-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U5Qd0d3pxygB/LpE+y2GM2tsTSvrLbXG778dwlS06zNETPxbkPmiaXLMHVW4YT7O b4WFyQPyxHCAxui12Weplg== /in/edgar/work/0000898430-00-003312/0000898430-00-003312.txt : 20001114 0000898430-00-003312.hdr.sgml : 20001114 ACCESSION NUMBER: 0000898430-00-003312 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST WATER CO CENTRAL INDEX KEY: 0000092472 STANDARD INDUSTRIAL CLASSIFICATION: [4941 ] IRS NUMBER: 951840947 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08176 FILM NUMBER: 758269 BUSINESS ADDRESS: STREET 1: 225 N BARRANCA AVE STE 200 CITY: WEST COVINA STATE: CA ZIP: 91791-1605 BUSINESS PHONE: 8189151551 MAIL ADDRESS: STREET 1: 225 N BARRANCA AVENUE STREET 2: SUITE 200 CITY: WEST COVINA STATE: CA ZIP: 91791-1605 FORMER COMPANY: FORMER CONFORMED NAME: SUBURBAN WATER SYSTEMS DATE OF NAME CHANGE: 19751202 10-Q 1 0001.txt FORM 10-Q 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, 2000 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 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) (626) 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 November 10, 2000, there were 6,821,118 common shares outstanding. SOUTHWEST WATER COMPANY AND SUBSIDIARIES INDEX
Part I. Financial Information: Page No. - ------- ---------------------- -------- Item 1. Financial Statements: Condensed Consolidated Statements of Income - Three and Nine months Ended September 30, 2000 and 1999 1 Condensed Consolidated Balance Sheets - As of September 30, 2000 and December 31, 1999 2 Condensed Consolidated Statements of Cash Flows - Nine months Ended September 30, 2000 and 1999 3 Notes to Condensed Consolidated Financial Statements 4 - 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 - 10 Part II. Other Information: - -------- ------------------ Item 1. Legal Proceedings 10-11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12
PART I - FINANCIAL INFORMATION Item 1. Financial Statements Southwest Water Company and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, - -------------------------------------------------------------------------------------- ----------------------------- 2000 1999 2000 1999 - -------------------------------------------------------------------------------------- ----------------------------- (in thousands except per share data) Operating Revenues $ 31,080 $ 22,911 $ 78,256 $ 59,014 Operating Expenses: Direct operating expenses 23,318 16,823 59,012 43,397 Selling, general and administrative 3,158 2,849 9,740 8,628 - --------------------------------------------------------------------------------------- ----------------------------- 26,476 19,672 68,752 52,025 Operating Income 4,604 3,239 9,504 6,989 Other Income (Expense): Interest expense (1,023) (722) (2,784) (2,228) Interest income 190 16 293 52 One-time gain on sale of former office property 0 2,747 0 2,747 Other (218) 231 (238) 483 - --------------------------------------------------------------------------------------- ----------------------------- (1,051) 2,272 (2,729) 1,054 Income Before Income Taxes 3,553 5,511 6,775 8,043 Provision for income taxes 1,421 2,204 2,710 3,217 - --------------------------------------------------------------------------------------- ----------------------------- Net Income 2,132 3,307 4,065 4,826 Dividends on preferred shares 7 7 21 21 - --------------------------------------------------------------------------------------- ----------------------------- Net Income Available for Common Shares $ 2,125 $ 3,300 $ 4,044 $ 4,805 ======================================================================================= ============================= Earnings per Common Share (Note 4): Basic $ 0.33 $ 0.51 $ 0.62 $ 0.75 Diluted $ 0.31 $ 0.49 $ 0.60 $ 0.73 ======================================================================================= ============================= Cash Dividends per Common Share (Note 4) $ 0.07 $ 0.05 $ 0.19 $ 0.16 ======================================================================================= ============================= Weighted Average Outstanding Common Shares (Note 4): Basic 6,481 6,418 6,479 6,393 Diluted 6,742 6,729 6,750 6,621 ======================================================================================= =============================
See accompanying notes to condensed consolidated financial statements. 1 Southwest Water Company and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, - ---------------------------------------------------------------------------------------------------------------- ASSETS 2000 1999 - ---------------------------------------------------------------------------------------------------------------- (unaudited) (in thousands) Current Assets: Cash and cash equivalents $ 533 $ 4,146 Customers' accounts receivable, net 20,823 10,465 Other current assets 5,715 3,700 - ---------------------------------------------------------------------------------------------------------------- 27,071 18,311 Property, Plant and Equipment: Utility property, plant and equipment -- at cost 167,099 152,624 Contract operations property, plant and equipment -- at cost 6,850 5,654 - ---------------------------------------------------------------------------------------------------------------- 173,949 158,278 Less accumulated depreciation and amortization 48,606 44,581 - ---------------------------------------------------------------------------------------------------------------- 125,343 113,697 Other Assets 16,972 10,942 - ---------------------------------------------------------------------------------------------------------------- $ 169,386 $ 142,950 ================================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------------------------- Current Liabilities: Current portion of long-term debt and bank notes payable $ 2,697 $ 2,039 Accounts payable 3,175 2,081 Other current liabilities 15,063 12,486 - ---------------------------------------------------------------------------------------------------------------- 20,935 16,606 Other Liabilities and Deferred Credits: Long-term debt 28,000 28,000 Bank notes payable 17,700 5,454 Advances for construction 8,095 7,930 Contributions in aid of construction 36,658 34,519 Deferred income taxes 6,590 6,146 Other liabilities and deferred credits 7,756 3,818 - ---------------------------------------------------------------------------------------------------------------- Total Liabilities and Deferred Credits 125,734 102,473 Stockholders' Equity Cumulative preferred stock 514 517 Common stock 65 64 Paid-in capital 31,445 31,080 Retained earnings 11,628 8,816 - ---------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 43,652 40,477 - ---------------------------------------------------------------------------------------------------------------- $ 169,386 $ 142,950 ================================================================================================================
See accompanying notes to condensed consolidated financial statements. 2 Southwest Water Company and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, - --------------------------------------------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------------------------------------------- (in thousands) Cash Flows From Operating Activities: Net Income $ 4,065 $ 4,826 Adjustments to reconcile net income to net cash provided by (used in) operating activities (2,196) 980 - --------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,869 5,806 - --------------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Additions to property, plant and equipment (13,612) (5,308) Other investments, net (5,716) 125 Gross proceeds from sale of land 0 4,000 Net proceeds from sale of land trasferred to accomodator 0 (3,883) - --------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (19,328) (5,066) - --------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Net proceeds (repayments) on bank notes payable 12,904 (1,322) Contributions in aid of construction and advances for construction 1,203 1,020 Net proceeds from dividend reinvestment plan, employee stock purchase plan, and stock option plans 758 735 Advances for construction 325 0 Dividends paid (1,184) (1,044) Payments on advances for construction (160) (285) - --------------------------------------------------------------------------------------------------------------- Net cash used in financing activities 13,846 (896) - --------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (3,613) (156) Cash and cash equivalents at beginning of period 4,146 394 - --------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 533 $ 238 =============================================================================================================== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 2,582 $ 2,009 Income taxes $ 867 $ 1,490 Depreciation and amortization $ 3,775 $ 3,345 Non-cash contributions in aid of construction conveyed to Company by developers $ 1,517 $ 1,624
See accompanying notes to condensed consolidated financial statements. 3 SOUTHWEST WATER COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (Unaudited) 1. Southwest Water Company (the Company or Registrant), together with its subsidiaries, provides a broad range of utility and utility management services. The Company serves more than one million people in 29 states from coast to coast. Through its wholly owned subsidiary, ECO Resources, Inc. (ECO), the Company operates and manages water and wastewater treatment facilities owned by cities, municipal utility districts and private entities. Nationwide, the Company provides utility submetering, billing and collection services through its 80 percent-owned subsidiary, Master Tek International, Inc. (Master Tek). The Company owns and operates water and wastewater utilities through two wholly owned subsidiaries, Suburban Water Systems (Suburban) and New Mexico Utilities, Inc. (NMUI). In 1996, the Company acquired a 49 percent interest in Windermere Utility Company (Windermere) located near Austin, Texas, and in October 2000, the Company closed the purchase agreement for an 80 percent interest ownership in Windermere, as well as 100 percent ownership of Hornsby Bend Utility Company (Hornsby), an adjacent water utility. (See Note 5 to the condensed consolidated financial statements.) The unaudited condensed consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary to present fairly the financial position of the Company as of September 30, 2000, and the Company's results of operations for the three and nine months ended September 30, 2000. All such adjustments are of a normal recurring nature. Certain reclassifications have been made to the 1999 financial statements to conform to the 2000 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 condensed consolidated 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, 1999 (the 1999 Annual Report). 3. There is seasonality to the water utility and utility management industry; thus, the results of operations for the nine months ended September 30, 2000 do not necessarily indicate the results to be expected for the full year. Rainfall and weather conditions affect utility operations, with most water consumption occurring during the third quarter of each year when weather tends to be hot and dry. Drought conditions would have the effect of lowering revenue due to conservation efforts. The Company's contract operations business can also be seasonal in nature. Heavy rainfall hampers the Company's ability to perform billable work such as pipeline maintenance, manhole rehabilitation and other outdoor services. Moderate rainfall may create additional opportunities for billable work outside the scope of existing contracts. Drought conditions would not necessarily affect the Company's opportunities for additional billable work. 4. The Company records earnings per share (EPS) by computing basic EPS and diluted EPS in accordance with generally accepted accounting principles. Basic EPS is used to measure the performance of the Company over the reporting period by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is used to measure the performance of the Company over the reporting period after giving effect to all dilutive potential common shares that would have been outstanding if the dilutive common shares had been issued. Stock options give rise to dilutive common shares. 5. In 1996, the Company acquired a 49 percent interest in Windermere, a regulated water utility located near Austin, Texas. During October 2000, the Company reached an agreement with the majority shareholder and purchased 80 percent of the utility from the majority shareholder. The former majority shareholder retains a 20 percent interest in Windermere. The purchase agreement provides that the Company has the right to acquire the remaining 20 percent of ownership after five years at a price based upon the performance of the Company Stock. The Company also purchased Hornsby, a water and wastewater utility, also located near Austin, Texas. The 4 purchases were made for a total purchase price of $4,000,000 in common stock. The Company also entered into a consulting agreement with the owner of the remaining 20 percent of Windermere to provide certain services to the Company. Windermere and Hornsby currently provide water and wastewater services to nearly 4,500 customers. 6. In April 2000 the Company purchased 80 percent of the outstanding shares of Master Tek, a nationwide provider of utility submetering, billing and collection services, for a purchase price of $4,000,000. The purchase price consisted of a $2,000,000 cash payment upon closing and a 10-year, $2,000,000 promissory note. The purchase agreement provides that the Company has the right to acquire the remaining 20 percent ownership over the next 10 years for a price based on a formula related to the financial performance of Master Tek. In addition, the Company entered into an employment agreement, a consulting agreement and a non-compete agreement with the owner of the remaining 20 percent of Master Tek as is customary in transactions of this type. Submetering involves the installation of electronic equipment in apartments, condominiums, mobile home parks and other multi-family dwellings to allow the monitoring of water, gas and electricity consumption for each individual residential unit. Master Tek serves more than 200,000 dwelling units in 29 states and, in 1999, generated revenues of more than $5,000,000. 7. Suburban purchased the City of West Covina's water distribution system and facilities (West Covina System) for approximately $9.4 million. On February 25, 2000, Suburban assumed ownership and operation of the water system. The transaction added approximately 7,000 connections to Suburban's customer base, an increase of approximately 11 percent. The purchase of the West Covina System was funded in part by the reinvestment of approximately $3,900,000 of proceeds from the sale of surplus land. The remaining funds for the purchase were obtained from line of credit borrowing. 8. The Company has two reportable segments as defined under the requirements of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." There was no change in the basis of segmentation or in the basis of measurement of segment profit or loss from the information reported in the 1999 Annual Report. The following table sets forth required disclosure about the Company's reportable segments as required by SFAS No. 131.
Total Total Non- Segment Consolidated Regulated Regulated Information Other Information ------------------------------------------------------------------- (in thousands) Nine months Ended September 30, 2000 - ------------------------------------ Revenues from external customers $ 45,051 $ 33,205 $ 78,256 $ 0 $ 78,256 Segment operating profit 2,734 9,671 12,405 (2,901) 9,504 As of September 30, 2000 - ------------------------ Segment assets 30,191 132,184 162,375 7,011 169,386 Nine months Ended September 30, 1999 - ------------------------------------ Revenues from external customers $ 30,373 $ 28,641 $ 59,014 $ 0 $ 59,014 Segment operating profit 989 8,800 9,789 (2,800) 6,989 As of September 30, 1999 - ------------------------ Segment assets 12,080 122,107 134,195 5,289 139,484
5 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and capital resources of the Company are influenced primarily by construction expenditures at Suburban and NMUI for the addition, replacement and renovation of water utility facilities. The Company's capital resources may also be influenced by investments in new business opportunities including the acquisition of companies, funding of projects and acquisition of contracts. At September 30, 2000, the Company had cash and cash-equivalent balances totaling $533,000 and three separate unsecured lines of credit from three commercial banks, with total line of credit capacity of $26,000,000. As of July 1, 2000, the line of credit capacity increased from $20,000,000 to $26,000,000 without changing the terms and conditions of the lines. Two of the lines were renewed and expire in 2002. The remaining line expires in 2001. The Company expects to maintain all of the lines of credit in the normal course of business. At September 30, 2000, outstanding borrowing was $19,497,000, and the unused borrowing capacity was $6,503,000. In the first nine months of 2000, the Company's outstanding line of credit borrowing increased $12,904,000 primarily due to additional cash requirements for acquisitions and for additional working capital to fund construction projects. Each of the line of credit agreements, as amended, contains certain financial restrictions. As of September 30, 2000, the Company was in compliance with all applicable financial covenants of the line of credit agreements. In addition to its lines of credit, the Company has existing borrowing capacity under its First Mortgage Bond Indentures. Under these indentures, the Company has remaining borrowing capacity of approximately $49 million. However, the amount of additional borrowing available to the Company under its current lines of credit described above is limited by financial covenants that restrict additional borrowing at September 30, 2000 to an amount no greater than the remaining unused credit line amount. During the first nine months of 2000, the Company's additions to property, plant and equipment were $15,129,000, representing an increase of $8,197,000 from 1999. Developers made contributions in aid of construction (CIAC), and advances totaling $3,045,000, of which $1,528,000 was received in cash and $1,517,000 was received as non-cash contributions of property. Company-financed capital additions were $12,084,000, funded primarily by cash flow from operations, borrowing on the lines of credit and the reinvestment of proceeds from the sale of surplus land. The current year increase was due primarily to the purchase of the West Covina System. For the remainder of 2000, the Company estimates that its capital additions will be approximately $3,000,000, and that cash flow from operations and CIAC will fund these additions. Line of credit borrowing is also available to meet construction requirements if needed. The Company anticipates that its available line of credit borrowing capacity and the cash flow generated from operations will be sufficient to fund its activities during the next 12 months, including certain new business investments. If additional cash is needed, the Company will 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 requirements. Regulatory approval is required for any long-term financing by Suburban or NMUI. If the Company is unable to renew its existing lines of credit or obtain additional long-term financing, capital spending or acquisitions will be reduced or delayed until new financing arrangements are secured. Such financing arrangements could include seeking equity financing through a private placement or a public offering. Similarly, if additional cash is needed to fund an acquisition, financing arrangements could include long-term borrowing or equity financing. 6 Regulatory Affairs: Regulation ECO has two distinct types of contractual relationships: time and material contracts primarily with municipal utility districts (MUDs), and fixed fee operations and maintenance contracts (O&Ms). A MUD is a utility district created under the rules of the Texas Natural Resource Conservation Commission in order to provide water, wastewater and drainage services to areas where existing municipal services are not available. O&M contracts are agreements with cities and private entities that provide for a specified level of services such as facility operation and maintenance, meter reading and billing, or management of the entire water or wastewater system. ECO also performs additional construction and project work for its MUD and O&M clients. ECO's pricing is not subject to regulation by any governmental authority. Most contracts with MUDs are short- term contracts and do not generally include inflation adjustments. Changes in prices are negotiated on a contract-by-contract basis. ECO's O&M contracts are generally longer-term water and wastewater service contracts, primarily with cities, and typically include inflation adjustments. Master Tek's rates are not currently regulated by any governmental authority. The California Public Utilities Commission (CPUC) and the New Mexico Public Regulation Commission (NMPRC) regulate the rates and operations of Suburban and NMUI, respectively. The rates allowed are intended to provide the utilities an opportunity to recover costs and earn a reasonable return on common equity. Although neither utility is currently seeking any rate increase, future construction expenditures and increased operating expenses may require periodic requests for rate increases. As discussed in the 1999 Annual Report, the CPUC has directed Suburban to file a general rate application by July 1, 2001. Regulatory Developments The Company closely monitors legislative, CPUC and NMPRC developments. The various water industry associations in which the Company actively participates also monitor these developments. The Company does not know the future possible legislative, CPUC or NMPRC changes that will be enacted or the terms of such changes if enacted. Therefore, management cannot predict the impact, if any, of future legislative changes, CPUC or NMPRC developments or changes to the Company's financial position or results of operations. Environmental Affairs: As a contract operator, ECO does not own any of the water sources, water production facilities or water distribution systems that it operates for its clients, nor does ECO own any of the wastewater collection systems or wastewater treatment facilities that it operates for its clients. Although not the owner, ECO is responsible for operating these water and wastewater facilities in compliance with all federal, state and local health standards and regulations. Suburban and NMUI operations fall under the regulatory jurisdiction of the CPUC and the NMPRC, respectively. The responsibilities of both regulatory agencies are to ensure an adequate supply of affordable, healthful, and potable water to residents of their respective states. The Company's operations are also subject to water and wastewater pollution prevention standards and water and wastewater quality regulations of the Environmental Protection Agency (EPA) and various state regulatory agencies. Both the EPA and state regulatory agencies require periodic testing and sampling of water. Costs associated with the testing of the Company's water supplies have 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, will be recoverable through increased rates and contract operations revenues. However, there is no assurance that recovery of such costs will be allowed. To date, the Company has not experienced any material adverse effects upon its operations resulting from compliance with government regulations. In recent years, the Company has been named in several lawsuits alleging contamination in the Main San Gabriel and Central Basins (the Main Basins). These matters are discussed more fully in Part II, Item I, Legal Proceedings. 7 Risk Factors: Certain statements contained in this Report on Form 10-Q for the quarter ended September 30, 2000 (the September Report) that are not based on historical fact are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are only projections. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any performance or achievements planned, expressed or implied by such forward-looking statements. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. The September Report should be read in conjunction with the Company's 1999 Annual Report for a more detailed description of the risk factors affecting the Company which include, but are not limited to, expectations regarding new contracts and potential acquisitions, weather conditions, water quality issues, regulatory changes, legal and other contingencies. Results of Operations: Three Months Ended September 30, 2000 Compared To Three Months Ended September 30, 1999 Diluted earnings per common share were $.31 in 2000, an increase of 24% compared to $.25 during the same period in 1999. The $.25 for 1999 excludes a one-time gain on a sale of land recorded in September of 1999. Total EPS for 1999 including the land sale was $.49. Operating income Operating income increased $1,365,000 or 42%, and, as a percentage of operating revenues, was 15% in 2000 and 14% in 1999. ECO's operating income increased $214,000, due to the addition of new contracts and an increase in the amount of project work performed outside the scope of existing contracts, primarily in Texas. The acquisition of Master Tek increased operating income by $686,000. Operating income at the utilities increased $404,000, due primarily to the addition of West Covina System customers to Suburban's customer base, following the acquisition in February 2000. NMUI experienced an increase in water consumption by its customers and also increased the number of customers it serves, resulting in a 22% increase in operating income. Parent company expenses decreased $61,000. Operating revenues Operating revenues increased $8,169,000 in the third quarter of 2000 compared with the same period in 1999. ECO's revenues increased $3,991,000 or 37%, due primarily to new contracts and to an increase in the amount of project work performed outside the scope of existing contracts, primarily in Texas. The acquisition of Master Tek increased operating revenues by $2,017,000. Utility revenues increased $2,161,000. Suburban's revenues increased 19% due primarily to the addition of West Covina System customers following the acquisition in February 2000. West Covina contributed $1,569,000 to operating revenue. NMUI continued to increase its number of customers contributing to a 17% increase in water revenue. Direct operating expenses Direct operating expenses increased $6,495,000 or 39%. As a percentage of operating revenues, these expenses were 75% in 2000 and 73% in 1999. ECO's direct operating expenses increased $3,702,000, primarily as a result of new contracts and the increase in the amount of project work performed outside the scope of existing contracts. Master Tek added $900,000 of direct operating expenses. The utilities' direct operating expenses increased $1,893,000, increasing 5% as a percent of operating revenue. The increase was primarily due to Suburban's increased purchases of more expensive water resulting from higher customer demand, and the addition of West Covina System customers following the acquisition in February 2000. 8 Selling, general and administrative Selling, general and administrative expenses for the third quarter of 2000 increased $309,000 as compared with the same period in 1999. As a percentage of operating revenues, these expenses were 10% in 2000 and 12% in 1999. General and administrative expenses at ECO increased $15,000. The acquisition of Master Tek added $491,000 of general and administrative expenses in the third quarter. General and administrative expenses at the utilities decreased $136,000, primarily due to decreased employee benefit expenses. General and administrative expenses of the parent company decreased $61,000. Interest and Other Total interest expense increased by $301,000, offset by an increase in interest income of $174,000. This was primarily due to the increase in interest expense associated with increases in line of credit borrowing to finance the West Covina acquisition in February and the April Master Tek acquisition, as well as other capital spending. In addition, Master Tek recorded $237,000 of acquisition goodwill amortization. Nine Months Ended September 30, 2000 Compared To Nine Months Ended September 30, 1999 Diluted earnings per common share were $.60 in 2000, an increase of 25% compared to $.49 during the same period in 1999. The $.49 for 1999 excludes a one-time gain on a sale of land recorded in September of 1999. Total EPS for 1999 including the land sale was $.73. Operating income Operating income increased $2,515,000 or 36%, and, as a percentage of operating revenues, was 12% in both 2000 and 1999. ECO's operating income increased $768,000, due to the addition of new contracts and an increase in the amount of project work performed outside the scope of existing contracts, primarily in Texas. The acquisition of Master Tek contributed $977,000 to operating income for the period. Operating income at the utilities increased $871,000, due primarily to the addition of West Covina System customers following the acquisition in February 2000. NMUI experienced an increase in water consumption by its customers and also increased the number of customers it serves, resulting in a 10% increase in operating income. Parent company expenses increased $101,000, due primarily to increases in benefit-related costs, including health insurance. Operating revenues Operating revenues increased $19,242,000, or 33% in the first nine months of 2000 compared with the same period in 1999. ECO's revenues increased $11,178,000 or 38%, due to new contracts and to an increase in the amount of project work performed outside the scope of existing contracts, primarily in Texas. The acquisition of Master Tek increased operating revenue by $3,500,000. Utility revenues increased $4,564,000. Suburban's revenues increased 17%. The addition of West Covina System customers, following the acquisition in February 2000 contributed $3,258,000 to operating revenues. NMUI increased its number of customers contributing to a 9% increase in water revenue. Direct operating expenses Direct operating expenses increased $15,615,000 or 36%. As a percentage of operating revenues, these expenses were 75% in 2000 and 74% in 1999. ECO's direct operating expenses increased $10,219,000, primarily as a result of new contracts and the increase in the amount of project work performed outside the scope of existing contracts, particularly in Texas. The acquisition of Master Tek added $1,785,000 to direct operating expenses. The utilities' direct operating expenses increased $3,611,000, and increased 3% as a percentage of operating revenue. The increase was primarily due to Suburban's increased purchases of more expensive water resulting from higher customer water demand and consumption, and the addition of West Covina customers, following the acquisition in February 2000. 9 Selling, general and administrative Selling, general and administrative expenses for the first nine months of 2000 increased $1,112,000 as compared with the same period in 1999. As a percentage of operating revenues, these expenses were 12% in 2000 and 15% in 1999. General and administrative expenses at ECO increased $131,000 due to increased marketing costs associated with new contracts. The acquisition of Master Tek added $798,000 of general and administrative expenses to the period. General and administrative expenses at the utilities increased $82,000 because of various departmental costs at both Suburban and NMUI. As discussed above, general and administrative expenses of the parent company increased $101,000. Interest and Other Total interest expense increased by $556,000, offset by an increase in interest income of $241,000. This was primarily due to the increase in interest expense associated with increases in line of credit borrowing to finance the West Covina acquisition in February and the April Master Tek acquisition, as well as other capital spending. In addition, Master Tek recorded $397,000 of acquisition goodwill amortization. PART II - OTHER INFORMATION Item 1: Legal Proceedings As discussed in the Company's 1999 Annual Report, ECO was named as a defendant in four lawsuits alleging injury and damages as the result of a sewage spill, which occurred at an Austin, Texas sewage pumping station operated by ECO. The case is currently in the discovery stage. No oral depositions have been taken and there have been no court hearings. The Company and ECO intend to vigorously defend against these claims and have requested defense and indemnification by their insurance carrier. At this time, the Company does not believe this matter will have a material adverse effect on the Company's financial position or results of operations. As discussed in the Company's 1999 Annual Report, the Company and Suburban have been named as defendants in several lawsuits alleging water contamination in the Main Basins. In September 1999, the California 2nd District Court of Appeal ordered that the lawsuits be dismissed. The California Supreme Court has agreed to review this decision. The Company anticipates that the California Supreme Court will hear oral arguments during 2001. The Company and Suburban have requested defense and indemnification from their liability insurance carriers for these lawsuits. Several of the liability insurance carriers are currently contributing to the costs of defense of the lawsuits. As discussed in the Company's Form 10-Q Report for the period ending June 30, 2000 (the June Report), in April 2000, approximately 240 plaintiffs filed two additional lawsuits similar to those described in this paragraph. Defendants include the Company, Suburban and other water producers in the Main Basin and a number of alleged industrial polluters. The Company expects to defend the new actions on the same basis as the earlier actions. Based upon information available at this time, management does not expect that these actions will have a material adverse effect on the Company's financial position or results of operations. As discussed in the Company's 1999 Annual Report, in March 1998, the CPUC issued an order instituting investigation (OII) directed to all Class A and B water utilities in California, including Suburban. The purpose of the OII is to address a series of questions dealing with the safety of current drinking water standards and compliance with those standards. On October 2, 2000, the CPUC issued its final decision. It contained three key conclusions; 1) The CPUC has exercised concurrent jurisdiction with the Department of Health Services (the DOHS) over the quality of drinking water provided by the regulated water utilities, 2) the DOHS requirements governing drinking water quality adequately protect the public health and safety, and 3) regulated water utilities (except for one utility unrelated to the Company or Suburban) have satisfactorily complied with past and present drinking water quality requirements. While the CPUC continues to investigate the issues concerned with water quality, the Company and Suburban are unable to predict what final actions, if any, will be taken by the CPUC and/or the DOHS as the result of this investigation, or their impact on the operations or financial position of the Company and Suburban. As discussed in the June Report, on June 21, 2000, Suburban entered into a "Tolling and Standstill Agreement" with Aerojet whereby Aerojet agreed to toll the running of any statute of limitations with 10 respect to any rights, claims or causes of action Suburban may have or wish to assert against Aerojet as a result of Aerojet's release of contaminants into the Main Basins. This agreement preserves Suburban's and the Company's rights beyond the normal statute of limitations period. As discussed in the Company's 1999 Annual Report, in October 1998 the Company and ECO were sued in an action in Texas arising out of a fatal auto accident. In November 2000, the Company reached an out of court settlement with the plaintiffs. The settlement of the action did not have a material adverse effect on the Company's financial position or results of operations. As discussed in the 1999 Annual Report, the City of Albuquerque (Albuquerque) initiated an action in eminent domain to acquire the operations of NMUI. The Company believes that the fair market value of NMUI is substantially in excess of the amount offered in Albuquerque's complaint. Under New Mexico state law, there are procedures that would allow Albuquerque to take possession prior to resolution of the fair market value issue; however, the Company believes that it has adequate defenses should Albuquerque choose to pursue these procedures. During September 2000, the Albuquerque City Council voted eight to one in favor of withdrawing the condemnation proceeding. The Company is awaiting a formal withdrawal of the lawsuit. Until the withdrawal occurs, there is no assurance that that any settlement of the legal action or any other resolution will be reached. The Company and its subsidiaries are the subjects 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 position, 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: 10.11B Second Amendment to Credit Agreement dated September 29, 2000 between the Company and Bank of America, N.A., filed herewith. 10.12B Second Amendment to Credit Agreement dated Sept ember 29, 2000 between Suburban Water Systems and Bank of America, N.A., filed herewith. 10.13D Fourth Amendment to Amended and Restated Credit Agreement dated September 29, 2000 between the Company and Mellon Bank, N.A., filed herewith. 10.14D Fourth Amendment to Credit Agreement dated September 29, 2000 between Suburban Water Systems and Mellon Bank, N.A., filed herewith. 10.20 Merger Agreement and Plan of Reorganization among Southwest Water Company, SW Utility Company, RTNT, Inc. Hornsby Bend Utility Company, Inverness Utility Company, Windermere Utility Company, Inc., HB Merger Sub, Inc. and IU Merger Sub, Inc. dated October 1, 2000, filed herewith. 27 Financial Data Schedule. (b) Reports on Form 8-K None. 11 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 thereto duly authorized. SOUTHWEST WATER COMPANY (Registrant) Dated: November 13, 2000 /s/ PETER J. MOERBEEK ------------------------- Peter J. Moerbeek Chief Financial Officer Dated: November 13, 2000 /s/THOMAS C. TEKULVE ------------------------- Thomas C. Tekulve Chief Accounting Officer 12 EX-10.11B 2 0002.txt SECOND AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.11B SECOND AMENDMENT TO CREDIT AGREEMENT ------------------------------------ THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Amendment"), dated as of September 29, 2000, is entered into between BANK OF --------- AMERICA, N.A. a national association ("Bank"), and SOUTHWEST WATER COMPANY, a ---- Delaware corporation ("Borrower"). -------- RECITALS -------- A. Borrower and Bank have previously entered into that certain Credit Agreement dated as of July 30, 1999, as amended by that certain First Amendment to Credit Agreement dated as of June 30, 2000 (collectively, the "Credit ------ Agreement") pursuant to which Bank has made certain loans and financial - --------- accommodations available to Borrower. Terms used herein without definition shall have the meanings ascribed to them in the Credit Agreement. B. Borrower and Bank wish to amend the Credit Agreement under the terms and conditions set forth in this Amendment. Borrower is entering into this Amendment with the understanding and agreement that, except as specifically provided herein, none of the Bank's rights or remedies as set forth in the Credit Agreement is being waived or modified by the terms of this Amendment. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Amendments to Credit Agreement. ------------------------------ (a) The definition of "Maturity Date" as set forth in Section 1.01 of ------------- the Credit Agreement is hereby amended in its entirety to read as follows: "Maturity Date": July 31, 2002 -------------- (b) The definition of "Consolidated Tangible Net Worth" set forth in ------------------------------- Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follow: "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, deferred charges (including unamortized debt discount and expense and organization costs) and research and development expenses provided, however, that water rights shall not be considered an intangible asset and (iii) receivables, advances, loans and all other amounts due from employees, officers, shareholders, and/or affiliates (excluding Borrower's wholly-owned Subsidiaries), on a consolidated basis determined in conformity with GAAP." 2. Effectiveness of this Amendment. Bank must have received the ------------------------------- following items, in form and content acceptable to Bank, before this Amendment is effective and before Bank is required to extend any credit to Borrower as provided for by this Amendment. (a) Amendment. This Amendment fully executed in a sufficient number of --------- counterparts for distribution to Bank and Borrower. (b) Authorizations. Evidence that the execution, delivery and -------------- performance by Borrower and each guarantor or subordinating creditor of this Amendment and any instrument or agreement required under this Amendment have been duly authorized. (c) Representations and Warranties. The representations and ------------------------------ warranties set forth in the Credit Agreement must be true and correct. (d) Mellon Bank, N.A. and Borrower Amendment. Execution and delivery ----------------------------------------- to Bank of the Mellon Bank, N.A. and Borrower Amendment, which includes the same amendments contained in this Amendment. (e) Other Required Documentation. All other documents and legal ---------------------------- matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Bank. 3. Representations and Warranties. The Borrower represents and warrants ------------------------------ as follows: (a) Authority. The Borrower has the requisite corporate power and --------- authority to execute and deliver this Amendment and to perform its obligations hereunder and under the Loan Documents (as amended or modified hereby) to which it is a party. The execution, delivery and performance by the Borrower of this Amendment and the performance by Borrower of each Loan Document (as amended or modified hereby) to which it is a party have been duly approved by all necessary corporate action of Borrower and no other corporate proceedings on the part of Borrower are necessary to consummate such transactions. (b) Enforceability. This Amendment has been duly executed and -------------- delivered by the Borrower. This Amendment and each Loan Document (as amended or modified hereby) is the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, and is in full force and effect. (c) Representations and Warranties. The representations and ------------------------------ warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are correct on and as of the date hereof as though made on and as of the date hereof. (d) No Default. No event has occurred and is continuing that ---------- constitutes an Event of Default. 2 4. Choice of Law. The validity of this Amendment, its construction, ------------- interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the internal laws of the State of California governing contracts only to be performed in that State. 5. Counterparts. This Amendment may be executed in any number of ------------ counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment or the Consent by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment or such Consent. 6. Due Execution. The execution, delivery and performance of this ------------- Amendment are within the power of Borrower, have been duly authorized by all necessary corporate action, have received all necessary governmental approval, if any, and do not contravene any law or any contractual restrictions binding on Borrower. 7. Reference to and Effect on the Loan Documents. --------------------------------------------- (a) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified and amended hereby. (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed and shall constitute the legal, valid, binding and enforceable obligations of Borrower to Bank. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Bank under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. (d) To the extent that any terms and conditions in any of the Loan Documents shall contradict or be in conflict with any terms or conditions of the Credit Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified or amended accordingly to reflect the terms and conditions of the Credit Agreement as modified or amended hereby. 8. Ratification. Borrower hereby restates, ratifies and reaffirms each ------------ and every term and condition set forth in the Credit Agreement, as amended hereby, and the Loan Documents effective as of the date hereof. 3 9. Estoppel. To induce Bank to enter into this Amendment and to continue -------- to make advances to Borrower under the Credit Agreement, Borrower hereby acknowledges and agrees that, after giving effect to this Amendment, as of the date hereof, there exists no Event of Default and no right of offset, defense, counterclaim or objection in favor of Borrower as against Bank with respect to the Obligations. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. "Borrower" SOUTHWEST WATER COMPANY, a Delaware corporation By: /s/ THOMAS C. TEKULVE --------------------- Name: Thomas C. Tekulve Title: Vice President - Finance By: /s/ PETER J. MOERBEEK ----------------------- Name: Peter J. Moerbeek Title: Chief Financial Officer "BANK" BANK OF AMERICA, N.A., A National Association By: /s/ DEBORAH L. MILLER --------------------- Name: Deborah L. Miller Title: Senior Vice President 4 EX-10.12B 3 0003.txt SECOND AMEND. TO CREDIT AGREEMENT NO. 2 EXHIBIT 10.12B SECOND AMENDMENT TO CREDIT AGREEMENT ------------------------------------ THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Amendment"), dated as of September 29, 2000, is entered into between BANK OF --------- AMERICA, N.A. a national association ("Bank"), and SUBURBAN WATER SYSTEMS, a ---- California corporation ("Borrower"). -------- RECITALS -------- A. Borrower and Bank have previously entered into that certain Credit Agreement dated as of July 30, 1999, as amended by that certain First Amendment to Credit Agreement dated as of March 8, 2000 (collectively, the "Credit ------ Agreement") pursuant to which Bank has made certain loans and financial - ---------- accommodations available to Borrower. Terms used herein without definition shall have the meanings ascribed to them in the Credit Agreement. B. Borrower and Bank wish to amend the Credit Agreement under the terms and conditions set forth in this Amendment. Borrower is entering into this Amendment with the understanding and agreement that, except as specifically provided herein, none of the Bank's rights or remedies as set forth in the Credit Agreement is being waived or modified by the terms of this Amendment. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Amendments to Credit Agreement. ------------------------------ (a) The definition of "Maturity Date" as set forth in Section 1.01 of ------------- the Credit Agreement is hereby amended in its entirety to read as follows: "Maturity Date": July 31, 2002 ------------- (b) The definition of "Consolidated Tangible Net Worth" set forth in ------------------------------- Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follow: "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, deferred charges (including unamortized debt discount and expense and organization costs) and research and development expenses provided, however, that water rights shall not be considered an intangible asset and (iii) receivables, advances, loans and all other amounts due from employees, officers, shareholders, and/or affiliates (excluding Borrower's wholly-owned Subsidiaries), on a consolidated basis determined in conformity with GAAP." "Consolidated Tangible Net Worth of Southwest": 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, deferred charges (including unamortized debt discount and expense and organization costs) and research and development expenses provided, however, that water rights shall not be considered an intangible asset and (iii) receivables, advances, loans and all other amounts due from employees, officers, shareholders, and/or affiliates (excluding Borrower's wholly-owned Subsidiaries), on a consolidated basis determined in conformity with GAAP." 2. Effectiveness of this Amendment. Bank must have received the ------------------------------- following items, in form and content acceptable to Bank, before this Amendment is effective and before Bank is required to extend any credit to Borrower as provided for by this Amendment. (a) Amendment. This Amendment fully executed in a sufficient number of --------- counterparts for distribution to Bank and Borrower. (b) Authorizations. Evidence that the execution, delivery and -------------- performance by Borrower and each guarantor or subordinating creditor of this Amendment and any instrument or agreement required under this Amendment have been duly authorized. (c) Representations and Warranties. The representations and ------------------------------ warranties set forth in the Credit Agreement must be true and correct. (d) Mellon Bank, N.A. and Borrower Amendment. Execution and delivery ----------------------------------------- to Bank of the Mellon Bank, N.A. and Borrower Amendment, which includes the same amendments contained in this Amendment. (e) Other Required Documentation. All other documents and legal ---------------------------- matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Bank. 3. Representations and Warranties. The Borrower represents and warrants ------------------------------ as follows: (a) Authority. The Borrower has the requisite corporate power and --------- authority to execute and deliver this Amendment and to perform its obligations hereunder and under the Loan Documents (as amended or modified hereby) to which it is a party. The execution, delivery and performance by the Borrower of this Amendment and the performance by Borrower of each Loan Document (as amended or modified hereby) to which it is a party have been duly approved by all necessary corporate action of Borrower and no other corporate proceedings on the part of Borrower are necessary to consummate such transactions. (b) Enforceability. This Amendment has been duly executed and -------------- delivered by the Borrower. This Amendment and each Loan Document (as amended or modified hereby) is 2 the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, and is in full force and effect. (c) Representations and Warranties. The representations and ------------------------------ warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are correct on and as of the date hereof as though made on and as of the date hereof. (d) No Default. No event has occurred and is continuing that ---------- constitutes an Event of Default. 4. Choice of Law. The validity of this Amendment, its construction, ------------- interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the internal laws of the State of California governing contracts only to be performed in that State. 5. Counterparts. This Amendment may be executed in any number of ------------ counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment or the Consent by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment or such Consent. 6. Due Execution. The execution, delivery and performance of this ------------- Amendment are within the power of Borrower, have been duly authorized by all necessary corporate action, have received all necessary governmental approval, if any, and do not contravene any law or any contractual restrictions binding on Borrower. 7. Reference to and Effect on the Loan Documents. --------------------------------------------- (a) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified and amended hereby. (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed and shall constitute the legal, valid, binding and enforceable obligations of Borrower to Bank. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Bank under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. 3 (d) To the extent that any terms and conditions in any of the Loan Documents shall contradict or be in conflict with any terms or conditions of the Credit Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified or amended accordingly to reflect the terms and conditions of the Credit Agreement as modified or amended hereby. 8. Ratification. Borrower hereby restates, ratifies and reaffirms each ------------ and every term and condition set forth in the Credit Agreement, as amended hereby, and the Loan Documents effective as of the date hereof. 9. Estoppel. To induce Bank to enter into this Amendment and to continue -------- to make advances to Borrower under the Credit Agreement, Borrower hereby acknowledges and agrees that, after giving effect to this Amendment, as of the date hereof, there exists no Event of Default and no right of offset, defense, counterclaim or objection in favor of Borrower as against Bank with respect to the Obligations. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. "Borrower" SUBURAN WATER SYSTEMS, a California corporation By: /s/ DANIEL N. EVANS ------------------- Name: Daniel N. Evans Title: Vice President - Finance, Chief Financial Officer By: /s/ PETER J. MOERBEEK ----------------------- Name: Peter J. Moerbeek Title: Chief Financial Officer "BANK" BANK OF AMERICA, N.A., A National Association By: /s/ DEBORAH L. MILLER --------------------- Name: Deborah L. Miller Title: Senior Vice President 4 Acknowledgement Dated as of September 29, 2000 The undersigned, SOUTWEST WATER COMPANY, a Delaware corporation ("Southwest"), in consideration of the continued extension of credit to SUBURBAN WATER SYSTEMS, a California corporation by BANK OF AMERICA, N.A., ("BofA"), hereby acknowledges and agrees to the foregoing First Amendment to Credit Agreement (the "Amendment") and hereby confirms and agrees that its Continuing --------- Guaranty dated July 30, 1999 (the "Guaranty") in favor of BofA remains in full force and effect, and restates, ratifies and reaffirms each and every term and condition set forth in the Guaranty. Although BofA has informed Southwest of the matters set forth above, and Southwest acknowledges the same, Southwest understands and agrees that BofA has no duty under the Credit Agreement, the Guaranty or any other agreement with Southwest to so notify Southwest or to seek such an acknowledgement, and nothing contained herein is intended to or shall create such a duty as to any advances or transactions hereafter. SOUTHWEST WATER COMPANY, a Delaware corporation By: /s/ THOMAS C. TEKULVE --------------------- Name: Thomas C. Tekulve Title: Vice President - Finance By: /s/ PETER J. MOERBEEK ----------------------- Name: Peter J. Moerbeek Title: Chief Financial Officer 5 EX-10.13D 4 0004.txt 4TH AMEND. TO AMENDED & RESTATED CREDIT AGREEMENT EXHIBIT 10.13D FOURTH AMENDMENT TO ------------------- AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------- THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Amendment"), dated as of September 29, 2000, is entered into between MELLON --------- BANK, N.A. a national association ("Bank"), and SOUTHWEST WATER COMPANY, a ---- Delaware corporation ("Borrower"). -------- RECITALS -------- A. Borrower and Bank have previously entered into that certain Amended and Restated Credit Agreement dated as of December 23, 1997, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of September 1, 1998 and that certain Second Amendment to Amended and Restated Credit Agreement dated as of September 29, 1999 and that certain Third Amendment to Amended and Restated Credit Agreement dated as of July 19, 2000 (collectively, the "Credit Agreement"), pursuant to which Bank has made certain ---------------- loans and financial accommodations available to Borrower. Terms used herein without definition shall have the meanings ascribed to them in the Credit Agreement. B. Bank and Borrower wish to amend the Credit Agreement under the terms and conditions set forth in this Amendment. Borrower is entering into this Amendment with the understanding and agreement that, except as specifically provided herein, none of the Bank's rights or remedies as set forth in the Credit Agreement is being waived or modified by the terms of this Amendment. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Amendments to Credit Agreement. ------------------------------ (a) The definition of "Maturity Date" as set forth in Section 1.01 of ------------- the Credit Agreement is hereby amended in its entirety to read as follows: "Maturity Date": July 31, 2002 -------------- (b) The definition of "Consolidated Tangible Net Worth" set forth in ------------------------------- Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follow: "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, deferred charges (including unamortized debt discount and expense and organization costs) and research and development expenses provided, however, that water rights shall not be considered an intangible asset and (iii) receivables, advances, loans and all other amounts due from employees, officers, shareholders, and/or affiliates (excluding Borrower's wholly-owned Subsidiaries), on a consolidated basis determined in conformity with GAAP." 2. Effectiveness of this Amendment. Bank must have received the ------------------------------- following items, in form and content acceptable to Bank, before this Amendment is effective and before Bank is required to extend any credit to Borrower as provided for by this Amendment. (a) Amendment. This Amendment fully executed in a sufficient number of counterparts for distribution to Bank and Borrower. (b) Renewal Fee. Receipt by Bank of the renewal fee set forth in ----------- Paragraph 3 below. (c) Authorizations. Evidence that the execution, delivery and -------------- performance by Borrower and each guarantor or subordinating creditor of this Amendment and any instrument or agreement required under this Amendment have been duly authorized. (c)Representations and Warranties. The representations and ------------------------------ warranties set forth in the Credit Agreement must be true and correct. (d)Bank of America, N.A. and Borrower Amendment. Execution and --------------------------------------------- delivery to Bank of the Bank of America, N.A. and Borrower Amendment, which includes the same amendments contained in this Amendment. (e)Other Required Documentation. All other documents and legal ---------------------------- matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Bank. 3. Renewal Fee. Borrower shall pay to Bank a renewal fee in the amount of ----------- Six Thousand Dollars ($6,000) for the renewal of the term of the Credit Agreement, which fee will be fully earned on the date of this Amendment. 4. Representations and Warranties. The Borrower represents and warrants ------------------------------ as follows: (a) Authority. The Borrower has the requisite corporate power and --------- authority to execute and deliver this Amendment and to perform its obligations hereunder and under the Loan Documents (as amended or modified hereby) to which it is a party. The execution, delivery and performance by the Borrower of this Amendment and the performance by Borrower of each Loan Document (as amended or modified hereby) to which it is a party have been duly approved by all necessary corporate action of Borrower and no other corporate proceedings on the part of Borrower are necessary to consummate such transactions. 2 (b) Enforceability. This Amendment has been duly executed and -------------- delivered by the Borrower. This Amendment and each Loan Document (as amended or modified hereby) is the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, and is in full force and effect. (c) Representations and Warranties. The representations and ------------------------------ warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are correct on and as of the date hereof as though made on and as of the date hereof. (d) No Default. No event has occurred and is continuing that ---------- constitutes an Event of Default. 5. Choice of Law. The validity of this Amendment, its construction, ------------- interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the internal laws of the State of California governing contracts only to be performed in that State. 6. Counterparts. This Amendment may be executed in any number of ------------ counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment or the Consent by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment or such Consent. 7. Due Execution. The execution, delivery and performance of this ------------- Amendment are within the power of Borrower, have been duly authorized by all necessary corporate action, have received all necessary governmental approval, if any, and do not contravene any law or any contractual restrictions binding on Borrower. 8. Reference to and Effect on the Loan Documents. --------------------------------------------- (a) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified and amended hereby. (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed and shall constitute the legal, valid, binding and enforceable obligations of Borrower to Bank. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Bank 3 under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. (d) To the extent that any terms and conditions in any of the Loan Documents shall contradict or be in conflict with any terms or conditions of the Credit Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified or amended accordingly to reflect the terms and conditions of the Credit Agreement as modified or amended hereby. 8. Ratification. Borrower hereby restates, ratifies and reaffirms each ------------ and every term and condition set forth in the Credit Agreement, as amended hereby, and the Loan Documents effective as of the date hereof. 9. Estoppel. To induce Bank to enter into this Amendment and to continue -------- to make advances to Borrower under the Credit Agreement, Borrower hereby acknowledges and agrees that, after giving effect to this Amendment, as of the date hereof, there exists no Event of Default and no right of offset, defense, counterclaim or objection in favor of Borrower as against Bank with respect to the Obligations. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. "Borrower" SOUTHWEST WATER COMPANY, a Delaware corporation By: /s/ THOMAS C. TEKULVE --------------------- Name: Thomas C. Tekulve Title: Vice President - Finance By: /s/ PETER J. MOERBEEK ----------------------- Name: Peter J. Moerbeek Title: Chief Financial Officer 4 "BANK" MELLON BANK, N.A., A National Association By: /s/ GARRY HANDELMAN ------------------- Name: Garry Handelman Title: Vice President 5 EX-10.14D 5 0005.txt FORTH AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.14D FOURTH AMENDMENT TO CREDIT AGREEMENT ------------------------------------ THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Amendment"), dated as of September 29, 2000, is entered into between MELLON --------- BANK, N.A. a national association ("Bank"), and SUBURBAN WATER SYSTEMS, a ---- California corporation ("Borrower"). -------- RECITALS -------- A. Borrower and Bank have previously entered into that certain Amended and Restated Credit Agreement dated as of December 23, 1997, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of September 1, 1998 and that certain Second Amendment to Amended and Restated Credit Agreement dated as of September 29, 1999 and that certain Third Amendment to Amended and Restated Credit Agreement dated as of July 19, 2000 (collectively, the "Credit Agreement"), pursuant to which Bank has made certain ---------------- loans and financial accommodations available to Borrower. Terms used herein without definition shall have the meanings ascribed to them in the Credit Agreement. B. Borrower and Bank wish to amend the Credit Agreement under the terms and conditions set forth in this Amendment. Borrower is entering into this Amendment with the understanding and agreement that, except as specifically provided herein, none of the Bank's rights or remedies as set forth in the Credit Agreement is being waived or modified by the terms of this Amendment. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Amendments to Credit Agreement. ------------------------------ (a) The definition of "Maturity Date" as set forth in Section 1.01 of ------------- the Credit Agreement is hereby amended in its entirety to read as follows: "Maturity Date": July 31, 2002 -------------- (b) The definition of "Consolidated Tangible Net Worth" set forth in ------------------------------- Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follow: "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, deferred charges (including unamortized debt discount and expense and organization costs) and research and development expenses provided, however, that water rights shall not be considered an intangible asset and (iii) receivables, advances, loans and all other amounts due from employees, officers, shareholders, and/or affiliates (excluding Borrower's wholly-owned Subsidiaries), on a consolidated basis determined in conformity with GAAP." "Consolidated Tangible Net Worth of Southwest": 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, deferred charges (including unamortized debt discount and expense and organization costs) and research and development expenses provided, however, that water rights shall not be considered an intangible asset and (iii) receivables, advances, loans and all other amounts due from employees, officers, shareholders, and/or affiliates (excluding Borrower's wholly-owned Subsidiaries), on a consolidated basis determined in conformity with GAAP." 2. Effectiveness of this Amendment. Bank must have received the ------------------------------- following items, in form and content acceptable to Bank, before this Amendment is effective and before Bank is required to extend any credit to Borrower as provided for by this Amendment. (a) Amendment. This Amendment fully executed in a sufficient number --------- of counterparts for distribution to Bank and Borrower. (b) Renewal Fee. Receipt by Bank of the renewal fee set forth in ----------- Paragraph 3 below. (c) Authorizations. Evidence that the execution, delivery and -------------- performance by Borrower and each guarantor or subordinating creditor of this Amendment and any instrument or agreement required under this Amendment have been duly authorized. (c)Representations and Warranties. The representations and ------------------------------ warranties set forth in the Credit Agreement must be true and correct. (d)Mellon Bank, N.A. and Borrower Amendment. Execution and delivery ----------------------------------------- to the Bank of the Bank of America, N.A. and Borrower Amendment, which includes the same amendments contained in this Amendment. (e)Other Required Documentation. All other documents and legal ---------------------------- matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Bank. 3. Renewal Fee. Borrower shall pay to Bank a renewal fee in the amount ----------- of Six Thousand Dollars ($6,000) for the renewal of the term of the Credit Agreement, which fee will be fully earned on the date of this Amendment. 2 4. Representations and Warranties. The Borrower represents and warrants ------------------------------ as follows: (a) Authority. The Borrower has the requisite corporate power and --------- authority to execute and deliver this Amendment and to perform its obligations hereunder and under the Loan Documents (as amended or modified hereby) to which it is a party. The execution, delivery and performance by the Borrower of this Amendment and the performance by Borrower of each Loan Document (as amended or modified hereby) to which it is a party have been duly approved by all necessary corporate action of Borrower and no other corporate proceedings on the part of Borrower are necessary to consummate such transactions. (b) Enforceability. This Amendment has been duly executed and -------------- delivered by the Borrower. This Amendment and each Loan Document (as amended or modified hereby) is the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, and is in full force and effect. (c) Representations and Warranties. The representations and ------------------------------ warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are correct on and as of the date hereof as though made on and as of the date hereof. (d) No Default. No event has occurred and is continuing that ---------- constitutes an Event of Default. 5. Choice of Law. The validity of this Amendment, its construction, ------------- interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the internal laws of the State of California governing contracts only to be performed in that State. 6. Counterparts. This Amendment may be executed in any number of ------------ counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment or the Consent by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment or such Consent. 7. Due Execution. The execution, delivery and performance of this ------------- Amendment are within the power of Borrower, have been duly authorized by all necessary corporate action, have received all necessary governmental approval, if any, and do not contravene any law or any contractual restrictions binding on Borrower. 8. Reference to and Effect on the Loan Documents. --------------------------------------------- (a) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to 3 "the Credit Agreement", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified and amended hereby. (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed and shall constitute the legal, valid, binding and enforceable obligations of Borrower to Bank. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Bank under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. (d) To the extent that any terms and conditions in any of the Loan Documents shall contradict or be in conflict with any terms or conditions of the Credit Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified or amended accordingly to reflect the terms and conditions of the Credit Agreement as modified or amended hereby. 9. Ratification. Borrower hereby restates, ratifies and reaffirms each ------------ and every term and condition set forth in the Credit Agreement, as amended hereby, and the Loan Documents effective as of the date hereof. 10. Estoppel. To induce Bank to enter into this Amendment and to continue -------- to make advances to Borrower under the Credit Agreement, Borrower hereby acknowledges and agrees that, after giving effect to this Amendment, as of the date hereof, there exists no Event of Default and no right of offset, defense, counterclaim or objection in favor of Borrower as against Bank with respect to the Obligations. 4 IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. "Borrower" SUBURAN WATER SYSTEMS, a California corporation By: /s/ DANIEL N. EVANS ------------------- Name: Daniel N. Evans Title: Vice President - Finance, Chief Financial Officer By: /s/ PETER J. MOERBEEK ----------------------- Name: Peter J. Moerbeek Title: Chief Financial Officer "BANK" MELON BANK, N.A., A National Association By: /s/ GARRY HANDELMAN ------------------- Name: Garry Handelman Title: Vice President 5 Acknowledgement Dated as of September 29, 2000 The undersigned, SOUTWEST WATER COMPANY, a Delaware corporation ("Southwest"), in consideration of the continued extension of credit to SUBURBAN WATER SYSTEMS, a California corporation by MELLON BANK, N.A., ("Mellon"), hereby acknowledges and agrees to the foregoing First Amendment to Credit Agreement (the "Amendment") and hereby confirms and agrees that its Continuing Guaranty --------- dated July 30, 1999 (the "Guaranty") in favor of Mellon remains in full force and effect, and restates, ratifies and reaffirms each and every term and condition set forth in the Guaranty. Although BofA has informed Southwest of the matters set forth above, and Southwest acknowledges the same, Southwest understands and agrees that Mellon has no duty under the Credit Agreement, the Guaranty or any other agreement with Southwest to so notify Southwest or to seek such an acknowledgement, and nothing contained herein is intended to or shall create such a duty as to any advances or transactions hereafter. SOUTHWEST WATER COMPANY, a Delaware corporation By: /s/ THOMAS C. TEKULVE --------------------- Name: Thomas C. Tekulve Title: Vice President - Finance By: /s/ PETER J. MOERBEEK ----------------------- Name: Peter J. Moerbeek Title: Chief Financial Officer 6 EX-10.20 6 0006.txt MERGER AGREEMENT & PLAN OF REORGANIZATION EXHIBIT 10.20 MERGER AGREEMENT AND PLAN OF REORGANIZATION AMONG SOUTHWEST WATER COMPANY, SW UTILITY COMPANY, RTNT, INC., HORNSBY BEND UTILITY COMPANY, INVERNESS UTILITY COMPANY, INC., WINDERMERE UTILITY CO., INC., HB MERGER SUB, INC. AND IU MERGER SUB, INC. October 1, 2000 TABLE OF CONTENTS ----------------- Definitions............................................................................ 1 1. Merger and Reorganization..................................................... 4 (a) Merger of HBUC....................................................... 4 (b) Merger of IUC........................................................ 5 (c) Directors and Officers of Surviving Corporations..................... 6 (d) Contribution to Buyer................................................ 6 (e) Reorganization of WUC................................................ 6 (f) Tax-Free Reorganizations............................................. 6 2. Closing....................................................................... 7 (a) Deliveries by Seller at the First Closing............................ 7 (b) Deliveries by Buyer at the First Closing............................. 7 (c) Shareholder Agreement................................................ 8 (d) Consulting Agreement................................................. 8 (e) Escrow Pending Receipt of IUC Transfer Approval...................... 8 3. Representations and Warranties Concerning the Transaction..................... 9 (a) Representations and Warranties of the Seller......................... 9 (b) Representations and Warranties of the Buyer.......................... 10 (c) Representations and Warranties of SWC................................ 11 4. Representations and Warranties Concerning the RTNT Utilities.................. 12 (a) Organization, Qualification, and Corporate Power..................... 13 (b) Capitalization....................................................... 13 (c) Title to Assets...................................................... 13 (d) Financial Statements and Events Subsequent........................... 14 (e) Undisclosed Liabilities.............................................. 15 (f) Tax Matters.......................................................... 15 (g) Contracts............................................................ 16 (h) Bank Accounts........................................................ 17 (i) Powers of Attorney................................................... 17 (j) Insurance............................................................ 17 (k) Litigation........................................................... 18 (l) Employees; Benefits.................................................. 18 (m) Guaranties........................................................... 18 (n) Disclosure........................................................... 18 5. Pre-Closing Covenants......................................................... 18 (a) General.............................................................. 18 (b) Notices and Consents................................................. 19 (c) Operation of Business................................................ 19
i (d) Preservation of Business............................................ 19 (e) Full Access......................................................... 19 (f) Notice of Developments.............................................. 19 (g) Exclusivity......................................................... 19 6. Closing and Post-Closing Covenants........................................... 20 (a) General............................................................. 20 (b) Satisfaction of Certain Obligations of RTNT......................... 20 (c) Transition.......................................................... 20 7. Conditions to Obligation to Close............................................ 20 (a) Conditions to Obligations of the Buyer and SWC...................... 20 (b) Conditions to Obligation of the Seller and the RTNT Utilities....... 22 8. Remedies for Breaches of This Agreement...................................... 23 (a) Survival of Representations and Warranties.......................... 23 (b) Indemnification Provisions for Benefit of the Buyer and SWC......... 23 (c) Indemnification Provisions for Benefit of the Seller................ 23 (d) Matters Involving Third Parties..................................... 23 (e) Limitation on Seller's Liability.................................... 25 (f) Other Indemnification Provisions.................................... 25 9. Tax Matters.................................................................. 25 (a) Tax Periods Ending on or Before December 31, 1999................... 25 (b) Tax Periods Beginning on or After January 1, 2000................... 25 (c) Cooperation on Tax Matters.......................................... 26 (d) Certain Taxes....................................................... 26 10. SWC Common Stock............................................................. 26 (a) Legends............................................................. 26 (b) Seller's Representations and Warranties............................. 27 11. Termination.................................................................. 28 (a) Termination of Agreement............................................ 28 (b) Effect of Termination............................................... 29 12. Miscellaneous................................................................ 29 (a) Press Releases and Public Announcements............................. 29 (b) No Third-Party Beneficiaries........................................ 29 (c) Entire Agreement.................................................... 29 (d) Succession and Assignment........................................... 29 (e) Counterparts........................................................ 29 (f) Headings............................................................ 29 (g) Notices............................................................. 30
ii (h) Governing Law....................................................... 30 (i) Amendments and Waivers.............................................. 31 (j) Severability........................................................ 31 (k) Expenses............................................................ 31 (l) Construction........................................................ 31 (m) Incorporation of Exhibits and Schedules............................. 31 (n) Specific Performance................................................ 31 (o) Submission to Jurisdiction.......................................... 32
Exhibit A -- WUC Shareholder Agreement Exhibit B -- Officers and Directors of HBUC and IUC Exhibit C -- Real Property Purchase Agreement Disclosure Schedule -- Exceptions to Representations and Warranties Concerning the RTNT Utilities iii MERGER AGREEMENT AND PLAN OF REORGANIZATION THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") --------- is made as of October 1, 2000, by and among Southwest Water Company, a Delaware corporation ("SWC"), SW Utility Company, a Texas corporation ("Buyer"), RTNT, --- ----- Inc., a Texas corporation ("Seller"), Hornsby Bend Utility Company, a Texas ------ corporation ("HBUC"), Inverness Utility Company, Inc., a Texas corporation ---- ("IUC"), Windermere Utility Co., Inc., a Texas corporation ("WUC") (HBUC, IUC --- --- and WUC are collectively referred to herein as the "RTNT Utilities"), HB Merger -------------- Sub, Inc., a Texas corporation ("HB Merger Sub") and IU Merger Sub, Inc., a ------------- Texas corporation ("IU Merger Sub"). The foregoing entities are referred to ------------- collectively herein as the "Parties." ------- RECITALS -------- WHEREAS, Seller owns all of the outstanding capital stock of HBUC, all of the outstanding capital stock of IUC, and fifty one percent (51%) of the outstanding capital stock of WUC; WHEREAS, Buyer is a wholly owned subsidiary of SWC and owns forty nine percent (49%) of the outstanding capital stock of WUC; WHEREAS, HB Merger Sub and IU Merger Sub are wholly-owned subsidiaries of SWC; and WHEREAS, the Board of Directors of each of the Parties hereto have determined that it is fair, and in the best interests of their respective shareholders, to reorganize their respective businesses upon the terms and subject to the conditions set forth herein and in accordance with Texas law. NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows: AGREEMENT --------- Definitions. ----------- "Adverse Consequences" means all actions, suits, proceedings, -------------------- hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and expenses. "Affiliate" has the meaning set forth in Rule 12b-2 of the --------- regulations promulgated under the Securities Exchange Act. "Affiliated Group" means any affiliated group within the ---------------- meaning of Code Section 1504(a). "Amended Option Agreements" means that certain RTNT Right of ------------------------- First Refusal Agreement and RTNT Call Purchase Agreement, as amended, and that SWWC Right of First Refusal Agreement and SWWC Call Purchase Agreement, as amended. "Basis" means any past or present fact, situation, ----- circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. "Buyer" has the meaning set forth in the preface above. ----- "Closing" has the meaning set forth in Section 2 below. ------- "Closing Date" has the meaning set forth in Section 2 below. ------------ "Code" means the Internal Revenue Code of 1986, as amended. ---- "Confidential Information" means any information concerning ------------------------ the businesses and affairs of the Company that is not already generally available to the public. "Consulting Agreement" has the meaning set forth in Section -------------------- 2(c) below. "Disclosure Schedule" has the meaning set forth in Section 4 ------------------- below. "Disposition" means any sale, assignment, transfer by ----------- operation of law or otherwise, pledge, hypothecation, or grant of a security interest or other lien. "ECO" means ECO Resources, Inc., a wholly-owned subsidiary of --- SWC and the provider of certain management services to the RTNT Utilities. "Effective Time" means, with respect to the HBUC Merger, the -------------- time of the filing of this Agreement or other appropriate document with the Secretary of State of the State of Texas following the satisfaction of the Closing conditions for the HBUC Merger, and with respect to the IUC Merger, the time of the filing of this Agreement or other appropriate document with the Secretary of State of the State of Texas following the satisfaction of the Closing conditions for the IUC Merger (including receipt of the IUC Transfer Approval), or at such later time as the parties to this Agreement have agreed and designated in such filing as the effective time of the respective merger. "Financial Statement" has the meaning set forth in Section ------------------- 4(d) below. "First Closing" has the meaning set forth in Section 2 below. ------------- "HBUC Merger" has the meaning set forth in Section 1(a)(i) ----------- below. "Indemnified Party" has the meaning set forth in Section 8(d) ----------------- below. 2 "Indemnifying Party" has the meaning set forth in Section 8(d) ------------------ below. "IUC Merger" has the meaning set forth in Section 1(b)(i) ---------- below. "IUC Transfer Approval" has the meaning set forth in Section --------------------- 2(e) below. "Knowledge" means actual knowledge after reasonable --------- investigation. "Liability" means any liability (whether known or unknown, --------- whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Most Recent Balance Sheet" means the balance sheet dated as ------------------------- of June 30, 2000 attached to the Disclosure Schedule. "Ordinary Course of Business" means the ordinary course of --------------------------- business consistent with past custom and practice (including with respect to quantity and frequency). "Party" has the meaning set forth in the preface above. ----- "Person" means an individual, a partnership, a corporation, an ------ association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Second Closing" has the meaning set forth in Section 2 below. -------------- "Securities Act" means the Securities Act of 1933, as amended. -------------- "Securities Exchange Act" means the Securities Exchange Act of ----------------------- 1934, as amended. "Security Interest" means any mortgage, pledge, lien, ----------------- encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Seller" has the meaning set forth in the preface above. ------ "Subsidiary" means any corporation with respect to which a ---------- specified Person (or a subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "SWC Common Stock" means the common stock of SWC, par value ---------------- $.01 per share. "Tax" means any federal, state, local, or foreign income, --- gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code ss.59A), customs duties, capital stock, franchise, 3 profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for ---------- refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Taxpayers" has the meaning set forth in Section 4(f)(ii) --------- below. "Third Party Claim" has the meaning set forth in Section 8(d) ----------------- below. "TNRCC" means the Texas Natural Resources Conservation ----- Commission. 1. Merger and Reorganization. ------------------------- (a) Merger of HBUC. On and subject to the terms and conditions -------------- of this Agreement, and in accordance with Texas law, at the Effective Time: (i) Basic Transactions. HB Merger Sub will ------------------ merge with and into HBUC and the separate corporate existence of HB Merger Sub will thereupon cease (the "HBUC Merger"). ----------- HBUC shall be the surviving corporation in the HBUC Merger and shall be a wholly-owned subsidiary of SWC. Without limiting the generality of the foregoing sentences, and subject thereto, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of the HB Merger Sub and HBUC shall vest in the surviving corporation, and all debts, liabilities and duties of HBUC and HB Merger Sub shall become the debts, liabilities and duties of the surviving corporation (subject to the indemnification provisions of Section 8 of this Agreement). The articles of incorporation and bylaws of HBUC, as in effect immediately prior to the Effective Time, shall be the articles of incorporation and bylaws of the surviving corporation until thereafter amended as provided by law and such articles of incorporation or bylaws. (ii) Conversion of HBUC Securities. At the ----------------------------- Effective Time, by virtue of the HBUC Merger, and without any action on the part of the Parties or the holders of any of the following securities: (A) Each share of common stock of HBUC, par value $1.00, shall be converted into and represent the right to receive Two Hundred (200) fully paid and nonassessable shares of SWC Common Stock. The SWC Common Stock will be payable upon the surrender of the certificate(s) representing the HBUC common stock ("HBUC Certificates"). All shares of HBUC capital ----------------- stock shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of any certificate that immediately prior to the Effective Time represented any shares of HBUC capital stock shall cease to have any rights with respect 4 thereto, except the right to receive a certificate or certificates of SWC Common Stock upon surrender of such HBUC Certificates, without interest. (B) Each issued and outstanding share of capital stock of HB Merger Sub shall be converted into and become one validly issued, fully paid and nonassessable share of common stock of the surviving corporation. (C) Notwithstanding anything to the contrary in this Agreement, the aggregate number of shares of SWC Common Stock that will be delivered for all of the capital stock of HBUC is Two Hundred Thousand (200,000). (b) Merger of IUC. On and subject to the terms and conditions of this Agreement, and in accordance with Texas law, at the Effective Time: (i) Basic Transactions. IU Merger Sub will ------------------ merge with and into IUC and the separate corporate existence of IU Merger Sub will thereupon cease (the "IUC Merger"). IUC ---------- shall be the surviving corporation in the IUC Merger and shall be a wholly-owned subsidiary of SWC. Without limiting the generality of the foregoing sentences, and subject thereto, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of the IU Merger Sub and IUC shall vest in the surviving corporation, and all debts, liabilities and duties of IUC and IU Merger Sub shall become the debts, liabilities and duties of the surviving corporation (subject to the indemnification provisions of Section 8 of this Agreement). The articles of incorporation and bylaws of IUC, as in effect immediately prior to the Effective Time, shall be the articles of incorporation and bylaws of the surviving corporation until thereafter amended as provided by law and such articles of incorporation or bylaws. (ii) Conversion of IUC Securities. At the ---------------------------- Effective Time, by virtue of the IUC Merger, and without any action on the part of the Parties or the holders of any of the following securities: (A) Each share of common stock of IUC, par value $1.00, shall be converted into and represent the right to receive Five (5) fully paid and nonassessable shares of SWC Common Stock. The SWC Common Stock will be payable upon the surrender of the certificate(s) representing the IUC common stock ("IUC Certificates"). All shares of IUC capital stock ---------------- shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of any certificate that immediately prior to the Effective Time represented any shares of IUC capital stock shall cease to have any rights with respect thereto, except the right to receive a certificate or certificates of SWC Common Stock upon surrender of such IUC Certificates, without interest. 5 (B) Each issued and outstanding share of capital stock of IU Merger Sub shall be converted into and become one validly issued, fully paid and nonassessable share of common stock of the surviving corporation. (C) Notwithstanding anything to the contrary in this Agreement, the aggregate number of shares of SWC Common Stock that will be delivered for all of the capital stock of IUC is Five Thousand (5,000). (c) Directors and Officers of Surviving Corporations. The ------------------------------------------------ corporate officers and directors of the surviving corporations in the HBUC Merger and IUC Merger are as set forth on Exhibit B. (d) Contribution to Buyer. Immediately after the Effective --------------------- Time of each of the HBUC Merger and the IUC Merger, SWC will contribute the capital stock of each of the surviving corporations to Buyer whereupon each of the surviving corporations shall become a wholly-owned subsidiary of the Buyer. (e) Reorganization of WUC. At the First Closing, the Buyer --------------------- shall deliver Ninety Five Thousand (95,000) fully paid and nonassessable shares of SWC Common Stock to the Seller in consideration of One Hundred and Eighty (180) shares of the common stock, par value $1.00, of WUC, which together with the 284 shares already owned by SWUC, constitute eighty percent (80%) of all of the issued and outstanding capital stock of WUC. Seller, Buyer and WUC adopt this Agreement as a plan of reorganization for WUC under Section 368(a)(1)(B) of the Internal Revenue Code. (f) Tax-Free Reorganizations. Seller, SWC and Buyer intend for ------------------------ the mergers and reorganization of HBUC, IUC and WUC to qualify as tax-free reorganizations under the Internal Revenue Code. Seller acknowledges that SWC and Buyer have not made any representation, warranty or covenant regarding the tax consequences of these transactions for Seller or its shareholders and that Seller and its shareholders should seek advice from their own accountants, attorneys and other advisors regarding such tax consequences. Should these transactions not qualify as tax-free reorganizations, no adjustments will be made to the number of shares of SWC Common Stock to be delivered or actually delivered to Seller or any other matter under this Agreement or any transaction contemplated by this Agreement. 6 2. Closing. The closing of the each of the transactions contemplated by ------- this Agreement (the "Closing") shall be accomplished simultaneously at the ------- offices of Latham & Watkins, Costa Mesa, California and the offices of Phillips & Prikryl, L.L.P., in Austin, Texas by fax transmission of signature pages (followed by overnight delivery of original counterpart signature pages and all other closing deliveries) commencing at 9:00 a.m. local time on the second business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date as the Buyer and the Seller may mutually determine (the "Closing Date"). There will be two Closings, a "First ------------ ----- Closing" with respect to the HBUC Merger and the WUC reorganization, and a - ------- "Second Closing" with respect to the IUC Merger which will occur after the IUC -------------- Transfer Approval has been received. (a) Deliveries by Seller at the First Closing. At the First ----------------------------------------- Closing, the Seller will deliver: (i) to the Buyer, the various certificates, instruments, agreements and documents referred to in Section 7(a) below; (ii) to SWC, a stock certificate representing 1,000 shares of HBUC, endorsed in blank or accompanied by duly executed assignment documents; (iii) into an escrow held by SWC, a stock certificate representing 1,000 shares of IUC, endorsed in blank or accompanied by duly executed assignment documents for release upon receipt of the IUC Transfer Approval; and (iv) to the Buyer, a stock certificate representing 180 shares of WUC, endorsed in blank or accompanied by duly executed assignment documents. (b) Deliveries by Buyer at the First Closing. At the First ---------------------------------------- Closing, SWC or the Buyer will deliver: (i) to the Seller, the various certificates, instruments, agreements and documents referred to in Section 7(b) below; (ii) to the Seller, a stock certificate representing 295,000 shares of SWC Common Stock in the name of Seller representing consideration for all of the capital stock of HBUC and 180 shares of WUC; and (iii) into an escrow held by SWC, 5,000 shares of SWC Common Stock in the name of Seller for release upon receipt of the IUC Transfer Approval. (c) Shareholder Agreement. At the First Closing, Buyer and --------------------- Seller shall enter into the WUC Shareholder Agreement in the form attached hereto as Exhibit A. --------- (d) Consulting Agreement. At the First Closing, Thom W. -------------------- Farrell ("Farrell") and SWC will enter into that certain Consulting Agreement of ------- even date herewith (the "Consulting Agreement"). -------------------- 7 (e) Escrow Pending Receipt of IUC Transfer Approval. The ----------------------------------------------- Parties acknowledge that Seller must perfect the approval by the TNRCC of its ownership of IUC and that SWC, Buyer and Seller must obtain the approval of the TNRCC to the transfer of IUC to Buyer prior to the IUC Merger (the "IUC Transfer ------------ Approval"). As an accommodation to the Parties, SWC will hold the 1,000 shares - -------- of IUC common stock and the 5,000 shares of SWC Common Stock to be exchanged as part of the IUC Merger in escrow pending receipt of the IUC Transfer Approval (the "Escrow"). ------ (i) Until the IUC Transfer Approval has been received: (A) the Closing with respect to the IUC Merger will not occur; (B) the IUC Merger will not be consummated; (C) ownership of IUC will not transfer to SWC or Buyer; (D) RTNT will retain full beneficial ownership of the IUC common stock subject to the covenants contained in Section 5 of this Agreement; and (E) all dividends paid or payable on the SWC Common Stock will be held in Escrow for RTNT's benefit. (ii) If the IUC Transfer Approval has not been obtained by December 31, 2000, SWC and Buyer shall thereafter have the right to terminate the Escrow and this Agreement (solely as this Agreement relates to IUC). (iii) If the IUC Transfer Approval has not been obtained by June 1, 2001, RTNT shall thereafter have the right to terminate the Escrow and this Agreement (solely as this Agreement relates to IUC). (iv) Upon termination of the Escrow pursuant to Section 2(e)(ii) or (iii), the SWC Common Stock held in the Escrow shall be cancelled and returned to SWC, any dividends held in the Escrow shall become the property of SWC, and the shares of IUC common stock will be returned to RTNT. (f) Deliveries at the Second Closing. At the Second Closing: -------------------------------- (i) The Seller will deliver to the Buyer the various certificates, instruments, agreements and documents referred to in Section 7(a) below as applicable to the Second Closing; (ii) The stock certificate representing 1,000 shares of IUC will be released to Buyer from the Escrow; (iii) The Buyer will deliver to the Seller the various certificates, instruments, agreements and documents referred to in Section 7(b) below as applicable to the Second Closing; and 8 (iv) The stock certificate representing 5,000 shares of SWC Common Stock representing the consideration for all of the outstanding capital stock of IUC will be released to Seller from the Escrow. 3. Representations and Warranties Concerning the Transaction. --------------------------------------------------------- (a) Representations and Warranties of the Seller. The Seller represents and warrants to the Buyer and SWC that the statements contained in this Section 3(a) are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date for the respective transaction contemplated by this Agreement (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3(a)). (i) Authorization of Transaction. The Seller ---------------------------- and each of the RTNT Utilities has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Seller and each of the RTNT Utilities, enforceable in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Other than approval by the TNRCC, the Seller and each of the RTNT Utilities need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any person, entity, government or governmental agency in order to consummate the transactions contemplated by this Agreement. All necessary approvals of the Seller's Board of Directors and the Boards of Directors of the RTNT Utilities, and all of their respective shareholders or other interest holders, have been obtained. (ii) Noncontravention. Neither the execution ---------------- and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any articles, bylaws, constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Seller or the RTNT Utilities is subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Seller or the RTNT Utilities are a party or by which they are bound or to which any of their assets is subject. (iii) Brokers' Fees. Neither the Seller nor the ------------- RTNT Utilities have any Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (iv) Ownership of the Shares of RTNT Utilities. ----------------------------------------- The Seller holds of record and owns beneficially the number of shares of common stock of HBUC, 9 IUC and WUC set forth next to its name in Section 4(b) of the Disclosure Schedule, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws and as set forth on the Disclosure Schedule), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. The Seller is not a party to any option, warrant, purchase right, shareholder agreement or other contract or commitment that could require the Seller to sell, transfer, or otherwise dispose of any capital stock of any of the RTNT Utilities (other than this Agreement, the Amended Option Agreements and as set forth on the Disclosure Statement). The Seller is not a party to any voting trust, proxy, shareholder agreement or other agreement or understanding with respect to the voting of any capital stock of any of the RTNT Utilities. (v) Organization of the Seller. The Seller is -------------------------- a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (b) Representations and Warranties of the Buyer. The Buyer ------------------------------------------- represents and warrants to the Seller that the statements contained in this Section 3(b) are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date for the respective transaction contemplated by this Agreement (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3(b)). (i) Organization of the Buyer. The Buyer is a ------------------------- corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (ii) Authorization of Transaction. The Buyer ---------------------------- has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Other than approval by the TNRCC, the Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any person, entity, government or governmental agency in order to consummate the transactions contemplated by this Agreement. All necessary approvals of the Buyer's Board of Directors and its shareholders have been obtained. (iii) Noncontravention. Neither the execution ---------------- and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or 10 bylaws or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject. (iv) Brokers' Fees. The Buyer has no Liability or obligation to ------------- pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (v) Investment. The Buyer is not acquiring the shares of stock ---------- in the RTNT Utilities with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. (c) Representations and Warranties of SWC. SWC represents and ------------------------------------- warrants to the Seller that the statements contained in this Section 3(c) are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date for the respective transaction contemplated by this Agreement (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3(c)). (i) Organization of SWC. SWC is a corporation duly organized, ------------------- validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (ii) Authorization of Transaction. SWC has full power and ---------------------------- authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of SWC, enforceable in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Other than approval by the TNRCC and consent of SWC's lenders to the transactions contemplated by this Agreement, SWC need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any person, entity, government or governmental agency in order to consummate the transactions contemplated by this Agreement. All necessary approvals of the Buyer's Board of Directors and its shareholders have been obtained. (iii) Noncontravention. Neither the execution and the delivery ---------------- of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which SWC is subject or any provision of its charter or bylaws or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, 11 instrument, or other arrangement to which SWC is a party or by which it is bound or to which any of its assets is subject. (iv) Brokers' Fees. SWC has no Liability or obligation to pay ------------- any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (v) SWC Common Stock. The SWC Common Stock, when issued ---------------- pursuant hereto, will be legally and validly authorized and issued, fully paid and non-assessable, and will not have been issued in violation of the preemptive rights of any person. When and as delivered to the Seller, the certificates representing the SWC Common Stock will vest title to the SWC Common Stock in the Seller, free and clear of all encumbrances of any character except such restrictions upon resale as may exist under federal or state securities laws and the indemnification provisions of Section 8 of this Agreement. (vi) Investment. SWC is not acquiring the shares of stock in ---------- the RTNT Utilities with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. 4. Representations and Warranties Concerning the RTNT Utilities. The Seller ------------------------------------------------------------ represents and warrants to the Buyer and SWC that the statements contained in this Section 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date for the respective transaction contemplated by this Agreement (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4), except as set forth in the disclosure schedule delivered by the Seller to the Buyer on the date hereof and attached hereto (the "Disclosure ---------- Schedule"). Nothing in the Disclosure Schedule shall be deemed adequate to - -------- disclose an exception to a representation or warranty made herein, however, unless the Disclosure Schedule identifies the exception with particularity (including identifying the RTNT Utility or Utilities to which the exception applies) and describes the relevant facts in detail excepting the financial statement disclosures made hereunder in that ECO is the party responsible for preparation of the same. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). The Disclosure Schedule will be arranged in sections corresponding to the lettered and numbered paragraphs contained in this Section 4 and may be cross-referenced when appropriate. (a) Organization, Qualification, and Corporate Power. Section 4(a) of ------------------------------------------------ the Disclosure Schedule lists the state of incorporation and the names of the directors and officers of each RTNT Utility. Each RTNT Utility is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Each RTNT Utility is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. Each RTNT Utility has full corporate power and authority and all licenses, permits, and authorizations necessary to carry on the businesses in which it is engaged and in which it presently proposes to engage and to own and use the properties owned and used by it. The Seller has delivered to the Buyer correct and complete copies of the charter and 12 bylaws of each RTNT Utility (as amended to date). The minute books (containing the records of meetings of the stockholders, the board of directors, and any committees of the board of directors), the stock certificate books, and the stock record books of each of the RTNT Utilities, in the forms provided to the Buyer for review, are correct and complete. No RTNT Utility is in default under or in violation of any provision of its charter or bylaws. (b) Capitalization. Section 4(b) of the Disclosure Schedule lists, -------------- for each RTNT Utility, (i) the entire authorized capital stock, (ii) the total number of shares issued and outstanding in each series and class, (iii) the total number of shares held in treasury, and (iv) the owners of record of all of the issued and outstanding shares. All of the issued and outstanding shares of capital stock of each of the RTNT Utilities have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record by the respective owners as set forth in Section 4(b) of the Disclosure Schedule. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, shareholder agreement or other contracts or commitments that could require any of the RTNT Utilities to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the RTNT Utilities. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of the RTNT Utilities. (c) Title to Assets. Each of the RTNT Utilities has good and --------------- marketable title to, or a valid leasehold interest in, the properties and assets used by it, located on its premises, or shown on the Most Recent Balance Sheet or acquired after the date thereof, free and clear of all Security Interests, except for properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Balance Sheet. (d) Financial Statements and Events Subsequent. Attached to the ------------------------------------------ Disclosure Schedule are the following financial statements (collectively the "Financial Statements") with respect to each of the RTNT Utilities: (i) -------------------- unaudited balance sheet and statement of income for fiscal year ending December 31, 1999; and (ii) unaudited balance sheet and statement of income as of and for the 6 months ended June 30, 2000. Since June 30, 2000, there has not been any material adverse change in the business, financial condition, operations, results of operations, or future prospects of any of the RTNT Utilities. Without limiting the generality of the foregoing, since that date: (i) none of the RTNT Utilities has sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business; (ii) none of the RTNT Utilities has entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) outside the Ordinary Course of Business; (iii) no party (including RTNT or any of the RTNT Utilities) has accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving 13 more than Ten Thousand Dollars ($10,000) to which any of the RTNT Utilities is a party or by which it is bound; (iv) none of the RTNT Utilities has imposed any Security Interest upon any of its assets, tangible or intangible; (v) none of the RTNT Utilities has issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation; (vi) there has been no change made or authorized in the charter or bylaws of any of the RTNT Utilities; (vii) none of the RTNT Utilities has issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock; (viii) none of the RTNT Utilities has declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock; (ix) none of the RTNT Utilities has made any loan to, or entered into any other transaction with, any of its directors or officers; (x) none of the RTNT Utilities has made or pledged to make any charitable or other capital contribution; and (xi) there has not been any other material occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving any of the RTNT Utilities. (e) Undisclosed Liabilities. None of the RTNT Utilities has any ----------------------- Liability (and there is no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any Liability), except for (i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii) Liabilities which have arisen after the Most Recent Balance Sheet in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law). (f) Tax Matters. ----------- (i) Except as set forth in Section 4(f) of the Disclosure Schedule, none of the federal, state, local, and foreign income Tax Returns filed with respect to each of the RTNT Utilities for taxable periods ended on or after December 31, 1994, have been audited or currently are the subject of audit. The Seller has 14 delivered to the Buyer correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by any of the RTNT Utilities since December 31, 1994. (ii) Each of the RTNT Utilities and any affiliated group of companies within the meaning of Section 1504(a) of the Code (and any similar state, local or foreign combined, consolidated or affiliated group) of which the Seller has been a member (collectively, the "Taxpayers") has filed all Tax Returns that they were required to --------- file. All such Tax Returns were correct and complete in all respects. All Taxes owed by any of the Taxpayers (whether or not shown on any Tax Return) have been paid. None of the Taxpayers currently is the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where any of the Taxpayers does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of any of the Taxpayers that arose in connection with any failure (or alleged failure) to pay any Tax. None of the RTNT Utilities has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (iii) Each of the Taxpayers has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (iv) Neither the Seller nor any director or officer (or employee responsible for Tax matters) of any of the Taxpayers expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of any of the Taxpayers either (A) claimed or raised by any authority in writing or (B) as to which the Seller and the directors and officers (and employees responsible for Tax matters) of the Taxpayers have Knowledge based upon personal contact with any agent of such authority. (v) None of the RTNT Utilities has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code (S) 280G. None of the RTNT Utilities is a party to any Tax allocation or sharing agreement. None of the RTNT Utilities (A) has been a member of an Affiliated Group filing a consolidated federal income Tax Return (other than a group the common parent of which was RTNT) or (B) has any Liability for the Taxes of any Person (other than the applicable RTNT Utility) under Reg. (S) 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (vi) The unpaid Taxes of each of the RTNT Utilities did not, as of June 30, 2000, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax 15 income) set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto). (g) Contracts. Section 4(g) of the Disclosure Schedule lists the --------- following contracts and other agreements (oral or written) as to which the RTNT Utilities or any of the RTNT Utilities is a party: (i) any agreement concerning a partnership or joint venture; (ii) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation, in excess of Ten Thousand Dollars ($10,000) or under which it has imposed a Security Interest on any of its assets, tangible or intangible, not reflected on the Most Recent Balance Sheet; (iii) any agreement concerning confidentiality or noncompetition; (iv) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis or providing severance benefits, and any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other material plan or arrangement for the benefit of its current or former directors, officers, or employees; (v) any agreement under which it has advanced or loaned any amount to any of its directors, officers, or employees; (vi) any agreement under which the consequences of a default or termination could have a material adverse effect on the business, financial condition, operations, results of operations, or future prospects of any of the RTNT Utilities; or (vii) any other agreement (or group of related agreements) which is out of the Ordinary Course of Business. The Seller has delivered to the Buyer a correct and complete copy of each written agreement listed in Section 4(g) of the Disclosure Schedule (as amended to date) and a written summary setting forth the terms and conditions of each oral agreement referred to in Section 4(g) of the Disclosure Schedule. With respect to each such agreement: (A) the agreement is legal, valid, binding, enforceable, and in full force and effect; (B) the agreement will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (C) none of the Seller or any of the RTNT Utilities is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under the agreement; (D) to Seller's knowledge no third party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under the agreement; and (E) ) none of the Seller or any of the RTNT Utilities has, and to Seller's knowledge no third party has, repudiated any provision of the agreement. 16 (h) Bank Accounts. Schedule 4(h) lists all bank accounts (including ------------- deposit accounts, checking accounts, Certificates of Deposit, safe deposit boxes and the like) holding funds or other assets owned by one or more of the RTNT Utilities. Except as listed on Schedule 4(h), there are no other bank accounts holding funds or other assets owned by one or more of the RTNT Utilities. (i) Powers of Attorney. There are no outstanding powers of attorney ------------------ executed on behalf of any of the RTNT Utilities. (j) Insurance. Section 4(j) of the Disclosure Schedule sets forth the --------- following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which any of the RTNT Utilities has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past seven (7) years, that were not obtained for the RTNT Utilities by ECO: (i) the name, address, and telephone number of the agent; (ii) the name of the insurer, the name of the policyholder, and the name of each covered insured; and (iii) the policy number and the period of coverage. (k) Litigation. Section 4(k) of the Disclosure Schedule sets forth ---------- each instance in which any of the RTNT Utilities (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to the Knowledge of any of the Seller or the directors and officers (and employees with responsibility for litigation matters) of the RTNT Utilities, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. Except where noted, none of the actions, suits, proceedings, hearings, and investigations set forth in Section 4(k) of the Disclosure Schedule could result in any material adverse change in the business, financial condition, operations, results of operations, or future prospects of any of the RTNT Utilities. None of the Seller or the directors and officers (and employees with responsibility for litigation matters) of the RTNT Utilities has any reason to believe that any such action, suit, proceeding, hearing, or investigation may be brought or threatened against any of the RTNT Utilities. (l) Employees; Benefits. None of the RTNT Utilities now have or ever ------------------- have had any employees, and do not now nor ever have contributed to, any Employee Benefit Plan, Employee Pension Benefit Plan or Employee Welfare Benefit Plan. (m) Guaranties. None of the RTNT Utilities is a guarantor or ---------- otherwise is liable for any Liability or obligation (including indebtedness) of any other Person. (n) Disclosure. The representations and warranties contained in this ---------- Section 4 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 4 not misleading. 17 5. Pre-Closing Covenants. The Parties agree as follows with respect to the --------------------- period between the execution of this Agreement and the Closing of the merger or reorganization with respect to each RTNT Utility. (a) General. Each of the Parties will use its reasonable efforts to ------- take all action and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Section 7 below). (b) Notices and Consents. Each of the Parties will give any notices -------------------- to, make any filings with, and use its reasonable efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Section 3(a)(i) and Section 3(b)(ii) above, including without limitation obtaining the necessary approvals from the TNRCC. (c) Operation of Business. The Seller will not cause or permit any of --------------------- the RTNT Utilities to engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, the Seller will not cause or permit any of the RTNT Utilities to (i) cause any representation or warranty hereunder to become untrue, (ii) declare, set aside, or pay any dividend or make any distribution with respect to its capital stock or redeem, purchase, or otherwise acquire any of its capital stock, or (iii) otherwise engage in any practice, take any action, or enter into any transaction of the sort described in Section 4(d) above. (d) Preservation of Business. The Seller will cause each of the RTNT ------------------------ Utilities to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers, and employees. (e) Full Access. The Seller will permit, and the Seller will cause ----------- each of the RTNT Utilities to permit, representatives of the Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the RTNT Utilities, to all books and records (including Tax records), contracts, and documents of or pertaining to any of the RTNT Utilities that are not on site at or in the offices of the RTNT Utilities. (f) Notice of Developments. The Seller will give prompt written ---------------------- notice to the Buyer of any material adverse development causing a breach of any of the representations and warranties in Section 4 above. Each Party will give prompt written notice to the others of any material adverse development causing a breach of any of his or its own representations and warranties in Section 3 above. No disclosure by any Party pursuant to this Section 5(f), however, shall be deemed to amend or supplement the Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. (g) Exclusivity. The Seller will not (and the Seller will not cause ----------- or permit any of the RTNT Utilities to) (i) solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets of, any of RTNT or the RTNT Utilities (including any 18 acquisition structured as a merger, consolidation, or share exchange) or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. The Seller will not vote its shares in favor of any such acquisition structured as a merger, consolidation, or share exchange. The Seller will notify the Buyer immediately if any Person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. 6. Closing and Post-Closing Covenants. The Parties agree as follows with ---------------------------------- respect to the Closing and the period following the Closing of the merger or reorganization with respect to each RTNT Utility. (a) General. In case at any time after the Closing any further action ------- is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 8 below). The Seller acknowledges and agrees that from and after the Closing the Buyer will be entitled to possession of all documents, books, records (including Tax records), agreements, and financial data of any sort relating to each of the RTNT Utilities. (b) Satisfaction of Certain Obligations of RTNT. In satisfaction ------------------------------------------- of certain payment obligations of RTNT recorded as accounts receivable on the books of HBUC in the aggregate amount of approximately $500,000, RTNT will transfer certain real properties (collectively, the "Real Property") to Buyer at ------------- or immediately after the First Closing. Prior to and as a condition to the transfer of the Real Property, SWC must determine in its sole discretion that the land value constitutes adequate value in repayment of the accounts receivable. The transfer of the Real Property will be made pursuant to that certain Real Property Purchase Agreement between Seller and SWC of even date herewith in the form attached hereto as Exhibit C. (c) Transition. The Seller will not take any action that is designed ---------- or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of any of the RTNT Utilities from maintaining the same business relationships with the RTNT Utilities after the Closing as it maintained with the RTNT Utilities prior to the Closing. 7. Conditions to Obligation to Close. --------------------------------- (a) Conditions to Obligations of the Buyer and SWC. The obligation of ---------------------------------------------- the Buyer and SWC to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 3(a) and Section 4 above shall be true and correct in all material respects at and as of the Closing Date; 19 (ii) the Seller and the RTNT Utilities shall have performed and complied with all of their covenants hereunder in all material respects through the Closing; (iii) each of the Seller and the RTNT Utilities shall have procured all of the third party consents to be obtained by them specified in Section 5(b) above; (iv) the Parties shall have obtained the approval of the transactions contemplated by this Agreement from the TNRCC and no action, suit, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitration wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) affect adversely the right of Seller or the Buyer to own the shares of stock of the RTNT Utilities and to control the RTNT Utilities, or (D) affect adversely the right of the RTNT Utilities to own their assets and to operate their businesses (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (v) the Seller shall have delivered to the Buyer a certificate to the effect that each of the conditions specified above in Section 7(a)(i)-(iv) is satisfied in all respects; (vi) the Seller shall have entered into the WUC Shareholder Agreement and the Real Property Purchase Agreement; (vii) Thom Farrell shall have entered into the Consulting Agreement; (viii) the Buyer shall have received the resignations, effective as of the Closing, of each director and officer of each of the RTNT Utilities designated by the Buyer; (ix) the Seller shall have executed termination notices with respect to each of the Amended Option Agreements; (x) the Seller shall have procured, executed and delivered all of the documents, instruments and agreements contemplated by the Real Property Purchase Agreement including, without limitation, the deeds and title policies referred to therein; (xi) SWC shall have received the consent of its lenders to the transactions contemplated by this Agreement; and (xii) all actions to be taken by the Seller or the RTNT Utilities in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the 20 transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyer. The Buyer may waive any condition specified in this Section 7(a) if it executes a writing so stating at or prior to the Closing. (b) Conditions to Obligation of the Seller and the RTNT --------------------------------------------------- Utilities. The obligation of the Seller and the RTNT Utilities to consummate the - --------- transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Sections 3(b) and 3(c) above shall be true and correct in all material respects at and as of the Closing Date; (ii) the Buyer and SWC shall have performed and complied with all of their covenants hereunder in all material respects through the Closing; (iii) the Parties shall have obtained the approval of the transactions contemplated by this Agreement from the TNRCC and no action, suit, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (iv) the Buyer shall have delivered to the Seller a certificate to the effect that each of the conditions specified above in Section 7(b)(i)-(iii) is satisfied in all respects; (v) the Buyer and/or SWC, as applicable, shall have entered into the agreements specified in Section 7(a)(vi) and 7(a)(vii); and (vi) all actions to be taken by the Buyer and SWC in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller. The Seller and the RTNT Utilities may waive any condition specified in this Section 7(b) if they execute a writing so stating at or prior to the Closing. 8. Remedies for Breaches of This Agreement. --------------------------------------- (a) Survival of Representations and Warranties. All of the ------------------------------------------ representations and warranties contained in Section 3 above (other than Sections 3(a)(iv) and 4(b)) shall survive the Closing hereunder and continue in full force and effect for a period of one (1) year thereafter. 21 The representations and warranties contained in Sections 3(a)(iv) and 4(b) shall survive the Closing hereunder and continue in full force and effect forever. All of the representations and warranties contained in Section 4 above shall survive the Closing hereunder and continue in full force and effect for a period of four (4) years thereafter. (b) Indemnification Provisions for Benefit of the Buyer and ------------------------------------------------------- SWC. In the event the Seller or any of the RTNT Utilities breach (or in the - --- event any third party alleges facts that, if true, would mean the Seller has breached) any of its representations, warranties, and covenants contained herein, and, if there is an applicable survival period pursuant to Section 8(a) above, provided that the Buyer or SWC makes a written claim for indemnification against the Seller within such survival period, then the Seller agrees to indemnify the Buyer and SWC from and against the entirety of any Adverse Consequences the Buyer or SWC may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the Buyer or SWC may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach (or the alleged breach). (c) Indemnification Provisions for Benefit of the Seller. In ---------------------------------------------------- the event the Buyer or SWC breaches (or in the event any third party alleges facts that, if true, would mean the Buyer or SWC has breached) any of its representations, warranties, and covenants contained herein, and, if there is an applicable survival period pursuant to Section 8(a) above, provided that the Seller makes a written claim for indemnification against the Buyer or SWC pursuant to Section 12(g) below within such survival period, then the Buyer and SWC agree to indemnify the Seller from and against the entirety of any Adverse Consequences the Seller may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the Seller may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach (or the alleged breach). (d) Matters Involving Third Parties. ------------------------------- (i) If any third party shall notify any Party (the "Indemnified Party") with respect to any matter (a "Third ----------------- ----- Party Claim") which may give rise to a claim for ----------- indemnification against any other Party (the "Indemnifying Party") under this Section 8, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the part of the -------- ------- Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced. (ii) Any Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying Party notifies the Indemnified Party in writing within fourteen (14) days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against the entirety of any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim, (B) the Indemnifying Party provides the Indemnified Party with evidence reasonably 22 acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations hereunder, (C) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (D) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party, and (E) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. (iii) So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (B) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably). (iv) In the event any of the conditions in Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), (B) the Indemnifying Parties will reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third Party Claim (including reasonable attorneys' fees and expenses), and (C) the Indemnifying Parties will remain responsible for any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 8. (e) Limitation on Seller's Liability. Seller shall not be in -------------------------------- breach of or be required to indemnify for any alleged breach of any representation or warranty in Sections 3 or 4 (other than Sections 3(a)(iv) and 4(b)) to the extent that the facts giving rise to the alleged breach were actually known to an officer, director or manager of Buyer, SWC, or ECO or to a director of WUC appointed by SWC prior to the execution of this Agreement, or such breach was caused or resulted through the act or omission of ECO. In addition, any liability for Taxes payable by WUC relating to a period in which SWC was an owner of capital stock of WUC and other liabilities shall be allocated between Seller and Buyer pro rata by the amount of capital stock in WUC held by Seller and SWC, respectively, during such period. (f) Other Indemnification Provisions. The foregoing -------------------------------- indemnification provisions are in addition to, and not in derogation of, any statutory, equitable, or common law remedy any Party may have for breach of representation, warranty, or covenant. The Seller hereby agrees 23 that it will not make any claim for indemnification against any of the RTNT Utilities by reason of the fact that it was the parent company or agent of any such entity (whether such claim is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses, or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement, or otherwise) with respect to any action, suit, proceeding, complaint, claim, or demand brought by the Buyer or SWC against the Seller (whether such action, suit, proceeding, complaint, claim, or demand is pursuant to this Agreement, applicable law, or otherwise). 9. Tax Matters. The following provisions shall govern the allocation ----------- of responsibility as between Buyer and Seller for certain tax matters following the Closing Date: (a) Tax Periods Ending on or Before December 31, 1999. Buyer ------------------------------------------------- shall prepare and file all Tax Returns for the RTNT Utilities for all periods ending on or prior to December 31, 1999 which are filed after the Closing Date, other than income Tax Returns with respect to periods for which a consolidated, unitary or combined income Tax Return of Seller will include the operations of the RTNT Utilities. Buyer shall permit Seller to review and comment on each such Tax Return prior to filing. Seller shall reimburse Buyer for Taxes of the RTNT Utilities with respect to such periods within fifteen (15) days after payment by Buyer or the RTNT Utilities of such Taxes to the extent such Taxes are not reflected in the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) shown on the face of the balance sheet for December 31, 1999; provided, however, that any liability for Taxes payable by WUC relating to a period in which SWC was an owner of capital stock of WUC shall be allocated between Seller and Buyer pro rata by the amount of capital stock in WUC held by Seller and SWC, respectively. (b) Tax Periods Beginning on or After January 1, 2000. Buyer ------------------------------------------------- shall prepare and file all Tax Returns of the RTNT Utilities for Tax periods which begin on or after January 1, 2000 and shall be responsible for the payment of all Taxes related to such periods. (c) Cooperation on Tax Matters. -------------------------- (i) Buyer, the RTNT Utilities, and Seller shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other Party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The RTNT Utilities and Seller agree (A) to retain all books and records with respect to Tax matters pertinent to the RTNT Utilities relating to any taxable period beginning before January 1, 2000 until the expiration of the statute of limitations (and, to the extent notified by Buyer or Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so requests, the 24 RTNT Utilities, or Seller, as the case may be, shall allow the other Party to take possession of such books and records. (ii) Buyer and Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). (iii) Buyer and Seller further agree, upon request, to provide the other Party with all information that either Party may be required to report pursuant to Section 6043 of the Code and all Treasury Department Regulations promulgated thereunder. (d) Certain Taxes. All transfer, documentary, sales, use, ------------- stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement, shall be paid by Seller when due, and Seller will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable law, Buyer will, and will cause its affiliates to, join in the execution of any such Tax Returns and other documentation. 10. SWC Common Stock. ---------------- (a) Legends. All certificates for shares of SWC Common Stock ------- which are issued pursuant to this Agreement shall bear the following legend: The shares represented by this certificate (the "Shares") have not been registered under the Securities Act of 1933, as amended, and no sale, transfer or other disposition may be made of the Shares unless they have been so registered or Southwest Water Company has been furnished with a legal opinion from a nationally recognized law firm satisfactory to it that such registration is not required. (b) Seller's Representations and Warranties. Seller hereby --------------------------------------- acknowledges and hereby makes each of the following representations and warranties with respect to the SWC Common Stock: (i) Seller acknowledges that the issuance of the SWC Common Stock has not been nor will be registered under the Securities Act, or any state securities laws, and that the SWC Common Stock is being issued pursuant to exemptions from registration under the Securities Act for issuance of securities not involving a public offering; (ii) Seller is acquiring the SWC Common Stock solely for its own account for investment and not with a view to resale or distribution and has no present intention of making a Disposition of the SWC Common Stock to any other person or entity; 25 (iii) Seller was not formed for the specific purpose of acquiring or holding the SWC Common Stock; (iv) Seller is a sophisticated investor and has such knowledge and experience in financial, tax, business matters, securities and investments including, without limitation, experience in investments by actual participation, so as to evaluate the merits and risks of investing in and holding the SWC Common Stock and to make an informed investment decision with respect thereto, and has made such investigation into SWC as is necessary to make an informed investment decision; (v) Seller qualifies as an "accredited investor," as that term is defined under Rule 501 of Regulation D promulgated under the Securities Act; (vi) Seller has not received any advertisement or general solicitation with respect to the issuance of the SWC Common Stock; (vii) Neither the Securities and Exchange Commission nor any state securities commission has approved the SWC Common Stock or passed upon or endorsed the merits of the SWC Common Stock; (viii) Seller must bear the economic risk of the investment indefinitely because the SWC Common Stock has not been registered under applicable securities laws and therefore the SWC Common Stock may not be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws or an exemption from registration is available; (ix) Seller will not make a Disposition of any shares of the SWC Common Stock without registration under applicable securities laws or a valid exemption therefrom; (x) The legend set forth in Section 10(a) of this Agreement shall be placed on the shares of SWC Common Stock and notations thereof will be made in SWC's books and stock transfer records; and (xi) The information contained herein is accurate and may be relied upon by SWC in determining the availability of an exemption from registration under federal and state securities laws. 11. Termination. ----------- (a) Termination of Agreement. The Parties may terminate this ------------------------ Agreement as provided below: (i) the Buyer and the Seller may terminate this Agreement by mutual written consent at any time; 26 (ii) the Buyer may terminate this Agreement by giving written notice to the Seller at any time (A) in the event any of the Seller or RTNT Utilities has breached any material representation, warranty, or covenant contained in this Agreement in any material respect and the breach has continued without cure for a period of five (5) days after the notice of breach, (B) if the First Closing shall not have occurred on or before October 1, 2000, by reason of the failure of any condition precedent under Section 7(a) hereof (unless the failure results primarily from the Buyer or SWC itself breaching any representation, warranty, or covenant contained in this Agreement) or (C) as provided in Section 2(e)(ii); and (iii) the Seller may terminate this Agreement by giving written notice to the Buyer and SWC at any time (A) in the event the Buyer or SWC has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Seller has notified the Buyer and SWC of the breach, and the breach has continued without cure for a period of five (5) days after the notice of breach or (B) if the First Closing shall not have occurred on or before October 1, 2000, by reason of the failure of any condition precedent under Section 7(b) hereof (unless the failure results primarily from the Seller or any of the RTNT Utilities itself breaching any representation, warranty, or covenant contained in this Agreement) or (C) as provided in Section 2(e)(iii). (b) Effect of Termination. If any Party terminates this --------------------- Agreement pursuant to Section 11(a) above, all rights and obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party (except for any Liability of any Party then in breach). 12. Miscellaneous. ------------- (a) Press Releases and Public Announcements. No Party shall --------------------------------------- issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the Buyer and the Seller; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Parties prior to making the disclosure). (b) No Third-Party Beneficiaries. This Agreement shall not ---------------------------- confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. (c) Entire Agreement. This Agreement (including the documents ---------------- referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof. (d) Succession and Assignment. This Agreement shall be binding ------------------------- upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. 27 No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the Buyer and the Seller; provided, however, that SWC or the Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases the Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder). (e) Counterparts. This Agreement may be executed in one or ------------ more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (f) Headings. The section headings contained in this Agreement -------- are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (g) Notices. All notices, requests, demands, claims, and other ------- communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to the Seller: ---------------- RTNT, Inc. 3223 Park Hill Drive Austin, Texas 78746 Attention: Thom Farrell Telecopier: ______________ If to the Buyer, SWC, HB Merger Sub or IU Merger Sub: ----------------------------------------------------- Southwest Water Company 225 North Barranca Avenue, Suite 200 West Covina, California 91791-1605 Attention: Vice President, Finance Telecopier: (626) 915-1558 Copy to: Latham & Watkins ------- 650 Town Center Drive, Suite 2000 Costa Mesa, California 92626-1925 Attention: James W. Daniels, Esq. Telecopier: (714) 755-8290 If to HBUC, IUC, WUC: --------------------- Pre-Closing - c/o Seller Post-Closing - c/o Buyer 28 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. (h) Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Texas. (i) Amendments and Waivers. No amendment of any provision of ---------------------- this Agreement shall be valid unless the same shall be in writing and signed by the Buyer and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (j) Severability. Any term or provision of this Agreement that ------------ is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (k) Expenses. Each of the Parties will bear its own costs and -------- expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. (l) Construction. Each definition in this Agreement includes ------------ the singular and the plural, and references to the neuter gender include the masculine and feminine whenever appropriate. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. Following the Closing, any representation or warranty by an RTNT Utility shall be deemed to be a representation or warranty of Seller for the purposes of any indemnification provided hereunder. (m) Incorporation of Exhibits and Schedules. The Exhibits and --------------------------------------- Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (n) Specific Performance. Each of the Parties acknowledges and -------------------- agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. 29 Accordingly, each of the Parties agrees that the other Parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter, subject to the provisions set forth in Section 12(o) below, in addition to any other remedy to which they may be entitled, at law or in equity. (o) Submission to Jurisdiction. Each of the Parties submits to -------------------------- the jurisdiction of any state or federal court sitting in Austin, Texas, in any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on any other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 12(g) above. Nothing in this Section 12(o), however, shall affect the right of any Party to bring any action or proceeding arising out of or relating to this Agreement in any other court or to serve legal process in any other manner permitted by law or at equity. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or at equity. ***** Signatures follow on next page. 30 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date first above written. SOUTHWEST WATER COMPANY, a Delaware corporation /s/ PETER J. MOERBEEK --------------------------------------- By: Peter J. Moerbeek --------------------------------------- Title: CFO --------------------------------------- SW UTILITY COMPANY, a Texas corporation /s/PETER J. MOERBEEK --------------------------------------- By: Peter J. Moerbeek --------------------------------------- Title: President --------------------------------------- HB MERGER SUB, INC., a Texas corporation /s/PETER J. MOERBEEK --------------------------------------- By: Peter J. Moerbeek --------------------------------------- Title: Director --------------------------------------- IU MERGER SUB, INC., a Texas corporation /s/PETER J. MOERBEEK --------------------------------------- By: Peter J. Moerbeek --------------------------------------- Title: Director --------------------------------------- 31 RTNT, INC., a Texas corporation /s/THOM W. FARRELL --------------------------------------- Thom W. Farrell Title: President --------------------------------------- HORNSBY BEND UTILITY COMPANY, a Texas corporation /s/THOM W. FARRELL --------------------------------------- Thom W. Farrell Title: President --------------------------------------- INVERNESS UTILITY COMPANY, INC., a Texas corporation /s/THOM W. FARRELL --------------------------------------- Thom W. Farrell Title: President --------------------------------------- WINDERMERE UTILITY CO., INC., a Texas corporation /s/THOM W. FARRELL --------------------------------------- Thom W. Farrell Title: President --------------------------------------- 32 EXHIBIT A WUC SHAREHOLDER AGREEMENT ------------------------- EXHIBIT B OFFICERS AND DIRECTORS OF HBUC ------------------------------ (immediately after the Effective Time for the HBUC Merger) Name Title ---- ----- Robert Swartout Director Michael Quinn Director Peter Moerbeek Director Thom Farrell Director Patrick Reilly President Tom Tekulve Treasurer, Secretary OFFICERS AND DIRECTORS OF IUC ----------------------------- (immediately after the Effective Time for the IUC Merger) Name Title ---- ----- Robert Swartout Director Michael Quinn Director Peter Moerbeek Director Thom Farrell Director Patrick Reilly President Tom Tekulve Treasurer, Secretary EXHIBIT C REAL PROPERTY PURCHASE AGREEMENT -------------------------------- EX-27 7 0007.txt FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 533,000 0 22,058,000 (1,235,000) 0 27,071,000 173,948,000 48,806,000 169,386,000 20,935,000 28,000,000 0 514,000 65,000 43,073,000 169,386,000 78,256,000 78,256,000 59,012,000 68,752,000 238,000 91,000 2,784,000 6,775,000 2,710,000 4,065,000 0 0 0 4,065,000 0.62 0.60
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