-----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, QOPyCm/adaW17U8UKF9veIHsuw+fT5npopb+xr2ttlgBkbf/fkz4aIOFZFF97a++ 3xFZgv6VuCGwhxQ2z1nijA== 0000898430-01-500452.txt : 20010511 0000898430-01-500452.hdr.sgml : 20010511 ACCESSION NUMBER: 0000898430-01-500452 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST WATER CO CENTRAL INDEX KEY: 0000092472 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [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: 1628955 BUSINESS ADDRESS: STREET 1: 225 N BARRANCA AVE STREET 2: 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 d10q.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 March 31, 2001 OR _____TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____________to_____________ Commission file number: 0-8176 [LOGO] 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 May 10, 2001, there were 8,607,309 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 Months Ended March 31, 2001 and 2000 1 Condensed Consolidated Balance Sheets - As of March 31, 2001 and December 31, 2000 2 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2001 and 2000 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Item 3. Quantitative and Qualitative Disclosures About Market Risk 8 Part II. Other Information: - -------- ------------------ Item 1. Legal Proceedings 9 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11
PART I - FINANCIAL INFORMATION Item 1. Financial Statements Southwest Water Company and Subsidiaries CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, - --------------------------------------------------------------------------------------------------- 2001 2000 - --------------------------------------------------------------------------------------------------- (in thousands except per share data) Operating Revenues $ 23,215 $ 20,557 Operating Expenses: Direct operating expenses 17,760 16,073 Selling, general and administrative 3,579 3,110 - --------------------------------------------------------------------------------------------------- 21,339 19,183 Operating Income 1,876 1,374 Other Income (Expense): Interest expense (992) (788) Interest income 19 82 Other (40) 49 - --------------------------------------------------------------------------------------------------- (1,013) (657) Income Before Income Taxes 863 717 Provision for income taxes 328 287 - --------------------------------------------------------------------------------------------------- Net Income 535 430 Dividends on preferred shares 7 7 - --------------------------------------------------------------------------------------------------- Net Income Available for Common Shares $ 528 $ 423 =================================================================================================== Earnings per Common Share (Note 3): Basic $ 0.06 $ 0.05 Diluted $ 0.06 $ 0.05 =================================================================================================== Cash Dividends per Common Share (Note 3) $ 0.06 $ 0.05 =================================================================================================== Weighted Average Outstanding Common Shares (Note 3): Basic 8,567 8,079 Diluted 8,981 8,436 ===================================================================================================
See accompanying notes to condensed consolidated financial statements. 1 Southwest Water Company and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31, - ------------------------------------------------------------------------------------------------------------ ASSETS 2001 2000 - ------------------------------------------------------------------------------------------------------------ (unaudited) (in thousands) Current Assets: Cash and cash equivalents $ 1,243 $ 1,379 Customers' accounts receivable, net 19,370 17,830 Other current assets 8,522 7,597 - ------------------------------------------------------------------------------------------------------------ 29,135 26,806 Property, Plant and Equipment: Utility property, plant and equipment -- at cost 208,710 206,100 Contract operations property, plant and equipment -- at cost 9,163 8,394 - ------------------------------------------------------------------------------------------------------------ 217,873 214,494 Less accumulated depreciation and amortization 58,237 56,651 - ------------------------------------------------------------------------------------------------------------ 159,636 157,843 Other Assets 12,134 12,003 - ------------------------------------------------------------------------------------------------------------ $ 200,905 $ 196,652 ============================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------ Current Liabilities: Current portion of long-term debt and bank notes payable $ 4,508 $ 5,166 Accounts payable 5,208 5,983 Other current liabilities 16,575 14,438 - ------------------------------------------------------------------------------------------------------------ 26,291 25,587 Other Liabilities and Deferred Credits: Long-term debt 27,100 27,100 Bank notes payable 21,999 19,251 Advances for construction 7,771 7,891 Contributions in aid of construction 51,231 50,644 Deferred income taxes 7,081 6,988 Other liabilities and deferred credits 10,516 10,580 - ------------------------------------------------------------------------------------------------------------ Total Liabilities and Deferred Credits 151,989 148,041 Stockholders' Equity Cumulative preferred stock 514 514 Common stock 86 86 Paid-in capital 35,825 35,568 Retained earnings 12,491 12,443 - ------------------------------------------------------------------------------------------------------------ Total Stockholders' Equity 48,916 48,611 - ------------------------------------------------------------------------------------------------------------ $ 200,905 $ 196,652 ============================================================================================================
See accompanying notes to condensed consolidated financial statements. 2 Southwest Water Company and Subsidiaries CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS
Three Months Ended March 31, - ------------------------------------------------------------------------------------------------------------- 2001 2000 - ------------------------------------------------------------------------------------------------------------- (in thousands) Cash Flows From Operating Activities: Net Income $ 535 $ 430 Adjustments to reconcile net income to net cash provided by operating activities 651 869 - ------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,186 1,299 - ------------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Additions to property, plant and equipment (3,432) (1,486) Acquisition of business 0 (8,500) Other investments, net 0 (336) - ------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,432) (10,322) - ------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Net borrowing on bank notes payable 1,943 5,074 Contributions in aid of construction and advances for construction 587 316 Net proceeds from dividend reinvestment plan, employee stock purchase plan, and stock option plans 198 199 Dividends paid (485) (394) Payments on advances (133) (70) - ------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 2,110 5,125 - ------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (136) (3,898) Cash and cash equivalents at beginning of period 1,379 4,146 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 1,243 $ 248 ============================================================================================================= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 906 $ 900 Income taxes $ 20 $ - Depreciation and amortization $ 1,643 $ 1,162 Non-cash contributions in aid of construction conveyed to Company by developers $ 423 $ 161
See accompanying notes to condensed consolidated financial statements. 3 SOUTHWEST WATER COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (Unaudited) 1. Southwest Water Company (Southwest Water or the Company) provides a broad range of services including water production and distribution, wastewater collection and treatment and utility submetering. The Company owns regulated public utilities and also serves utility districts and private companies under contract. Southwest Water serves more than one million people in 30 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 and billing and collection services through its 80%-owned subsidiary, Master Tek International, Inc. (MTI). Southwest Water owns and operates water and wastewater utilities through three wholly owned subsidiaries, Suburban Water Systems (Suburban), New Mexico Utilities, Inc. (NMUI) and Texas Utilities (TU). TU consists of an 80%-owned utility, Windermere Utility Company located near Austin, Texas, and 100% ownership of Hornsby Bend Utility Company, an adjacent water utility. The unaudited condensed consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary to present fairly the financial position of Southwest Water as of March 31, 2001, and the Company's results of operations for the three months ended March 31, 2001. All such adjustments are of a normal recurring nature. 2. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (USA) 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, 2000 (the 2000 Annual Report). Southwest Water is not aware of any new accounting standards that would have a material impact on the Company's financial position, results of operations or cash flow. 3. Southwest Water records earnings per share (EPS) by computing basic EPS and diluted EPS in accordance with accounting principles generally accepted in the USA. Basic EPS measures 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 measures the performance of the Company over the reporting period after giving effect to all potentially dilutive common shares that would have been outstanding if the dilutive common shares had been issued. Stock options and warrants give rise to potentially dilutive common shares. 4. Southwest Water has two reportable segments as defined under the requirements of Statement of Financial Accounting Standards (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 2000 Annual Report. 4 The following table sets forth the disclosures about the Company's reportable segments required by SFAS No. 131.
Total Total Non- Segment Consolidated Regulated Regulated Information Other Information ---------------------------------------------------------------------------- (in thousands) Three months Ended March 31, 2001 - --------------------------------- Revenues from external customers $13,826 $ 9,389 $ 23,215 $ 0 $ 23,215 Segment operating profit 698 2,255 2,953 (1,077) 1,876 As of March 31, 2001 - -------------------- Segment assets 33,252 165,496 198,748 2,157 200,905 Three months Ended March 31, 2000 - --------------------------------- Revenues from external customers $12,347 $ 8,210 $ 20,557 $ 0 $ 20,557 Segment operating profit 259 2,150 2,409 (1,035) 1,374 As of March 31, 2000 - -------------------- Segment assets 13,595 128,287 141,882 7,921 149,803
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's liquidity, capital resources and cash flows from operations are influenced primarily by construction expenditures at Suburban, NMUI and TU for the addition, replacement and renovation of water and wastewater utility facilities. The Company's capital resources are also influenced by investments in new business opportunities, including the acquisition of companies, funding of projects and acquisition of contracts. As fully described in the 2000 Annual Report, ECO financed and built a reverse-osmosis water treatment plant. In connection with this project, ECO recorded a receivable for the work done and expects to receive payment for the full amount from the El Paso County Water Authority in 2001. At March 31, 2001, Southwest Water had cash and cash-equivalent balances totaling $1,243,000 and three separate unsecured lines of credit of $26,000,000 from three commercial banks. During March 2001, the Company secured a $4,000,000 increase in its lines of credit, increasing its borrowing capacity to $30,000,000. As of March 31, 2001, the Company had no borrowing outstanding on the $4,000,000 increase. The $4,000,000 increase in the lines expires in August 2001 and the remaining lines expire in 2002. The Company expects to maintain its lines of credit in the normal course of business. At March 31, 2001, outstanding line of credit borrowing was $24,663,000. During the first three months of 2001, the Company's outstanding line of credit borrowing increased $1,943,000 primarily due to additional cash requirements for additions to utility plant. Each of the line of credit agreements, as amended, contains certain financial covenants. As of March 31, 2001, Southwest Water was in compliance with all applicable covenants of the line of credit agreements. In addition to its lines of credit, Southwest Water has existing borrowing capacity under its First Mortgage Bond Indentures of approximately $52,000,000. However, the amount of additional borrowing available to the Company under its current commercial lines of credit is limited by financial covenants that restrict additional borrowing at March 31, 2001, to an amount no greater than the remaining unused credit line amount. During the first quarter of 2001, the Company's additions to property, plant and equipment were $3,855,000, representing an increase from the same period in 2000 of $2,208,000, excluding the purchase of the City of West Covina water distribution system (West Covina system). The increase was due primarily to the addition of 5 utility plant at NMUI. Developers made contributions in aid of construction (CIAC), and advances totaling $1,010,000 during the quarter ended March 31, 2001, of which $587,000 was received in cash and $423,000 was received as non- cash contributions of property. Company-financed capital additions were $2,845,000, funded primarily by cash flow from operations and borrowing on the lines of credit. Southwest Water estimates that its total capital additions in 2001 will be approximately $10,000,000, primarily for utility plant, and that cash flows from operations and CIAC will fund these additions. 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. Southwest Water is currently reviewing various capital financing alternatives, and expects to secure new growth and acquisition funding over the next several quarters. 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 Southwest Water 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. REGULATORY AFFAIRS: The California Public Utilities Commission (CPUC), the New Mexico Public Regulatory Commission (NMPRC) and the Texas Natural Resources Conservation Commission (TNRCC) regulate the rates and operations of Suburban, NMUI and TU, respectively. The rates allowed are intended to provide the utilities an opportunity to recover costs and earn a reasonable return on common equity. As discussed in the 2000 Annual Report, Suburban has been directed by the CPUC to file a general rate application by July 1, 2001. The CPUC staff has recommended deferral of the filing to March 31, 2002. This proposed deferral is subject to CPUC approval. TU is seeking a general rate increase and expects to file for such increase during May 2001. NMUI is not currently seeking any rate increase; however, future construction expenditures and increased operating expenses may result in periodic requests for rate increases. Southwest Water closely monitors legislative, CPUC, NMPRC and TNRCC 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, NMPRC or TNRCC 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, NMPRC or TNRCC developments or changes on the Company's financial position or results of operations. ECO's pricing is not subject to regulation by a public regulatory commission. Most contracts with municipal utility districts are short-term contracts and do not generally include inflation adjustments. Changes in prices are negotiated on a contract-by-contract basis. ECO's operations and maintenance contracts are generally longer-term water and wastewater service contracts, primarily with cities, and typically include inflation adjustments. MTI's pricing is not subject to regulation by a regulatory agency. Most contracts with management companies and owners of apartment or condominium communities are short-term contracts and do not generally include inflation adjustments. Changes in prices are negotiated on a contract-by-contract basis. SEASONALITY: There is seasonality to the water utility and utility management industry; thus, the results of operations for the three months ended March 31, 2001, 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 ECO'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 6 contracts. Drought conditions would not necessarily adversely affect ECO's opportunities for additional billable work. ENVIRONMENTAL AFFAIRS: Suburban, NMUI and TU operations fall under the regulatory jurisdiction of the CPUC, the NMPRC and the TNRCC, respectively. The primary responsibility of these regulatory agencies is to ensure an adequate supply of affordable, healthful, 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 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, Southwest Water has not experienced any material adverse effects upon its financial position or operations resulting from compliance with governmental regulations. As discussed in the 2000 Annual Report, and in Part II, Item 3 of this report, the Company and Suburban have been named in several complaints alleging water contamination in the Main San Gabriel Basin in Southern California. In September 1999, the California 2nd District Court of Appeal ordered that the lawsuits be dismissed. A three-judge panel ruled that the CPUC has final regulatory authority in water quality matters. The plaintiffs petitioned the California Supreme Court for review of this decision and the petition was granted. The Company anticipates that the California Supreme Court will hear the case during 2001. 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. MTI is a utility submetering, billing and collection services company and, as such does not own or operate any water or other production or treatment facilities. RISK FACTORS: Certain statements contained in this Form 10-Q Report for the period ended March 31, 2001, (the March 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 Southwest Water 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 March Report should be read in conjunction with the Company's 2000 Annual Report for a more detailed description of the risk factors affecting Southwest Water which include, but are not limited to, revenue backlog information, expectations regarding sales growth and new contracts, potential acquisitions, weather conditions, changes in business conditions, and legal and other contingencies. 7 RESULTS OF OPERATIONS: Three Months Ended March 31, 2001 Compared to the Three Months Ended March 31, 2000 Diluted EPS was $.06 in 2001, an increase of 20% compared to $.05 in 2000 (after adjustment for a 5-for-4 stock split in the form of a stock dividend on January 1, 2001). Operating income First quarter operating income increased $502,000 or 37% and, as a percentage of operating revenues, was 8% in 2001 and 7% in 2000. Non-regulated operating income increased $439,000, due primarily to the acquisition of MTI in April 2000 and to the addition of new contracts at ECO. This increase was partially offset by higher energy costs in California, which adversely affected California operations. Operating income at the utilities increased $105,000, due primarily to the acquisition of TU in October 2000. Also, NMUI experienced an increase in both the number of customers served and water consumption per customer, resulting in a 21% increase in operating income. Suburban had an increase in its operating income because of the acquisition of the West Covina system in February 2000; however, this increase was offset by an overall decrease in water consumption due to cool, wet weather in the first quarter of 2001. Parent Company expenses increased to $42,000. Operating revenues Operating revenues for the Company increased $2,658,000 or 13% in the first quarter of 2001 compared to the same period in 2000. Non-regulated revenues increased $1,479,000 or 12%, due primarily to the acquisition of MTI in April 2000 and to the addition of new contracts at ECO. These increases helped offset the loss of revenue and income that the Company benefitted from in 2000 with the sale of a large water treatment project near El Paso, Texas. Utility revenues increased $1,179,000, or 14%, primarily due to the addition of TU customers following the acquisition in October 2000. Also, revenue at Suburban was higher due to the addition of the West Covina system in late February 2000. Direct operating expenses During the first three months of 2001, direct operating expenses increased $1,687,000 or 10%. As a percentage of operating revenues, these expenses were 77% in 2001 and 78% in 2000. Non-regulated direct operating expenses increased $632,000, due primarily to the acquisition of MTI in April 2000. This increase was offset by a reduction in expenses at ECO. The utilities' direct operating expenses increased $1,055,000. The increase was primarily due to the acquisition of TU in October 2000 and to increases in energy costs and other water volume related expenses at Suburban. Selling, general and administrative Selling, general and administrative expenses increased $469,000 in the first quarter of 2001 as compared to the same period in 2000. As a percentage of operating revenues, these expenses were 15% in both 2001 and 2000. General and administrative expenses of the Company's non-regulated business increased $408,000 due primarily to the acquisition of MTI in April 2000. General and administrative expenses at the utilities increased $19,000, and parent company expenses increased $42,000. Interest Total interest expense increased by $204,000 in the first three months of 2001 as compared to the same period in 2000. The increase in interest expense was primarily associated with increases in line of credit borrowing to finance the West Covina system acquisition in February 2000 and the MTI acquisition in April 2000. Item 3: Quantitative and Qualitative Disclosures About Market Risk The Company has certain indebtedness that is subject to variable interest rates. As a result, Southwest Water's interest expense is affected by changes in the general level of interest rates. Changes in interest rates affect the interest expense paid on the Company's line of credit borrowing, which is 8 determined based upon an agreed rate with the banks. Contractually, the highest interest rates charged on the lines of credit cannot exceed the banks' prime rates less 1/4%. At the present time, Southwest Water is utilizing the favorable low interest rates in the current market. To mitigate future market risk, the Company is considering long-term fixed rate refinancing of a portion of its indebtedness. Southwest Water may also consider interest rate swaps to effectively fix interest rates on its line of credit borrowing. The Company's long-term bonds are maintained at a fixed interest rate, and are not subject to market fluctuation of interest. PART II - OTHER INFORMATION Item 1. Legal Proceedings As discussed in the Company's 2000 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. In 2000, a hearing was held and a summary judgment motion is pending in one action. A trial for a second action is pending and expected to take place in late 2001. The other two lawsuits remain pending at this date. The Company and ECO intend to vigorously defend against these claims and have requested defense and indemnification by their insurance carrier. At this time, Southwest Water does not believe this matter will have a material adverse effect on its financial position, results of operations or cash flow. As discussed in the 2000 Annual Report, the Company and Suburban have been named as defendants in several lawsuits alleging water contamination in the Main Basin. In September 1999, the California 2/nd/ 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. Southwest Water and Suburban have requested defense and indemnification from their liability insurance carriers for these lawsuits. Several of the liability insurance carriers are currently absorbing the costs of defense of the lawsuits. In April 2000, approximately 240 plaintiffs filed two additional lawsuits similar to the actions described above. Defendants include the Company, Suburban and other water producers in the Main Basin and a number of alleged industrial polluters. Southwest Water 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. On June 21, 2000, Suburban entered into a Tolling and Standstill Agreement (tolling agreement) with Aerojet Corporation, a subsidiary of GenCorp (Aerojet). During the 1940's and 1950's, Aerojet, located in Azusa, California, was a major manufacturer of rocket-powered engines. As a result of the manufacturing process, certain contaminants may have been released into the Main Basin. Aerojet has been named as a potentially responsible party for the cleanup of the contamination. In the tolling agreement, Aerojet agreed to toll the running of any statute of limitations with respect to any rights, claims or causes of action Suburban may have or wish to assert against Aerojet as a result of Aerojet's possible release of contaminants into the Main Basin. This agreement preserves Suburban's and the Company's rights beyond the normal statute of limitations period. As discussed in the 2000 Annual Report, in 1998, the City of Albuquerque (Albuquerque) initiated an action in eminent domain to acquire the operations of NMUI. At the time of the original complaint, Southwest Water believed that the fair market value of NMUI was substantially higher than 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, Southwest Water believes that it has adequate defenses should Albuquerque choose to pursue these procedures. In 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 any settlement of the action or any other resolution will be reached. Southwest Water 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 financial position, results of operations or cash flow. 9 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits furnished pursuant to Item 601 of Regulation S-K: 10.11C Third Amendment to Credit Agreement dated March 9, 2001 between the Company and Bank of America, N.A., filed herewith. 10.13E Fifth Amendment to the Amended and Restated Credit Agreement dated March 9, 2001 between the Company and Mellon Bank, N.A., filed herewith. (b) Reports on Form 8-K None. 10 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: May 10, 2001 /s/ PETER J. MOERBEEK - ------------------- --------------------- Peter J. Moerbeek Chief Financial Officer Dated: May 10, 2001 /s/ THOMAS C. TEKULVE - ------------------- --------------------- Thomas C. Tekulve Chief Accounting Officer 11 EX-10.11C 2 dex1011c.txt THIRD AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.11C -------------- THIRD AMENDMENT TO ------------------ CREDIT AGREEMENT ---------------- THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as --------- of March 9, 2001 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, and that certain Second Amendment to Credit Agreement dated as of September 29, 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 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 "Revolving Commitment" set forth in -------------------- Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "`Revolving Commitment': The amount of -------------------- $7,000,000 as such amount may be reduced pursuant o Section 2.01 (c); provided however, that such ---------------- amount shall be increased to $9,000,000 for a period beginning on March 9, 2001 and ending on August 1, 2001." (b) In clause (iii) of Section 6.02 (f) of the Credit Agreement, the words "including $7,000,000 of unsecured debt of the to Mellon" are amended to read "including $7,000,000 of unsecured debt of the Borrower to Mellon, provided however, that such amount shall be increased to $9,000,000 for a period beginning on March 9, 2001 and ending on August 1, 2001." (c) Clause (v) of Section 6.02(f) of the Credit Agreement, is hereby amended and restated in its entirety to read as follows: "(v) unsecured funded bank debt not to exceed an aggregate of $26,000,000 at any time (including, without limitation, unsecured funded bank debt incurred pursuant to the Loan Documents and the Suburban Loan Documents and unsecured funded bank debt to Mellon as described in clause (iii) above); provided however, that such amount shall be increased ---------------- to $30,000,000 for a period beginning on March 9, 2001 and ending on August 1, 2001." 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) Amendment Fee. Receipt by Bank of the amendment fee set forth ------------- in Paragraph 3 below. (c) Note. The Second Amended and Restated Revolving Note, the form ---- of which is attached hereto as Exhibit A, fully executed by the Borrower. --------- (d) 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. (e) Representations and Warranties. The representations and ------------------------------ warranties set forth in the Credit Agreement must be true and correct. (f) 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. (g) 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. Amendment Fee. Borrower shall pay to Bank an amendment fee in the ------------- amount of $____________________ for the processing and approval of this Amendment, 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. (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 in 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 by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment. 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 approvals, 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 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. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. "Bank" "Borrower" BANK OF AMERICA, N.A. SOUTHWEST WATER COMPANY, a national association a Delaware corporation By: /s/DEBORAH L. MILLER By: /s/THOMAS C. TEKULVE -------------------- -------------------- Name: Deborah L. Miller Name: Thomas C. Tekulve Title: Senior Vice President Title: Vice President - Finance By: /s/PETER J. MOERBEEK -------------------- Name: Peter J. Moerbeek, Title: Chief Financial Officer SECOND AMENDED AND RESTATED REVOLVING NOTE $9,000,000 Costa Mesa, California __________,2001 FOR VALUE RECEIVED, the undersigned SOUTHWEST WATER COMPANY, a Delaware corporation ("Borrower") promises to pay to the order of BANK OF AMERICA, N.A. ("Bank") at its office at 675 Anton Blvd., Costa Mesa, California, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Nine Million Dollars ($9,000,000), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement (computed on the basis of a 360-day year and actual days elapsed, which results in more interest than if a 365-day year were used) either (i) at a fluctuating rate per annum equal to the Prime Rate minus one quarter (0.25) of a percentage point in effect from time to time, or (ii) at an optional rate per annum determined by Bank to be one and one-quarter (1.25%) percentage points above Bank's IBOR in effect on the first day of the applicable IBOR Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the opening of business on the day specified in the public announcement of a change in Bank's Prime Rate. With respect to each IBOR option selected hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and applicable IBOR Rate Term thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. This Note amends, restates in its entirety, and replaces that certain First Amended and Restated Revolving Note dated as of June 30, 2000 in the original amount of Seven Million Dollars ($7,000,000), made by Borrower payable to the order of Bank, pursuant to that certain Credit Agreement dated as of July 30, 1999 between Borrower and Bank, as amended. A. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each: 1. "Business Day" means any day except a Saturday, Sunday or any other day designated as a holiday under Federal or California statute or regulation, or for amounts bearing interest at an offshore rate, a Business Day is any day except a Saturday, Sunday or any other day designated as a holiday under Federal or California statute or regulation on which Bank is open for business in California and dealing in offshore dollars. 2. "IBOR Rate Portion" means a portion of the principal amount outstanding under this Note which is bearing interest at a rate related to IBOR. No IBOR Rate Portion shall be less than Two Hundred Fifty Thousand Dollars ($250,000). 3. "IBOR Rate Term" means a period commencing on a Business Day and continuing for no shorter than one (1) month and no longer than six (6) months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to Bank's IBOR; provided however, that no IBOR Rate Term shall extend beyond the scheduled maturity date hereof. The last day of the interest EXHIBIT A -1- period will be determined by Bank using the offshore dollar inter-bank market. If any IBOR Rate Term would end on a day which is not a Business Day, then such IBOR Rate Term shall be extended to the next succeeding Business Day. 4. "IBOR Rate" means the interest rate determined by the following formula, rounded upward, if necessary, to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by Bank as of the first day of the interest period.) IBOR Rate = IBOR Base Rate ----------------------------------------------------- (1.00 - Reserve Percentage) (a) "IBOR Base Rate" means the interest rate at which Bank's Grand Cayman Branch, Grand Cayman, British West Indies, would offer U.S. dollar deposits for the applicable interest period to other major banks in the offshore dollar inter-bank market. (b) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. 5. "Prime Rate" means the rate of interest publicly announced from time to time by Bank in San Francisco, California, as its Prime Rate. The Prime Rate is set by Bank based on various factors, including Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. Bank may price loans to its customers at, above or below the Prime Rate. B. INTEREST: 1. Payment of Interest. Interest accrued on this Note shall be ------------------- payable on the first day of each month, commencing ______________, 2001. 2. Selection of Interest Rate Options. At any time any portion of ---------------------------------- this Note bears interest determined in relation to Bank's IBOR, it may be continued by Borrower at the end of the IBOR Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or in relation to Bank's IBOR for a new IBOR Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to Bank's IBOR for a IBOR Rate Term designated by Borrower. At the time each advance is requested hereunder or Borrower wishes to select the IBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each IBOR Rate Term, Borrower shall give Bank notice specifying (a) the interest rate option selected by Borrower, (b) the principal amount subject thereto, and (c) if the IBOR option is selected, the length of the applicable IBOR Rate Term. Any such notice may be given by telephone so long as, with respect to each IBOR selection, such notice is given to Bank prior to 10:00 a.m., California time, on the first day of the IBOR Rate Term. For each IBOR option requested hereunder, Bank will quote the applicable IBOR Rate to Borrower at approximately 10:00 a.m., EXHIBIT A -2- California time, on the first day of the IBOR Rate Term. If Borrower does not immediately accept the rate quoted by Bank, any subsequent acceptance by Borrower shall be subject to a re-determination by Bank of the applicable IBOR Rate; provided however, that if Borrower fails to accept any such rate by 11:00 a.m., California time, on the Business Day such quotation is given, then the quoted rate shall expire and Bank shall have no obligation to permit a IBOR option to be selected on such day. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any IBOR Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such IBOR Rate Term applied. 3. Additional IBOR Provisions. -------------------------- (a) If Bank at any time shall determine that for any reason adequate and reasonable means do not exist for ascertaining Bank's IBOR, then Bank shall promptly give notice thereof to Borrower. If such notice is given and until such notice has been withdrawn by Bank, than (i) no new IBOR option may be selected by Borrower, and (ii) any portion of the outstanding principal balance hereof which bears interest determined in relation to Bank's IBOR, subsequent to the end of the IBOR Rate Term applicable thereto, shall bear interest determined in relation to the Prime Rate. (b) If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for Bank (i) to make IBOR options available hereunder, or (ii) to maintain interest rates based on Bank's IBOR, then in the former event, any obligation of Bank to make available such unlawful IBOR options shall immediately be cancelled, and in the latter event, any such unlawful IBOR-based interest rates then outstanding shall be converted, at Bank's option, so that interest on the portion of the outstanding principal balance subject thereto is determined in relation to the Prime Rate; provided however, that if any such Change in Law shall permit any IBOR-based interest rates to remain in effect until the expiration of the IBOR Rate Term applicable thereto, then such permitted IBOR-based interest rates shall continue in effect until the expiration of such IBOR Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any fines, fees, charges, penalties or other costs incurred or payable by Bank as a result thereof and which are attributable to any IBOR options made available to Borrower hereunder, and any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (c) If any Change in Law or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (i) subject Bank to any tax, duty or other charge with respect to any IBOR options, or change the basis of taxation of payments to Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or (ii) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of advances or loans by, or any other acquisition of funds by any office of Bank; or EXHIBIT A -3- (iii) impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any IBOR options hereunder and/or to reduce any amount receivable by Bank in connection therewith, then in any such case, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any additional costs incurred by Bank and/or reductions in amounts received by Bank which are attributable to such IBOR options. In determining which costs incurred by Bank and/or reductions in amounts received by Bank are attributable to any IBOR options made available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. 4. Default Interest. During the continuance of an Event of ---------------- Default, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year and actual days elapsed, which results in more interest than if a 365-day year were used) equal to two percent (2%) above the rate of interest from time to time applicable to this Note. C. BORROWING AND REPAYMENT: 1. Borrowing and Repayment. Borrower may from time to time during ------------------------ the term of this Note borrow, partially or wholly repay its outstanding borrowings, and re-borrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on the "Maturity Date" (as defined in the Credit Agreement). 2. Advances. Advances hereunder, to the total amount of the -------- principal sum stated above, may be made by the holder at the oral or written request of (a) ______________________, ___________________, _____________________________, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (b) any person, with respect to advances deposited to the credit of any account of Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by Borrower. 3. Application of Payments. Each payment made on this Note shall ----------------------- be credited first, to any interest then due and second, to the outstanding principal balance hereof. Unless instructed otherwise by Borrower, all payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to Bank's IBOR, with such payments applied to the oldest IBOR Rate Term first. EXHIBIT A -4- 4. Prepayment. ---------- (a) Prime Rate. Borrower may prepay principal on any portion of ---------- this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty. (b) IBOR. Each prepayment of an IBOR Rate Portion, whether ---- voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee as described below. A "prepayment" is a payment of an amount on a date earlier than the scheduled payment date for such amount as required by this Agreement. The prepayment fee shall be equal to the amount (if any) by which: (i) the additional interest which would have been payable during the interest period on the amount prepaid had it not been prepaid, exceeds (ii) the interest which would have been recoverable by Bank by placing the amount prepaid on deposit in the domestic certificate of deposit market, the eurodollar deposit market, or other appropriate money market selected by Bank for a period starting on the date on which it was prepaid and ending on the last day of the interest period for such Portion (or the scheduled payment date for the amount prepaid, if earlier). Bank will have no obligation to accept an election of an IBOR Rate Portion if any of the following described events has occurred and is continuing: (i) Dollar deposits in the principal amount, and for periods equal to the IBOR Rate Term, of an IBOR Rate Portion are not available in the offshore dollar inter-bank market; or (ii) the IBOR Rate does not accurately reflect the cost of an IBOR Rate Portion. Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum two percent (2%) above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). D. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of July 30, 1999, as amended from time to time, including, without limitation, those terms relating to arbitration of Disputes (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. EXHIBIT A -5- E. MISCELLANEOUS: 1. Remedies. Upon the occurrence of any Event of Default, the holder -------- of this Note, at the holder's option, without notice upon the occurrence of an Event of Default pursuant to Section 7.01(g) of the Credit Agreement, and with notice upon the occurrence of any other Event of Default, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are expressly waived by Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, and including any of the foregoing incurred in connection with any bankruptcy proceeding relating to Borrower. 2. Obligations Joint and Several. Should more than one person or ----------------------------- entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. 3. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws of the State of California, except to the extent Bank has greater rights or remedies under Federal law, whether as a national bank or otherwise, in which case such choice of California law shall not be deemed to deprive Bank of any such rights and remedies as may be available under Federal law. 4. Defined Terms. All capitalized terms not herein defined shall ------------- have the meanings given to them in the Credit Agreement. "Borrower" SOUTHWEST WATER COMPANY, a Delaware corporation By:___________________________________ Title: _______________________________ By:___________________________________ Title: _______________________________ EXHIBIT A -6- EX-10.13E 3 dex1013e.txt FIFTH AMENDMENT TO AMENDED & RESTATED CREDIT AGMNT EXHIBIT 10.13E -------------- FIFTH AMENDMENT TO ------------------ CREDIT AGREEMENT ---------------- THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Amendment"), dated as of March 9, 2001 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, 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, and that certain Fourth Amendment to Amended and Restated Credit Agreement dated as of September 29, 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 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 "Revolving Commitment" set forth in Section -------------------- 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "`Revolving Commitment': The amount of -------------------- $7,000,000 as such amount may be reduced pursuant to Section 2.01(C); provided however, that such amount ---------------- shall be increased to $9,000,000 for a period beginning on March 9, 2001 and ending on August 1, 2001." (b) Clause (v) of Section 6.02(f) of the Credit Agreement is hereby amended and restated in their entirety to read as follows: "(v) unsecured funded bank debt not to exceed an aggregate of $26,000,000 at any time (including, without limitation, unsecured funded bank debt incurred pursuant to the Loan Documents and the Suburban Loan Documents and unsecured funded bank debt to Bank of America as described in clause (iii) above); provided however, that such amount shall be ---------------- increased to $30,000,000 for a period beginning on March 9, 2001 and ending on August 1, 2001." 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) Amendment Fee. Receipt by Bank of the amendment fee ------------- set forth in Paragraph 3 below. (c) Acceptance Letter. An acceptance letter from the El ----------------- Paso County Water Authority, in form and content acceptable to Bank. (d) Note. The Fourth Amended and Restated Promissory ---- Note, the form of which is attached hereto as Exhibit A, fully executed by the Borrower. (d) 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. (e) Representations and Warranties. The representations ------------------------------ and warranties set forth in the Credit Agreement must be true and correct. (f) 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. (g) 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. Amendment Fee. Borrower shall pay to Bank a renewal fee ------------- in the amount of $____________________ for the processing and approval of this Amendment, 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. (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 in 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 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 approvals, 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 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. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. "Bank" "Borrower" MELLON BANK, N.A. SOUTHWEST WATER COMPANY, a national association a Delaware corporation By: /s/ GARRY HANDLEMAN By: /s/ THOMAS C. TEKULVE ------------------- --------------------- Name: Garry Handelman Name: Thomas C. Tekulve Title: Vice President Title: Vice President - Finance By /s/ PETER J. MOERBEEK ----------------------- Name: Peter J. Moerbeek, Title: Chief Financial Officer EXHIBIT "A" ----------- SOUTHWEST WATER COMPANY THIRD AMENDED AND RESTATED PROMISSORY NOTE $9,000,000.00 March 9, 2001 West Covina, California FOR VALUE RECEIVED, SOUTHWEST WATER COMPANY, a Delaware corporation (the "Borrower"), promises to pay to the order of MELLON BANK, N.A. (the "Bank") -------- ---- on the Maturity Date (as defined in the Credit Agreement referred to below) the principal amount of Nine Million Dollars ($9,000,000.00), or, if less, the aggregate amount of Revolving Loans (as defined in the Credit Agreement referred to below) made by the Bank to the Borrower pursuant to the Credit Agreement referred to below outstanding on the Maturity Date. The Borrower also promises to pay interest on the unpaid principal amount hereof from the date hereof until paid at the rates and at the times which shall be determined in accordance with the provisions of the Credit Agreement. All unpaid amounts of principal and interest shall be due and payable in full on the Maturity Date. All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the office of the Bank located at Three Mellon Bank Center, 23rd Floor/Loan Administration, Pittsburgh, Pennsylvania 15259 or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement. Until notified of the transfer of this Note, the Borrower shall be entitled to deem the Bank or such person who has been so identified by the transferor in writing to the Borrower as the holder of this Note, as the owner and holder of this Note. Each of the Bank and any subsequent holder of this Note agrees that before disposing of this Note or any part hereof, it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid on the schedule attached hereto, if any; provided, however, that the failure to make notation of any -------- ------- payment made on this Note shall not limit or otherwise affect the obligation of the Borrower hereunder with respect to payments of principal or interest on this Note. This Note is referred to in, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of December 23, 1997, as amended from time to time (the "Credit Agreement") between the Borrower and the Bank. ---------------- The Credit Agreement, among other things, (i) provides for the making of advances (the "Loans") by the Bank to the Borrower from time to time in an ----- aggregate amount not to exceed at any time outstanding the U.S. dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such Loan being evidenced by this Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement. No reference herein to the Credit Agreement and no provision of this Note or the Credit Agreement shall alter or impair the obligation of the Borrower, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed. The Borrower promises to pay all costs and expenses, including reasonable attorneys' fees, incurred in the collection and enforcement of this Note. The Borrower hereby consents to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waives diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. This Note amends and restates in its entirety that certain Amended and Restated Promissory Note dated as of July 19, 2000 in the amount of Seven Million Dollars ($7,000,000) made by Borrower payable to the order of Bank pursuant to the Credit Agreement. IN WITNESS WHEREOF, the Borrower has caused this Notice to be executed and delivered by its duly authorized officers, as of the date and the place first above-written. SOUTHWEST WATER COMPANY By: --------------------- Name: Thomas C. Tekulve Title: Vice President - Finance By: --------------------- Name: Peter J. Moerbeek Title: Vice President and Chief Financial Officer TRANSACTIONS ON NOTE
Amount of Amount of Interest Paid Principal Notation Loan Made Principal Paid Interest Paid Through Balance Made By - --------- -------------- ------------- ------- ------- -------
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