-----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, VfHfr8+Cg/4vCcv5mTsZFGdNXRxSk6OxLdnfB2nhyvO987tgYJ9ogZNl9ueiw5Fm IMp4TAXxWICjgbZmH/dZAQ== 0000898430-96-003782.txt : 19960816 0000898430-96-003782.hdr.sgml : 19960816 ACCESSION NUMBER: 0000898430-96-003782 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD 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: 96611652 BUSINESS ADDRESS: STREET 1: 225 N BARRANCA AVE STE 200 CITY: WEST COVINA STATE: CA ZIP: 91791-1605 BUSINESS PHONE: 8189151551 MAIL ADDRESS: STREET 1: 225 N BARRANCA AVENUE STREET 2: SUITE 200 CITY: WEST COVINA STATE: CA ZIP: 91791-1605 FORMER COMPANY: FORMER CONFORMED NAME: SUBURBAN WATER SYSTEMS DATE OF NAME CHANGE: 19751202 10-Q 1 FORM 10-Q FOR PERIOD ENDED JUNE 30, 1996 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 PERIOD ENDED JUNE 30, 1996 OR _______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to________________ Commission file number: 0-8176 SOUTHWEST WATER COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (LOGO) DELAWARE 95-1840947 (STATE OR JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 225 NORTH BARRANCA AVENUE, SUITE 200 WEST COVINA, CALIFORNIA 91791-1605 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (818) 915-1551 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ - Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. On July 31, 1996, there were 2,594,399 common shares outstanding. SOUTHWEST WATER COMPANY AND SUBSIDIARIES INDEX
Page No. -------- Part I. Financial Information: - ------- Item 1. Financial Statements: Consolidated Condensed Balance Sheets - June 30, 1996 and December 31, 1995 3 Consolidated Condensed Statements of Income - Three and six months ended June 30, 1996 and 1995 4 Consolidated Condensed Statements of Cash Flows - Six months ended June 30, 1996 and 1995 5 Notes to Consolidated Condensed Financial Statements 6 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10 Part II. Other Information 10 - -------- Item 1. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SOUTHWEST WATER COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31, 1996 1995 ----------- ------------ (Unaudited) (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $837 $784 Customers; accounts receivable, net 10,021 7,785 Other current assets 2,810 2,528 ----------- ----------- 13,668 11,097 PROPERTY, PLANT AND EQUIPMENT Utility property, plant and equipment - at cost 112,364 106,280 Contract operations property, plant and equipment - at cost 6,320 6,273 ----------- ----------- 118,684 112,553 Less accumulated depreciation and amortization 33,424 32,286 ----------- ----------- 85,260 80,267 OTHER ASSETS Investments (Note 8) 3,695 805 Other 5,026 5,287 ----------- ----------- 8,721 6,092 ----------- ----------- $107,649 $97,456 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt and bank notes payable $16,395 $9,075 Accounts payable 1,479 2,269 Other current liabilities 8,799 7,019 ---------- ----------- 26,673 18,363 OTHER LIABILITIES AND DEFERRED CREDITS: Long-term debt 19,600 19,600 Advances for construction 7,992 8,200 Contributions in aid of construction 18,154 16,380 Deferred income taxes 3,424 3,238 Other liabilities and deferred credits 2,495 2,429 ---------- ----------- TOTAL LIABILITIES AND DEFERRED CREDITS 78,338 68,210 STOCKHOLDERS' EQUITY: Cumulative preferred stock 517 519 Common stock 26 26 Paid-in capital 18,863 18,715 Retained earnings 9,952 10,045 Unamortized value of restricted stock issued (47) (59) ---------- ----------- TOTAL STOCKHOLDERS' EQUITY 29,311 29,246 ---------- ----------- $107,649 $97,456 ========== =========== See accompanying notes. 3
SOUTHWEST WATER COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- (In thousands except per share amounts) OPERATING REVENUES $17,438 $13,329 $31,427 $24,619 OPERATING EXPENSES: Direct operating expenses 13,155 10,005 24,430 19,025 Selling, general and administrative 2,670 2,321 4,981 4,440 ------- ------- ------- ------- 15,825 12,326 29,411 23,465 ------- ------- ------- ------- OPERATING INCOME 1,613 1,003 2,016 1,154 OTHER INCOME (EXPENSE): Interest expense (695) (597) (1,354) (1,157) Interest income 16 19 47 44 Gain on sale of land - - - 84 Other 37 1 47 7 ------- ------- ------- ------- (642) (577) (1,260) (1,022) ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 971 426 756 132 Provision for income taxes 408 178 318 55 ------- ------- ------- ------- NET INCOME 563 248 438 77 Dividends on preferred shares (7) (7) (14) (14) ------- ------- ------- ------- NET INCOME AVAILABLE FOR COMMON SHARES $556 $241 $424 $63 ======= ======= ======= ======= EARNINGS PER COMMON SHARE (NOTE 5) $0.21 $0.09 $0.16 $0.02 ======= ======= ======= ======= CASH DIVIDENDS PER COMMON SHARE (NOTE 5) $0.10 $0.095 $0.20 $0.19 ======= ======= ======= ======= WEIGHTED-AVERAGE OUTSTANDING COMMON SHARES (NOTE 5) 2,590 2,553 2,586 2,549 ======= ======= ======= =======
See accompanying notes. 4 SOUTHWEST WATER COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, ---------------------------------- 1996 1995 ----------- ---------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES, NET $428 $632 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (5,598) (4,328) Investment in Windermere Utility Company (2,300) - -------- ------- Net cash used in investing activities (7,898) (4,328) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings of short-term debt 7,320 3,391 Contributions in aid of construction 784 217 Net proceeds from dividend reinvestment and employee stock purchase plans 130 161 Dividends paid (519) (498) Payments on advances for construction (192) (190) Additions to advances for construction - 122 -------- ------- Net cash provided by financing activities 7,523 3,203 -------- ------- Net increase (decrease) in cash and cash equivalents 53 (493) Cash and cash equivalents at beginning of year 784 828 ------- ------- Cash and cash equivalents at end of quarter $837 $335 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $1,314 $1,138 Income taxes $438 $16 Non-cash contributions in aid of construction conveyed to Company by developers $1,197 $590
See accompanying notes. 5 SOUTHWEST WATER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 1996 (Unaudited) 1. Southwest Water Company (the Company) and its subsidiaries provide water management services through contract and utility operations. The accompanying unaudited consolidated condensed financial statements reflect all adjustments which, in the opinion of the Company's management, are necessary to present fairly the financial position of the Company as of June 30, 1996, and the Company's results of operations for the three and six months ended June 30, 1996. All such adjustments are of a normal recurring nature. Certain reclassifications have been made to the 1995 financial statements to conform to the 1996 presentation. 2. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These consolidated condensed financial statements should be read in conjunction with the financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 3. The results of operations for the three and six months ended June 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. Revenues usually peak during the second and third quarters of each year. The Company's contract operations business can also be seasonal in nature. Heavy rainfall during a quarter may reduce contract operations revenue since it hampers the Company's ability to perform billable work such as pipeline maintenance, manhole rehabilitation, and other outdoor services. 4. For the three and six months ended June 30, 1996, the computations of earnings per common share, after recognition of dividend requirements on preferred shares, have been calculated using the weighted-average number of outstanding common shares as the aggregate dilution from all common equivalent shares is less than three percent of earnings per common share outstanding. In contrast, for the three and six months ended June 30, 1995, earnings per common share were computed based upon the weighted-average number of common shares and dilutive common equivalent shares, assuming the outstanding 9.5% convertible subordinated debentures were converted at the beginning of the period and the related interest for the period, net of income taxes, was eliminated. The 9.5% convertible debentures were retired on August 15, 1995. 5. The 1995 earnings per common share, cash dividends per common share and weighted-average outstanding common shares have been restated to reflect a 5% stock dividend granted to stockholders of record on January 2, 1996. 6. Effective January 1, 1996, the Company was subject to Statement of Financial Accounting Standard No. 121 (SFAS No. 121) "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Under SFAS No. 121, the Company is required to review for the impairment of long-lived assets, including regulatory assets, as well as costs excluded from rate base by regulators. The Company expects that implementing SFAS No. 121 will not have a material impact on the Company's results of operations or financial condition. 7. As of December 31, 1995, the Company adopted Statement of Financial Accounting Standard No. 123 (SFAS No. 123) "Accounting for Stock-Based Compensation". The related proforma disclosures are presented in the notes to the Company's consolidated financial statements, contained in the 1995 Annual Report on Form 10-K. 8. In June 1996, the Company acquired an interest in Windermere Utility Company (Windermere) for an investment of $3,000,000. The investment agreement provides the majority shareholder the option to acquire the Company's interest prior to June 1998 at an agreed upon price. If the majority shareholder does not exercise its option, the Company has the ability to acquire 100% of the utility for an agreed upon price. It is the majority shareholder's intent to acquire the Company's interest . The 6 Company also executed a consulting agreement with Windermere and an additional agreement by which the Company receives an annual payment from the operations of the utility. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES: Liquidity and capital resources of the Company are influenced primarily by construction expenditures at Suburban Water Systems (Suburban) for the replacement and renovation of existing water utility facilities and by construction expenditures for new water and wastewater utility facilities at New Mexico Utilities, Inc. (NMUI). To a lesser extent, liquidity is influenced by the Company's continuing investment in ECO Resources Inc. (ECO). At June 30, 1996, the Company had cash and cash equivalent balances totaling $837,000 and unused lines of credit from three commercial banks of $505,000 with total line of credit capacity of $16,000,000. In addition, on July 2, 1996, the Company incurred a $3,000,000 term loan which matures October 30, 1996. One of the lines of credit expires in late 1996, and is expected to be renewed by the Company. The two other lines of credit were renewed in the normal course of business in 1996 and expire on various dates in 1997. During the first six months of 1996, the Company borrowed a net $7,320,000 on its lines of credit in order to fund construction at its utility operations and to make its investment in Windermere. In July 1996, an additional $700,000 was borrowed to complete the purchase of an interest in Windermere. The Company's additions to property, plant and equipment were $6,795,000 for the six months ended June 30, 1996, representing an increase of $1,877,000 over the same period in 1995. This increase relates primarily to utility plant additions at NMUI in response to increased residential and commercial construction in NMUI's service area. Of the total additions, $1,197,000 was received by the Company's utilities through developer contributions in aid of construction. The Company anticipates that its funding of construction projects will decrease during the next six months. Additional short-term borrowing is anticipated during 1996 to fund construction requirements at the utilities. The Company has initiated negotiations with investment bankers and anticipates obtaining long-term financing during the third quarter of 1996. In August 1996, the Company will seek $12,000,000 in bond financing. Proceeds from this financing will be used to repay a portion of short-term debt and fund ongoing construction requirements at the utilities. Following the bond financing, the Company has remaining borrowing capacity under its First Mortgage Bond Indentures of approximately $17,895,000. After receiving the $3,000,000 term loan, additional borrowings are restricted by financial covenants to approximately $5,684,000. The Company anticipates that its available short term borrowing capacity and its cash flow generated from operations are sufficient to fund its activities for the next twelve months. If additional cash were needed, the Company would consider alternative sources including long-term financing. The amount and timing of any future long-term financing will depend on various factors, including the timeliness and adequacy of rate increases, the availability of capital, and the Company's ability to meet interest and fixed charge coverage requirements. Regulatory approval is required for any long-term financing by Suburban and NMUI. If the Company were unable to renew its existing lines of credit or obtain additional long-term financing, capital spending would be reduced or delayed until new financing arrangements were secured. Such financing arrangements could include seeking equity financing through a private placement or a public offering. REGULATORY AFFAIRS AND INFLATION: The rates and operations of the Company's utilities are regulated by the California Public Utilities Commission (CPUC) and the New Mexico Public Utility Commission (NMPUC). The rates allowed are intended to provide a reasonable return on common equity. The Company anticipates that future construction expenditures and increased direct operating expenses will require periodic requests for rate increases. 7 In December 1995, Suburban and the CPUC staff negotiated a rate increase of 4.25% ($1.1 million), with two additional increases for inflation in 1997 and 1998. Final CPUC approval was received on April 19, 1996, with the new rates effective April 24, 1996. The rate increase authorizes Suburban to earn a 10% return on common equity. From 1989 through 1995, Suburban recorded pretax gains on five land sale transactions which aggregated $1,900,000. In 1994, the CPUC ruled on the 1989 sale and allowed Suburban to retain $210,000 in income, in accordance with CPUC accounting regulations, as opposed to distributing it to ratepayers in the form of water rate reductions. The Water Utility Infrastructure Improvement Act of 1995 was passed by the California Assembly and Senate and signed by the governor on August 10, 1995. This law provides that water utilities selling real property that is no longer necessary or useful may invest the net proceeds in utility plant. Any net proceeds (and the interest thereon) not invested in an eight-year period must be allocated to ratepayers. While Suburban's remaining transactions from the 1989-1995 period are subject to CPUC review, the proceeds were invested in utility plant, and, therefore, management believes these gains should not affect water rates. No regulatory liability has been recorded in the consolidated condensed financial statements. The California legislature has held hearings discussing the CPUC's organization and operation. Among other options, the CPUC has proposed consideration of performance-based rate making, which provides incentives for utilities to operate more efficiently and improve productivity, and is intended to reduce regulatory burden and promote efficiency among utilities. Ratepayers and stockholders would both likely benefit from improved productivity. Legislative and CPUC developments are closely monitored by the Company and by the various water industry associations in which the Company actively participates. Whether such legislative or CPUC developments will be enacted, or, if enacted, what the terms of such developments would be, are not known by the Company. Therefore, management cannot predict the impact of final legislative or CPUC developments on the Company's financial condition or results of operations. The operations of ECO are not regulated. ECO's long-term water and wastewater service contracts typically include annual inflation adjustments. Most contracts with municipal utility districts are short-term contracts and do not generally include inflation adjustments. ENVIRONMENTAL AFFAIRS: The Company's operations are subject to water and wastewater pollution prevention standards and water and wastewater quality regulations of the United States Environmental Protection Agency (EPA) and various state regulatory agencies. The EPA and state regulatory agencies continue to promulgate new regulations mandated by the Federal Water Pollution Control Act, the Safe Drinking Water Act, and the Resource Conservation and Recovery Act. To date, the Company has not experienced any material adverse effects upon its operations resulting from compliance with governmental regulations. Costs associated with the testing of the Company's water supplies have, however, increased and are expected to increase further as the regulatory agencies adopt additional monitoring requirements. The Company believes that future incremental costs of complying with governmental regulations, including capital expenditures, if any, will be recoverable through increased rates and contract operations revenues. However, there is no assurance that recovery of such costs will be allowed. RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995 - ----------------------------------------------------------------------------- Earnings per common share increased from $.09 in 1995 to $.21 in 1996. Results for the second quarter of 1995 included a net gain of $105,000 due to the recovery of disputed property tax assessments by Suburban. Operating income increased $610,000, or 61%, and, as a percentage of operating revenues, increased from 8% in 1995 to 9% in 1996. Operating income at the utilities increased $363,000 due primarily to increased water consumption and the effects of a rate increase implemented in the second quarter of 1996. NMUI's increase in customer base also contributed to the increase in operating income. ECO's operating loss decreased by 8 $568,000 compared to 1995, due primarily to increased profit margins, cost containment and higher levels of revenue. Parent company expenses increased $321,000 primarily due to additional corporate reserves. Operating revenues - ------------------ Operating revenues increased $4,109,000, or 31%. Water utility sales increased $1,305,000 due to warmer weather in comparison to 1995 resulting in a 19% increase in water consumption by Suburban's customers, and an 11% increase in water consumption by NMUI's customers. Suburban also benefited from a rate increase. NMUI added a significant number of new water customers in the second quarter of 1996, which also contributed to the increase. ECO's revenues increased $2,804,000 primarily as a result of revenues from new contracts. Direct operating expenses - ------------------------- Direct operating expenses increased $3,150,000 or 31%. As a percentage of operating revenues, these expenses were 75% in 1996 and 1995. Water utility direct operating expenses increased $874,000 which reflects the corresponding increase in water consumption by Suburban and NMUI customers. ECO's direct operating expenses increased $2,276,000, resulting primarily from higher expenses associated with new contracts and increased billable work. Selling, general and administrative - ----------------------------------- Selling, general and administrative expenses increased $349,000 or 15%. As a percentage of operating revenues, these expenses decreased from 17% in 1995 to 15% in 1996. Selling, general and administrative expenses at Suburban and NMUI increased $68,000. ECO's selling, general and administrative expenses decreased $40,000. As discussed above, general and administrative expenses of the parent company increased $321,000. Interest expense - ---------------- Interest expense increased $98,000 primarily due to higher line of credit balances. SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 - ------------------------------------------------------------------------- Earnings per common share increased from $.02 in 1995 to $.16 in 1996. Results for the first six months of 1995 included a net gain of $50,000, or $.02 per common share, arising from the sale of surplus land owned by Suburban, and a net gain of $105,000 due to the recovery of disputed property tax assessments by Suburban in the second quarter of 1995. Operating income increased $862,000, or 75%, and, as a percentage of operating revenues, increased from 5% in 1995 to 6% in 1996. Operating income at the utilities increased $576,000 due primarily to increased water consumption and the effects of a rate increase, effective in the second quarter of 1996. NMUI's increase in customer base also contributed to the increase in operating income. ECO's operating loss decreased by $742,000 compared to 1995, due primarily to increased profit margins, cost containment, and higher levels of revenue. Parent company expenses increased $456,000 primarily due to additional corporate reserves. Operating revenues - ------------------ Operating revenues increased $6,808,000 or 28%. Water utility sales increased $1,782,000 due to warmer weather resulting in an increase in water consumption by Suburban's and NMUI's customers. Suburban also benefited from a rate increase. NMUI added a significant number of new water customers in the first six months of 1996, which also contributed to the increase. ECO's revenues increased $5,026,000, primarily as a result of revenues from new contracts. Direct operating expenses - ------------------------- Direct operating expenses increased $5,405,000 or 28%. As a percentage of operating revenues, these expenses were 78% in 1996 and 77% in 1995. Water utility direct operating expenses increased $1,037,000 9 which reflects the corresponding increase in water consumption by Suburban and NMUI customers. ECO's direct operating expenses increased $4,368,000, resulting primarily from higher expenses associated with new contracts and increased billable work. Selling, general and administrative - ----------------------------------- Selling, general and administrative expenses increased $541,000 or 12%. As a percentage of operating revenues, these expenses decreased from 18% in 1995 to 16% in 1996. Selling, general and administrative expenses at the utilities increased $169,000 primarily due to the impact of the tax assessment recovery in 1995 noted earlier. ECO's selling, general and administrative expenses decreased $84,000. As discussed above, general and administrative expenses of the parent company increased $456,000. Interest expense - ---------------- Interest expense increased $197,000 primarily due to higher line of credit balances. PART II - OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- As described in the Company's 1995 Form 10-K Report, Suburban was a defendant and cross-defendant in two actions filed in March 1994 and June 1994 in the Superior Court of Los Angeles County arising from a slope slide failure in 1992 in a hilly residential development in West Covina, California. These actions were settled during the second quarter of 1996 for $150,000. Suburban's share of the settlement payment was $32,000, and Suburban's insurance carrier agreed to fund any payment in excess of Suburban's deductible. There have been no other significant changes in the various litigation matters as described in the Company's 1995 Form 10-K Report. The Company is the subject of certain litigation arising from the ordinary course of operations. The Company believes the ultimate resolution of such matters will not materially affect its consolidated financial condition, results of operations or cash flow. 10 Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- At the Annual Meeting of Stockholders held on May 21, 1996, all of the members of the Board of Directors were re-elected by the following votes:
Name of Director Votes For Votes Withheld - ---------------- --------- -------------- H. Frederick Christie 2,172,715 33,479 Michael J. Fasman 2,163,329 42,865 Anton C. Garnier 2,172,329 33,865 Monroe Harris 2,168,644 37,550 Donovan D. Huennekens 2,168,523 37,671 Richard Kelton 2,172,404 33,790 Richard G. Newman 2,173,126 33,068
In addition, KPMG Peat Marwick LLP was ratified as independent auditors for 1996 by the following vote: votes for - 2,170,093; votes against - 14,028; and votes abstaining - 22,073. Also, the adoption of the Director Stock Option Plan for non employee directors was approved with the following votes: votes for - 1,849,167; votes against- 219,775; and votes abstaining - 137,252. No broker non-votes were recorded. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits furnished pursuant to Item 601 of Regulation S-K 10.4D Fourth Amendment to Credit Agreement dated May 14, 1996 between Registrant and Wells Fargo Bank, filed herewith. 10.5D Fourth Amendment to Credit Agreement and Promissory Note dated March 26, 1996, between the Registrant and First Interstate Bank, filed herewith. 10.10C Third Amendment to Loan Agreement dated July 16, 1996, between New Mexico Utilities, Inc. and Sunwest Bank of Albuquerque, filed herewith. 10.12 Equity Investment Agreement dated May 23, 1996, between the Registrant and RTNT, Inc., covering Windermere Utility Company, together with two First Refusal Agreements and Call Purchase Agreements between the Registrant and RTNT, Inc., filed herewith. 27 Financial Data Schedule. (b) Reports on Form 8-K There were no reports on Form 8-K filed for the three months ended June 30, 1996. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTHWEST WATER COMPANY ----------------------- (Registrant) Dated: August 9, 1996 /s/ PETER J. MOERBEEK - --------------------- --------------------- Peter J. Moerbeek, Vice President Finance and Chief Financial Officer 12 EX-10.4D 2 FOURTH AM. TO CREDIT AGMT. DATED MAY 14, 1996 EXHIBIT 10.4D FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of May 14, 1996, by and between SOUTHWEST WATER COMPANY, a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS -------- WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of December 2, 1992, as amended from time to time ("Credit Agreement"); WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows: 1. Section 1.2 and Section 1.3 are hereby redesignated as Section 1.3 and Section 1.4, respectively, and the following is hereby added to the Credit Agreement as a new Section 1.2: "SECTION 1.2. TERM LOAN. (a) Term Loan. Subject to the terms and conditions of this Agreement, --------- Bank hereby agrees to make a loan to Borrower in the principal amount of Three Million Dollars ($3,000,000.00) ("Term Loan"), the proceeds of which shall be used by Borrower to purchase 49% of the issued and outstanding common stock of Windermere Utility Company, Inc. ("Windermere"), and to acquire an option to purchase an additional 9% of the issued and outstanding common stock of Windermere. Borrower's obligation to repay the Term Loan shall be evidenced by a promissory note substantially in the form of Exhibit B attached hereto ("Term Note"), all terms of which are incorporated herein by this reference. Bank's commitment to grant the Term Loan shall terminate on June 30, 1996. (b) Repayment. The principal amount of the Term Loan shall be repaid in --------- accordance with the provisions of the Term Note. (c) Prepayment. Borrower may prepay principal on the Term Loan solely in ---------- accordance with the provisions of the Term Note." 2. Subsections (a) and (b) of Section 1.3 are hereby amended and restated in their entirety to read as follows: "(a) Interest. The outstanding principal balances of the Line of Credit -------- and the Term Loan shall bear interest at the rates of interest set forth in the Line of Credit Note and Term Note (collectively, the "Notes"). (b) Compensation and Payment. Interest shall be computed on the ------------------------ basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Notes." 3. Section 1.4 is hereby amended and restated in its entirety to read as follows: "SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all interest and fees due under the Line of Credit and the Term Loan by charging Borrower's demand deposit account number 6627-351794 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower." 4. The definition of "Subsidiary" set forth in Section 2.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: -2- "As used herein, the term "Subsidiary" shall mean any corporation at least the majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) are at the time owned directly or indirectly by Borrower, and it shall also mean any corporation for which Borrower has the right, directly or indirectly, contractually or otherwise, to elect a majority of the directors." Concurrently with the funding of the Term Loan pursuant to the terms and conditions of this Amendment, Windermere shall be deemed a "Subsidiary" under the Credit Agreement, and the following clause shall be added at the end of the second sentence of Section 2.1, before the period: "Windermere Utility Corporation, a Texas corporation ("Windermere")". 5. Section 5.1 is hereby amended and restated in its entirety to read as follows: "SECTION 5.1. USE OF FUNDS. Use any of the proceeds of the Line of Credit or the Term Loan except for the purposes stated in Article I." 6. Section 5.5 is hereby amended by adding at the end thereof, before the period, the following new clause: "and (e) a security interest in the cash, accounts and general intangibles of Windermere granted to Minton, Burton, Foster & Collins, P.C., as trustee ("MBFC") as collateral for a promissory note dated May 23, 1996 in the principal amount of $1,000,000.00 executed by Windermere to the order of MBFC (the "Windermere Note")." 7. Section 5.7 is hereby amended and restated in its entirety to read as follows: "SECTION 5.7. SUBSIDIARY OWNERSHIP. Sell, pledge or otherwise assign or transfer any interest in any Subsidiary, or permit any Subsidiary to sell, pledge or otherwise assign or transfer any -3- interest in any other Subsidiary, except that (a) Borrower or any Subsidiary may sell an interest in a Subsidiary which has a net worth of less than $500,000.00, so long as total sales during any calendar year of interests in Subsidiaries shall not exceed an aggregate net worth of $500,000.00; and (b) Borrower may sell the stock of Windermere to RTNT, Inc. pursuant to that certain RTNT Right of First Refusal Agreement and RTNT Call Purchase Agreement dated as of May 23, 1996 between Borrower and RTNT, Inc." 8. Section 5.8 is hereby amended by adding at the end thereof, before the period, the clause "and (f) the Windermere Note". 9. As consideration for the Term Loan, Borrower shall pay to Bank a loan fee of $10,000.00, which fee shall be due and payable in full upon execution of this Amendment. 10. As conditions precedent to the obligation of Bank to grant the Term Loan, Borrower shall have provided to Bank evidence satisfactory to Bank that all of the following shall have occurred: (a) Loan Documents. Bank shall have received (i) this Amendment, -------------- executed and delivered by a duly authorized officer of Borrower and (ii) the Term Note, executed by a duly authorized officer of Borrower. (b) Proceedings and Enforceability. ------------------------------ (i) Bank shall have received a copy of the resolutions, in form and substance satisfactory to Bank, of the Board of Directors of Borrower authorizing (A) the execution, delivery and performance of this Agreement, the Term Note and the other Loan Documents to which it is a party, (B) the borrowings contemplated hereunder and (C) the Purchase and Sale Transactions, certified by the Secretary or an Assistant Secretary of Borrower as of the Closing Date, which certificate shall be in form and substance satisfactory to Bank and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (ii) Bank shall have received evidence satisfactory to it that the Purchase and Sale Agreements have been duly executed and delivered among, and are valid, binding and enforceable against -4- Borrower, Windermere and RTNT, Inc. ("RTNT") to the extent they are parties thereto, and that such execution and delivery and consummation of Purchase and Sale Transactions and related actions do not and will not violate any organizational or charter documents, any law, rule or regulation, any order or judicial decree, or any material contract to which Windermere or Borrower is a party. (c) Certificate of Incumbency. Bank shall have received an ------------------------- Incumbency Certificate from Borrower, certified as of the Closing Date as true and correct by the Secretary or an Assistant Secretary of Borrower. (d) Corporate Documents. Bank shall have received true and complete ------------------- copies of the certificate of incorporation and by-laws of each of Borrower and Windermere, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of such party. (e) Legal Opinions. Bank shall have received the executed legal -------------- opinions of Hutchinson & Grundy, counsel to Borrower and Phillips, Ettinger & Prikryl, L.L.P., counsel to RTNT, in form and substance satisfactory to Bank and its counsel, which opinions shall collectively cover, among other things, the matters described in (b), (g), (h), (i), (j), (k), (l) and (m)(i) and such other matters incident to the transactions contemplated by this Agreement and the Purchase and Sale Transactions as Bank may reasonably require. (f) Financial Statements. Bank shall have received a balance sheet -------------------- of Windermere dated as of the Closing Date, and a year-to-date statement of profit and losses of Windermere dated as of the Closing Date, prepared by Borrower, showing that Windermere has a positive net worth as of the Closing Date, together with a certificate of the chief financial officer of Borrower certifying that such financial statements are true and correct to the best of his knowledge. (g) Purchase and Sale Agreements. Bank shall have received true and ---------------------------- correct copies, certified as to authenticity by Borrower, of the Purchase and Sale Agreements and each amendment and exhibit thereto, together with a certification by Borrower, Windermere and RTNT that other than the copies of the Purchase and Sale Agreements so delivered, there are no other understandings, commitments or obligations (oral or written) by or among them. (h) TCB Transactions. ---------------- Bank shall have received evidence satisfactory to it that (i) pursuant to the Note Purchase -5- Agreement, dated September 5, 1995, as amended by the Fourth and Fifth Amendments thereto, by and between Texas Commerce Bank -Austin, National Association ("TCB") and Thom Farrell, Trustee and an Assignment of Notes and Liens (in form and substance satisfactory to Bank) Borrower shall have acquired that certain Promissory Note dated September 1988, executed by Windermere, payable to the order of TCB, and all related security interests and liens securing such Note, (ii) pursuant to the Stock Purchase Agreement, dated September 5, 1995, as amended by the Fourth and Fifth Amendments thereto, by and between TCB and Thom Farrell, Trustee, 580 Shares of Common Stock of Windermere shall have been acquired by Borrower and RTNT and all transactions contemplated by such agreement shall have been consummated, (iii) TCB shall have been provided with copies of the Purchase and Sale Agreements or with the opportunity to review such agreements and (iv) TCB has no claims, rights or obligations as against Windermere or its stockholders after giving effect to such purchase and the purchase of the Shares described below. (i) Stock Purchase and Equity Investment Transactions. The ------------------------------------------------- authorized equity securities of Windermere shall consist solely of Common Stock, $1.00 par value, the only issued and outstanding shares of Common Stock of Windermere shall be 580 shares (the "Shares"), all of which shall be fully paid and nonassessable, and free of preemptive rights; there shall be no outstanding warrants, options, rights, convertible securities or any other claims in any way relating to any equity securities of Windermere; the sole legal and beneficial owners of the Shares shall be Borrower (284 Shares) and RTNT, Inc. (296 Shares), free and clear of any claims, liens or encumbrances (other than pursuant to the agreements referenced in (l) below); and all conditions set forth in the Equity Investment Agreement to Borrower's obligations shall have occurred without waiver, amendment or grace by Borrower. (j) Permits and Regulatory Approvals. Bank shall have received -------------------------------- evidence satisfactory to it that all permits, consents and approvals from all governmental authorities (including the Texas Natural Resource Conservation Commission) with respect to the acquisition of the Shares by Borrower and RTNT, the consummation of the Redemption, and the consummation of the other Purchase and Sale Transactions shall have been obtained and be in force and effect, Windermere shall have, after giving effect to all such transactions, such permits, approvals, consents, authorities and licenses from governmental authorities in order to conduct and operate its business, and the rates that may be charged by Windermere to users of its utilities services shall not, by reason of the Purchase and Sale Transactions, have increased or -6- be required to increase. (k) Redemption. The Bank shall have received evidence satisfactory ---------- to it that each of the equity securities owned or claimed by the Minority Shareholders shall have been legally and validly acquired by Windermere in compliance with all legal requirements; the Minority Shareholders shall have no right, claim or cause of action as against, and not interest in any equity securities or any indebtedness of, Windermere, Borrower or RTNT other than pursuant to the Living Unit Equivalent Agreement; the City of Austin Transactions shall have been consummated and the proceeds from the consummation of the City of Austin Transactions shall have been applied to the acquisition of the equity securities of the Minority Shareholders in Windermere and the discharge of any liens and encumbrances thereon, and no other payments or obligations shall be due or outstanding to the Minority Shareholders with respect to the acquisition of their equity securities in Windermere. (l) RTNT-Borrower Agreements. RTNT and Borrower shall have entered into ------------------------ valid, binding and enforceable agreements satisfactory to the Bank whereby (i) the Board of Directors of Windermere shall be limited to five persons and Borrower shall be entitled to designate three of the five directors until such time as RTNT may have acquired all of the equity securities of Windermere or Borrower shall no longer own any of such equity securities, (ii) Borrower shall have an option to purchase 9% of the outstanding equity securities of Windermere for $101 at any time after 6 months from the date hereof, (iii) RTNT may acquire all of the Shares owned by Borrower for not less than $3,600,000 during the first twelve months following the date hereof, $3,720,000 from and after the end of such period until the second anniversary date hereof (and not thereafter) and Borrower may acquire all of the Shares owned by RTNT after such second anniversary for not more than $1,811,000, (iv) Windermere shall be obligated to (a) pay Borrower $20,000 per month for consulting services during a ten year period and pay Borrower 25% of Windermere's Net Profits from operations and (b) any services, management or consulting agreement with persons other than RTNT or Borrower shall have been terminated or the appropriate notice of termination shall have been given. (m) Litigation. As to any litigation or claim as against Windermere, ---------- Borrower or RTNT, (i) Bank shall have received evidence satisfactory to it that (A) The case styled Heatherwilde III, Ltd., et. al. vs. Windermere Utility Co., Inc., et. --------------------------------------------------------------------- al., Cause No. 93-01016, pending in - ---- -7- the District Court of Travis County, Texas, 345th Judicial District shall have been dismissed, with prejudice, Windermere shall have executed and delivered the Compromise and Settlement Agreement (and satisfied the terms and conditions therein, to be performed by it on or before the effectiveness of the releases contained therein) on terms and conditions satisfactory to Bank; and Windermere shall not be obligated to pay more than $100,000 in any given year pursuant to the Compromise and Settlement Agreement. (B) The case referenced in the Stock Purchase Agreement the "Pflugerville Lawsuit", Cause No. 94-05567 filed in the 261st District Court of Travis County, Texas, shall have been dismissed with prejudice; and (ii) Bank shall have received a certificate from Borrower, Windermere, and RTNT that no other litigation is pending or to the best of their knowledge, after due inquiry, threatened against any of them. (n) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to Bank, and Bank shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby and thereby as it shall reasonably request. The execution and delivery of the Term Note on behalf of Borrower shall constitute a representation and warranty by Borrower that the conditions contained in this Section 10 have been satisfied. As used herein, the following terms shall have the meanings set forth below: "Purchase and Sale Agreements" shall mean the documents, agreements and instruments listed on Exhibit A hereto (which list also constitutes the "List of Closing Documents" previously furnished by Borrower to Bank) relating to the Purchase and Sale Transactions. "Purchase and Sale Transactions" shall mean the transactions whereby (a) Borrower shall have acquired the Promissory Note referenced in Section 10 (h), 49% of the issued and outstanding stock of Windermere free and clear of all liens, claims and encumbrances and shall have entered into the transactions and arrangements described in Section 10 (l), (b) all litigation -8- referenced in Section 10 (m) shall have been dismissed with prejudice, (c) the City of Austin Transaction shall have occurred and the redemption of shares of the Minority Shareholders as contemplated by Section 10 (k) shall have transpired and (d) to the extent not covered by (a)-(c) above all other transactions contemplated by the Purchase and Sale Agreements shall have occurred. "City of Austin Transactions" means the transactions whereby the City of Austin, Texas acquires a portion of the property owned by Windermere pursuant to an Option Agreement and Right of First Refusal by and between Windermere and the City of Austin (which agreement is included within the Purchase and Sale Agreements) and the proceeds of such sale are applied to the redemption described in Section 10 (k). "Minority Shareholders" shall mean those persons that are designated as such in the Equity Investment Agreement included within the Purchase and Sale Agreements. 11. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. Exhibit B attached to this Amendment shall be deemed attached to the Credit Agreement as Exhibit B. 12. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. -9- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. WELLS FARGO BANK, SOUTHWEST WATER COMPANY NATIONAL ASSOCIATION By: /s/Anton C. Garnier By: /s/Catherine M. Wallace ------------------- ----------------------- Title: President, CEO Catherine M. Wallace Vice President By: /s/Peter J. Moerbeek -------------------- Title: Vice President Finance Chief Financial Officer -10- EX-10.5D 3 FOURTH AM. TO CREDIT AGMT. AND PROMISSORY NOTE EXHIBIT 10.5D FOURTH AMENDMENT TO CREDIT AGREEMENT AND PROMISSORY NOTE -------------------------------------------------------- This Fourth Amendment to Credit Agreement and Promissory Note ("Fourth Amendment") is entered into this 26th day of March, 1996, by and between SOUTHWEST WATER COMPANY, a Delaware corporation, (hereinafter referred to as "Borrower") and FIRST INTERSTATE BANK OF CALIFORNIA, a California banking corporation, (hereinafter referred to as "Bank"), who for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, hereby agree as follows: This Fourth Amendment amends that certain Credit Agreement dated December 22, 1992 as amended by that certain First Amendment to Credit Agreement and Promissory Note, dated July 29, 1993 ("First Amendment"), that certain Second Amendment to Credit Agreement and Promissory Note, dated June 24, 1994 ("Second Amendment"), and that certain Third Amendment to Credit Agreement and Promissory Note, dated June 30, 1995 ("Third Amendment") (said Credit Agreement, as amended, hereinafter referred to as the "Agreement"), each of which were executed by and between Borrower and Bank. This Fourth Amendment also amends that certain Promissory Note in the original amount of $5,000,000 dated December 22, 1992, as later amended by the First Amendment, Second Amendment and Third Amendment (said Promissory Note, as amended, hereinafter referred to as the "Note"). The parties hereto hereby amend the Agreement and the Note, as indicated below: AGREEMENT: Page 4, "Maturity Date": delete "June 30, 1996" and replace with ------------- "June 30, 1997". NOTE: Page 1, paragraph 1, line 11: delete "June 30, 1996" and replace with "June 30, 1997". ---------------------------- Except as specifically amended in this Fourth Amendment, or to the extent necessary to be consistent with the provisions of this Fourth Amendment, the Agreement and Note shall continue in full force and effect and be binding upon Borrower and Bank notwithstanding the execution of and delivery of this Fourth Amendment. IN WITNESS WHEREOF, the parties hereto have duly executed this Fourth Amendment as of the day and year first hereinabove written. BORROWER: BANK: - --------- ----- SOUTHWEST WATER COMPANY FIRST INTERSTATE BANK OF CALIFORNIA /s/ ANTON C. GARNIER /s/ RICHARD A. MADSEN - ----------------------------- -------------------------- By: Anton C. Garnier By: Richard A. Madsen ------------------------- -------------------------- Its: President, CEO Its: Vice President ------------------------ ------------------------- /s/ PETER J. MOERBEEK - ----------------------------- By: Peter J. Moerbeek ------------------------- Its: Vice President - Finance ------------------------ Chief Financial Officer EX-10.10C 4 THIRD AM. TO LOAN AGMT. DATED JULY 16, 1996 EXHIBIT 10.10C THIRD AMENDMENT TO LOAN AGREEMENT This Amendment made this 16th day of July, 1996, by and between Sunwest Bank of Albuquerque, National Association, a national banking association ("Bank") and New Mexico Utilities, Inc., a New Mexico corporation ("Borrower"). WHEREAS, on January 25, 1995 Bank and Borrower entered into a certain Loan Agreement ("Loan Agreement") pursuant to the terms and conditions of which credit has been extended by Bank to Borrower; WHEREAS, Bank and Borrower entered into a First Amendment to Loan Agreement dated October 10, 1995 (the "First Amendment"), (The "Loan Agreement" and "First Amendment" jointly referred to as "Agreement"). WHEREAS, Bank and Borrower entered into a Second Amendment to Loan Agreement dated April 17, 1996 (the "Second Amendment"), (The "Loan Agreement", "First Amendment" and "Second Amendment" collectively referred to as "Agreement"). WHEREAS, Bank and Borrower are desirous of amending the Agreement upon the following terms and conditions. FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged by the undersigned, Bank and Borrower agree as follows: 1. Paragraph 8g shall be deleted in its entirety and the following substituted thereof: g. Borrower will not, unless approved in writing by Bank, pay any dividend that exceeds the amount of dividends allowed by the terms of the Indenture of Mortgage dated February 14, 1992 securing First Mortgage Bonds, Series A due March 12, 2002. 2. Except as expressly amended hereby, the terms and conditions of the Agreement and the documents executed and delivered in conjunction with the credit extended thereunder shall remain in full force and effect and are hereby ratified. BORROWER: New Mexico Utilities, Inc., a New Mexico corporation BY: /s/ WILLIAM C. JASURA ---------------------------------- William C. Jasura, Vice President Finance & Chief Financial Officer GUARANTOR: Southwest Water Company, a Delaware corporation BY: /s/ PETER J. MOERBEEK ---------------------------------- Peter Moerbeek, Vice President Finance & Chief Financial Officer BANK: Sunwest Bank of Albuquerque, N.A., a national association BY: /s/ DON K. PADGETT ---------------------------------- Don K. Padgett, Vice President dce(July 16, 1996) EX-10.12 5 EQUITY INVESTMENT AGMT. DATED MAY 23, 1996 EXHIBIT 10.12 ------------- EQUITY INVESTMENT AGREEMENT --------------------------- This Equity Investment Agreement ("Equity Agreement") is made by and between RTNT, Inc., a Texas corporation ("RTNT"), and Southwest Water Company, Inc., a Delaware corporation ("SWWC"). RECITALS: WHEREAS, SWWC has agreed to make an investment of Three Million Dollars ($3,000,000.00) in Windermere Utility Co., Inc. ("WUC") by purchasing certain Stock in WUC, acquiring a Note and providing funds for closing costs; and WHEREAS, RTNT and SWWC have reached an agreement as to various additional provisions dealing with the investment by SWWC and the purchase of such Stock; and WHEREAS, RTNT and SWWC desire to set forth their understanding regarding such investment in WUC; and NOW THEREFORE, FOR AND IN CONSIDERATION of the premises and the mutual covenants contained herein set forth for all other good and valuable consideration, the parties hereby agree as follows: ARTICLE I AGREEMENTS OF THE PARTIES ------------------------- 1. WUC and the Minority Shareholders (as hereinafter defined) have entered into that certain Redemption Agreement and the Minority Shareholders and RTNT have entered into that certain Cunningham-Reed-RTNT Agreement of even date herewith whereby WUC and the Minority Shareholders represent and warrant to RTNT that there are One Thousand (1,000) shares of Common Stock of WUC issued and outstanding and said One Thousand (1,000) shares represent all of the issued and outstanding shares of WUC and there are no other classes of stock or shares committed to be issued to any other party or parties. Said Agreement also provides that there are no options, stock dividends, or warrants of WUC outstanding and/or committed to be issued. 2. The shares of WUC are currently owned as follows: a. 580 Shares of WUC are owned by Travis National Properties Corporation (the "TCB Stock"). b. 420 Shares of WUC are owned by minority shareholders of WUC. These shares are held by the following entities and individuals in the following number of shares: i) Donald J. Cunningham and wife, Norma Cunningham - 163 Shares 10709 Plumwood Austin, Texas 78750 ii) Homer D. Reed and wife, Carolyn S. Reed - 185 Shares 6907 Ladera Norte Austin, Texas 78731 iii) Charles B. Graves, Jr. - 46 Shares 10700 Falling Tree Cove Austin, Texas 78759 -1- iv) Page Graves - 26 Shares HC3, Box 75 EE Spicewood, Texas 78669 The owners of the 420 Shares listed above in Paragraph 2b (i) - (iv) shall collectively be referred to as the "Minority Shareholders." 3. The Minority Shareholders have entered into an agreement called the Cunningham-Reed-RTNT Agreement with RTNT that provides, among other things, that RTNT will upon its acquisition and control of WUC redeem the 420 Shares owned by the Minority Shareholders in exchange for conveyance of the right, title and interest to what is known as the West System of WUC and WUC providing Living Units Equivalent ("LUE") of service to a certain tract of land as more specifically set out in the Cunningham-Reed-RTNT Agreement which is attached hereto as Exhibit "A." 4. Upon the satisfaction of the conditions precedent set forth below, SWWC shall make an investment in WUC and purchase forty-nine percent (49%) of the issued and outstanding Common Stock of WUC for the total sum of Three Million Dollars ($3,000,000.00). Two Million Four Hundred Thousand Dollars ($2,400,000.00) will be advanced to RTNT, Inc. to be utilized as set out below and RTNT, Inc. shall execute a Stock Power for 284 shares of WUC stock transferring said stock from RTNT, Inc. to SWWC. Two Million Dollars ($2,000,000.00) of such funds shall be paid by RTNT to Travis National Properties Corporation to purchase the TCB Stock, forty-nine percent (49%) of which shall be transferred to SWWC by a Stock Power and fifty-one percent (51%) of which shall be transferred to RTNT and One Hundred Thousand Dollars ($100,000.00) of such funds shall be used by RTNT to pay all attorneys fees, expenses of closing and closing related costs in connection with the transaction contemplated hereby and Three Hundred Thousand ($300,000.00) of such funds shall be paid to Texas Commerce Bank National Association to purchase that certain Promissory Note on the original principal amount of Two Million Dollars ($2,000,000.00) executed by WUC and payable to the order of Texas Commerce Bank Austin, N.A. Six Hundred Thousand Dollars ($600,000.00) of such funds shall be advanced by SWWC to WUC to be used by WUC to pay the Litigants (hereinafter defined). RTNT also hereby grants to SWWC an option to purchase up to an additional nine percent (9%) of the outstanding shares of WUC that are owned by RTNT, for the payment of $101.00 to RTNT, such that after the exercise of such option, SWWC shall own 58% of the issued and outstanding Stock of WUC. The exercise of the option to purchase of up to an additional the nine percent (9%) such shares shall be subject to the approval of the Texas Natural Resource Conservation Commission ("TNRCC") and shall not take place prior to the expiration of six (6) months from the date hereof. Additionally, this option and the submittal for approval of the TNRCC to acquire the additional nine percent (9%) of the Stock of WUC shall have no force and effect in the event RTNT exercises it call right to acquire all of the WUC Stock owned by SWWC pursuant to the RTNT Right of First Refusal Agreement and RTNT Call Purchase Agreement of even date herewith and such purchase thereunder is closed and funded. The obligation of SWWC to advance the $3,000,000.00 as described herein is expressly subject to SWWC's satisfaction, in its sole discretion, that the following conditions precedent have occurred or shall occur contemporaneously with the making of such investment: a. The Cunningham-Reed-RTNT Agreement and the RTNT, Inc.-Cunningham-Reed Escrow Agreement shall have been fully executed and delivered, the Minority Shareholders shall have tendered to the Escrow Agent their 420 Shares of Stock of WUC, the Proxies and the Stock Powers as contemplated by the Cunningham-Reed-RTNT Agreement and any pledge of any of such Shares of Stock shall have been released or agreed to be released subject only to payment pursuant to a written payoff letter. b. The commitment of WUC to provide fifty-five (55) Living Unit Equivalents of water and wastewater service with respect to the property described in Article I, Paragraph 6, of the Cunningham-Reed- RTNT Agreement shall have been executed and delivered by WUC. c. The Redemption Agreement by and among the Minority Shareholders and WUC shall have been fully -2- executed and delivered, and the Stock of WUC of the Minority Shareholders shall have been redeemed in full by WUC. d. The Arbitration Agreement by and among RTNT and the Minority Shareholders shall have been fully executed and delivered. e. The Arbitration Agreement by and between RTNT and SWWC shall have been fully executed and delivered. f. The SWWC Right of First Refusal Agreement and SWWC Call Purchase Agreement shall have been fully executed and delivered. g. The RTNT Right of First Refusal Agreement and RTNT Call Purchase Agreement shall have been fully executed and delivered. h. Stock Powers shall have been fully executed and delivered by Travis National Properties with respect to the 580 Shares of Stock of WUC held by it, and an Assignment of Note and Liens shall have been executed and delivered by Texas National Bank Association to RTNT with respect to the $2,000,000 Promissory Note executed by WUC and the original Promissory Note endorsed to RTNT. i. A Compromise and Settlement Agreement and Release by and among Heatherwilde III, Ltd., William McFarlane, Palmer Homes, Inc., Bill Palmer, Buffington Homes, Inc., Tom Buffington, Hampton Homes, Inc., and Clyde Copus (collectively, the "Litigants") and WUC and Doyle Hickerson shall have been fully executed and delivered and the cash consideration shall have been paid to the Litigants and the Promissory Note described therein shall have been executed and delivered. 5. At the closing of the transactions contemplated hereby, SWWC and RTNT hereby agree to enter into a Shareholder Agreement and/or to amend the Bylaws of WUC in such a manner that will require that the shares which they collectively own or control will be voted in such a manner such that there will be a five (5) person Board of Directors of WUC. The Directors of WUC shall be composed of three (3) members which are elected and appointed by SWWC, and two (2) members which are elected and appointed by RTNT. 6. At the closing of the transactions contemplated hereby, SWWC and RTNT hereby agree to cause WUC to enter into an agreement with SWWC which will pay SWWC a fee of Twenty Thousand Dollars ($20,000.00) per month for SWWC providing financial, investment, managerial, and other expertise and assistance and consulting assistance to the management of WUC pursuant to a consulting agreement in the form of Exhibit "B" attached hereto. Such fees payable to SWWC pursuant to such Consulting Agreement fees shall be a deductible expense to WUC. 7. At the closing of the transactions contemplated hereby, SWWC and RTNT agree to cause WUC to enter into a Profits Participation Agreement wherein SWWC will receive twenty-five percent (25%) of WUC's net operating income payable on an annual basis, pursuant to the Profits Participation Agreement which is attached hereto as Exhibit "C." 8. At the closing of the transactions contemplated hereby, SWWC and RTNT agree that RTNT and/or Thom Farrell shall be entitled to receive compensation for assisting in the management of the corporate affairs as well as the day to day operations of WUC of Five Thousand Dollars ($5,000.00) per month, payable monthly pursuant to a Management Agreement in the form of Exhibit "D" attached hereto. ARTICLE II REPRESENTATIONS AND WARRANTIES ------------------------------ -3- 1. RTNT is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. RTNT has the power and the authority to execute, deliver and perform under this Equity Agreement and the execution, delivery and performance of this Equity Agreement by RTNT have been authorized by all necessary action on the part of RTNT. Neither the execution, delivery or performance by RTNT of this Equity Agreement nor compliance by it with the terms and provisions hereof, nor the consummation of the transactions contemplated herein, will (1) contravene any applicable provision of any law, statute, rule or regulation, or any Order, Writ, Injunction or Decree of any Court, arbitral entity or governmental instrumentality, (2) conflict with or result in any breach of any term, covenant, condition or any other provision of, or constitute a default under, any of RTNT's other contractual obligations, or (3) violate or conflict with any provision of the corporate documents of RTNT. 2. The principal place of business and chief executive office of RTNT, and the office where RTNT keeps its books and records, is located at 3223 Park Hills Drive, Austin, Texas 78746. 3. There is no litigation or governmental proceeding pending or, to the knowledge of RTNT, threatened against RTNT or any of its properties. 4. SWWC is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. SWWC has the power and the authority to execute, deliver and perform under this Equity Agreement and the execution, delivery and performance of this Equity Agreement by SWWC have been authorized by all necessary action on the part of SWWC. Neither the execution, delivery or performance by SWWC of this Equity Agreement nor compliance by it with the terms and provisions hereof, nor the consummation of the transaction contemplated herein, will (1) contravene any applicable provision of any law, statute, rule or regulation, or any Order, Writ, Injunction or Decree of any Court, arbitral entity or governmental instrumentality, (2) conflict with or result in any breach of any term, covenant, condition or any other provision of, or constitute a default under, any of SWWC's other contractual obligations, or (3) violate or conflict with any provision of the corporate documents of SWWC. 5. The principal place of business and chief executive office of SWWC, and the office where SWWC keeps its books and records is located at 225 North Barranca Avenue, Suite 200, West Covina, California 91791-1605. 6. There is no litigation or governmental proceeding pending or, to the knowledge of SWWC, threatened against SWWC or any of its properties. -4- ARTICLE III ----------- 1. No failure on the part of RTNT and/or SWWC to exercise or delay in exercising and no course of dealing with respect to any right, any privilege, power, and obligation of this Equity Agreement shall operate as a waiver thereof by either party, nor shall any singular or partial exercise of any right, power, or privilege or contract right under this Equity Agreement shall preclude any other or further exercise thereof or the exercise of any right, power, or privilege or contract right by either party. The rights, benefits and obligations provided in this Equity Agreement are cumulative and are not exclusive of any rights and other remedies provided by law or at equity. 2. This Equity Agreement shall be binding upon and inure to the benefit of RTNT and SWWC and their respective heirs, successors, representatives and assigns. Neither RTNT nor SWWC can assign their rights in and to this Equity Agreement to any person or entity without the prior written consent of the other party, except that SWWC may assign its rights hereunder to an entity controlled by SWWC or an entity into which SWWC is merged. 3. This Equity Agreement, together with the agreements referenced herein, embodies the final, entire agreement among the parties hereto and supersedes any and all prior commitments, agreements, representations, and understandings whether written or oral, relating to the subject matter hereof. The provisions of this Equity Agreement may be amended or waived only by an instrument in writing signed by the parties hereto. 4. Any notice, consent or communication required or permitted to be given under this Equity Agreement to RTNT or SWWC must be in writing and delivered in person or by facsimile or by registered or certified mail, return receipt requested, postage prepaid addressee restricted as follows: TO: RTNT, Inc. P.O. Box 161173 Austin, Texas 78716 TEL NO.: (512) 327-0869 FAX: (512) 327-0869 TO: Southwest Water Company, Inc. 225 North Barranca Avenue, Suite 200 West Covina, California 91791-1605 TEL NO.: (818) 915-1551 FAX: (818) 915-1558 Any such notice, consent or other communication shall be deemed given when delivered in person or sent by confirmed facsimile, or if mailed, five (5) days after mailing. 5. This Equity Agreement shall be governed by and construed in accordance with the laws of Texas and the applicable laws of the United States of America. This Equity Agreement shall be performable for all purposes in Texas, and the courts within Texas shall have jurisdiction over any and disputes between RTNT and SWWC, whether in law or in equity, including, but not limited to any and all disputes arising out of or raised in the Equity Agreement, and venue in any such dispute shall lie in Travis County, Texas. 6. The headings, captions, arrangements used in this Equity Agreement are for convenience only and shall not affect the interpretation of this Equity Agreement. 7. All representations and warranties made in this Equity Agreement or in any certificate delivered pursuant hereto shall survive the execution and delivery of this Equity Agreement, and no investigation by SWWC and/or RTNT shall affect the representations and warranties or the right of either parties to rely upon the representations and warranties of the other. -5- 8. This Equity Agreement may be executed in a number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9. Any provision of this Equity Agreement which is prohibited or is unenforceable in any jurisdiction shall, as to such jurisdiction be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Equity Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10. Each of RTNT and SWWC hereby expressly waive any right to a trial by jury in any action or legal proceeding arising out of or relating to this Equity Agreement or the transactions contemplated hereby and this Equity Agreement is subject to the RTNT, Inc. and Southwest Water Company, Inc. Arbitration Agreement of even date herewith. IN WITNESS WHEREOF, the parties hereto have duly executed this Equity Agreement as of the day and year set out beside their names to be effective the 23 day of May, 1996. RTNT, Inc., a Texas corporation Dated: May 23, 1996 By: /s/ THOMAS WAYNE FARRELL ------------------ -------------------------------- Thomas Wayne Farrell, President SOUTHWEST WATER COMPANY, Inc. a Delaware corporation Dated: May 23, 1996 By: /s/ ANTON C. GARNIER ------------ -------------------------------- Anton C. Garnier, President and Chief Executive Officer ATTEST: By: /s/ PETER J. MOERBEEK ------------------------------------- Pete Moerbeek, Vice President and Secretary -6- EXHIBIT "A" ----------- AGREEMENT --------- THIS AGREEMENT ("Agreement") is executed as of the 17 day of May, 1996, by RTNT, Inc., Thom W. Farrell (obligated and referred to as "RTNT") and Donald J. Cunningham ("Cunningham"). RECITALS -------- a. RTNT and Cunningham expect to enter into the Cunningham -- Reed -- RTNT agreement and related documents ("Settlement Agreement"), dated on or about May 15, 1996, pursuant to which RTNT will cause Windermere Utility Company, Inc. ("Windermere") to redeem all shares thereof owned by Cunningham. b. Cunningham has conditioned his execution of the Settlement Agreement, among other things upon, the allocation and transfer by Windermere to Cunningham of 55 water and wastewater "Living Unit Equivalents" ("LUEs" as hereinafter defined) or an amount equal to the value of such LUEs, pertaining to certain land which has been owned by Cunningham. c. RTNT, upon obtaining controlling ownership of Windermere, is willing to cause Windermere to make the allocation and transfer or the payment desired by Cunningham. NOW, THEREFORE, for good and valuation consideration, the receipt and adequacy of which are acknowledged, the parties hereby agree as follows: 1. Definitions. For the purposes of this Agreement, the following ----------- definitions shall apply: a. One "Living Unit Equivalent" or "LUE" shall mean the typical flow that would be produced by a single family resident (SFR) located in a typical subdivisions. For water this includes consumptive uses such as lawn watering and evaporative coolers. The wastewater system does not receive all of these flows, so the flows expected differ between water and wastewater. The number of LUEs for a project are constant, although the water and wastewater flows may be different. One (1) LUE produces: 2.2 GPM (Peak Hour) of water flow 1.3 GPM (Peak Day) of water flow 350 GPD (0.243 G.P.M.) sewage Dry weather flow Peak Flow Factor Formula: 18 + [0.0144 (F]/0.5/ PFF = ------------------------ F = AVERAGE FLOW (GPM) 4 + [0.0144 (F)]/0.5/
RESIDENTIAL LUE CONVERSION ----------- -------------- One (1) Single Family Resident; Modular Home: Mobile Home 1 LUE One (1) Duplex 2 LUES One (1) Triplex; Fourplex; Condo Unit P.U.D. unit (6+ Units/Acre to 24 Units/Acre) 0.7 LUE/Unit One (1) Apartment Unit (24 + Units/Acre) 0.5 LUE/Unit One (1) Hotel or Motel Room 0.5 LUE/Unit COMMERCIAL LUE CONVERSION ---------- -------------- Office 1 LUE/3000 Square Feet of Floor Office Warehouse 1 LUE/4000 Square Feet of Floor Retail; Shopping Center 1 LUE/1660 Square Feet of Floor Restaurant; Cafeteria 1 LUE/200 Square Feet of Floor Hospital 1 LUE/Bed Rest Home 1 LUE/2 Beds Church (Worship Services Only) 1 LUE/70 Seats School (Includes Gym and Cafeteria) 1 LUE/13 Students
The LUE conversions to uses not described above will be determined by Windermere. b. "Proceeds from LUEs" shall mean amounts received by Windermere from the transfer of the first fifty-five (55) water and the first fifty-five (55) wastewater LUEs ("55 LUEs") in connection with the development of water and wastewater systems serving the real property described on Exhibit "A" hereto ----------- (the "Land"), which shall not be less than the value ordinarily received by Windermere for the sale of one LUE multiplied by the number of LUEs actually associated with the Land which should be charged, extended, or required. The current water LUE value is $1355, and the current wastewater LUE value is $1373. For the purposes hereof, value shall be determined by the approved TNRCC rate (or if none, by an independent appraiser, experienced in valuing water and wastewater collection systems serving residential and commercial developments, mutually agreeable to the parties or by an arbitration if the parties initiate arbitration. c. "Effective Date" shall be the date on which the Settlement Agreement becomes completely effective after closing of the escrow referenced in the Settlement Agreement to redeem Cunningham's shares in Windermere. 2. Rights to LUEs or Proceeds. In consideration of Cunningham's execution -------------------------- and delivery of the Settlement Agreement, RTNT shall cause Windermere, at Cunningham's option, either (1) to allocate and transfer to Cunningham up to 55 water and wastewater LUEs for use with the Land promptly upon Cunningham's demand therefor or (2) to pay to Cunningham the Proceeds from LUEs promptly upon Windermere's transfer and its receipt of payment from such transferee of up to 55 LUEs to an owner of any portion of the Land. Notwithstanding anything herein to the contrary, it is the parties' intention and agreement that Cunningham shall either be entitled to only (1) the use of the 55 LUEs without payment, charge, or price, or (2) the payment of $125,000 by May 31, 1996, to extinguish the commitment or (3) the collection by WUC of the proceeds from LUE's with respect to the Land and the payment of said amount to Cunningham. In connection with any such transfer to Cunningham, Windermere and Cunningham shall execute and deliver such agreements as may be necessary to assure compliance with the Texas Water Code and other applicable statutory and regulatory requirements. In addition, Windermere may be required by Cunningham to sign and acknowledge this Agreement as its assumed obligation, which assumption shall not release RTNT. 3. Noncircumvention: Neither Windermere nor RTNT may take any action to ---------------- circumvent or avoid the obligation under this Agreement. Windermere shall be obligated to use reasonable efforts to timely collect the appropriate Proceeds from LUEs in the event of any development of the Land, from any developer other than Cunningham, and to transfer to Cunningham within ten (10) days of collection or deemed collection of the Proceeds from LUEs. Windermere must compensate Cunningham for the proceeds from LUEs even if a development includes a larger tract including the Land if a material part of the development is on the Land. The Proceeds from LUEs will be deemed collected for any act to circumvent this agreement at the time customarily collected in the event of development of the Land. 4. Notice of Transfer. Cunningham shall provide Windermere with written ------------------ notice of the intent to receive LUEs without consideration pursuant to this Agreement. Windermere shall provide Cunningham with written notice if a subsequent owner of the Land submits a plan for development of the Land. 5. Miscellaneous. ------------- a. Cunningham's rights hereunder are personal but are specific to the Land. Cunningham shall be entitled to assign his rights hereunder without the consent of RTNT or Windermere so long as the LUEs are utilized with the Land. b. In the event RTNT defaults hereunder, Cunningham shall have the right to pursue specific performance of this Agreement. c. Any notice to be given hereunder by either party to the other party shall be in writing and may be effected by personal delivery in writing or be registered or certified mail, return receipt requested. Notice shall be effective upon personal delivery or upon the expiration of three (3) days after it has been deposited in the United States mail, properly addressed, postage prepaid. Notice to the parties shall be sufficient if made or addressed as follows: If to RTNT: RTNT, Inc. 3223 Parkhills Dr. Austin, TX 78746 If to Cunningham: Donald J. Cunningham 10709 Plumewood Dr. Austin, TX 78750 d. On or before September 1, 1996, RTNT shall cause Windermere to ratify this Agreement by adopting a corporate resolution in the form attached hereto as Exhibit "B", and Windermere shall deliver promptly a Secretary's Certificate to - ----------- attest that such resolution was adopted. 6. Termination. This Agreement shall terminate on the earlier of May 1, ----------- 2017, or at any time when Windermere pays to Cunningham the Proceeds from LUEs for 55 LUEs. Notwithstanding the foregoing, this Agreement shall terminate at any time before May 31, 1996, if RTNT pays Cunningham, in addition to the consideration required in the Settlement Agreement, One Hundred Twenty-Five Thousand Dollars ($125,000.00). 7. Arbitration. The parties agree to resolve any dispute according to the ----------- terms of the ARBITRATION AGREEMENT entered in connection with the Settlement Agreement. 8. RTNT and Windermere hereby release Cunningham of any and all claims and/or causes of action, known or unknown, legal or equitable, of any type or character, whether by Windermere or its representatives or third parties, in any capacity with respect to his relationship to Windermere, excepting any claim or cause of action against Cunningham in his capacity as a licensed professional for work done in that professional capacity ("Released Claims"). Not to effect the liability, if any, of the other shareholders redeemed, Windermere agrees to indemnify, defend, and hold harmless Cunningham from the Released Claims and any other claims that might arise directly from his receipt of any properties in redemption of his stock in Windermere and the charging by the City of Austin of LUE fees to customers who have previously paid LUE fees to Windermere. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of date first written above. /s/Donald J. Cunningham ----------------------- Donald J. Cunningham RTNT, INC. By:/s/Thomas W. Farrell -------------------- Thomas W. Farrell, President Windermere Utility Company, Inc. hereby accepts and agrees to be bound by and assume the terms of this Agreement. WINDERMERE UTILITY COMPANY, INC. a Texas corporation By:/s/Thomas W. Farrell Title:___________________________________ Date:____________________________________ EXHIBIT "B" CONSULTING AGREEMENT -------------------- This Consulting Agreement (the "Consulting Agreement") is made effective the 23 day of May, 1996, by and between Windermere Utility Co., Inc. ("WUC"), a - -- Texas corporation, and Southwest Water Company, Inc. ("Consultant), a Delaware corporation. WHEREAS, Consultant is the owner of various water and wastewater operations and actively participates in the management of certain of such utilities, and it possesses substantial knowledge with respect to the business operations of a corporation with similar operations to those of WUC; and WHEREAS, WUC desires to hire Consultant to provide consulting services to WUC in the future; NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Consulting Services. WUC hereby hires Consultant as an independent -------------------- contractor, upon the terms and conditions hereinafter set forth. 2. Consultant's Agreement. Upon WUC's reasonable request, Consultant agrees ----------------------- to provide consulting services to WUC, and to share Consultant's knowledge with respect to the business endeavors of WUC. The services may be provided by Consultant, at Consultant's option, from Consultant's principal place of business or from such other places outside of the offices of WUC as Consultant may reasonably designate, and at such hours as Consultant may reasonably designate, which hours may take place at night, or on week-ends and holidays, and need not correspond to the regular business hours of WUC. 3. Term. This Consulting Agreement shall expire ten (10) years from the ---- effective date hereof, and cannot be canceled or terminated during such ten (10) year term except upon the written agreement of both WUC and Consultant (the "Term"). Notwithstanding the provision hereinabove, should RTNT exercise its call, close, and pay SWWC for its Stock pursuant to the RTNT Right of First Refusal Agreement and RTNT Call Purchase Agreement, of even date herewith, then this Consulting Agreement shall terminate. 4. Fee. Consultant, as compensation for its continuing performance under --- Paragraph 2 above, shall receive the sum of Twenty Thousand Dollars ($20,000.00) per month as its fee payable in arrears on the first business day of each calendar month hereafter. 5. Consultant Duties. The Consultant shall be responsible for (1) providing ------------------ consultation and review of financial reporting and information; (2) review of all regulatory filings and reporting; (3) monitoring regulatory developments, legislation, proposed legislation and regulations and report to WUC on a quarterly basis the results of such monitoring; (4) monitoring the operations of the facilities and operations of WUC; (5) provide planning servicing of future development in the service area of WUC; (6) assist WUC in implementing any long- term plans for future development, expansion or contraction of the facilities and operations of WUC; (7) assistance in negotiation with surrounding service providers to secure capacity, reserve capacity and/or alliances for the benefit of WUC; (8) provide assistance and consultation regarding all risk management programs of WUC; (9) assisting WUC in monitoring safety regulations and safety plans, as well as any and all security matters as to personnel and/or facilities and/or wastewater and water contamination; and (10) preparing and assisting WUC in any and all of its rate studies. -1- 6. Expenses. WUC and Consultant agree that the fee includes --------- reimbursement to Consultant for all expenses incurred and described in Paragraph 4 above by Consultant in connection with its services hereunder. No additional expenses in addition to the monthly fee shall be reimbursable without prior written approval of WUC. 7. Notices, waivers and Other General Provisions. --------------------------------------------- (a) The titles of the paragraphs of this Consulting Agreement are for convenience only and shall not affect the interpretation of any paragraph thereof. (b) A waiver by either party hereto of any of the terms or conditions of this Consulting Agreement in any instance shall not be deemed or construed to be a waiver of such terms or conditions in the future, or of any subsequent breach thereof. All remedies, rights, undertakings, obligations and agreements contained in this Consulting Agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either party hereto. (c) Consultant may not assign any portion of its duties or obligations hereunder except with the prior written approval of WUC; provided however, Consultant may merge or consolidate with another entity. (d) All notices given hereunder shall be given in writing, either by personal delivery, confirmed facsimile or by certified mail, to the following addresses of the parties hereto, or to such other address or addresses as may hereinafter be designated in writing by either party for the receipt of such notices in the future: If to Consultant: Southwest Water Company, Inc. 225 North Barranca Avenue, Suite 200 West Covina, California 91791-1605 FAX: (818) 915-1558 If to WUC: Windermere Utility Co., Inc. P.O. Box 161173 Austin, Texas 78716 FAX: With a copy to: Thomas W. Farrell RTNT, Inc. P.O. Box 161173 Austin, Texas 78716 FAX: (512) 327-0869 Notices given by mail shall be deemed given five (5) days after the date of mailing thereof. (e) The parties hereto agree to execute all other such documents as may be reasonably required to effectuate the provisions hereof. (f) This Consulting Agreement has been made and executed in the State of Texas and shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America. (g) This Consulting Agreement constitutes the entire agreement of the parties with respect to the subject matter herein contained, and cannot be changed or terminated except by written agreement executed by the parties. -2- (h) The obligations of WUC as set out herein shall survive the merger or consolidation and/or dissolution of Consultant. IN WITNESS WHEREOF, Consultant and WUC have executed this Consulting Agreement the date first written above. WINDERMERE UTILITY CO., INC., a Texas corporation, /s/ THOMAS W. FARRELL -------------------------------- ____________________, President SOUTHWEST WATER COMPANY, INC., a Delaware corporation /s/ ANTON C. GARNIER --------------------------------- Anton C. Garnier, President ATTEST: By: /s/ PETER J. MOERBEEK -------------------------------- Pete Moerbeek, Vice President and Secretary EXHIBIT "C" ----------- PROFITS PARTICIPATION AGREEMENT ------------------------------- This Profits Participation Agreement ("Profits Agreement") is made effective as of May ___, 1996 by and among RTNT, Inc. ("RTNT"), a Texas corporation, Southwest Water Company, Inc. ("SWWC"), a Delaware corporation, and Windermere Utility Co., Inc. ("WUC"), a Texas corporation. R E C I T A L S : WHEREAS, RTNT and SWWC have entered into that certain Equity Investment Agreement dated May ___, 1996, (the "Equity Agreement") whereby SWWC has agreed to acquire stock in WUC and a note payable of WUC; and/or contribute additional cash to WUC and/or make acquisition funds available as a contribution to acquire certain WUC Stock and settle litigation as part of the acquisition; and WHEREAS, to induce SWWC to enter into the Equity Agreement WUC and RTNT desires that SWWC participate in the profits of the operations of WUC on the terms and conditions set forth in this Profits Agreement. NOW THEREFORE, in consideration of the premises, the mutual covenants, warranties, and promises contained in this Profits Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the parties agree as follows: Section 1. DEFINITIONS. For the purposes of this Profits Agreement, the ----------- following terms shall have the respective meanings assigned to them: (a) "Expenses of Operation" shall mean the expenses incurred in the Operations of WUC's business which are paid in cash or cash equivalents plus any non-cash depreciation expenses able to be deducted on the federal income tax returns of WUC and calculated in accordance with generally accepted accounting principle. (b) "Net Profits from Operations" shall mean all income of any kind or character derived from Operations which generate cash (including but limited to rents, deposits (to the extent not refunded), the proceeds of the sale of water and other utility services, any insurance proceeds (to the extent not used to replace, rebuild or repair any part of the system owned by WUC) and connection fees minus Expenses of Operations as such items are reported on the federal income tax returns of WUC on an annual basis. Additionally, in computing the Net Profits from Operation, the parties agree that Net Profits from Operations shall be determined after deduction of (1) budgeted capital improvements approved by the Board of Directors of WUC; (2) any reserves that are required and/or are prudent to be established pursuant to prudent business operating practices of a utility as approved by the Board of Directors; (3) the payment of up to One Hundred Thousand Dollars ($100,000.00) plus interest per year to litigants in Cause No. 93-01016, styled Heatherwilde III, Ltd., Williams McFarlane, Palmer Homes, Inc., Bill Palmer, Buffington Homes, Inc., Tom Buffington, Hampton Homes, Inc. and Clyde Copus vs. Windermere Utility Company, Inc., Doyle Hickerson, Joseph F. Griffith, Travis National Properties Corporation, Robert Bishop and Texas Commerce Bank-Austin, N.A.; In the 345th Judicial District Court of Travis County, Texas, in settlement of such litigation; (4) the consulting fees to SWWC set forth in the Consulting Agreement of even date herewith by and between WUC and SWWC; (5) after the payment and/or accrual of all taxes (all Federal, State and ad valorem taxes of any and all types) and (6) the management fees to RTNT set forth in the Management Agreement by and between RTNT (and/or Thom Farrell) and WUC of even date herewith. (c) "Operations" shall mean the day to day operations of and any management of the assets -1- of WUC, including, but not limited to, pumping, treating, processing, delivery, sale of water, and connecting, repairing, and constructing pipelines and other facilities to deliver water to customers. Section 2. NET PROFITS INTEREST. RTNT agrees that WUC shall pay or cause -------------------- to be paid to SWWC twenty-five percent (25%) of WUC's Net Profits from Operations by April 15 of each year for the period of the prior calendar year for so long as this Profits Agreement remains in effect. Section 3. FINANCIAL REPORTING. RTNT and SWWC agree to cause WUC to -------------------- furnish to SWWC by April 15 of each year, WUC's certification of WUC's Net Profits from Operations for the prior calendar year. SWWC shall have the right to audit the records of WUC, at SWWC's expense, during normal business hours to verify the accuracy of WUC's Net Profits from Operations. Section 4. RIGHTS IN FACILITIES. SWWC does not have, and nothing herein --------------------- contained shall be construed, to grant or to vest in SWWC title in or to the assets of WUC, nor does SWWC have any right to approve or disapprove or participate in any decision with respect to any aspect of the ownership, management, operation, financing, leasing, of WUC assets except in its capacity as a stockholder of WUC and through any directors that SWWC may elect to the Board of Directors of WUC. Section 5. NO PARTNERSHIP. Nothing contained in this Profits Agreement is --------------- intended, nor shall it be construed, to create a partnership or joint venture between the parties hereto or to render either of the parties liable or responsible for the debts or obligations of the other, including, but not limited to, interest, taxes, losses or any other liability. Section 6. NOTICE. All notices required or permitted hereunder shall be ------- in writing, and shall be deemed to be delivered when hand delivered, sent by confirmed facsimile, sent by overnight courier or five (5) days after deposit in a regularly maintained receptacle for the United States mail, registered or certified, postage fully prepaid, addressed to the party to whom such notice is directed at its address set forth below or at such other address as such party may have specified theretofore by notice in writing actually received by the other party: If to: RTNT RTNT, Inc. P.O. Box 161173 Austin, Texas 78716 Telephone No. (512) 327-0869 If to: SWWC Southwest Water Company, Inc. 225 North Baranca Avenue, Suite 200 West Covina, California 91791-1605 Telephone No. (818) 915-1551 Facsimile No. (818) 915-1558 -2- If to: WUC Windermere Utility Co., Inc. P.O. Box 161173 Austin, Texas 78716 Telephone No. (512) 327-0869 Section 7. GOVERNING LAW AND VENUE. The laws of the State of Texas and ------------------------ the United States of America shall govern the validity, enforcement and interpretation of this Profits Agreement. The obligations of the parties are performable and venue for any legal action arising out of this Profits Agreement shall lie in Travis and/or Williamson County, Texas. Section 8. INTEGRATION, MODIFICATION AND WAIVER. This Profits Agreement, ------------------------------------- together with the Equity Investment Agreement of even date herewith by and between RTNT and SWWC and the other agreements executed in connection therewith constitutes the complete and final expression of the Profits Agreement of the parties relating to SWWC's Net Profits Interest, and supersedes all previous contracts, agreements and understandings of the parties, either oral or written, relating to such subject matter. This Profits Agreement cannot be modified, nor any of the terms hereof waived, except by an instrument in writing executed by all of the parties hereto. Section 9. CONSTRUCTION. The headings which have been used throughout ------------- this Profits Agreement have been inserted for convenience of reference only and shall not be used to construe or interpret this Profits Agreement. Words of any gender used in this Profits Agreement shall be held and construed to include the plural, and vice versa, unless the context requires otherwise. The words "herein", "hereof" and "hereunder" and other similar compounds of the word "here" when used in this Profits Agreement shall refer to the entire Profits Agreement and not any particular provision or section. If the last day of any time period stated herein shall fall on a Saturday, Sunday or legal holiday, then the duration of such time period shall be extended so that it shall end on the next succeeding day which is not a Saturday, Sunday or legal holiday. Section 10. RELEASE OF PROFITS AGREEMENT. SWWC agrees that SWWC will ---------------------------- execute and deliver to WUC and RTNT a release of all SWWC's rights under this Profits Agreement, upon the earlier to occur of the following: (i) a closing of a sale of all of the stock in WUC owned by SWWC pursuant to the terms and conditions of that certain RTNT Right of First Refusal and RTNT Call Purchase Agreement of even date herewith by and between RTNT and SWWC (i.e. when and if RTNT exercises and closes on any call of WUC Stock held by SWWC); or (ii) the expiration of 30 years of the date of this Profits Agreement (the "Term"). Section 11. INVALID PROVISIONS. If any one or more of the provisions of ------------------- this Profits Agreement, or the applicability of any such provision to a specific situation, shall be held by a court of competent jurisdiction to be illegal, invalid, or unenforceable, such provision shall be modified to the minimum extent necessary to make it or its application legal, valid, and enforceable, and the validity and enforceability of all other provisions of this Profits Agreement and all other applications of any such provision shall not be affected thereby. Section 12. GOOD FAITH. Each of RTNT, WUC and SWWC agree to use good ---------- faith and fair dealing in the performance of all terms and conditions of this Profits Agreement. Section 13. ARBITRATION AGREEMENT. This Profits Agreement and the ---------------------- enforcement of all terms and conditions of this Profits Agreement shall be subject to that certain Arbitration Agreement dated as of May 23, 1996, signed by all parties to this Profits Agreement. -3- Section 14. AGREEMENT BY WUC. WUC, insofar as is necessary or proper, ----------------- consents to this Profits Agreement. EXECUTED as of the date first written above. Windermere Utility Co., Inc., a Texas corporation, By:/s/ Thomas W. Farrell --------------------- Southwest Water Company, Inc., a Delaware corporation, By:/s/Anton C. Garnier ------------------- Anton C. Garnier, President ATTEST: By:/s/Peter J. Moerbeek -------------------- Pete Moerbeek, Vice President and Secretary RTNT, Inc., a Texas corporation By:/s/ Thomas W. Farrell --------------------- Thomas Wayne Farrell, President -4- EXHIBIT D MANAGEMENT AGREEMENT -------------------- This Management Agreement ("Management Agreement") is made effective the 23 day of May, 1996, by and between Windermere Utility Co., Inc. ("WUC"), a Texas corporation, and RTNT, Inc. ("Manager"), a Texas corporation. WHEREAS, Manager is familiar with the various water and wastewater operations and actively participates in the management and operation of certain utilities which Manager owns and/or controls and/or owns an equity position in, and Manager possesses knowledge with respect to the business operations of similar operations to those of WUC; and WHEREAS, WUC desires to hire Manager to provide management services to WUC in the future; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and the parties agree as follows: 1. MANAGEMENT SERVICES. WUC hereby hires Manager as an independent ------------------- contractor, upon the terms and conditions hereinafter set forth. 2. MANAGERS AGREEMENT. Upon WUC's reasonable request, Manager agrees to ------------------ provide management services to WUC, and to share Manager's knowledge with respect to the business endeavors of WUC. The services may be provided by Manager, at Manager's option, from Manager's principal place of business or from such other places outside the offices of WUC as Manager shall reasonably designate, at such hours as Manager may reasonably designate, which hours may take place at night, or on weekends and holidays, and need not correspond to the regular business hours of WUC. 3. TERM. This Management Agreement shall expire ten (10) years from the ---- effective date hereof, and cannot be canceled or terminated during such ten (10) year term except upon the written agreement of both WUC and Manager (the "Term"). Notwithstanding the provisions hereof, should SWWC exercise its call option, close and pay RTNT for its WUC Stock pursuant to the SWWC Right of First Refusal Agreement and SWWC Call Purchase Agreement, of even date herewith, then this Management Agreement shall terminate. 4. FEE. Manager, as compensation for its continued performance under --- Paragraph 2 above, shall receive the sum of Five Thousand Dollars ($5,000.00) per month as its fee payable in arrears on the first day of business of each calendar month hereafter. 5. MANAGEMENT DUTIES. The Manager shall be responsible for (1) providing ----------------- day-to-day oversight for the office operations of WUC; (2) coordination and review of the physical management of the plant and facilities owned by WUC; (3) coordination of the consulting duties of SWWC as it relates to WUC; (4) assist SWWC in the monitoring of the operations of the facilities of WUC; (5) assistance to the operational manager of the WUC facilities in contract review of human relation matters and other customer public relations; (6) assistance in providing planning for future development in the service area of WUC and the implementation of long-term plans for development, expansion and the construction of facilities and the operations of WUC; (7) the providing of liaison between the various public entities which have input and control and regulation of the operations and the construction of facilities, the repair of facilities, and that have an impact upon the profitability of WUC; (8) the providing of and assisting in any negotiations of any contractual arrangements by WUC with suppliers, customers and developers; (9) the assistance of and providing of knowledge and expertise in the political interaction between the surrounding political jurisdictions that border the service area of WUC and the assistance in negotiations of any contractual arrangements between said jurisdictions for acquisition of or contracting of and/or the transfer of services or service areas between such entities; (10) and the -1- Negotiation with any developers within the WUC service area for the installation of and contribution of any facilities which are constructed by said developers as well as assistance before municipal planning, zoning and land use commissions of various governmental entities who have jurisdiction of such matters in the WUC service area. 6. EXPENSES. WUC and Manager agree that the fees referenced and described -------- in Paragraph 4 above do not include reimbursement for Manager's expenses incurred in performance of the services required under this Management Agreement. Additional expenses in addition to this monthly fee shall be reimbursable by WUC to Manager only if preapproved by the Board of Directors and/or approved for reimbursement by the Board of Directors after their expenditure. 7. NOTICES, WAIVERS AND OTHER GENERAL PROVISIONS. --------------------------------------------- (a) The titles of the paragraphs of this Management Agreement are for convenience only and shall not affect the interpretation of any paragraph thereof. (b) A waiver by either party hereto of any of the terms or conditions of this Management Agreement in any instance shall not be deemed or construed to be a waiver of such terms or conditions in the future, or of any subsequent breach thereof. All remedies, rights, undertakings, obligations and agreements contained in this Management Agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either party hereto. (c) Manager may not assign any portion of its duties or obligations hereunder except with the prior written approval of WUC; provided however, Manager may merge or consolidate with another entity. (d) All notices given hereunder shall be given in writing, either by personal delivery, confirmed facsimile or by certified mail, to the following addresses of the parties hereto, or to such other address or addresses as may hereinafter be designated in writing by either party for the receipt of such notices in the future: If to Manager: Thomas W. Farrell RTNT, Inc. 3223 Park Hills Drive Austin, Texas 78746 FAX: (512) 327-0869 If to WUC: Windermere Utility Co., Inc. FAX: Notices given by mail shall be deemed given five (5) days after the date of mailing thereof. (e) The parties hereto agree to execute all other such documents as may be reasonably required to effectuate the provisions hereof. (f) This Management Agreement has been made and executed in the State of Texas and shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America. (g) This Management Agreement constitutes the entire agreement of the parties with respect to the subject matter herein contained, and cannot be changed or terminated orally except by written agreement -2- executed by the parties. 8. This Management Agreement may be executed in counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 9. This Management Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Texas and the applicable laws of the United States of America. IN WITNESS WHEREOF, Manager and WUC have executed this Management Agreement as of the date first written above. WINDERMERE UTILITY CO., INC., a Texas corporation, By: /s/ THOMAS W. FARRELL ---------------------------------------------- Thomas W. Farrell, President RTNT, Inc., a Texas corporation By: /s/ THOMAS W. FARRELL ----------------------------------------------- Thomas W. Farrell, President -3- SWWC RIGHT OF FIRST REFUSAL AGREEMENT AND ----------------------------------------- SWWC CALL PURCHASE AGREEMENT ---------------------------- This SWWC Right of First Refusal Agreement and SWWC Call Purchase Agreement (the "SWWC Call Agreement") is by and between RTNT, Inc. a Texas corporation ("RTNT"), and Southwest Water Company, Inc., a Delaware corporation ("SWWC"). RECITALS: WHEREAS, SWWC has agreed to make an investment of Three Million Dollars ($3,000,000.00) in Windermere Utility Company, Inc. ("WUC") upon the terms and conditions set forth in an Equity Investment Agreement of even date herewith (the "Equity Agreement"), and RTNT has agreed to grant to SWWC a right to purchase all of RTNT's shares of capital stock of WUC now owned or hereafter acquired by RTNT (the "RTNT WUC Stock"); and WHEREAS, RTNT and SWWC desire to set forth their understanding regarding any sale, transfer or assignment of the Stock or any portion thereof by RTNT; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereby agree as follows: 1. Restriction on RTNT Stock. RTNT shall not sell, transfer, assign or -------------------------- otherwise dispose of the RTNT WUC Stock or any portion thereof to any person or entity for a period of thirty-six (36) months from the date hereof. RTNT shall not create, permit, or suffer to exist, and shall defend the RTNT WUC Stock against any lien, security interest, or other encumbrance on the RTNT WUC Stock and shall defend RTNT"s right in the RTNT WUC Stock against the claims of any persons and entities during the term of this SWWC Call Agreement. This restriction shall be typed upon the Stock Certificates of WUC by RTNT and it shall read as follows: "These shares of Windermere Utility Co., Inc. shall not be sold, assigned, pledged, encumbered or otherwise disposed of except as provided in that certain SWWC Call Purchase Agreement dated May __, 1996 by and between RTNT and Southwest Water Company, Inc." 2. Call by SWWC. SWWC shall have, for the period beginning on the day ------------- after the second anniversary date of this SWWC Call Agreement and ending on the third anniversary date of this SWWC Call Agreement, the right to require RTNT to sell all of the RTNT WUC Stock it owns in WUC at that time. The purchase price for the sale of for all the RTNT WUC Stock that is initiated (under the closing procedure set out below) within the period set out above shall be the lesser of (1) One Million Eight Hundred Eleven Thousand Dollars ($1,811,000.00) or (2) the Appraised Value of the RTNT WUC Stock. For purposes of the appraisal of the RTNT WUC Stock, the appraisal shall be conducted by a qualified appraiser agreeable to SWWC and RTNT. In the event RTNT and SWWC can not agree upon a qualified appraiser, then the qualified appraiser shall be chosen by the -1- two parties pursuant to the procedure set out in the RTNT and SWWC Arbitration Agreement. (a) If SWWC desires to exercise its right to purchase all the RTNT WUC Stock, SWWC shall notify RTNT in writing of its offer ("Call Offer") to purchase all the RTNT WUC Stock at the price and upon the terms and conditions as set out in this SWWC Call Agreement. (b) The Call Offer exercise shall be sent to RTNT by hand delivery, confirmed fax or U.S. mail, return receipt requested, and shall set forth: (i) That SWWC desires to purchase all of the RTNT WUC Stock and a list of documentation which is reasonably necessary to close the purchase pursuant to the Call Offer; and (ii) The address for closing and the date of the prospective purchase, which date shall not be more than sixty (60) days following the date of such notice; and (iii) The name of the Escrow Agent and/or Transfer Agent who shall act as Escrow Agent to facilitate the purchase. The Escrow Agent shall be a law firm of more than three members and/or Bank Trust department, and/or a Title Company and/or a licensed Trust Company and/or a licensed Stock Brokerage firm. (c) Within sixty (60) days after the receipt of such Call Offer, RTNT shall deliver to the Escrow Agent the shares of Stock along with executed stock powers with signatures guaranteed and such other documents which are reasonably necessary for the stock to be transferred pursuant to the Call Offer. (d) The purchase price shall be tendered at closing in U.S. Dollars in cash; cashier's check; wire transfer of funds; or, other means of transfer of "good" funds in U.S. Dollars. 3. Offer to RTNT. RTNT shall after such thirty-six (36) month period -------------- not sell, transfer, assign or otherwise dispose of the RTNT WUC Stock or any portion thereof to any person and/or entity except as provided herein. (a) If RTNT desires to sell, transfer or assign the RTNT WUC Stock or any portion thereof to any person, RTNT shall first make a written offer (the "Offer") to sell the Stock thereof to SWWC at the same price and upon the same terms and conditions as the proposed sale of the Stock or such portion thereof. (b) The Offer shall be sent to SWWC by hand delivery, confirmed fax or U.S. mail, return receipt requested, and shall set forth: (i) The portion of the RTNT WUC Stock that RTNT desires to sell; (ii) The name and address of the prospective purchaser; (iii) The terms and conditions of the proposed sale, including the price to be paid by the prospective purchaser; and (iv) An offer to sell and transfer the Stock that is the subject of the Offer to SWWC upon the same terms and conditions. (c) Within twenty (20) days after the receipt of such Offer, SWWC may, at its option, elect to purchase upon the same terms and conditions as the proposed transaction, all, but not less than all, of the portion of the Stock offered. SWWC shall exercise its election to purchase by giving written notice thereof to RTNT. (d) If, at the end of the twenty (20) day option period, SWWC has not elected to purchase the portion of the RTNT WUC Stock offered, RTNT may sell such portion of the RTNT WUC Stock to the prospective purchaser named in the Offer, on the terms and conditions set forth in the Offer. (e) The closing of the purchase of any portion of the RTNT WUC Stock by SWWC as provided herein shall be within sixty (60) days after expiration of the twenty (20) day option period or at such other time and place as the parties may agree. (f) The purchase price and terms for the purchase of any portion of the Stock by SWWC shall be the same as those of the proposed transaction set forth in the Offer. If the consideration to be furnished in any proposed transaction is other than money or promissory notes, then SWWC may, for the purposes of this SWWC Call Agreement, be deemed to meet the purchase price to RTNT by paying in cash the fair market value of the other consideration proposed to be furnished to RTNT in the proposed transaction. The determination of the fair market value of said other consideration shall be as reasonably determined by RTNT. If SWWC disagrees with any such determination, the fair market value of said other consideration shall be determined by a third party appraiser acceptable to the parties. 4. RTNT Call Agreement. The provisions of Paragraphs 1, 2 and 3 above ------------------- have no further effect if RTNT within the first twenty-four (24) month period following the date of this SWWC Call Agreement exercises its right to call upon SWWC to sell all of its Stock in WUC pursuant to the RTNT Right of First Refusal Agreement and RTNT Call Purchase Agreement of even date herewith and closes and funds said purchase. Further, SWWC shall, notwithstanding anything herein to the contrary, have the right to exercise its option to acquire nine percent (9%) of the issued and outstanding RTNT WUC Stock from RTNT on such terms as set out in the Equity Agreement. -3- 5. Transferees Not Bound. If SWWC shall not have timely exercised its ---------------------- right of first refusal on any of the RTNT WUC Stock as contained herein, then the transferee or assignee of such Stock, or any portion thereof, regardless of the method by which the transferee or assignee acquired the Stock or any portion thereof, shall thereafter not be bound by the terms of this Agreement. 6. Agreement by WUC. WUC, insofar as is proper or required, consents ----------------- to this SWWC Call Agreement. In the event WUC is unable to consent to this SWWC Call Agreement prior to acquisition of the WUC Stock by RTNT and SWWC, the parties agree to cause WUC to ratify this SWWC Call Agreement at the earliest possible time and to require the Secretary of WUC to place the restriction upon the Stock Certificate. 7. Entire Agreement. This SWWC Call Agreement, the RTNT Call ----------------- Agreement, and the Equity Agreement and the documents referred to therein, (a) constitute the entire agreement among the parties and supersede all prior agreements and understanding, both written and oral, among the parties with respect to the subject matter hereof, (b) may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument, (c) except as expressly set forth herein, shall inure to the benefit of, and be binding upon, the successors, assigns, legal representatives, administrators and heirs of each party and are not intended to confer upon any person, other than the parties and their successors, assigns, legal representatives, administrators and heirs any rights or remedies hereunder, and (d) shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Texas. The captions in this SWWC Call Agreement are for convenience of reference only and shall not affect its interpretation in any respect. 8. Notice. Any notice, consent or communication required or permitted ------- to be given under this SWWC Call Agreement must be in writing and delivered to a person or by confirmed facsimile or by registered or certified mail, return receipt requested, postage prepaid, addressee restricted as follows:
TO: RTNT, Inc. P.O. Box 161173 Austin, Texas 78716 TEL NO.: (512) 327-0869 FAX: (512) 327-0869 TO: Southwest Water Company 225 North Barranca Avenue, Suite 200 West Covina, California 91791-1605 TEL NO.: (818) 915-1551 FAX: (818) 915-1558
ANY SUCH NOTICE, CONSENT OR OTHER COMMUNICATION SHALL BE DEEMED GIVEN -4- WHEN DELIVERED IN PERSON OR SENT BY CONFIRMED FACSIMILE OR IF MAILED, FIVE (5) DAYS AFTER MAILING. 9. Unenforceability. Any provision of this SWWC Call Agreement which ---------------- is prohibited or is unenforceable in any jurisdiction, as to such jurisdiction be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this SWWC Call Agreement and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10. Arbitration. This SWWC Call Agreement shall be subject to the RTNT ------------ and SWWC Arbitration Agreement of even date herewith. 11. Successors and Assigns. This SWWC Call Agreement shall be binding ----------------------- upon and insure to the benefit of SWWC and RTNT and their respective successors, representatives and assigns. Executed as of the 23 day of May, 1996. RTNT, INC., a Texas corporation By: /s/ THOM W. FARRELL ----------------------------------- Thom W. Farrell, President SOUTHWEST WATER COMPANY, a Delaware corporation By: /s/ ANTON C. GARNIER ------------------------------------ Anton C. Garnier, President ATTEST: /s/ PETER J. MOERBEEK ----------------------------- Peter Moerbeek, Vice President and Secretary -5- RTNT RIGHT OF FIRST REFUSAL AGREEMENT AND ----------------------------------------- RTNT CALL PURCHASE AGREEMENT ---------------------------- This RTNT Call Purchase Agreement (the "RTNT Call Agreement") is by and between RTNT, Inc., a Texas corporation ("RTNT"), and Southwest Water Company, Inc., a Delaware corporation ("SWWC"). RECITALS: WHEREAS, SWWC has agreed to make an investment of Three Million Dollars ($3,000,000.00) in Windermere Utility Co., Inc. ("WUC") upon the terms and conditions set forth in a Equity Investment Agreement of even date herewith (the "Equity Agreement"), and SWWC has agreed to grant to RTNT a right to purchase all of SWWC's shares of capital stock of WUC now owned or hereafter acquired by SWWC (the "SWWC WUC Stock"); and WHEREAS, RTNT and SWWC desire to set forth their understanding regarding any sale, transfer or assignment of the SWWC WUC Stock or any portion thereof by SWWC; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereby agree as follows: 1. Restriction on SWWC Stock. SWWC shall not sell, transfer, assign or ------------------------- otherwise dispose of the SWWC WUC Stock or any portion thereof to any person and/or entity for a period of twenty-four (24) months from the date hereof plus the period of closing which may be required pursuant to this RTNT Call Agreement for RTNT to close the purchase of the SWWC WUC Stock upon which it exercises its right to purchase within said twenty-four (24) month period. SWWC shall not create, permit, or suffer to exist, and shall defend the SWWC WUC Stock against any lien, security interest, or other encumbrance on the SWWC WUC Stock and shall defend SWWC's rights in the SWWC WUC Stock against the claims of all persons and entities. This restriction shall be typed upon the Stock Certificates of WUC held by SWWC and during the term of this RTNT Call Agreement it shall read as follows: "These shares of Windermere Utility Co., Inc. shall not be sold, assigned, pledged, encumbered or otherwise disposed of except as provided in that certain "RTNT Right of First Refusal Agreement and RTNT Call Purchase Agreement" dated May __, 1996 by and between RTNT, Inc. and Southwest Water Company, Inc." Notwithstanding the provisions regarding the restriction on the SWWC WUC Stock as set out above, SWWC shall be allowed to pledge the WUC Stock it acquires (whether acquired in the original transaction of even date herewith, the option stock wherein SWWC requires any additional stock or otherwise) to secure or refinance any financing to make the acquisition of said WUC Stock. Any pledge of the WUC Stock owned by SWWC shall -1- however be subject to the call by RTNT under this Agreement. Any pledge of the WUC Stock shall specifically state that it can be released in the first twelve (12) months for the $3,600,000.00 call amount and in the thirteenth (13th) through twenty-fourth (24th) month for the $3,720,000.00 call amount as set out in Paragraph 2 below. 2. Call by RTNT. RTNT shall have, for a period of twenty-four (24) months ------------- from the date hereof, the right to require SWWC to sell all of the SWWC WUC Stock to it. The purchase price for a sale that is initiated (under the closing procedure set out below) within the first three hundred sixty five (365) days after the date hereof shall be Three Million Six Hundred Thousand Dollars ($3,600,000.00) and the purchase price for a sale that is initiated (under the closing procedures set out below) within the period beginning on the 366th day and ending on the 730th day after the date hereof shall be Three Million Seven Hundred Twenty Thousand Dollars ($3,720,000.00). (a) If RTNT desires to exercise its right to purchase all the SWWC WUC Stock, RTNT shall notify SWWC in writing of its offer ("Offer") to purchase all SWWC WUC Stock at the price and upon the terms and conditions as set out in this RTNT Call Agreement. (b) The Offer shall be sent to SWWC by hand delivery, confirmed fax or U.S. mail, return receipt requested, and shall set forth: (i) That RTNT desires to purchase all of the SWWC WUC Stock and a list of documentation which is reasonably necessary to close the purchase pursuant to the Offer; and, (ii) The address for closing and the date of the prospective purchase, which date shall not be more than sixty (60) days following the date of such notice; and, (iii) The name of the Escrow Agent and/or Transfer Agent who shall act as Escrow Agent to facilitate the purchase. The Escrow Agent shall be a law firm of more than three members and/or Bank Trust department, and/or a Title Company and/or a licensed Trust Company and/or a licensed Stock Brokerage firm. (c) Within sixty (60) days after the receipt of such Offer, SWWC shall deliver to the Escrow Agent the shares of SWWC WUC Stock along with executed stock powers with signatures guaranteed and such other documents which are reasonably necessary for the stock to be transferred pursuant to the Offer. -2- (d) The purchase price shall be tendered at closing in U.S. Dollars in cash; cashier's check; wire transfer of funds; or, other means of transfer of "good" funds in U.S. Dollars. 3. Transferees Not Bound. If RTNT shall not have timely exercised its right ---------------------- to call the SWWC WUC Stock as contained herein, then the transferee or assignee of such SWWC WUC Stock, or any portion thereof, regardless of the method by which the transferee or assignee acquired the SWWC WUC Stock or any portion thereof, shall thereafter not be bound by the terms of this RTNT Call Agreement. 4. Agreement by WUC. WUC, insofar as is proper or required, consents to ----------------- this Agreement. In the event WUC is unable to consent to this RTNT Call Agreement prior to acquisition of the WUC Stock by RTNT and SWWC, the parties agree to cause WUC to ratify this RTNT Call Agreement at the earliest possible time and to require the Secretary of WUC to place the restriction upon the SWWC WUC Stock certificates. 5. Offer to SWWC In the period following the expiration of twenty-four (24) ------------- months from the date hereof, RTNT shall have a Right of First Refusal as set out below. SWWC shall after the expiration of such twenty-four (24) month period from the effective date hereof not sell, transfer, assign or otherwise dispose of the SWWC WUC Stock or any portion thereof to any person and/or entity except as provided herein. (a) If SWWC desires to sell, transfer or assign the SWWC WUC Stock or any portion thereof to any person, SWWC shall first make a written offer (the "Offer") to sell the SWWC WUC Stock or such portion thereof to RTNT at the same price and upon the same terms and conditions as the proposed sale of the SWWC WUC Stock or such portion thereof. (b) The Offer shall be sent to RTNT by hand delivery, confirmed fax or U.S. mail, return receipt requested, and shall set forth: (i) The portion of the SWWC WUC Stock that SWWC desires to sell; (ii) The name and address of the prospective purchaser; (iii) The terms and conditions of the proposed sale, including the price to be paid by the prospective purchaser; and (iv) An offer to sell and transfer the portion of the SWWC WUC Stock that is the subject of the Offer to RTNT upon the same terms and conditions . -3- (c) Within sixty (60) days after the receipt of such Offer, RTNT may, at its option, elect to purchase upon the same terms and conditions as the proposed transaction, all, but not less than all, of the portion of the SWWC WUC Stock offered. RTNT shall exercise its election to purchase by giving written notice thereof to SWWC. (d) If, at the end of the sixty (60) day option period, RTNT has not elected to purchase the portion of the SWWC WUC Stock offered, SWWC may sell such portion of the SWWC WUC Stock to the prospective purchaser named in the Offer, on the terms and conditions set forth in the Offer. (e) The closing of the purchase of any portion of the SWWC WUC Stock by RTNT as provided herein shall be on the fifth business day after expiration of the sixty (60) day option period or at such other time and place as the parties may agree. (f) The purchase price and terms for the purchase of any portion of the SWWC WUC Stock by RTNT shall be the same as those of the proposed transaction set forth in the Offer. If the consideration to be furnished in any proposed transaction is other than money or promissory notes, then RTNT may, for the purposes of this Agreement, be deemed to meet the purchase price to SWWC by paying in cash the fair market value of the other consideration proposed to be furnished to SWWC in the proposed transaction. The determination of the value of said other consideration shall be as reasonably determined by SWWC. If RTNT disagrees with any such determination, the fair market value of said other consideration shall be determined by a third party appraiser acceptable to the parties. 6. Miscellaneous. This RTNT Call Agreement, the SWWC Call Agreement and -------------- the Equity Agreement and the documents referred to therein (a) constitute the entire agreement and supersede all prior agreements and understanding, both written and oral, among the parties with respect to the subject matter hereof, (b) may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument, (C) except as expressly set forth herein, shall inure to the benefit of, and be binding upon, the successors, assigns, legal representatives, administrators and heirs of each party and are not intended to confer upon any person, other than the parties and their successors, assigns, legal representatives, administrators and heirs any rights or remedies hereunder, and (d) shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Texas. The captions in this RTNT Call Agreement are for convenience of reference only and shall not affect its interpretation in any respect. 7. Notice. Any notice, consent or communication required or permitted to be ------- given under this RTNT Call Agreement must be in writing and delivered to a person or by confirmed facsimile or by registered or certified mail, return receipt requested, postage prepaid, addressee restricted as follows: -4- TO: RTNT, Inc. P.O. Box 161173 Austin, Texas 78716 TEL NO.: (512) 327-0869 FAX: (512) 327-0869 TO: Southwest Water Company 225 North Barranca Avenue, Suite 200 West Covina, California 91791-1605 TEL NO.: (818) 915-1551 FAX: (818) 915-1558 ANY SUCH NOTICE, CONSENT OR OTHER COMMUNICATION SHALL BE DEEMED GIVEN WHEN DELIVERED IN PERSON OR SENT BY CONFIRMED FACSIMILE OR IF MAILED, FIVE (5) DAYS AFTER MAILING. 8. Unenforceability. Any provision of this RTNT Call Agreement which is ---------------- prohibited or is unenforceable in any jurisdiction, as to such jurisdiction be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this RTNT Call Agreement and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9. Successors and Assigns. This RTNT Call Agreement shall be binding upon ----------------------- and inure to the benefit of RTNT and SWWC and their respective successors, representatives and assigns. Executed as of the 23 day of May, 1996. -- RTNT, INC., a Texas corporation By: /s/ THOM W. FARRELL ------------------------------ Thom W. Farrell, President SOUTHWEST WATER COMPANY, a Delaware corporation By: /s/ ANTON C. GARNIER -------------------------------- Anton C. Garnier, President and Chief Executive Officer -5- ATTEST: /s/ PETER J. MOERBEEK ----------------------------- Peter Moerbeek, Vice President and Secretary -6- EX-27 6 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 837,000 0 10,506,000 485,000 0 13,668,000 118,684,000 33,424,000 107,649,000 26,673,000 19,600,000 0 517,000 26,000 28,768,000 107,649,000 0 31,427,000 0 29,411,000 47,000 113,000 1,354,000 756,000 318,000 438,000 0 0 0 438,000 0.16 0.16
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