor
concerning the imposition or amount of withdrawal liability pursuant to Section
4202 of ERISA;
21
<PAGE>
(iv) promptly, and in any event within 30 days after receipt thereof, a
copy of any notice, summons, citation, directive, letter or other form of
communication from any governmental authority or court in any way
concerning any action or omission on the part of the Borrower or any of its
Subsidiaries in connection with any substance defined as toxic or hazardous
by any applicable federal, state or local law, rule, regulation, order or
directive or any waste or byproduct thereof, or concerning the filing of a
lien upon, against or in connection with the Borrower, its Subsidiaries, or
any of their leased or owned real or personal property, in connection with
a Hazardous Substance Superfund or a Post-Closure Liability Fund as
maintained pursuant to (S) 9507 of the Internal Revenue Code; and
(v) promptly, and in any event within 30 days after request, such other
information and data with respect to the Borrower or any of its
Subsidiaries as from time to time may be reasonably requested by the Bank
and is reasonably available to Borrower.
(c) Corporate Existence, Etc. At all times preserve and keep in full force
-------------------------
and effect its and its Subsidiaries' corporate existence and rights, licenses
and franchises material to its business and those of each of its Subsidiaries;
provided, however, that the corporate existence of any such Subsidiary may be
- -------- -------
terminated if such termination is in the best interest of the Borrower and is
not materially disadvantageous to the holder of any Note.
(d) Payment of Taxes and Claims. Pay, and cause each of its Subsidiaries
---------------------------
to pay, all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its franchises,
business, income or property before any penalty or interest accrues thereon, and
all claims (including, without limitation, claims for labor, services, materials
and supplies) for sums which have become due and payable and which by law have
or may become a lien upon any of its properties or assets, prior to the time
when any penalty or fine shall be incurred with respect thereto; provided that
no such charge or claim need be paid if being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if such
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor.
(e) Maintenance of Properties; Insurance. Maintain or cause to be
------------------------------------
maintained in good repair, working order and condition all material properties
used or useful in the business of the Borrower and its Subsidiaries and from
time to time will make or cause to be made all appropriate repairs, renewals and
replacements thereof. The Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers, insurance with respect to its
properties and business and the properties and business of its Subsidiaries
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily carried
under similar circumstances by such other
22
<PAGE>
corporations. The Borrower will comply with any other insurance requirement set
forth in any other Loan Document.
(f) Inspection. Permit any authorized representatives designated by the
----------
Bank to visit and inspect any of the properties of the Borrower or any of its
Subsidiaries, including its and their financial and accounting records, and to
make copies and take extracts therefrom, and to discuss its and their affairs,
finances and accounts with its and their officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested.
(g) Compliance with Laws Etc. Exercise, and cause each of its Subsidiaries
-------------------------
to exercise, all due diligence in order to comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
including, without limitation, all rules and regulations of public utility
commissions or similar regulatory authorities, and all environmental laws,
rules, regulations and orders, noncompliance with which would materially
adversely affect the business, properties, assets, operations or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole.
(h) Hazardous Waste Studies. Promptly, and in any event within thirty (30)
-----------------------
days after submission, provide the Bank with copies of all such investigations,
studies, samplings and testings as may be requested by any governmental or
regulatory authority relative to any substance defined as hazardous or toxic by
any applicable federal, state or local law, rule, regulation, order or
directive, or any waste or by-product thereof, at or affecting any real property
or any facility owned, leased or used by the Borrower or any Subsidiary. The
foregoing shall not include sampling and testing of water, waste water and
effluent conducted by the Subsidiaries of Borrower on periodic bases as a normal
part of their water delivery and wastewater treatment businesses.
SECTION 6.02. Negative Covenants. So long as any Note shall remain unpaid
------------------
or the Bank shall have any Commitment hereunder, the Borrower will not, without
the written consent of the Bank:
(a) Leverage Ratio. At any time, permit the ratio of Consolidated
--------------
Liabilities to Consolidated Tangible Net Worth to be more than 3.00:1.00.
(b) Consolidated Tangible Net Worth. At any time, permit Consolidated
-------------------------------
Tangible Net Worth to be less than $25,500,000.
(c) Consolidated Net Profit. At the end of any fiscal quarter of the
-----------------------
Borrower, permit Consolidated Net Profit, determined on a four quarter rolling
basis, to be less than $1.00.
(d) Liens Etc. Create or suffer to exist, or permit any of its
---------
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its properties, whether now owned or hereafter acquired, or assign, or permit
any of its Subsidiaries to
23
<PAGE>
assign, any right to receive income, in each case to secure any Debt of any
Person other than (i) Liens in favor of the Bank; (ii) Liens reflected on the
financial statements referred to in Section 5.01(e) hereof and other Liens
existing on the date hereof and set forth in Schedule 6.02(d) hereto; (iii)
purchase money Liens upon or in any property acquired or held by the Borrower or
any Subsidiary in the ordinary course of business to secure the purchase price
of such property or to secure indebtedness incurred solely for the purpose of
financing the acquisition of such property: (iv) Liens existing on property
acquired by the Borrower or any Subsidiary, and all refundings and extensions of
any such Liens, and (v) Liens, deposits and/or pledges made to secure the
performance of operating leases; provided that the principal amount of Debt
secured by any such Lien permitted hereunder shall not exceed an amount equal to
(x) one hundred percent (100%) of the cost of the real property subject to such
lien or security interest or (y) one hundred percent (100%) of the cost of the
personal property subject to such lien or security interest, and further
provided that none of such liens or security interests shall extend to other
assets of the Borrower or its Subsidiaries. The Bank acknowledges that (A)
Suburban has an existing first mortgage indenture encumbering substantially all
of its assets to secure two series (A and B) of first mortgage bonds and that
Suburban proposes to issue a third series (C) of first mortgage bonds in a
principal amount of $8,000,000 and (B) NMUI has an existing first mortgage
indenture encumbering substantially all of its assets to secure its Series A
first mortgage bonds and proposes to issue Series B bonds in a principal amount
of $4,000,000.
(e) Debt. Create, incur, assume or permit to exist, or permit any
----
Subsidiary to create, incur, assume or permit to exist, any indebtedness or
liabilities resulting from borrowings, loans or advances, whether matured or
unmatured, liquidated or unliquidated, joint or several, secured or unsecured,
except for (i) Debt incurred pursuant to this Agreement and the other Loan
Documents, (ii) Debts, revolving lines of credit and lease obligations of
Borrower existing as of, and disclosed to Bank prior to the date of this
Agreement, including two existing lines of credit with Wells Fargo Bank,
National Association, (iii) secured indebtedness for purchase money financing of
equipment which is permitted under Section 6.02(d)(iii) not to exceed an
aggregate of $500,000, (iv) $8,000,000 of unsecured debt of Suburban to Wells
Fargo Bank, National Association pursuant to two lines of credit, (v) the new
Suburban Series C first mortgage bonds described in subsection (d) above, and
(vi) the new NMUI Series B first mortgage bonds described in subsection (d)
above.
(f) Consolidation, Merger or Dissolution. (i) Consolidate with or merge
------------------------------------
into any other Person, (ii) wind up, liquidate or dissolve or (iii) agree to do
any of the foregoing.
(h) Loans, Investments, Secondary Liabilities. Make or permit to remain
-----------------------------------------
outstanding, or permit any Subsidiary to make or permit to remain outstanding,
any loan or advance to, or guarantee, induce or otherwise become contingently
liable, directly or indirectly, in connection with the obligations, stock or
dividends of, or own, purchase or acquire any stock, obligations or securities
of or any other interest in, or make any capital contribution to, any other
Person, except that the Borrower and its Subsidiaries may:
24
<PAGE>
(i) own, purchase or acquire certificates of deposit issued by a
bank, commercial paper rated Moody's P-1, municipal bonds rated Moody's AA or
better, direct obligations of the United States of America or its agencies, and
obligations guaranteed by the United States of America;
(ii) continue to own the existing capital stock of the Borrower's
Subsidiaries and make new purchases of the capital stock of other entities as
long as such new investments do not exceed in the aggregate Five Million Dollars
($5,000,000) outstanding at any one time;
(iii) endorse negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business;
(iv) allow the Borrower's Subsidiaries to make or permit to
remain outstanding advances from the Borrower's Subsidiaries to the Borrower;
(v) make or permit to remain outstanding loans or advances to the
Borrower's Subsidiaries or enter into or permit to remain outstanding guarantees
in connection with the obligations of the Borrower's Subsidiaries; provided,
--------
however, that any outstanding loans or advances by Borrower to its Subsidiaries
- -------
shall be evidenced by negotiable promissory notes, in form and substance
satisfactory to Bank, and which notes shall provide for the assignment thereof
to the Bank as collateral security for the repayment of the Loans and any other
obligations of the Borrower hereunder upon the demand of the Bank;
(vi) make or permit to remain outstanding loans and advances to any of
its officers, shareholders or affiliates or enter into or permit to remain
outstanding guarantees in connection with the obligations of its officers,
shareholders or affiliates, in an aggregate amount for all such loans, advances
and guarantees not exceeding $100,000 in addition to the loans outstanding and
reflected on the Borrower's financial statements dated December 31, 1995;
(vii) guaranty the indebtedness of Suburban under that certain Credit
Agreement between Suburban and Wells Fargo Bank, National Association dated as
of June 30, 1996 in a maximum amount at any one time not to exceed $8,000,000
for principal, plus all interest thereon and costs and expenses pertaining to
the enforcement of the guaranty and/or the collection of such indebtedness; and
(viii) guaranty the indebtedness of NMUI under that certain Loan
Agreement between NMUI and Sunwest Bank of Albuquerque dated
25
<PAGE>
as of January 25, 1995 in a maximum amount at any one time not to
exceed $4,000,000 for principal, plus all interest thereon and all
costs and expenses pertaining to the enforcement of the guaranty and/or
the collection of such indebtedness.
(i) Asset Sales. Convey, sell, lease, transfer or otherwise dispose of, or
-----------
permit any Subsidiary to convey, sell, lease, transfer or otherwise dispose of,
in one transaction or a series of transactions, all or any part of its or its
Subsidiary's business, property or fixed assets outside the ordinary course of
business, whether now owned or hereafter acquired, except that the Borrower and
its Subsidiaries may convey, sell, lease, transfer or otherwise dispose of
business, property or fixed assets for consideration which in the aggregate does
not exceed $500,000 per year. The foregoing convenant shall not extend to any
property taken by eminent domain by any governmental authority or other person
or entity having the power of eminent domain or to any sale in lieu of
condemnation to a governmental authority or other person or entity having the
power of eminent domain made after threat of condemnation by such governmental
authority or other person or entity.
(j) Hostile Tender Offers. Make any offer to purchase or acquire, or
---------------------
consummate a purchase or acquisition of, five percent (5%) or more of the
capital stock of any publicly held corporation or other publicly held business
entity, unless the board of directors of such corporation or business entity has
notified the Borrower that it invites or does not oppose such offer or purchase.
(k) Distributions. Upon the occurrence and during the continuance of an
-------------
Event of Default or Potential Event of Default, authorize, declare or pay, or
permit any of its Subsidiaries to authorize, declare or pay, any Distributions.
(l) Transactions with Affiliates. Neither Borrower nor any of its
----------------------------
Subsidiaries shall enter into any transaction for the purchase, sale or exchange
of property or the rendering of any service to or by any affiliate, except in
the ordinary course of and pursuant to the reasonable requirements of Borrower's
or its Subsidiary's business and upon fair and reasonable terms no less
favorable to the Borrower or its Subsidiary than Borrower or its Subsidiary
would obtain in a comparable arm's length transaction with an unaffiliated
person.
(m) Books and Records. Borrower will, and will cause each of its
-----------------
Subsidiaries to, keep proper books of record and account in which full, true and
correct entries in conformity with GAAP and all requirements of applicable law
shall be made of all dealings and transactions in relation to its business and
activities.
(n) Restructure. Make any change in Borrower's financial restructure, the
-----------
principal nature of Borrower's business operations (taken as a whole), or the
date of its fiscal year.
26
<PAGE>
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default. If any of the following events ("Events
----------------- ------
of Default") shall occur and be continuing:
- ----------
(a) Borrower shall fail to pay within three (3) days of the date when due,
any principal, interest, fees or other amounts payable under any of the Loan
Documents; or
(b) Any representation or warranty made by the Borrower herein or by the
Borrower (or any of its officers) in connection with the Loan Documents shall
prove to have been incorrect in any material respect when made; or
(c) Borrower shall fail to perform or observe any term, any affirmative or
negative covenant, including, but not limited to, those covenants set forth in
Sections 6.01 and 6.02 hereof, or any other agreement contained in this
Agreement on its part to be performed or observed (other than those referred to
in subsections (a) and (b) above); and with respect to any such default which by
its nature can be cured, such default shall continue for a period of twenty (20)
days from its occurrence; or
(d) The Borrower or any of its Subsidiaries shall default in the performance
of or compliance with any term contained in any Loan Document other than this
Agreement and such default shall not have been remedied or waived within any
applicable grace period in such Loan Document or in (c) above; or
(e) (i) The Borrower or any of its Subsidiaries shall (A) fail to pay any
principal of, or premium or interest on, any Debt, the aggregate outstanding
principal amount of which is at least $100,000 (excluding Debt evidenced by the
Notes), when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt, or (B) fail to perform or observe any term, covenant or
condition on its part to be performed or observed under any agreement or
instrument relating to any such Debt or material to the performance, business,
property, assets, condition (financing or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole, when required to be performed or
observed, and such failure shall continue after the applicable grace period, if
any, specified in such agreement or instrument; or
(f) (i) The Borrower or any of its Subsidiaries shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
27
<PAGE>
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
of its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within sixty (60) days from the
entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clauses (i), (ii) and (iii) above;
or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due; or
(g) One or more judgments or decrees shall be entered against the Borrower
or any of its Subsidiaries involving in the aggregate a liability (not paid or
fully covered by insurance or reserves) equal to or greater than $250,000 and
all such judgments or decrees shall not have been vacated, discharged, or stayed
or bonded pending appeal within thirty (30) days from the entry thereof; or
(h) (i) The Borrower or any of its ERISA Affiliates fails to make full
payment when due of all material amounts which, under the provisions of any
Pension Plan or Section 412 of the Internal Revenue Code, the Borrower or any of
its ERISA Affiliates is required to pay as contributions thereto and such
development is not remedied or reversed within fifteen (15) days after the
Borrower knows of such development;
(ii) any material accumulated funding deficiency occurs or exists,
whether or not waived, with respect-to any Pension Plan and such development is
not remedied or reversed within fifteen (15) days after the Borrower knows of
such development;
(iii) the excess of the actuarial present value of all benefit
liabilities under all Pension Plans over the fair market value of the assets of
such Pension Plans (excluding in such computation Pension Plans with assets
greater than benefit liabilities) allocable to such benefit liabilities are
greater than five percent (5%) of Consolidated Tangible Net Worth and such
development is not remedied or reversed within fifteen (15) days after the
Borrower knows of such development;
(iv) the Borrower or any of its ERISA Affiliates enters into any
transaction which has as its principal purpose the evasion of liability under
Subtitle D of Title IV of ERISA:
(v) (A) Any Pension Plan maintained by the Borrower or any of its ERISA
Affiliates shall be terminated within the meaning of Title IV of ERISA in a
distress
28
<PAGE>
termination, or (B) a trustee shall be appointed by an appropriate United States
district court in accordance with Section 4042 of ERISA to administer any
Pension Plan, or (C) the Pension Benefit Guaranty Corporation (or any successor
thereto) shall institute proceedings to terminate any Pension Plan or to appoint
a trustee to administer any Pension Plan in accordance with Section 4042 of
ERISA, or (D) the Borrower or any of its ERISA Affiliates shall withdraw (under
Section 4063 of ERISA) from a Pension Plan, if as of the date of the event
listed in subclauses (A)-(D) above or any subsequent date, either the Borrower
or its ERISA Affiliates has any material liability (such liability to include,
without limitation, any liability to the Pension Benefit Guaranty Corporation,
or any successor thereto, or to any other party under Sections 4062, 4063 or
4064 of ERISA or any other provision of law) resulting from or otherwise
associated with the events listed in subclauses (A)-(D) above;
(vi) As used in this subsection 7.01(h) the term "accumulated funding
deficiency" has the meaning specified in Section 412 of the Internal Revenue
Code, and the term "benefit liabilities" has the meaning specified in Section
4001 of ERISA;
(i) There shall be instituted against the Borrower or any Subsidiary, or
against any guarantor, any proceeding for which forfeiture of any property is a
potential penalty and such proceeding remains undismissed, undischarged or
unbonded for a period of thirty (30) days from the date the Borrower knows of
such proceeding; or
(j) A Change of Control shall have occurred;
Then, (i) upon the occurrence of any Event of Default described in clause
(f) above, the Commitment shall immediately terminate and all Loans hereunder
with accrued interest thereon, and all other amounts owing under the Loan
Documents shall automatically become due and payable, and (ii) upon the
occurrence of any other Event of Default, the Bank may, by notice to the
Borrower, declare the Commitment to be terminated forthwith, whereupon the
Commitment shall immediately terminate; and, by notice to the Borrower, declare
the Loans hereunder, with accrued interest thereon, and all other amounts owing
under the Loan Documents to be due and payable forthwith, whereupon the same
shall immediately become due and payable. Bank shall have all rights, powers and
remedies available under each of the Loan Documents, or accorded by law,
including, without limitation, the right to resort to any or all security for
any credit accommodation from the Bank subject hereto and to exercise any or all
of the rights of a beneficiary or secured party pursuant to applicable law. All
rights, powers and remedies of Bank in connection with each of the Loan
Documents may be exercised at any time by Bank and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive, and shall
be in addition to any other rights, powers or remedies provided by law or
equity. Except as expressly provided above in this Section, presentment, demand,
protest and all other notices of any kind are hereby expressly waived.
Notwithstanding any other provision of this Agreement, including Section 8.02,
notices to the Borrower under this Section shall be communicated in writing
(including telex or facsimile transmissions).
29
<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of
---------------
the Loan Documents nor consent to any departure by the Borrower therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Bank, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 8.02. Notices, Etc. Except as otherwise set forth in this
------------
Agreement, all notices and other communications provided for hereunder shall be
in writing (including facsimile communication) and mailed certified mail, return
receipt requested or sent by facsimile or delivered, if to the Borrower, at its
address set forth on the signature page hereof; and if to the Bank, at its
address set forth on the signature page hereof; or, as to each party, at such
other address as shall be designated by such party in a written notice to the
other parties. All such notices and communications shall be effective upon
personal delivery or upon receipt when sent by facsimile, or on the date of
receipt or refusal indicated on the return receipt if sent by certified mail,
except that notices and communications to the Bank pursuant to Article II or VII
shall not be effective until received by the Bank.
SECTION 8.03. Right of Setoff: Security Interest in Deposit Accounts.
-------------------------------------------------------
Upon and only after the occurrence of any Event of Default not cured within any
applicable grace period, the Bank is hereby authorized by the Borrower, at any
time and from time to time, without notice, (a) to set off against, and to
appropriate and apply to the payment of, the obligations and liabilities of the
Borrower under the Loan Documents (whether matured or unmatured, fixed or
contingent or liquidated or unliquidated) any and all amounts owing by the Bank
to the Borrower (whether payable in Dollars or any other currency, whether
matured or unmatured, and, in the case of deposits, whether general or special,
time or demand and however evidenced) and (b) pending any such action, to the
extent necessary, to hold such amounts as collateral to secure such obligations
and liabilities and to return as unpaid for insufficient funds any and all
checks and other items drawn against any deposits so held as the Bank in its
sole discretion may elect. The Borrower hereby grants to the Bank a security
interest in all deposits and accounts maintained with the Bank and with any
other financial institution. The Bank is authorized to debit any account
maintained with it by the Borrower for any amount of principal, interest or fees
which are then due and owing to the Bank.
SECTION 8.04. No Waiver; Remedies. No failure on the part of either party
-------------------
hereto to exercise, and no delay in exercising, any right under any of the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
30
<PAGE>
SECTION 8.05. Costs and Expenses. Borrower shall pay to Bank immediately
------------------
upon demand the full amount of all costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of
Bank's in-house counsel), incurred by Bank in connection with (a) the
negotiation and preparation of this Agreement and each other of the Loan
Documents, and the preparation of any amendments and waivers hereto and thereto,
(b) the enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents (including, without
limitation, in appellate, bankruptcy, insolvency, liquidation, reorganization,
moratorium or other similar proceedings) or the restructuring of the Loan
Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Documents, including, without limitation, any action for
declaratory relief.
SECTION 8.06. Participations. The Bank may sell, assign, transfer,
--------------
negotiate or grant participations to other financial institutions in all or part
of the obligations of the Borrower outstanding under the Loan Documents,
provided that any such sale, assignment, transfer, negotiation or participation
shall be in compliance with the applicable federal and state securities laws;
and provided further that any assignee or transferee agrees to be bound by the
terms and conditions of this Agreement. The Bank may, in connection with any
actual or proposed assignment or participation, disclose to the actual or
proposed assignee or participant, any information relating to the Borrower or
any of its Subsidiaries.
SECTION 8.07. Effectiveness: Binding Effect. This Agreement shall become
-----------------------------
effective when it shall have been executed by the Borrower and the Bank and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Bank and their respective successors and assigns, except that the Borrower shall
not have the right to assign its rights hereunder or any interest herein without
the prior written consent of the Bank.
SECTION 8.08. Governing Law; Choice of Forum; Service of Process; Jury
--------------------------------------------------------
Trial Waiver.
- ------------
(a) The validity, interpretation and enforcement of this Agreement and the
other Loan Documents and any dispute arising out of the relationship between the
parties hereto, whether in contract, tort, equity or otherwise, shall be
governed by the internal laws of the State of California (without giving effect
to principles of conflicts of law).
(b) Borrower and Bank irrevocably consent and submit to the non-exclusive
jurisdiction of the state courts of the County of Los Angeles and the United
States District Court for the Central District of California and waive any
objection based on venue or forum non conveniens with respect to any action
----- --- ----------
instituted therein arising under this Agreement or any of the other Loan
Documents or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Loan
Documents or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above.
31
<PAGE>
(c) Borrower hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth on the signature
pages hereof and service so made shall be deemed to be completed on the date of
receipt or refusal indicated on the return receipt or, at Bank's option, by
service upon Borrower in any other manner provided under the rules of any such
courts. Within thirty (30) days after such service, Borrower shall appear in
answer to such process, failing which Borrower shall be deemed in default and
judgment may be entered by Bank against Borrower for the amount of the claim and
other relief requested.
(d) BORROWER AND BANK EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT,
TORT, EQUITY OR OTHERWISE. BORROWER AND BANK EACH HEREBY AGREES AND CONSENTS
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY AND THAT BORROWER OR BANK MAY FILE AN ORIGINAL COUNTERPART
OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Bank shall not have any liability to Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by Borrower in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Bank, that the losses were the result of acts
or omissions constituting gross negligence or willful misconduct. In any such
litigation, Bank shall be entitled to the benefit of the rebuttable presumption
that it acted in good faith and with the exercise of ordinary care in the
performance by it of the terms of this Agreement.
SECTION 8.09. Waiver of Notices. Borrower hereby expressly waives demand,
-----------------
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments, included in or evidencing any of the obligations,
and any and all other demands and notices of any kind or nature whatsoever with
respect to the obligations and this Agreement, except such as are expressly
provided for herein. No notice to or demand on Borrower which Bank may elect to
give shall entitle Borrower to any other or further notice or demand in the
same, similar or other circumstances.
SECTION 8.10. Entire Agreement. This Agreement with Exhibits and Schedules
----------------
and the other Loan Documents embody the entire agreement and understanding
32
<PAGE>
between the parties hereto and supersede all prior agreements and understandings
relating to the subject matter hereof.
SECTION 8.11. Separability of Provisions. In case any one or more of the
--------------------------
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
SECTION 8.12. Execution in Counterparts. This Agreement may be executed
-------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MELLON BANK, N.A. SOUTHWEST WATER COMPANY
By: /s/ KEVIN D. KELLY By: /s/ ANTON C. GARNIER
----------------------- ----------------------------------
Name: Kevin D. Kelly Name: Anton C. Garnier
Title: Vice President Title: President and Chief Executive
Officer
By: /s/ PETER J. MOERBEEK
----------------------------------
Name: Peter J. Moerbeek
Title: Vice President Finance
Chief Financial Officer
Address: Address:
Middle Market Banking 225 North Barranca Avenue, Suite 200
300 South Grand Avenue West Covina, California 91791-1605
Suite 3800 Attention: Peter J. Moerbeek
Los Angeles, California 90071 Vice President Finance
Attention: Kevin D. Kelly Chief Financial Officer
Vice President
Facsimile: (213) 617-9691 Facsimile: (818) 915-1558
33
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,114,000
<SECURITIES> 0
<RECEIVABLES> 9,880,000
<ALLOWANCES> 533,000
<INVENTORY> 0
<CURRENT-ASSETS> 12,793,000
<PP&E> 122,339,000
<DEPRECIATION> 34,093,000
<TOTAL-ASSETS> 109,962,000
<CURRENT-LIABILITIES> 26,342,000
<BONDS> 19,600,000
0
517,000
<COMMON> 26,000
<OTHER-SE> 29,456,000
<TOTAL-LIABILITY-AND-EQUITY> 109,962,000
<SALES> 0
<TOTAL-REVENUES> 49,903,000
<CGS> 0
<TOTAL-COSTS> 45,778,000
<OTHER-EXPENSES> 125,000
<LOSS-PROVISION> 204,000
<INTEREST-EXPENSE> 2,074,000
<INCOME-PRETAX> 2,248,000
<INCOME-TAX> 944,000
<INCOME-CONTINUING> 1,304,000
<DISCONTINUED> 0
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<NET-INCOME> 1,304,000
<EPS-PRIMARY> 0.49
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