-----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, BfjGSCCDrRJ+8YNTF6ATsBy03pfU5uFMOlZVJuTWmga31s0ARkLHBUhHgpPEyCPh x9VKXx2sYCv0Ba54M1kvVg== 0000898430-01-501605.txt : 20010807 0000898430-01-501605.hdr.sgml : 20010807 ACCESSION NUMBER: 0000898430-01-501605 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010806 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: 1934 Act SEC FILE NUMBER: 000-08176 FILM NUMBER: 1698658 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 June 30, 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 August 1, 2001, there were 8,626,166 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 Six Months Ended June 30, 2001 and 2000 1 Condensed Consolidated Balance Sheets - June 30, 2001 and December 31, 2000 2 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 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 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 Part II. Other Information: - ------- ----------------- Item 1. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Southwest Water Company and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended Six Months Ended June 30, June 30, - ---------------------------------------------------------------------------------------- ------------------------------------ 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------- ------------------------------------ (in thousands except per share data) (in thousands except per share data) Operating Revenues $27,838 $26,619 $51,053 $47,176 Operating Expenses: Direct operating expenses 20,787 19,621 38,547 35,631 Selling, general and administrative expenses 4,109 3,472 7,688 6,645 - ---------------------------------------------------------------------------------------- ----------------------------------- 24,896 23,093 46,235 42,276 Operating Income 2,942 3,526 4,818 4,900 Other Income (Expense): Interest expense (795) (973) (1,787) (1,761) Interest income 13 21 32 103 Other income (expense) 563 (69) 523 (20) - ---------------------------------------------------------------------------------------- ----------------------------------- (219) (1,021) (1,232) (1,678) Income Before Income Taxes 2,723 2,505 3,586 3,222 Provision for income taxes 1,035 1,002 1,362 1,289 - ---------------------------------------------------------------------------------------- ----------------------------------- Net income 1,688 1,503 2,224 1,933 Dividends on preferred shares 7 7 14 14 - ---------------------------------------------------------------------------------------- ----------------------------------- Net Income Available for Common Shares $ 1,681 $ 1,496 $ 2,210 $ 1,919 ======================================================================================== ================================== Earnings per Common Share (Note 3): Basic $ 0.20 $ 0.18 $ 0.26 $ 0.24 Diluted $ 0.19 $ 0.18 $ 0.25 $ 0.23 ======================================================================================== ================================== Cash Dividends per Common Share (Note 3) $ 0.06 $ 0.06 $ 0.12 $ 0.12 ======================================================================================== ================================== Weighted Average Outstanding Common Shares (Note 3): Basic 8,610 8,101 8,574 8,092 Diluted 9,022 8,428 8,986 8,434 ======================================================================================== ==================================
See accompanying notes to condensed consolidated financial statements. 1 Southwest Water Company and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31, - -------------------------------------------------------------------------------------------------------------------- ASSETS 2001 2000 - -------------------------------------------------------------------------------------------------------------------- (unaudited) (in thousands) Current Assets: Cash and cash equivalents $ 572 $ 1,379 Customers' accounts receivable, net 22,418 17,830 Other current assets 9,828 7,597 - -------------------------------------------------------------------------------------------------------------------- 32,818 26,806 Property, Plant and Equipment: Utility property, plant and equipment - at cost 212,720 206,100 Contract operations property, plant and equipment - at cost 10,433 8,394 - -------------------------------------------------------------------------------------------------------------------- 223,153 214,494 Less accumulated depreciation and amortization 59,234 56,651 - -------------------------------------------------------------------------------------------------------------------- 163,919 157,843 Other Assets 11,315 12,003 - -------------------------------------------------------------------------------------------------------------------- $208,052 $196,652 ==================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------------------------------------------- Current Liabilities: Current portion of long-term debt and bank notes payable $ 4,477 $ 5,166 Accounts payable 6,065 5,983 Other current liabilities 16,510 14,438 - -------------------------------------------------------------------------------------------------------------------- 27,052 25,587 Other Liabilities and Deferred Credits: Long-term debt 27,100 27,100 Bank notes payable 24,200 19,251 Advances for construction 7,707 7,891 Contributions in aid of construction 52,628 50,644 Deferred income taxes 8,652 6,988 Other liabilities and deferred credits 10,373 10,580 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Deferred Credits 157,712 148,041 Stockholders' Equity: Cumulative preferred stock 514 514 Common stock 86 86 Paid-in capital 36,050 35,568 Retained earnings 13,690 12,443 - -------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 50,340 48,611 - -------------------------------------------------------------------------------------------------------------------- $208,052 $196,652 ====================================================================================================================
See accompanying notes to condensed consolidated financial statements. 2 Southwest Water Company and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended June 30, - --------------------------------------------------------------------------------------------------------------------- 2001 2000 - --------------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income $ 2,223 $ 1,933 Adjustments to reconcile net income to net cash provided by (used in) operating activities (645) (1,008) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,578 925 - --------------------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Additions to property, plant and equipment (8,539) (11,891) Other investments, net - (2,524) - --------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (8,539) (14,415) - --------------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Net proceeds on bank notes payable 4,913 9,931 Contributions in aid of construction and advances for construction 1,914 803 Net proceeds from dividend reinvestment plan, employee stock purchase plan and stock option plans 481 355 Advances for construction 14 141 Dividends paid (970) (789) Payments on advances (198) (143) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 6,154 10,298 - --------------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (807) (3,192) Cash and cash equivalents at beginning of period 1,379 4,146 - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 572 $ 954 ===================================================================================================================== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 1,690 $ 1,764 Income taxes $ 40 $ 27 Depreciation and amortization $ 2,981 $ 2,382 Non-cash contributions in aid of construction conveyed to the Company by developers $ 775 $ 1,108
See accompanying notes to condensed consolidated financial statements. 3 SOUTHWEST WATER COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (Unaudited) 1. Southwest Water Company (Southwest Water, the Company, or "we", "us" or "our") was incorporated in California in 1954 and reincorporated in Delaware in 1988. Southwest Water is a publicly traded holding company. All business operations are conducted through our subsidiaries which provide a broad range of services including water production and distribution, wastewater collection and treatment and utility submetering. We own rate regulated public water utilities. State regulatory agencies oversee the operations of our utilities as well as establish the rates that we can charge for our services. We also operate and manage water and wastewater treatment facilities which are owned by cities, public agencies, municipal utility districts and private companies under contract. These facilities are also subject to regulatory oversight; however, the pricing of our services is not subject to regulation. We serve more than one million people in 29 states nationwide. Through our wholly owned subsidiary, ECO Resources, Inc. (ECO), we operate and manage water and wastewater treatment facilities owned by cities, public agencies, municipal utility districts and private entities. Nationwide, we provide utility submetering and billing and collection services through our 80%-owned subsidiary, Master Tek International, Inc. (MTI). We own and operate water and wastewater utilities through four subsidiaries. Suburban Water Systems (Suburban), New Mexico Utilities, Inc. (NMUI) and Hornsby Bend Utility Company (Hornsby) are wholly owned and we also own 80% of Windermere Utility Company (Windermere). The unaudited condensed consolidated financial statements reflect all adjustments which, in our opinion, are necessary to present fairly the financial position of Southwest Water as of June 30, 2001, and our results of operations for the six months ended June 30, 2001. These adjustments are of a normal recurring nature. Certain reclassifications have been made to the 2000 financial statements to conform to the 2001 presentation. 2. Certain information and footnote disclosures normally included in our financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Our condensed consolidated financial statements should be read in conjunction with the financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2000 (the 2000 Annual Report). Except as otherwise disclosed in Note 6, we are not aware of any new accounting standards that would have a material impact on our financial position, results of operations or cash flows. 3. We record earnings per share (EPS) by computing basic EPS and diluted EPS in accordance with accounting principles generally accepted in the United States of America. Basic EPS measures our Company's performance 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 our Company's performance 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, convertible debentures and warrants give rise to potentially dilutive common shares. 4. On July 20, 2001, we issued $20,000,000 of 6.85% fixed rate convertible subordinate debentures due July 1, 2021, and we received proceeds from the sale of $19,200,000 after the underwriting discounts and commissions. We expect the final net proceeds from the sale of these debentures to be approximately $18,950,000 after deducting the remaining estimated expenses of the offering. We used the net proceeds from the sale of these debentures to reduce borrowings on our revolving lines of credit and for working capital. 4 5. In July 2001, we entered into letters of intent to acquire two separate contract operations businesses that we believe will expand our market share in the southern United States. If consummated, the consideration for these acquisitions will consist of a combination of cash, Southwest Water common stock and promissory notes to the sellers. We cannot assure you that these transactions will be successfully completed. 6. Effective January 2002, we are subject to Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. Under the provisions of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Instead, goodwill is assessed for impairment on an annual basis (or more frequently if circumstances indicate a possible impairment) by means of a fair-value-based test. SFAS No. 142 requires that existing goodwill as of June 30, 2001 continue to be amortized through the end of the current calendar year, after which no further amortization of goodwill will be permitted. Goodwill incurred subsequent to June 30, 2001 will not be amortized over a fixed period, but rather, periodically assessed for impairment. Presently, we believe there is no impairment of our existing goodwill, and that the implementation of SFAS No. 142 will not have a material adverse effect on our future results of operations. As of June 30, 2001, we had approximately $3,100,000 of unamortized goodwill. 7. We have two reportable segments as defined under the requirements of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. We have not changed the basis of segmentation or the basis of measurement of segment profit or loss from the information reported in our 2000 Annual Report. The following table sets forth disclosure about our reportable segments as required by SFAS No. 131.
Total Total Non- Segment Consolidated Regulated Regulated Information Other Information --------- --------- -------------- -------- ------------ (in thousands) Six Months Ended June 30, 2001 - ------------------------------ Revenues from external customers $29,207 $ 21,846 $ 51,053 $ 0 $ 51,053 Segment operating profit 868 6,039 6,907 (2,089) 4,818 As of June 30, 2001 - ------------------- Segment assets $35,159 $170,298 $205,457 $ 2,595 $208,052 Six Months Ended June 30, 2000 - ------------------------------ Revenues from external customers $27,501 $ 19,675 $ 47,176 $ 0 $ 47,146 Segment operating profit 1,346 5,635 6,981 (2,081) 4,900 As of June 30, 2000 - ------------------- Segment assets $25,435 $131,048 $156,483 $ 9,569 $166,052
5 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Our liquidity, capital resources and cash flows from operations are influenced primarily by construction expenditures at Suburban, NMUI, Windermere and Hornsby for the addition, replacement and renovation of water and wastewater utility facilities. Our 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 our 2000 Annual Report, ECO financed and built a reverse-osmosis water treatment plant. In connection with this project, ECO recorded a receivable in the amount of approximately $6,000,000 for the work done and expects to receive payment for the full amount in the fourth quarter of 2001. As of June 30, 2001, we had cash and cash-equivalent balances totaling $572,000 and aggregate lines of credit totaling $30,000,000 consisting of three separate unsecured lines of credit from three commercial banks which expire in 2002. As of June 30, 2001, we had $27,633,000 outstanding on these lines of credit. On July 20, 2001, we received the net proceeds from our 20-year fixed rate convertible subordinate debenture offering. A portion of the proceeds was used to reduce the outstanding balances on our bank lines of credit to approximately $8,700,000 as of August 1, 2001. As part of the debenture offering, our aggregate borrowing capacity on our bank lines of credit was reduced to $24,000,000, leaving approximately $15,300,000 borrowing capacity available after the debenture offering. We expect to maintain our lines of credit in the normal course of business. During the first six months of 2001, our outstanding line of credit borrowing increased $4,913,000, primarily due to additional cash requirements for additions to utility plant. Each of the line of credit agreements contains certain financial covenants. As of June 30, 2001, we were in compliance with all applicable covenants of the line of credit agreements and remained in compliance subsequent to the issuance of the convertible subordinate debentures. In addition to our lines of credit, we have existing borrowing capacity under our First Mortgage Bond Indentures of approximately $52,000,000 as of June 30, 2001. However, our additional borrowing available under our current commercial lines of credit is limited by financial covenants that restrict additional borrowing at June 30, 2001 to an amount no greater than to the remaining unused credit line amount. During the first six months of 2001, our additions to property, plant and equipment were $9,314,000, representing an increase from the same period in 2000 of $5,671,000, excluding the purchase of the City of West Covina water distribution system (West Covina system). The increase was due primarily to the addition of utility plant at Suburban, NMUI, Windermere and Hornsby, including a new well at NMUI and a wastewater treatment plant at Windermere among other projects. Developers made contributions in aid of construction (CIAC) and advances totaling $2,703,000 during the six months ended June 30, 2001, of which $1,928,000 was received in cash and $775,000 was received as non-cash contributions of property. Company-financed capital additions were $6,611,000, funded primarily by cash flow from operations and borrowing on the lines of credit. We estimate that our total capital additions in 2001 will be approximately $13,000,000, primarily for utility plant, and that our cash flow from operations, borrowings on our lines of credit and CIAC will fund these additions. As discussed in our 2000 Annual Report, we assumed a note payable of approximately $800,000 in connection with our acquisition of Windermere in October 2000. During May 2001, we paid off the note. As discussed in Note 5, we have entered into letters of intent to acquire two separate contract operations businesses. If we successfully complete these transactions, part of the consideration will consist of approximately $4,000,000 in cash which we will borrow under our existing lines of credit. We anticipate that our available line of credit borrowing capacity and cash flows generated from operations will be sufficient to fund our activities during the next 12 months. If we are unable to renew our existing lines of credit, our capital spending or acquisitions will be reduced or delayed until new financing arrangements are secured. Such financing arrangements could include seeking debt or 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 RECENT ACCOUNTING PRONOUNCEMENTS: In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 141 specifies that intangible assets acquired in a purchase method business combination must be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. For intangible assets with definite useful lives, SFAS No. 142 requires amortization over their estimated useful lives to their estimated residual values, and requires review for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 141 becomes effective for business combinations initiated after June 30, 2001. SFAS No. 142 becomes effective for periods beginning after December 31, 2001. 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 Windermere and Hornsby, 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 our 2000 Annual Report, Suburban has been directed by the CPUC to file a general rate application by March 2002. Windermere filed for a general rate increase in May 2001 and new rates under the pending filing became effective June 4, 2001 subject to final regulatory approval. A date for the hearing has not yet been set by the TNRCC. NMUI and Hornsby are 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 we actively participate also monitor these developments. We do not know the future possible legislative, CPUC, NMPRC or TNRCC changes that will be enacted or the terms of such changes if enacted. Therefore, we cannot predict the impact, if any, of future legislative changes, CPUC, NMPRC or TNRCC developments or changes on our financial position or results of operations. ECO's pricing is not subject to regulation by any public regulatory commissions. 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 any regulatory agencies. 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 six months ended June 30, 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 could have the effect of lowering revenue due to anticipated conservation efforts. Our 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. Conversely, moderate rainfall may create additional opportunities for billable work outside the scope of existing contracts. Drought conditions would not necessarily adversely affect ECO's opportunities for additional billable work. 7 ENVIRONMENTAL AFFAIRS: Operations of Suburban, NMUI and Windermere and Hornsby 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. Our operations are also subject to water and wastewater pollution prevention standards and water and wastewater quality regulations of the Environmental Protection Agency 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 water supplies have increased and are expected to increase further as the regulatory agencies adopt additional monitoring requirements. We believe that future incremental costs of complying with government regulations, including any capital expenditures, will be recoverable through increased rates and contract operations revenues. However, we cannot assure you that recovery of such costs will be allowed. To date, we have not experienced any material adverse effects upon our financial position or operations resulting from compliance with government regulations. As discussed in our 2000 Annual Report, and in Part II, Item 1, Southwest Water and Suburban have been named in several lawsuits alleging water contamination in the Main San Gabriel Basin in Southern California. In September 1999, the California 2nd District Court of Appeal ordered that certain of 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 California Supreme Court has not yet set a date for a hearing. 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 does not own or operate any water or other production or treatment facilities. RISK FACTORS: Certain statements contained in this Quarterly Report (the June 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 differ materially from any performance or achievements planned, expressed or implied by such forward-looking statements. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, we cannot assure you that actual results will not differ materially from our expectations. The June Report should be read in conjunction with our 2000 Annual Report and with our Form S-3 Registration Statement filed with the SEC on July 16, 2001 for a more detailed description of the risk factors affecting Southwest Water. These 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. RESULTS OF OPERATIONS: Three Months Ended June 30, 2001 Compared To Three Months Ended June 30, 2000 Diluted EPS was $.19 for the quarter ended June 30, 2001, an increase of 6% compared to diluted EPS of $.18 during the same period in 2000 (after adjustment for a 5-for-4 stock split in the form of a stock dividend on January 1, 2001). 8 Operating income Second quarter 2001 operating income decreased $584,000, or 17%, and, as a percentage of operating revenues, was 11% in 2001 and 13% in 2000. Non-regulated operating income decreased $917,000. During 2000, ECO had the benefit of a one- time construction project of a large water treatment plant in El Paso, Texas, and recognized the related revenue and operating income. There was no comparable project in 2001. In addition, general and administrative expenses at ECO increased in 2001 compared to the same period in 2000 as described below. Operating income at the utilities increased $299,000, due primarily to the acquisition of Windermere and Hornsby in October 2000. Parent company expenses decreased $34,000. Operating revenues Our operating revenues increased $1,219,000 in the second quarter of 2001 compared with the same period in 2000. Non-regulated revenues increased $227,000, or 1%, due primarily to a new installation contract at MTI that began in late 2000 and resulted in additional operating revenues. This increase was partially offset by a decrease in ECO's revenues due to the benefit in 2000 of a construction project as described above. The project contributed approximately $2,100,000 of revenue in the second quarter of 2000. Utility revenues increased $992,000 or 9%, primarily as a result of the addition of Windermere and Hornsby customers following the acquisition in October 2000. Direct operating expenses During the three months ended June 30, 2001, direct operating expenses increased $1,229,000, or 6%. As a percentage of operating revenues, these expenses were 75% in 2001 and 74% in 2000. Non-regulated direct operating expenses increased $663,000, due primarily to operating expenses associated with a new installation contract at MTI that began in late 2000. This increase was partially offset by a reduction in expenses at ECO due to the 2000 construction project described above. The utilities' direct operating expenses increased $566,000, primarily as a result of the acquisition of Windermere and Hornsby in October 2000. Selling, general and administrative expenses Selling, general and administrative expenses for the second quarter of 2001 increased by $574,000, or 18% compared with the same period in 2000. As a percentage of operating revenues, these expenses were 15% in 2001 and 13% in 2000. General and administrative expenses of our non-regulated businesses increased $481,000 due primarily to increased sales expenses from an expanded marketing effort at ECO, additional lease expenses with respect to telecommunications equipment and payroll related expenses including workers' compensation insurance, medical insurance and wages. General and administrative expenses at the utilities increased $127,000, primarily as a result of the acquisition of Windermere and Hornsby in October 2000. General and administrative expenses of the parent company decreased $34,000. Interest and other expenses Total interest and other expenses decreased by $802,000 for the quarter ended June 30, 2001. Interest expense decreased due to generally lower interest rates on short-term borrowings, and to interest capitalized at Windermere on utility construction projects, resulting in a net interest reduction of $170,000. Other income increased $632,000 primarily due to the recognition of deferred lease income associated with a construction project at ECO as described above. Six Months Ended June 30, 2001 Compared To Six Months Ended June 30, 2000 Diluted EPS was $.25 for the first six months of 2001, an increase of 9% compared to diluted EPS of $.23 during the same period in 2000 (after adjustment for a 5-for-4 stock split in the form of a stock dividend on January 1, 2001). 9 Operating income Operating income for the six months ended June 30, 2001 decreased $82,000 or 2%, compared to the same period in 2000 and, as a percentage of operating revenues, was 9% in 2001 and 10% in 2000. Non-regulated operating income decreased $478,000. During 2000, ECO had the benefit of a one-time construction project of a large water treatment plant in El Paso, Texas, and recognized the related revenue and operating income. There was no comparable project in 2001. In addition, general and administrative expenses at ECO increased in 2001 compared to the same period in 2000 as described below. The decrease in operating income was partially offset due to the acquisition of MTI in April 2000. Operating income at the utilities increased $404,000, due primarily to the acquisition of Windermere and Hornsby in October 2000. Parent company expenses increased $8,000. Operating revenues Our operating revenues for the six months ended June 30, 2001 increased $3,877,000 compared with the same period in 2000. Non-regulated revenues increased $1,706,000, or 6%, due primarily to the acquisition of MTI in April 2000 and to the commencement of a new installation contract at MTI in late 2000. This increase was partially offset by a decrease in ECO's revenues due to the benefit in 2000 of a construction project as described above. The project contributed approximately $3,400,000 of revenue during the first six months of 2000. Utility revenues increased $2,171,000, or 11%, primarily as a result of the addition of Windermere and Hornsby customers following the acquisition in October 2000. Direct operating expenses During the six months ended June 30, 2001, direct operating expenses increased $2,916,000, or 8%. As a percentage of operating revenues, these expenses were 76% in both 2001 and 2000. Non-regulated direct operating expenses increased $1,295,000, due primarily to the acquisition of MTI in April 2000 and to the commencement of a new installation contract at MTI in late 2000. This increase was partially offset by a reduction in expenses at ECO due to the 2000 construction project described above. The utilities' direct operating expenses increased $1,621,000, primarily as a result of the acquisition of Windermere and Hornsby in October 2000 and to increases in energy costs and other water volume related expenses at Suburban. Selling, general and administrative expenses Selling, general and administrative expenses for the first six months of 2001 increased by $1,106,000, or 17%, compared with the same period in 2000. As a percentage of operating revenues, these expenses were 15% in 2001 and 14% in 2000. General and administrative expenses of our non-regulated businesses increased $952,000 due primarily to the acquisition of MTI in April 2000. General and administrative expenses also increased at ECO due to increased sales expenses from an expanded marketing effort, additional lease expenses with respect to telecommunications equipment and payroll related expenses including workers' compensation insurance, medical insurance and wages. General and administrative expenses at the utilities increased $146,000, primarily as a result of the acquisition of Windermere and Hornsby in October 2000. General and administrative expenses of the parent company increased $8,000. Interest and other expenses Total interest and other expenses decreased by $446,000 for the six months ended June 30, 2001. Interest expense increased $26,000, reflecting increases in borrowing partially offset by generally lower interest rates on short-term borrowings, and interest capitalized at Windermere on utility construction projects. Interest income at Suburban decreased due to interest income recognized in 2000 on cash held by an accommodator in connection with the sale of property formerly used in utility operations. The cash was later used to purchase the City of West Covina water distribution system. Other income increased $543,000 primarily due to the recognition of deferred lease income associated with a construction project at ECO as described above. 10 Item 3: Quantitative and Qualitative Disclosures About Market Risk We have 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 line of credit borrowings, which is 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 rate plus one-quarter percent. At the present time, Southwest Water is utilizing the favorable low interest rates in the current market. In part to mitigate future market interest rate risk, we completed a $20,000,000, 20-year convertible debenture offering in July 2001 which bears a fixed interest rate of 6.85% per annum. A portion of the proceeds was used to pay down our variable rate indebtedness. In the future, Southwest Water may also consider interest rate swaps to effectively fix interest rates on our line of credit borrowings. Our long-term bonds were sold with a fixed interest rate, and are not subject to market fluctuation of interest rates. PART II - OTHER INFORMATION Item 1. Legal Proceedings As discussed in our 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. Southwest Water and ECO intend to vigorously defend against these claims, and we have requested defense and indemnification by our insurance carrier. At this time, we do not believe this matter will have a material adverse effect on our financial position, results of operations or cash flow. As discussed in our 2000 Annual Report, Southwest Water and Suburban have been named as defendants in several lawsuits alleging water contamination in the Main Basin. In September 1999, the California 2nd District Court of Appeal ordered that certain of the lawsuits be dismissed. The California Supreme Court has agreed to review this decision. We anticipate that the California Supreme Court will hear oral arguments during 2001; however, no date has yet been set. Southwest Water and Suburban have requested defense and indemnification from our 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 Southwest Water, Suburban and other water producers in the Main Basin and a number of alleged industrial polluters. We expect to defend the new actions on the same basis as the earlier actions. Based upon information available at this time, we do not expect that these actions will have a material adverse effect on our financial position or results of operations. 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, we believe 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. We are 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. We believe the ultimate resolution of such matters will not materially affect our financial position, results of operations or cash flows. 11 Item 4: Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders held on May 22, 2001, H. Frederick Christie and Anton C. Garnier, members of the Board of Directors, were reelected to the Board; and Peter J. Moerbeek was elected to the Board, by the following votes: Mr. Christie; votes for - 7,241,074; and votes abstaining - 82,270. Mr. Garnier; votes for - 7,114,572; and votes abstaining - 208,772. Mr. Moerbeek; votes for - 7,247,104; and votes abstaining - 76,240. No votes were cast against the election of any of these three individuals. The terms of office of directors Monroe Harris, Donovan D. Huennekens, Maureen Kindel and Richard G. Newman continued subsequent to the meeting. The selection of KPMG LLP as our independent auditors for the year ending December 31, 2001 was ratified by the following vote: votes for - 7,225,146; votes against - 34,271; and votes abstaining - 63,927. Item 6: Exhibits and Reports on Form 8-K: (a) Exhibits furnished pursuant to Item 601 of Regulation S-K: 4.8 Indenture dated as of July 20, 2001 between the Company and Chase Manhattan Bank and Trust Company, National Association (incorporated by reference to Exhibit 4 to the Company's Form S-3 Registration Statement No. 333-63196 filed July 16, 2001 with the Securities and Exchange Commission). 10.11D Fourth Amendment to Credit Agreement dated July 13, 2001 between Southwest Water and Bank of America, N.A., filed herewith. 10.12C Third Amendment to Credit Agreement dated July 13, 2001 between Suburban Water Systems and Bank of America, N.A., filed herewith. 10.13F Sixth Amendment to the Amended and Restated Credit Agreement dated July 13, 2001 between Southwest Water and Mellon Bank, N.A., filed herewith. 10.14E Fifth Amendment to Credit Agreement dated July 13, 2001 between Suburban Water Systems and Mellon Bank, N.A., filed herewith. (b) Reports on Form 8-K None. 12 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: August 3, 2001 /s/ PETER J. MOERBEEK - --------------------- --------------------- Peter J. Moerbeek Chief Financial Officer (Principal Financial Officer) Dated: August 3, 2001 /s/ THOMAS C. TEKULVE - --------------------- --------------------- Thomas C. Tekulve Vice President Finance (Principal Accounting Officer) 13 EX-10.11D 3 dex1011d.txt FOURTH AMENDMENT TO CREDIT AGREEMENT Exhibit 10.11D -------------- FOURTH AMENDMENT TO ------------------- CREDIT AGREEMENT ---------------- THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as --------- of July 13, 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, that certain Second Amendment to Credit Agreement dated as of September 29, 2000, and that certain Third Amendment to Credit Agreement dated as of March 9, 2001 (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 $9,000,000 from the date -------------------- hereof to the earlier of August 1, 2001 or the funding of the Debentures, and $6,000,000 at hereof to the any time thereafter as such amount may be reduced pursuant to Section 2.01 (c)." (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 follows: "'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 plus the outstanding principal amount of the Convertible Subordinate Debentures Due 2021 of Borrower -1- (the 'Debentures') 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 majority-owned Subsidiaries), on a consolidated basis determined in conformity with GAAP." (c) Section 6.02 (a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(a) Leverage Ratio. At any time after the earlier of August 1, -------------- 2001 or the funding of the Debentures, permit the ratio of the amount of Consolidated Liabilities less the outstanding principal amount of the Debentures to Consolidated Tangible Net Worth to be more than 2.00:1.00." (d) Section 6.02 (b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(b) Consolidated Tangible Net Worth. At any time after the ------------------------------- earlier of August 1, 2001 or the funding of the Debentures, permit Consolidated Tangible Net Worth to be less than $46,500,000 plus that portion of the principal amount of the Debentures in excess of $16,000,000." (e) Section 6.02 (d) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(d) EBITDA Coverage Ratio. At the end of any fiscal quarter of --------------------- Borrower, permit the EBITDA Coverage Ratio, determined on a four quarter rolling basis, to be less than 1.50:1.0." (f) Section 6.02 (f) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "Debt. Create, incur, assume or permit to exist, or permit any ---- Subsidiary to create, incur, assume or permit to exist, any indebtedness or liabilities resulting from borrowings, loans or advances, whether matured or unmatured, liquidated or unliquidated, joint or several, secured or unsecured, except for (i) Debt incurred pursuant to the Agreement and the other Loan Documents, (ii) Debt incurred pursuant to the Suburban Loan Documents; (iii) Debts, revolving lines of credit and lease obligations of Borrower existing as of, and disclosed to Bank prior to, the date of the Agreement (including $6,000,000 of unsecured debt of the Borrower to Mellon, $4,000,000 of unsecured debt of Suburban to Mellon, and -2- $4,000,000 of unsecured debt of NMUI to First Security Bank (or successors), (iv) secured indebtedness for purchase money financing of equipment which is permitted under Section 6.02 (e)(iii) not to exceed an aggregate of $500,000, (v) unsecured funded bank debt not to exceed an aggregate of $30,000,000 from and including the date hereof to the earlier of August 1, 2001 or the funding of the Debentures, and $24,000,000 at any time thereafter (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), (vi) Debt incurred pursuant to the Debentures not to exceed $20,000,000, and (vii) intercompany Debt between Borrower and its majority-owned Subsidiaries." 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 Third 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: -3- (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 -4- 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/ ANTON C. GARNIER ---------------------- --------------------- Name: Deborah L. Miller Name: Anton C. Garnier Title: Senior Vice President Title: President By: /s/ PETER J. MOERBEEK ---------------------- Name: Peter J. Moerbeek, Title: Chief Financial Officer -5- Exhibit A THIRD AMENDED AND RESTATED REVOLVING NOTE $6,000,000 Costa Mesa, California July 13,2001 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 Six Million Dollars ($6,000,000), 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) at a rate per annum equal to the applicable IBOR Rate plus the Applicable Margin or Prime Rate plus the Applicable Margin. 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 Second Amended and Restated Revolving Note dated as of March 9, 2001 in the original amount of Nine Million Dollars ($9,000,000), made by Borrower payable to the order of Bank, pursuant to that certain Credit Agreement (as defined in Section D below). A. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each: 1. "Applicable Margin" means the following amounts per annum, based upon the Leverage Ratio as set forth in the certificate received pursuant to Section 6.01 (a) (iv) of the Credit Agreement ("Compliance Certificate"):
---------------------------------------------------------------------------------------- (in basis points per annum) (in basis points per annum) ---------------------------------------------------------------------------------------- Pricing Leverage Ratio Applicable Margin for Applicable Margin for Level IBOR Rate loans Prime Rate loans ---------------------------------------------------------------------------------------- 1 *1.25x 125.0 bps (0.25) bps ---------------------------------------------------------------------------------------- 2 ****1.25x but *1.75x 150.0 bps 0.00 bps ---------------------------------------------------------------------------------------- 3 ****1.75x 200.0 bps 0.25 bps ----------------------------------------------------------------------------------------
* = less than **** = more than or equal to During the period from the date of this Note to the date on which the Bank receives the first Compliance Certificate after the date of this Note, the Applicable Margin shall be based on a pricing level 2 set forth in the above table. Thereafter, the Applicable Margin shall be in effect from the date the most recent Compliance Certificate is received by the Bank, provided however, that if the Borrower fails to timely deliver the next certificate, the Applicable Margin from the -6- date such Compliance Certificate was due shall be that indicated for the pricing level 3 set forth in the above table, and thereafter, the pricing level indicated by such Compliance Certificate when received. 2. "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. 3. "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). 4. "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 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. 5. "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. 6. "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 -7- 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 August 1, 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 an 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., 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 -8- 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 (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: -9- 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. 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 -10- 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. 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. -11- 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:_______________________________ -12- EX-10.12C 4 dex1012c.txt THIRD AMENDMENT TO CREDIT AGREEMENT Exhibit 10.12C -------------- THIRD AMENDMENT TO ------------------- CREDIT AGREEMENT ---------------- THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as --------- of July 13, 2001 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, 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 "Consolidated Tangible Net Worth of Southwest" -------------------------------------------- set forth in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "'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 Southwest and its consolidated subsidiaries, plus the outstanding principal amount of the Convertible Subordinate Debentures Due 2021 of Southwest (the 'Debentures') minus (i) ----- treasury stock, (ii) intangible assets (including, without limitation, franchises, patents, patent applications, trademarks, brand names, goodwill, purchased contracts, deferred charges (including (331502.01)cg6/29/00 EXHIBIT A 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." (b) Section 6.02 (a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(a) Leverage Ratio. At any time after the earlier of August 1, -------------- 2001 or the funding of the Debentures, permit the ratio of the amount of Consolidated Liabilities of Southwest less the outstanding principal amount of the Debentures to Consolidated Tangible Net Worth of Southwest to be more than 2.00:1.00." (c) Section 6.02 (c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(b) Consolidated Tangible Net Worth of Southwest. At any time -------------------------------------------- after the earlier of August 1, 2001 or the funding of the Debentures, permit Consolidated Tangible Net Worth of Southwest to be less than $46,500,000 plus that portion of the principal amount of the Debentures in excess of $16,000,000." (d) Section 6.02 (d) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(d) EBITDA Coverage Ratio of Southwest. At the end of any fiscal ---------------------------------- quarter of Borrower, permit the EBITDA Coverage Ratio, determined on a four quarter rolling basis, to be less than 1.50:1.0." 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. 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 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. 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 approvals, 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. 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. "Bank" "Borrower" BANK OF AMERICA, N.A. SUBURBAN WATER SYSTEMS, a national association a California corporation By: /s/DEBORAH L. MILLER By:/s/ANTON C. GARNIER -------------------- ------------------- Name: Deborah L. Miller Name: Anton C. Garnier Title: Senior Vice President Title: Chairman By:/s/PETER J. MOERBEE ------------------- Name: Peter J. Moerbeek, Title: Secretary Exhibit A FIRST AMENDED AND RESTATED REVOLVING NOTE $4,000,000 Costa Mesa, California July 13,2001 FOR VALUE RECEIVED, the undersigned SUBURBAN WATER SYSTEMS, a California 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 Four Million Dollars ($4,000,000), 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) at a rate per annum equal to the applicable IBOR Rate plus the Applicable Margin or Prime Rate plus the Applicable Margin. 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 Revolving Note dated as of July 30, 1999 made by Borrower payable to the order of Bank, pursuant to the Credit Agreement (as defined in Section D below). A. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each: 1. "Applicable Margin" means the following amounts per annum, based upon the Leverage Ratio as set forth in the certificate received pursuant to Section 6.01 (a) (vi) ("Compliance Certificate"):
--------------------------------------------------------------------------------------- (in basis points per annum) (in basis points per annum) --------------------------------------------------------------------------------------- Pricing Leverage Ratio Applicable Margin for Applicable Margin for Level IBOR Rate loans Prime Rate loans --------------------------------------------------------------------------------------- 1 *1.25x 125.0 bps (0.25) bps --------------------------------------------------------------------------------------- 2 ****1.25x but *1.75x 150.0 bps 0.00 bps --------------------------------------------------------------------------------------- 3 ****1.75x 200.0 bps 0.25 bps ---------------------------------------------------------------------------------------
* less than **** more than or equal to During the period from the date of this Note to the date on which the Bank receives the first Compliance Certificate after the date of this Note, the Applicable Margin shall be based on a pricing level 2 set forth in the above table. Thereafter, the Applicable Margin shall be in effect from the date the most recent Compliance Certificate is received by the Bank, provided however, that if the Borrower fails to timely deliver the next certificate, the Applicable Margin from the date such Compliance Certificate was due shall be that indicated for the pricing level 3 set forth in the above table, and thereafter, the pricing level indicated by such Compliance Certificate when received. 2. "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. 3. "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). 4. "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 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. 5. "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. 6. "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 August 1,, 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 an 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., 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 (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. 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. 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" SUBURBAN WATER SYSTEMS, a California corporation By:________________________________ Title: ___________________________ By:________________________________ Title:_____________________________ EX-10.13F 5 dex1013f.txt SIXTH AMEND. TO AMEND. & RESTATED CREDIT AGREEMENT EXHIBIT 10.13F -------------- SIXTH AMENDMENT TO ------------------ AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------- THIS SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "Amendment"), dated as of July 13, 2001, is entered into between MELLON BANK, - ---------- N.A., a national association ("Bank"), and SOUTHWEST WATER COMPANY, a Delaware ---- corporation ("Borrower"). -------- RECITAL ------- 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, that certain Third Amendment to Amended and Restated Credit Agreement dated as of July 19, 2000, that certain Fourth Amendment to Amended and Restated Credit Agreement dated as of September 29, 2000, and that certain Fifth Amendment to Amended and Restated Credit Agreement dated March 9, 2001 (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 are 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 $9,000,000 from the date -------------------- hereof to the earlier of August 1, 2001 or the funding of the Debentures, and $6,000,000 at any time thereafter as such amount may be reduced pursuant to Section 2.01(c)." (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 follows: "'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 plus the outstanding principal amount of the Convertible Subordinate Debentures Due 2021 of Borrower (the 'Debentures') 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 majority-owned Subsidiaries), on a consolidated basis determined in conformity with GAAP." (c) Section 6.02 (a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(a) Leverage Ratio. At any time after the earlier of August 1, 2001 -------------- or the funding of the Debentures, permit the ratio of the amount of Consolidated Liabilities, less the outstanding principal amount of the Debentures, to Consolidated Tangible Net Worth to be more than 2.00:1.00." (d) Section 6.02 (b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(b) Consolidated Tangible Net Worth. At any time after the earlier of ------------------------------- August 1, 2001 or the funding of the Debentures, permit Consolidated Tangible Net Worth to be less than $46,500,000 plus that portion of the principal amount of the Debentures in excess of $16,000,000." (e) Section 6.02 (d) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(d) EBITDA Coverage Ratio. At the end of any fiscal quarter of --------------------- Borrower, permit the EBITDA Coverage Ratio, determined on a four quarter rolling basis, to be less than 1.50:1.0." (f) Section 6.02 (f) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(f) Debt. Create, incur, assume or permit to exist, or permit any ---- Subsidiary to create, incur, assume or permit to exist, any indebtedness or liabilities resulting from borrowings, loans or advances, whether matured or unmatured, liquidated or unliquidated, joint or several, secured or unsecured, except for (i) Debt incurred pursuant to the Agreement and the other Loan Documents, (ii) Debt incurred pursuant to the Suburban Loan Documents, (iii) Debts, revolving lines of credit and lease obligations of Borrower existing as of, and disclosed to Bank prior to, the date of the Agreement (including $6,000,000 of unsecured debt of the Borrower to Bank of America, N.A., $4,000,000 of unsecured debt of Suburban to Bank of America, N.A., and $4,000,000 of unsecured debt of NMUI to First 2 Security Bank (or successors), (iv) secured indebtedness for purchase money financing of equipment which is permitted under Section 6.02(h)(iii) not to exceed an aggregate of $500,000, (v) unsecured funded bank debt not to exceed an aggregate of $30,000,000 from and including the date hereof to the earlier of August 1, 2001 or the funding of the Debentures, and an aggregate of $24,000,000 at any time thereafter (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, N.A., as described in clause (iii) above), (vi) Debt incurred pursuant to the Debentures not to exceed $20,000,000, and (vii) intercompany Debt between Borrower and its majority-owned Subsidiaries." 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) 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. (d) Representations and Warranties. The representations and ------------------------------ warranties set forth in the Credit Agreement must be true and correct. (e) 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. (f) 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 3 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 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. 4 (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/ANTON C. GARNIER ------------------ ------------------- Name: Garry Handelman Name: Anton C. Garnier Title: Vice President Title: President By: /s/PETER J. MOERBEEK -------------------- Name: Peter J. Moerbeek Title: Chief Financial Officer 5 EXHIBIT A SOUTHWEST WATER COMPANY FIFTH AMENDED AND RESTATED PROMISSORY NOTE $6,000,000.00 July 13, 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 Six Million Dollars ($6,000,000.00), 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 6 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 Fourth Amended and Restated Promissory Note dated as of March 9, 2001 in the amount of Nine Million Dollars ($9,000,000) 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: Anton C. Garnier Title: President By: _______________________________ Name: Peter J. Moerbeek Title: Chief Financial Officer 7 TRANSACTIONS ON NOTE Amount of Amount of Interest Paid Principal Notation Loan Made Principal Paid Interest Paid Through Balance Made By - --------- -------------- ------------- ------- ------- ------- 8 EX-10.14E 6 dex1014e.txt FIFTH AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.14E -------------- FIFTH AMENDMENT TO ------------------ CREDIT AGREEMENT ---------------- THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as --------- of July 13, 2001 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 Credit Agreement dated as of December 23, 1997, as amended by that certain First Amendment to Credit Agreement dated as of September 1, 1998, that certain Second Amendment to Credit Agreement dated as of September 29, 1999, that certain Third Amendment to Credit Agreement dated as of April 10, 2000 and that certain Fourth 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 are 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 "Consolidated Tangible Net Worth of ---------------------------------- Southwest" set forth in Section 1.01 of the Credit Agreement is hereby amended - --------- and restated in its entirety to read as follows: "'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 Southwest and its consolidated subsidiaries, plus the outstanding principal amount of the Convertible Subordinate Debentures Due 2021 of Southwest (the 'Debentures') 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 majority-owned Subsidiaries), on a consolidated basis determined in conformity with GAAP." (b) Section 6.02 (a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(a) Leverage Ratio. At any time after the earlier of August 1, -------------- 2001 or the funding of the Debentures, permit the ratio of the amount of Consolidated Liabilities of Southwest less the outstanding principal amount of the Debentures to Consolidated Tangible Net Worth of Southwest to be more than 2.00:1.00." (c) Section 6.02 (c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(c) Consolidated Tangible Net Worth of Southwest. At any time -------------------------------------------- after the earlier of August 1, 2001 or the funding of the Debentures, permit Consolidated Tangible Net Worth of Southwest to be less than $46,500,000 plus that portion of the principal amount of the Debentures in excess of $16,000,000." (d) Section 6.02 (f) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(f) EBITDA Coverage Ratio of Southwest. At the end of any fiscal ---------------------------------- quarter of Borrower, permit the EBITDA Coverage Ratio, determined on a four quarter rolling basis, to be less than 1.50:1.0." 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) 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. 2 (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. 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 3 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. 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. "Bank" "Borrower" MELLON BANK, N.A. SUBURBAN WATER SYSTEMS, a national association a California corporation By: /s/ GARRY HANDELMAN By: /s/ ANTON C. GARNIER ------------------- -------------------- Name: Garry Handelman Name: Anton C. Garnier Title: Vice President Title: Chairman By: /s/ PETER J. MOERBEEK --------------------- Name: Peter J. Moerbeek, Title: Secretary 4 Acknowledgement Dated as of July 13, 2001 The undersigned and SOUTHWEST 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 Fifth Amendment to Credit Agreement (the "Amendment") and hereby confirms and agrees that his Guarantee dated --------- December 23, 1997 in favor of Mellon is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, upon the effectiveness of, and on and after the date of the Amendment, each reference in the Guarantee to the Credit Agreement (as defined in the Amendment), "thereunder", "thereof" or words of like import referring to the "Credit Agreement", shall mean and be a reference to the Credit Agreement as amended or modified by the Amendment. Although Mellon has informed Southwest of the matters set forth above, and Southwest has acknowledged the same, Southwest understands and agrees that Congress has no duty under the Credit Agreement, Guarantee 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 transaction hereafter. SOUTHWEST WATER COMPANY, a Delaware corporation By: ________________________________ Name: Anton C. Garnier Title: President By: ________________________________ Name: Peter J. Moerbeek Title: Chief Financial Officer 5 -----END PRIVACY-ENHANCED MESSAGE-----